141 FERC ¶ 61,129

UNITED STATES OF AMERICA

FEDERAL ENERGY REGULATORY COMMISSION

18 CFR Parts 2 and 35

[Docket No. RM11-26-000]

Promoting Transmission Investment Through Pricing Reform

(Issued November 15, 2012)

AGENCY: Federal Energy Regulatory Commission.

ACTION: Policy Statement. 

SUMMARY: The Commission issues this policy statement to provide guidance 

regarding its evaluation of applications for electric transmission incentives under section 

219 of the Federal Power Act. In the six years since the Commission implemented 

section 219 by issuing Order No. 679, the Commission has acted on numerous 

applications for transmission incentives. The Commission has now determined it would 

be beneficial to provide additional guidance and clarity with respect to certain aspects of 

its transmission incentives policies under section 219 of the Federal Power Act and Order 

No. 679. In particular, the Commission: reframes its nexus test to focus more directly on 

the requirements of Order No. 679; expects applicants to take all reasonable steps to 

mitigate the risks of a project, including requesting those incentives designed to reduce 

the risk of a project, before seeking an incentive return on equity (ROE) based on a 

project’s risks and challenges; provides general guidance that may inform applications 

for an incentive ROE based on a project’s risks and challenges; and promotes additional 

transparency with respect to the impacts of the Commission’s incentives policies. The 
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Commission finds that the additional guidance provided through this policy statement is

necessary to encourage transmission infrastructure investment while maintaining just and 

reasonable rates, consistent with section 219 of the Federal Power Act. The Commission 

will apply this policy statement on a prospective basis to incentive applications received 

after the date of its issuance.

FOR FURTHER INFORMATION CONTACT:

David Borden

Office of Energy Policy and Innovation

888 First Street, NE

Washington, DC 20426

(202) 502-8734

david.borden@ferc.gov

Andrew Weinstein

Office of General Counsel

888 First Street, NE

Washington, DC 20426

(202) 502-6230

andrew.weinstein@ferc.gov
141 FERC ¶ 61,129

UNITED STATES OF AMERICA

FEDERAL ENERGY REGULATORY COMMISSION

Before Commissioners: Jon Wellinghoff, Chairman;

 Philip D. Moeller, John R. Norris,

 and Cheryl A. LaFleur.

Promoting Transmission Investment

Through Pricing Reform

Docket No. RM11-26-000

POLICY STATEMENT

(Issued November 15, 2012)

1. The Commission issues this policy statement to provide guidance regarding its 

evaluation of applications for electric transmission incentives under section 219 of the 

Federal Power Act (FPA).

1

 In the six years since the Commission implemented section 

219 by issuing Order No. 679,2 the Commission has acted on numerous applications for 

transmission incentives. The Commission has now determined it would be beneficial to 

provide additional guidance and clarity with respect to certain aspects of its transmission 

incentives policies under section 219 of the Federal Power Act and Order No. 679. In 

particular, the Commission: reframes the nexus test to focus more directly on the 

requirements of Order No. 679; expects applicants to take all reasonable steps to mitigate 

 1 16 U.S.C. § 824s (2006).

2 Promoting Transmission Investment through Pricing Reform, Order No. 679, 71 

FR 43294 (Jul. 31, 2006), FERC Stats. & Regs. ¶ 31,222 (2006), order on reh’g, Order 

No. 679-A, 72 FR 1152 (Jan. 10, 2007), FERC Stats. & Regs. ¶ 31,236, order on reh’g, 

119 FERC ¶ 61,062 (2007). 
- 2 -

the risks of a project, including requesting those incentives designed to reduce the risk of 

a project, before seeking an incentive return on equity (ROE) based on a project’s risks 

and challenges; provides general guidance that may inform applications for an incentive 

ROE based on a project’s risks and challenges; and promotes additional transparency 

with respect to the impacts of the Commission’s incentives policies. The Commission 

finds that the additional guidance provided through this policy statement is necessary to 

encourage transmission infrastructure investment while maintaining just and reasonable 

rates, consistent with section 219 of the FPA. The Commission will apply this policy 

statement on a prospective basis to incentive applications received after the date of its 

issuance.

