This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

71409 

Vol. 70, No. 228 

Tuesday, November 29, 2005 

1Public Law No. 109–58, 119 Stat. 594 (2005). 

2EEI Survey of Transmission Investment: 

Historical and Planned Capital Expenditures (1999– 

2008) at 3 (2005). 

3Barriers to Transmission Investment, 

Presentation by Brendan Kirby (U.S. Department of 

Energy, Oak Ridge National Laboratory), April 22, 

2005 Technical Conference, Transmission 

Independence and Investment, Docket No. AD05– 

5–000 (April 22, 2005 Technical Conference). 

4Energy Policy Act of 2005: Hearings before the 

House Subcommittee on Energy and Commerce, 

109th Congress, First Sess. (2005) (Prepared 

statement of Thomas R. Kuhn, President of EEI). 

5Comprehensive National Energy Policy: 

Hearings before the House Subcommittee on Energy 

and Commerce, 108th Congress, First Sess. 

(Prepared statement of Glenn English, Chief 

Executive Officer of National Rural Electric 

Cooperatives Association). 

6Transcos are stand-alone transmission 

companies that have been approved by the 

Commission. 

7Proposed Pricing Policy for Efficient Operation 

and Expansion of Transmission Grid, 102 FERC 

¶ 61,032 (2003). That proposed policy statement, 

Continued 

DEPARTMENT OF ENERGY 

Federal Energy Regulatory 

Commission 

18 CFR Part 35 

[Docket No. RM06–4–000] 

Promoting Transmission Investment 

Through Pricing Reform 

Issued November 18, 2005. 

AGENCY: Federal Energy Regulatory 

Commission. 

ACTION: Notice of Proposed Rulemaking. 

SUMMARY: Pursuant to the requirements 

of the Transmission Infrastructure 

Investment provisions in section 1241 of 

the Energy Policy Act of 2005, which 

adds a new section 219 to the Federal 

Power Act, the Federal Energy 

Regulatory Commission is proposing to 

amend its regulations to establish 

incentive-based (including performancebased) rate treatments for the 

transmission of electric energy in 

interstate commerce by public utilities 

for the purpose of benefiting consumers 

by ensuring reliability and reducing the 

cost of delivered power by reducing 

transmission congestion. 

DATES: Comments are due on or before 

January 11, 2006. 

ADDRESSES: Comments may be filed 

electronically via the eFiling link on the 

Commission’s Web site at http:// 

www.ferc.gov. Commenters unable to 

file comments electronically must send 

an original and 14 copies of their 

comments to: Federal Energy Regulatory 

Commission, Office of the Secretary, 

888 First Street, NE., Washington, DC, 

20426. Refer to the Comment 

Procedures section of the preamble for 

additional information on how to file 

comments. 

FOR FURTHER INFORMATION CONTACT: 

Jeffrey Hitchings (Technical 

Information), Office of Markets, 

Tariffs and Rates, Federal Energy 

Regulatory Commission, 888 First 

Street, NE., Washington, DC 20426. 

202–502–6042. 

Sebastian Tiger (Technical Information), 

Office of Market Oversight and 

Investigations, Federal Energy 

Regulatory Commission, 888 First 

Street, NE., Washington, DC 20426. 

202–502–6079. 

Andre Goodson (Legal Information), 

Office of the General Counsel, Federal 

Energy Regulatory Commission, 888 

First Street, NE., Washington, DC 

20426. 202–502–8560. 

Tina Ham (Legal Information), Office of 

the General Counsel, Federal Energy 

Regulatory Commission, 888 First 

Street, NE., Washington, DC 20426. 

202–502–6224. 

SUPPLEMENTARY INFORMATION: 

Issued November 17, 2005. 

