NEMA Submits Comments to FERC on Rate Incentives for Transmission Investment

ROSSLYN, Va., February 2, 2006: NEMA recently submitted comments on the Federal Energy Regulatory Commission Notice of Proposed Rulemaking (NOPR) on incentives for transmission investment. The association was one of was one of about 80 entities, including utilities, state regulators, technology developers, financial institutions, and trade associations representing many of these, that commented. The resulting rule will implement Sections 1223, Advanced Transmission Technologies, and 1241, Transmission Infrastructure Investment, of the Energy Policy Act of 2005 (EPAct 2005). NEMA drafted both of these provisions in 2001 and shepherded them through the four-year legislative process.

In the comments, NEMA agreed that the transmission system has experienced significant underinvestment for decades, but that EPAct 2005 provides a unique opportunity to reverse the trend.

NEMA noted that while the FERC-proposed rule on mandatory transmission reliability standards addresses operational reliability of the existing system, it does not address adequate future transmission capacity. Consequently, NEMA felt capacity must be covered in the rate incentive rulemaking.

NEMA agreed with FERC that there may be administrative regulatory steps that could be taken (for example, ensuring that incentive rates, once approved, cannot be reopened for a period of time absent compelling circumstances) to reduce the reluctance of transmission companies to seek rate relief. The association also agreed that incentive-based rate measures enumerated in the NOPR should be in the rule.

NEMA agreed that the proposed incentives discussed in the NOPR, including return on equity-based incentives, will help to stimulate investment in new transmission facilities. But the association did not believe that the deployment of innovative technologies for transmission facilities will necessarily follow. If rate incentives are only applied to assure cost recovery, then there is no incentive to install advanced technology because there is no consideration of risk and reward, NEMA commented. Rate incentives must go beyond cost recovery; rates to encourage advanced technology can be a vehicle to accelerate the evolution toward the "smart grid" of the future, NEMA said.

NEMA is the leading trade association in the United States representing the interests of electroindustry manufacturers. Founded in 1926 and headquartered near Washington, D.C., its approximately 430 member companies manufacture products used in the generation, transmission and distribution, control, and end-use of electricity. Domestic shipments of electrical products within the NEMA scope exceed $100 billion.

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