I. Background 

2. Section 1241 of the Energy Policy Act of 2005 added a new section 219 to the 

FPA. The Commission implemented section 219 by issuing Order No. 679, which 

established by rule incentive-based rate treatments for investment in electric transmission 

infrastructure for the purpose of benefiting consumers by ensuring reliability and 

reducing the cost of delivered power by reducing transmission congestion. Since the 

issuance of Order No. 679, the Commission has evaluated more than 85 applications 

representing over $60 billion in potential transmission investment.

3. On May 19, 2011, the Commission issued a notice of inquiry (NOI) seeking 

public comment regarding the scope and implementation of the Commission’s incentives 

policies. The Commission received over 1,500 pages of comments reflecting a wide 

range of perspectives on the Commission’s incentives policies. The Commission 
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appreciates the robust participation by the diverse group of commenters, and has

carefully considered the comments received in formulating this policy statement. The 

Commission’s issuance of this policy statement is driven by its experience applying its 

incentives policies to individual incentive applications and comments received in 

response to the NOI. 

II. Policy Statement

4. As noted above, the Commission through this policy statement provides 

additional guidance with respect to certain aspects of its incentives policies. Specifically, 

the Commission: reframes the nexus test to focus more directly on the requirements of 

Order No. 679; expects applicants to take all reasonable steps to mitigate the risks of a 

project, including requesting those incentives designed to reduce the risk of a project, 

before seeking an incentive ROE based on a project’s risks and challenges; provides 

general guidance that may inform applications for an incentive ROE based on a project’s 

risks and challenges; and promotes additional transparency with respect to the impacts of 

the Commission’s incentives policies. Each of these issues and the Commission’s 

corresponding clarifications are discussed further below.

5. We note that many aspects of the Commission’s incentives policies are not 

addressed in this policy statement. For example, in Order No. 679, the Commission 

stated that applicants could seek incentives thereunder regardless of their ownership 
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structure,3 and that the Commission would evaluate incentive applications on a case-bycase basis.

4

 The Commission also established rebuttable presumptions to assist in 

determining whether proposed facilities satisfy the statutory threshold of section 219.

5

 In 

Order No. 679 and subsequent cases applying incentives policies, the Commission has

addressed the granting of incentive ROEs that are not based on the risks and challenges 

of a project, such as incentive ROEs for RTO membership or Transco formation. With 

respect to aspects of the Commission’s incentives policies not addressed in this policy 

statement, we decline to provide additional guidance at this time. 

A. Application of the Nexus Test

6. Order No. 679 established the “nexus test,” which requires applicants to 

demonstrate a connection between the incentive(s) requested under Order No. 679 and 

the proposed investment, and that the incentive(s) requested address the risks and 

challenges that a project faces. In Order No. 679, the Commission stated that each 

incentive:

“...will be rationally tailored to the risks and challenges faced in constructing new 

transmission. Not every incentive will be available for every new investment. 

Rather, each applicant must demonstrate that there is a nexus between the 

incentive sought and the investment being made. Our reforms therefore continue 

 3 Order No. 679, FERC Stats. & Regs. ¶ 31,222 at P 4. Section 219(b)(1) requires 

that the Commission establish rules for incentives, “...regardless of the ownership of the 

facilities.” 16 U.S.C. § 824s(b)(1). 

4 Order No. 679, FERC Stats. & Regs. ¶ 31,222 at P 43.

5 Id. P 58.
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to meet the just and reasonable standard by achieving the proper balance between 

consumer and investor interests on the facts of a particular case and considering 

the fact that our traditional policies have not adequately encouraged the 

construction of new transmission.”6

7. The Commission refined the nexus test in Order No. 679-A, finding that, in 

applying the nexus test, the Commission should look at whether the total package of 

incentives is rationally tailored to the risks and challenges of constructing new 

transmission.7

 The Commission stated that this approach would protect consumers by 

recognizing that requested incentives that reduce risk might obviate the need for an 

incentive ROE based on a project’s risks and challenges, or otherwise justify a lower 

incentive ROE based on a project’s risks and challenges. 