I. Introduction 

1. On August 8, 2005, the Energy 

Policy Act of 2005 (EPAct 2005 or the 

Act)1 became law. Section 1241 of the 

Act (Transmission Infrastructure 

Investment) adds a new section 219 to 

the Federal Power Act (FPA) which 

mandates that not later than one year 

after enactment of section 219, the 

Commission establish, by rule, 

incentive-based (including performancebased) rate treatments for the 

transmission of electric energy in 

interstate commerce by public utilities 

for the purpose of benefiting consumers 

by ensuring reliability and reducing the 

cost of delivered power by reducing 

transmission congestion. FPA section 

219 was implemented against the 

backdrop of declining investment in 

transmission infrastructure and 

increasing electric load. Transmission 

investment declined in real dollar terms 

for 23 years, from 1975 to 1998, before 

increasing again, although investment 

for the most recent year available, 2003, 

is still below 1975 levels.2 Over the 

same time period, electric load more 

than doubled, resulting in a significant 

decrease in transmission capacity 

relative to load in every North American 

Electric Reliability Council region.3

Edison Electric Institute (EEI) estimates 

that capital spending must increase by 

25 percent, from $4 billion annually to 

$5 billion annually, to assure system 

reliability and to accommodate 

wholesale electric markets, and that the 

2.5 percent growth rate in transmission 

mileage since 1999 is insufficient to 

meet the expected 50 percent growth in 

consumer demand for electricity over 

the next two decades.4 The Secretary of 

Energy’s Advisory Board at the 

Department of Energy determined that 

investment in the transmission grid will 

only occur when regulatory policy: (a) 

Provides reasonably certain cost 

recovery; (b) provides regulatory 

certainty, in terms of who can operate 

the system and under what rules; and 

(c) provides a return that makes 

investment in transmission a reasonable 

option, considering other available 

investment options.5

2. The purpose of the proposed 

rulemaking is to promote greater capital 

investment in new transmission 

capacity. As the foregoing analysis 

indicates, the need for capital 

investment in energy infrastructure is a 

national problem that requires a 

national solution. Inadequate 

transmission infrastructure results in 

transmission congestion that impedes 

competitive wholesale markets and 

impairs the reliability of the electric 

grid. To address the need for 

transmission capacity, the proposed 

rulemaking provides price reforms 

applicable to the entire electric grid, in 

both organized and in other markets and 

to both vertically-integrated utilities and 

transcos.6 We note that the Commission 

has been active in responding to the 

need for new transmission capacity for 

several years prior to the enactment of 

EPAct 2005, as evidenced by its 

issuance of a proposed policy statement 

to promote the efficient operation and 

expansion of the transmission grid 7 and 

71410 Federal Register / Vol. 70, No. 228 / Tuesday, November 29, 2005 / Proposed Rules 

which was issued in Docket No. PL03–1–000, has 

been superseded by this proposed rulemaking. 

Accordingly, the Commission will take no further 

action in Docket No. PL03–1–000. 

8Policy Statement Regarding Evaluation of 

Independent Ownership and Operation of 

Transmission, 111 FERC ¶ 61,473 (2005) (Transco 

Independence Policy Statement). 

9Section 3(29) of the FPA (as added by section 

1291(b)(29) of EPAct 2005) defines a Transmission 

Organization as a regional transmission 

organization, independent system operator, 

independent transmission provider, or other 

transmission organization finally approved by the 

Commission for the operation of transmission 

facilities. 

10 16 U.S.C. 824(d) and 824(e) (2000). 

11Subpart F of the Commission’s regulations 

consists of § 35.34 (procedures and requirements 

regarding regional transmission organizations). 

12A transco is also a public utility under the FPA 

unless it is wholly owned and operated by entities 

that fall within section 201(f) of the FPA (e.g., 

governmental and certain electric cooperative 

entities). So, in order to distinguish traditional 

vertically-integrated public utilities from transcos 

for purposes of this notice of proposed rulemaking, 

we refer to traditional vertically-integrated public 

utilities as ‘‘traditional public utilities.’’

