FERC Order Signals Tightening of Incentive Rates for Electric Transmission

On October 14, 2011, the Federal Energy Regulatory Commission ("FERC") issued an order approving in part and rejecting in part the rate incentives sought by RITELine Illinois, LLC and RITELine Indiana, LLC (jointly, the "RITELine Companies") for their Reliability Interregional Transmission Extension Project ("RITELine Project"), a proposed 420-mile, 765 kV electric transmission project designed to serve new wind generation resources that would extend from the Indiana/Ohio border, through Indiana, and into Illinois. In a strongly worded dissent, Commissioner Philip Moeler complained that "[n]ow is not the time for this Commission to begin retreating from its incentive policy on needed transmission lines." This Client Update summarizes the salient aspects of FERC's order that may be of concern to anyone developing an electric transmission project.

Eligibility for Incentive Rate Treatment

FERC noted that the RITELine Project is not entitled to FERC's rebuttal presumption that the project satisfies the incentive rate eligibility requirement under Section 219 of the Federal Power Act ("FPA") because the project has not been approved in PJM Interconnection's ("PJM") regional planning process and has not received siting approval from the state siting authorities. FERC further determined that RITELine failed to adequately demonstrate that it would ensure reliability or reduce delivered power costs by reducing congestion because:

(i) the claimed congestion reductions were predicated on the addition of 5,000 MW of wind generation that might not get built; (ii) The RITELine Companies failed to provide the basis for certain modeling assumptions made in its congestion study regarding the amounts, types and location of new renewable resources; and (iii) PJM's regional transmission expansion plan ("RTEP") process is working on the reliability issues the RITELine Companies raised and may be able to resolve them before the RITELine Project is completed. Nonetheless, FERC approved incentive rate treatment for the project, but it was conditioned upon the RITELine Project being included in PJM's RTEP as a project that will ensure reliability or reduce the cost of delivered power by reducing congestion.

Order No. 679 Nexus Requirement

FERC found that the RITELine Companies met the Order No. 679 test for sufficiently demonstrating a nexus between the substantial risks and challenges that they are undertaking and the incentives requested. FERC highlighted the...