8. Subsequent to Order No. 679 and Order No. 679-A, the Commission further 

refined its application of the nexus test by clarifying that the determination of whether a 

project is “routine” or “non-routine” is particularly probative in evaluating whether the 

nexus test was satisfied. In Baltimore Gas and Electric Company, the Commission 

 6 Id. P 26.

7 Order No. 679-A, FERC Stats. & Regs. ¶ 31,236 at P 27. See also 18 C.F.R. 

§ 35.35(d) (2006) (“Incentive-based rate treatments for transmission infrastructure 

investment. ... The applicant must demonstrate that the facilities for which it seeks 

incentives either ensure reliability or reduce the cost of delivered power by reducing 

transmission congestion consistent with the requirements of section 219, that the total 

package of incentives is tailored to address the demonstrable risks or challenges faced by 

the applicant in undertaking the project, and that resulting rates are just and 

reasonable....”)
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concluded that, once an applicant demonstrates that a project is not routine, the nexus test 

is satisfied and the project is deemed to face risks and challenges that merit incentive(s).

8

9. The Commission recognizes that there are a wide range of views on its

application of the nexus test and, in particular, the Commission’s use of the routine/nonroutine analysis as a proxy for the nexus test. Most commenters in the NOI are 

supportive of the nexus test’s focus on evaluating risks and challenges to determine 

whether a project merits incentives. Some commenters offer additional criteria for 

assessing risks and challenges, while others are more critical of the nexus test and assert 

that it is insufficient and requires change. With respect to the Commission’s use of the 

routine/non-routine analysis in reviewing incentive applications since BG&E, some 

commenters support the continued use of the routine/non-routine analysis, while others 

seek more clarity from the Commission. 

10. Based on experience to date with the application of Order No. 679, the 

Commission now believes it is essential to re-frame its application of the nexus test to 

focus more directly on the requirements adopted in Order Nos. 679 and 679-A.

9

 The 

Commission will no longer rely on the routine/non-routine analysis adopted in BG&E as 

a proxy for the nexus test. While prior orders found that analysis probative, based on our 

experience to date applying our incentives policies and the comments received in 

 8 120 FERC ¶ 61,084, at PP 52-54 (2007) (BG&E).

9 18 C.F.R. § 35.35(d).
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response to the NOI, we believe it is necessary to analyze the need for each individual 

incentive, and the total package of incentives, instead of relying on a proxy. Consistent 

with Order No. 679-A, the Commission will continue to require applicants seeking 

incentives to demonstrate how the total package of incentives requested is tailored to 

address demonstrable risks and challenges. Applicants “must provide sufficient 

explanation and support to allow the Commission to evaluate each element of the 

package and the interrelationship of all elements of the package. If some of the 

incentives would reduce the risks of the project, that fact will be taken into account in any 

request for an enhanced ROE.”10 

B. Risk-Reducing Incentives

11. The Commission authorizes a company’s base ROE utilizing a range of 

reasonableness resulting from a discounted cash flow (DCF) analysis that is applied to a 

selected proxy group representing firms of comparable risk. The resulting base ROE

authorized by the Commission is designed to account for many of the risks associated 

with transmission investment and to support that investment. Nonetheless, the 

Commission recognizes that there may be risks associated with investment in particular 

transmission projects that are not accounted for in the base ROE. In Order No. 679, the 

Commission recognized that some transmission incentives – such as recovery of 100

percent of Construction Work in Progress (CWIP), recovery of 100 percent of pre-

 10 Order No. 679-A, FERC Stats. & Regs. ¶ 31,236 at P 27.
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commercial costs as an expense or as a regulatory asset, and recovery of 100 percent of 

prudently incurred costs of transmission facilities that are abandoned for reasons beyond 

the applicant’s control – reduce the financial and regulatory risks associated with 

transmission investment.11 The Commission reaffirms in this policy statement that these 

risk-reducing incentives may mitigate risk not accounted for in the base ROE, and we 

therefore expect incentives applicants to first examine the use of risk-reducing incentives 

before seeking an incentive ROE based on a project’s risks and challenges.

12

12. The CWIP and pre-commercial cost incentives both serve as useful tools to ease 

the financial pressures associated with transmission development by providing up-front 

regulatory certainty, rate stability and improved cash flow, which in turn can result in 

higher credit ratings and lower capital costs.13 Specifically, the CWIP incentive 

addresses timing issues associated with the recovery of financing costs for large 

transmission investments and allows recovery of a return on construction costs during the 

construction period rather than delaying cost recovery until the plant is placed into

service. The Commission has also found that allowing companies to include 100 percent 

 11 See Order No. 679, FERC Stats. & Regs. ¶ 31,222 at PP 115, 117, and 163.

12 The Commission clarifies that placing a priority on risk-reducing incentives 

does not require separate applications for risk-reducing incentives and an incentive ROE 

based on a project’s risks and challenges. Rather, in a single application an applicant 

could first demonstrate how risk-reducing incentives are utilized and then seek to 

demonstrate, as discussed further below, that remaining risks and challenges merit an 

incentive ROE based on the project’s risks and challenges. 