a policy statement on transco 

independence.8

3. To address the need for new 

transmission infrastructure and to 

encourage necessary investment, the 

new section 219 specifically charges the 

Commission with the responsibility to 

establish, by rule, incentive-based 

(including performance-based) rate 

treatments for the transmission of 

electric energy in interstate commerce 

that: 

a. Promote reliable and economically 

efficient transmission and generation of 

electricity by promoting capital 

investment in the enlargement, 

improvement, maintenance, and 

operation of all facilities for the 

transmission of electric energy in 

interstate commerce, regardless of the 

ownership of the facilities; 

b. Provide a return on equity that 

attracts new investment in transmission 

facilities (including related transmission 

technologies); 

c. Encourage deployment of 

transmission technologies and other 

measures to increase the capacity and 

efficiency of existing transmission 

facilities and improve the operation of 

the facilities; and 

d. Allow the recovery of all prudently 

incurred costs necessary to comply with 

mandatory reliability standards 

established pursuant to section 215 of 

the FPA, and all prudently-incurred 

costs related to transmission 

infrastructure development, pursuant to 

section 216 of the FPA (transmission 

national interest corridors). 

4. Section 219 also requires the 

Commission to issue a rule to provide 

for incentives to each transmitting 

utility or electric utility that joins a 

Transmission Organization 9 and to 

ensure that any recoverable costs 

associated with joining may be 

recovered through transmission rates 

charged by the utility or through the 

transmission rates charged by the 

Transmission Organization that 

provides transmission service to the 

utility. Finally, section 219 provides 

that all rates approved under these rules 

are subject to the requirements of 

sections 205 and 206 of the FPA,10

which provides that all rates, charges, 

terms and conditions be just and 

reasonable and not unduly 

discriminatory or preferential. 

5. As discussed in detail below, 

consistent with the above provisions of 

FPA section 219, in this proposed 

rulemaking the Commission seeks to 

provide incentives and regulatory 

certainty sufficient to support expanded 

and improved transmission 

infrastructure (including advanced 

technologies) while at the same time 

ensuring that transmission rates remain 

just, reasonable, and not unduly 

discriminatory or preferential. We 

recognize that there may be other 

incentives or 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 provide 

greater incentive for needed investment. 

We seek comments not only on the 

proposals herein but also on other 

incentives or regulatory steps that 

would help fulfill the purposes of FPA 

section 219. 

II. Summary of Proposed Regulations 

6. Pursuant to new section 219 of the 

FPA, the proposed amendments to the 

existing regulations are intended to 

promote reliable and economically 

efficient transmission and generation of 

electricity by providing incentives for 

increased capital investment by 

providing a rate of return that attracts 

new investment in transmission 

facilities, and by providing incentives to 

utilities that join Transmission 

Organizations. The Commission 

proposes to amend part 35 of Chapter I, 

Title18, of the Code of Federal 

Regulations. First, section 35.34(e) 

(innovative transmission rate treatments 

for regional transmission organizations) 

in subpart F of the Commission’s 

regulations 11 will be removed in its 

entirety. Second, a new section 35.35 

under subpart G, titled Transmission 

Infrastructure Investment Provisions, 

will be added and will supersede 

section 35.34(e). 

7. As proposed, new section 35.35 

under subpart G would establish the 

regulation’s purpose, definitions, 

general rules, and incentive-based rate 

treatments for transmission 

infrastructure investment. 

8. The proposed new paragraph (a) 

would outline the purpose of the 

regulation, stating that section 35.35 

establishes rules for incentive-based 

(including performance-based) rate 

treatments for transmission of electric 

energy in interstate commerce by public 

utilities for the purpose of benefiting 

consumers by ensuring reliability, and 

reducing the cost of delivered power by 

reducing transmission congestion. 

9. The proposed new paragraph (b) 

would define the terms, ‘‘transco’’ and 

‘‘transmission organization,’’ as used in 

the regulation: 

For purposes of this rulemaking, ‘‘transco’’

means a stand-alone transmission company 

that has been approved by the Commission. 