13 See Order No. 679, FERC Stats. & Regs. ¶ 31,222 at PP 115, 117, and 163.
- 9 -

of CWIP in rate base would result in greater rate stability for customers by reducing the 

“rate shock” when certain large-scale transmission projects come on line.14

13. Regarding 100 percent recovery of pre-commercial cost as an incentive, the 

Commission has permitted recipients of this incentive to expense and recover precommercial costs that would otherwise be capitalized in CWIP, thus providing for earlier 

cost recovery and improving early stage project cash flows. The Commission has also 

made deferred cost recovery available to applicants to address cost recovery restrictions 

at the state level and to provide greater flexibility for applicants to recover costs,

recognizing that deferred cost recovery is intended to “...increase the certainty of cost 

recovery to encourage more transmission investment.” 15 The Commission also 

recognizes the usefulness of deferred cost recovery of pre-commercial costs for 

applicants who do not have a formula rate in effect prior to incurring pre-commercial 

costs, by allowing the applicant to defer all such costs not included in CWIP as a 

regulatory asset until the applicant has a formula rate in effect for cost recovery.16 The 

Commission has previously found that this incentive provides up-front regulatory 

 

 14 See, e.g., PJM Interconnection, L.L.C. and Pub. Serv. Elec. and Gas Co., 135 

FERC ¶ 61,229 (2011). See also PPL Elec. Utils. Corp ., 123 FERC ¶ 61,068, at P 43 

(2008), reh'g denied 124 FERC ¶ 61,229. 

15 Order No. 679, FERC Stats. & Regs. ¶ 31,222 at PP 175, 178. 

16 See, e.g., Atlantic Grid, 135 FERC ¶ 61,144 (2011). Like the pre-commercial 

cost incentive, all transmission incentives are intended to be available to all existing 

utilities and non-incumbent utilities.
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certainty and can reduce interest expense, improve coverage ratios, and assist in the 

construction of transmission projects.17 

14. Regarding the incentive that allows for 100 percent recovery of prudently 

incurred costs of transmission facilities that are abandoned for reasons beyond the control 

of the transmission owner, the Commission has found this incentive reduces the 

regulatory risk of non-recovery of prudently incurred costs.18 The Commission has 

previously stated that, in addition to the challenges presented by the scope and size of a 

project, factors like various federal and state siting approvals introduce a significant 

element of risk. Granting this incentive ameliorates such risk by providing companies 

with more certainty during the pre-construction and construction periods.

19

15. In the NOI, numerous commenters discuss the interplay of risk-reducing 

incentives on the need for and appropriate level of an incentive ROE. For example, 

Certain State and Consumer-Owned Entities state that if a project’s risks exceed the risk 

that is accounted for in the base ROE, incentives may be appropriate.20 Other

 17 See, e.g., DATC Midwest Holdings, L.L.C., 139 FERC ¶ 61,224 (2012).

18 Order No. 679, FERC Stats. & Regs. ¶ 31,222 at P 163.

19 See, e.g., PJM Interconnection, L.L.C. and Pub. Serv. Elec. and Gas Co., 135 

FERC ¶ 61,229 (2011).

20 Certain State and Consumer-Owned Entities September 12, 2011 Comments at 

39. Certain State and Consumer-Owned Entities include Connecticut Public Utilities 

Regulatory Authority, Attorney General for the State of Connecticut, Connecticut Office 

of Consumer Counsel, Attorney General for the State of Delaware, Delaware Public 

Service Commission, Public Advocate of Delaware, Attorney General for the State of 

(continued...)
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commenters state that the Commission should strike an appropriate balance between 

consumer and investor interests, and that if incentives are compounded without 

consideration of the reduced risk effect of some of the incentives, this approach tips the 

risk in favor of the investor and to the detriment of the transmission customer. Numerous 

commenters also argue that risk-reducing incentives mitigate the need for an incentive 

ROE based on a project’s risks and challenges to attract investment. For example, Joint 

Commenters21 note that the biggest risks for transmission projects relate to siting and 

 

Illinois, Maine Public Utilities Commission, Attorney General for the Commonwealth of 

Massachusetts, Massachusetts Department of Public Utilities, Massachusetts Municipal 

Wholesale Electric Company, New England Conference of Public Utilities 

Commissioners, Attorney General for the State of New Hampshire, New Hampshire 

Electric Cooperative, Inc., New Hampshire Office of Consumer Advocate, New 

Hampshire Public Utilities Commission, Rhode Island Public Utilities Commission and 

Division of Public Utilities and Carriers, Attorney General for the State of Rhode Island, 

Vermont Department of Public Service, and Vermont Public Service Board.

21 Joint Commenters include Joint Comments of American Forest & Paper 

Association, American Public Power Association, California Municipal Utilities 

Association, California Public Utilities Commission, City and County of San Francisco, 

Connecticut Office of Consumer Counsel, Electricity Consumers Resource Council,

Indiana Utility Regulatory Commission, Maryland Office of People’s Counsel, Modesto 

Irrigation District, Montana Public Service Commission, National Association of State 

Utility Consumer Advocates, New England Conference of Public Utilities 

Commissioners, New Hampshire Public Utilities Commission, New Jersey Board of 

Public Utilities, New Jersey Division of Rate Counsel, Northern California Power 

Agency, Office of the Nevada Attorney General, Bureau of Consumer Protection, Office 

of the Ohio Consumers’ Counsel, Old Dominion Electric Cooperative, Organization of 

MISO States, Pennsylvania Office of Consumer Advocate, Public Power Council, Public 

Service Commission of the State of New York, Public Service Commission of 

Wisconsin, Sacramento Municipal Utility District, South Dakota Public Utilities 

Commission, State of Maine, Office of the Public Advocate, Transmission Agency of 

Northern California, the Vermont Department of Public Service, and the Vermont Public 

Service Board.
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permitting delays, cash flow shortage, or abandonment concerns, but argue that, even 

where the level of these risks is unusually high, they can be mitigated by granting riskreducing incentives. Joint Commenters further contend that, when incentives are 

appropriate, risk-reducing incentives should be the first (and often the only) incentives 

considered.22 Other commenters point out that risk also is mitigated through the 

assurance of cost recovery at the state level.

16. In Order No. 679-A, the Commission stated that a project that receives riskreducing transmission incentives, like those discussed above, would likely face lower 

risks. Therefore, that project may not warrant an incentive ROE, or may warrant a lower 

incentive ROE, based on the project’s risks and challenges.23 Based on the 

Commission’s experience under Order No. 679, and after careful consideration of 

comments on the NOI as to the benefits of risk-reducing incentives, the Commission 

clarifies that many risks not accounted for in the base ROE can be alleviated through 

risk-reducing incentives such as those discussed earlier in this section. In cases where an 

incentive ROE based on risks and challenges is requested in combination with riskreducing incentives, the Commission must carefully apply its total package analysis to 

ensure that the effect of the risk-reducing incentives is appropriately accounted for in 

determining whether an incentive ROE based on risks and challenges is warranted, 

 22 Joint Commenters September 12, 2011 Comments at 80.

23 Order No. 679-A, FERC Stats. & Regs. ¶ 31,236 at P 27.
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and if warranted, what level is appropriate. For this reason, the Commission expects 

incentives applicants to seek to reduce the risk of transmission investment not otherwise 

accounted for in its base ROE by using risk-reducing incentives before seeking an 

incentive ROE based on a project’s risks and challenges.

24

C. Incentive ROEs Based on Project Risks and Challenges

17. Some commenters in the NOI suggest that the Commission specifically identify 

project characteristics or risks and challenges that would merit an incentive ROE. We 

decline to do so. Instead, we will continue to allow applicants the flexibility necessary to 

demonstrate why their projects may merit an incentive ROE, and at what level, based on 

those project’s risks and challenges, but we provide general guidance below that may 

inform applications for this type of transmission incentive. 

1. Showings and Commitments for Remaining Risks and

Challenges

18. As discussed above, many of the risks not captured by traditional ratemaking 

policies can be addressed through risk-reducing incentives. While the record in the NOI 

proceeding does not show that incentive ROEs have resulted in significant rate increases 

 24 The Commission appreciates that non-incumbents seeking incentives may face 

challenges implementing some risk-reducing incentives because they may not have the 

appropriate rate structures in place under which to effectuate these transmission 

incentives. In such instances, the Commission anticipates subsequent section 205 filings 

by non-incumbent incentive applicants for cost recovery. As noted above, all 

transmission incentives are intended to be available to all existing utilities and nonincumbent utilities.
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for consumers,25 incentive ROEs likely put more upward pressure on transmission rates 

than risk-reducing incentives. Therefore incentive applicants should first examine riskreducing incentives. 

19. However, a project may face certain risks and challenges that may not be

addressed through either the traditional ratemaking policies or risk-reducing incentives. 

In such instances, an incentive ROE based on a project’s risks and challenges may be 

appropriate.26 Based on the Commission’s experience under Order No. 679 and the 

comments received on the NOI, the Commission expects applicants seeking an incentive 

ROE based on a project’s risks and challenges to make the following four showings as 

part of their application for that incentive. 

a. Identification of Risks and Challenges

20. When applying for an incentive ROE based on the project’s risks and challenges,

applicants will first be expected to demonstrate that the proposed project faces risks and 

challenges that are not either already accounted for in the applicant’s base ROE or 

addressed through risk-reducing incentives. To make this demonstration, the 

 25 See, ITC Holdings Corp. September 12, 2011 Comments at 16: “The incentives 

granted to transmission projects have had generally positive, not negative, effects on 

consumer rates and service, especially when improved reliability, reduced congestion and 

access to a more diverse supply of generation, including renewable resources, are taken 

into account. One reason for this is that the cost of transmission incentives is small 

compared to the cost of energy, distribution and congestion.”

26 Order No. 679, FERC Stats. & Regs. ¶ 31,222 at P 94.
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Commission suggests that applicants identify risks and challenges specific to the project 

for which an incentive ROE is being requested. 

21. Investments in the following types of transmission projects27 may face the types 

of risks and challenges that may warrant an incentive ROE based on the project’s risks 

and challenges that are not either already accounted for in the applicant’s base ROE or 

could be addressed through risk-reducing incentives: 

1. projects to relieve chronic or severe grid congestion that has had demonstrated 

cost impacts to consumers; 

2. projects that unlock location constrained generation resources that previously had 

limited or no access to the wholesale electricity markets;

3. projects that apply new technologies to facilitate more efficient and reliable usage 

and operation of existing or new facilities.28

 27 These investments could include both investment in new transmission facilities, 

as well as investment in transmission upgrades, retrofits, and projects that modernize the 

existing transmission grid. 

28 Examples of projects that meet this description include those that create 

additional incremental capacity without significant construction (e.g., through the use of 

dynamic line rating), that allow for more efficient balancing of variable energy resources, 

and/or that provide increased grid stability. In addition, the Commission is concerned 

that its current practice of granting incentive ROEs and risk-reducing incentives may not 

be effectively encouraging the deployment of new technologies or the employment of 

practices that provide demonstrated benefits to consumers. Accordingly, the Commission 

remains open to alternative incentive proposals aimed at supporting projects that achieve 

these ends.
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22. This list is not exhaustive, but rather indicative of the types of projects that the 

Commission believes, based on its experience and expertise with respect to industry 

trends and system investment needs, may warrant an incentive ROE based on the 

project’s risks and challenges. More generally, the Commission anticipates that 

applicants will seek an incentive ROE based on a project’s risks and challenges for 

projects that provide demonstrable consumer benefits by making the transmission grid 

more efficient, reliable, and cost-effective. Thus, consistent with our statements in Order 

No. 679, we note that reliability-driven projects may be considered for an incentive ROE

based on a project’s risks and challenges, but only if they present specific risks and 

challenges not otherwise mitigated by available risk-reducing incentives.29

23. Under our current incentive policies, the Commission considers an applicant’s 

proposed use of an advanced transmission technology both: 1) as part of the overall nexus 

analysis, accounting for the risks and challenges associated with utilizing such advanced 

technology into that overall nexus analysis;30 and 2) where an applicant seeks a standalone incentive ROE based on its utilization of an advanced technology.31 The 

 29 Order No. 679, FERC Stats. & Regs. ¶ 31,222 at P 94. 

30 See Tallgrass Transmission, LLC, 125 FERC ¶ 61,248, at P 59 (2008) (“[t]he 

associated challenges can be incorporated into the overall nexus analysis, but the 

technology does not, in and of itself, appear to justify a separate advanced technology 

adder.”); RITELine Indiana & Illinois LLC, 137 FERC ¶ 61,039 at P 62 (2011).

31 See The United Illuminating Co., 126 FERC ¶ 61,043, at P 14 (2009) (“In 

reviewing requests for separate adders for advanced technology, the Commission reviews 

record evidence to decide if the proposed technology warrants a separate adder because it 

(continued...)
- 17 -

Commission continues to encourage the deployment of advanced technologies that 

“increase the capacity, efficiency, or reliability of an existing or new transmission 

facility.”32 However, the Commission is concerned that its current approach may 

contribute to confusion, including with respect to the distinct standards that the 

Commission applies in these two contexts. To address this concern, the Commission will 

no longer consider requests under Order No. 679 for a stand-alone incentive ROE based 

on an applicant’s utilization of an advanced technology. Instead, as noted above, the 

Commission will consider transmission projects that apply advanced technologies as 

indicative of the types of projects facing risks and challenges that may warrant an 

incentive ROE. As a result, we will consider deployment of advanced technologies as 

part of the overall nexus analysis when an incentive ROE is sought.

b. Minimization of Risks

24. The Commission expects an applicant that requests an incentive ROE based on a 

project’s risks and challenges to demonstrate that it is taking appropriate steps and using 

appropriate mechanisms to minimize its risks during project development. For example, 

risks may be reduced through the risk-reducing incentives described in section II.B, or 

through mitigating costs by implementing best practices in their project management and 

 

reflects a new or innovative domestic use of the technology that will improve reliability, 

reduce congestion, or improve technology.”). See also NSTAR Elec. Co., 127 FERC 

¶ 61,052 at P 27 (2009).

32 Order No. 679, FERC Stats. & Regs. ¶ 31,222 at P 298.
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procurement procedures. Applicants should consider taking measures tailored to mitigate 

the various risks associated with their transmission projects and to identify such measures 

in their applications. For example, applicants may take measures to mitigate risks 

associated with siting and environmental impacts by pursuing joint ownership 

arrangements. The Commission encourages incentives applicants to participate in joint 

ownership arrangements and agrees with commenters to the NOI that such arrangements 

can be beneficial by diversifying financial risk across multiple owners and minimizing 

siting risks.33 

c. Consideration of Alternatives

25. The Commission expects applicants for an incentive ROE based on a project’s 

risks and challenges to demonstrate that alternatives to the project have been, or will be, 

considered in either a relevant transmission planning process or another appropriate 

forum. Such a showing should help identify the demonstrable consumer benefits of the 

proposed project and its role in promoting a more efficient, reliable and cost-effective 

transmission system.

34

 33 Order No. 679, FERC Stats. & Regs. ¶ 31,222 at PP 354, 357; Order No. 679-A 

FERC Stats. & Regs. ¶ 31,236, at P 102. See also Central Maine Power Company, 125 

FERC ¶ 61,182, at P 61 (2008); Xcel Energy, 121 FERC ¶ 61,284 at P 55 (2007). 

Evidence regarding whether an applicant for incentives considered joint ownership 

arrangements may be relevant in assessing whether the applicant took appropriate steps to 

minimize its risks during project development.

34 This showing draws on recommendations made by commenters in the NOI, who 

suggested that the Commission require an assessment of lower cost alternatives to any 

proposed transmission project as part of a filing requesting transmission incentives.
- 19 -

26. The Commission appreciates that there may be timing challenges for applicants 

making this showing, and thus the Commission will be flexible in the approaches it 

allows for applicants to make this showing. In particular, this showing could be satisfied

through participation in open processes that are already in existence. For example:

1. The applicant could show that its project was, or will be, considered in an Order 

No. 890 or Order No. 1000-compliant transmission planning process that provides 

the opportunity for projects to be compared against transmission or nontransmission alternatives.35

2. The applicant could show that its project was considered by a local regulatory 

body, such as a state utility commission, that evaluated alternatives to its proposed 

project (transmission or non-transmission alternatives) and determined that the 

proposed transmission project is preferable to the alternatives evaluated.

27. The above approaches should not be seen as exclusive, however, and the 

Commission will remain open to alternative methods to making this showing.36

 35 In making this showing, the applicant need not show that its project was selected 

in a regional transmission plan for purposes of cost allocation. Instead, the focus would 

be on whether the project was or will be considered in a process where it could be 

compared to other projects and shown to be preferable to any alternatives that were 

evaluated.

36 For example, projects that are required to complete an environmental impact 

statement (EIS) may submit the analysis on the consideration of alternatives, per the 

requirements of the EIS, as making such a showing.
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d. Commitment to Cost Estimates

28. Finally, the Commission expects applicants for an incentive ROE based on a 

project’s risks and challenges to commit to limiting the application of the incentive ROE 

based on a project’s risks and challenges to a cost estimate. For example, the 

Commission has approved an applicant’s proposal to limit the incentive ROE based on a 

project’s risks and challenges to the cost estimate utilized at the time of RTO approval.37 

Our intent is not to be prescriptive as to how applicants might structure this commitment; 

instead, the Commission is open to approaches that control transmission development 

costs and provide more transparency regarding how incentives will be applied to costs 

beyond initial estimates.38 

29. The Commission recognizes the challenges of determining the appropriate cost 

estimate for a project. For example, most applicants seek incentives from the 

Commission at a relatively early stage in the project development process, often before 

state siting or other processes raise challenges that can impact the design and ultimate 

cost of a project. One option may be for applicants to commit to limiting the application 

 37 RITELine Illinois & Indiana LLC, 137 FERC ¶ 61,039, at P 5 (2011). 

38 Concern about the effects of allowing transmission incentives to be applied to 

costs over those estimated was expressed by a number of commenters in the NOI 

proceeding. 
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of an incentive ROE based on a project’s risks and challenges to the last cost estimate 

relied upon to include or retain the project in a regional transmission planning process.39

30. The Southwest Power Pool Regional State Committee (SPP RSC) in its 

comments on the NOI identifies a definitive cost estimate that would serve as the initial 

threshold limit for an incentive ROE, a 10% dead-band above or below the definitive cost 

estimate around which changes in costs are shared equally between shareholders and 

customers, and a provision for addressing cost increases that are outside the control of the 

transmission owner.40 The Commission believes that aspects of the SPP RSC proposal 

highlighted here may provide useful guidance to applicants when seeking incentive ROEs 

based on a project’s risks and challenges. 

III. Conclusion

31. As noted above, the Commission is relying on its experience and expertise with 

respect to industry trends and system investment needs to provide additional guidance 

and clarity through this policy statement. Six years after issuing Order No. 679, the 

Commission believes that it is appropriate and in the public interest to evaluate the 

impacts of its incentives policy and give guidance as to how the Commission will 

implement that incentives policy going forward. In order to further the mandate of FPA 

 39 If factors outside applicant’s control cause significant deviation from the cost 

estimate upon which the ROE incentive was initially granted, the Commission can revisit 

that cost estimate (e.g., a regional planner requires significant acceleration of a project 

construction timeline).

40 SPP RSC September 12 Comments at 5, 12-13. 
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section 219 and encourage transmission investment in the future, the Commission will 

continue to monitor its incentives policy and may identify new policy issues, trends, and 

developments in transmission investment that may warrant modifications to the 

Commission’s incentives policy. As part of this effort, the Commission will continually 

assess measures to further transparency in its incentives policy and the impacts of that 

policy on consumers. 

IV. Document Availability

32. In addition to publishing the full text of this document in the Federal Register, the 

Commission provides all interested persons an opportunity to view and/or print the 

contents of this document via the Internet through FERC's Home Page 

(http://www.ferc.gov) and in FERC's Public Reference Room during normal business 

hours (8:30 a.m. to 5:00 p.m. Eastern time) at 888 First Street, NE, Room 2A, 

Washington, DC 20426.

33. From FERC's Home Page on the Internet, this information is available on 

eLibrary. The full text of this document is available on eLibrary in PDF and Microsoft 

Word format for viewing, printing, and/or downloading. To access this document in 

eLibrary, type the docket number excluding the last three digits of this document in the 

docket number field.
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34. User assistance is available for eLibrary and the FERC’s website during normal 

business hours from FERC Online Support at 202-502-6652 (toll free at 1-866-208-3676) 

or email at ferconlinesupport@ferc.gov, or the Public Reference Room at 

(202) 502-8371, TTY (202) 502-8659. E-mail the Public Reference Room at 

public.referenceroom@ferc.gov.

By the Commission. Commissioner Clark is not participating.

( S E A L )

Nathaniel J. Davis, Sr.,

Deputy Secretary.