As used herein, ‘‘stand-alone transmission 

company’’ refers to a company engaged 

solely in selling transmission at wholesale or 

on an unbundled retail basis. For purposes of 

the proposed rule, transcos may be 

independent or they may have some passive 

ownership interests by affiliated traditional 

vertically-integrated public utilities 

(traditional public utilities).12‘‘Transmission 

Organization,’’ as defined in new section 

3(29) of the FPA, means a regional 

transmission organization (RTO), 

independent system operator (ISO), 

independent transmission provider, or other 

transmission organization finally approved 

by the Commission for the operation of 

transmission facilities. 

10. The proposed new paragraph (c) 

would establish the general rule that all 

rates approved under the rules of this 

section 35.35, including any revisions to 

the rules, are subject to the requirements 

of sections 205 and 206 of the FPA that 

all rates, charges, terms and conditions 

be just and reasonable and not unduly 

discriminatory or preferential. The 

proposed new paragraph (d) would 

describe the incentive-based rate 

treatments for transmission 

infrastructure investments that the 

Commission would authorize. For all 

jurisdictional public utilities, including 

transcos, the Commission encourages 

incentive-based rate proposals, 

including proposals to: (1) Provide a 

rate of return on equity (ROE), within 

the zone of reasonableness, that is 

sufficient to attract new investment in 

transmission facilities; (2) recover 100 

percent of prudently incurred 

transmission-related Construction Work 

in Progress (CWIP) in rate base; (3) 

recover prudently incurred precommercial operations costs by 

expensing these costs instead of 

capitalizing them; (4) adopt a 

hypothetical capital structure; (5) 

Federal Register / Vol. 70, No. 228 / Tuesday, November 29, 2005 / Proposed Rules 71411 

13FPA section 219(b)(2). 

14See Western Area Power Administration, 99 

FERC ¶ 61,306 (2002), reh’g denied, 100 FERC 

¶ 61,331 (2002), aff’d sub nom. Public Utilities 

Commission of the State of California v. FERC, 367 

F.3d 925 (D.C. Cir. 2004) (Western Area Power 

Administration). The District of Columbia Circuit 

held that ‘‘using price incentives to increase the 

supply of energy available to customers is a valid, 

non-cost consideration in setting rates.’’

15Sierra Pacific Resources Operating Companies, 

105 FERC ¶ 61,178 (2003), order on reh’g, 106 FERC 

¶ 61,096 (2004). 

accelerate the recovery of depreciation 

expense; (6) recover all prudentlyincurred development costs in cases 

where construction of facilities may 

subsequently be abandoned as a result 

of factors beyond the public utility’s 

control; (7) provide deferred cost 

recovery; and (8) provide any other 

incentives approved by the Commission 

that are determined to be just and 

reasonable and not unduly 

discriminatory or preferential. 

11. For transcos only, the Commission 

would authorize the following 

additional incentives, subject to the 

requirements of sections 205 and 206 of 

the FPA that all rates, charges, terms 

and conditions be just and reasonable 

and not unduly discriminatory or 

preferential: (1) A higher ROE which is 

both sufficient to encourage Transco 

formation as well as to attract new 

investment in transmission facilities; 

and (2) an adjustment to the book value 

of transmission assets being sold to a 

Transco to remove the disincentive 

associated with the impact of 

accelerated depreciation on Federal 

capital gains tax liabilities. 

12. The proposed new paragraph (e) 

would describe the incentive-based rate 

treatment for public utilities that join a 

Transmission Organization. The 

Commission will consider authorizing 

an ROE for a public utility that joins a 

Transmission Organization that is 

higher than the return on equity that the 

Commission might otherwise allow if 

the public utility did not join a 

Transmission Organization (but still 

within the zone of reasonableness). The 

Commission will also allow public 

utilities that join a Transmission 

Organization to recover prudently 

incurred costs associated with joining 

the Transmission Organization, either 

through transmission rates charged by 

public utilities or through transmission 

rates charged by the Transmission 

Organization that provides services to 

the public utilities. 

13. The proposed new paragraph (f) 

would state that the Commission will 

approve prudently-incurred costs 

necessary to comply with the mandatory 

reliability standards pursuant to section 

215 of the FPA. 

14. The proposed new paragraph (g) 

would state that Commission will 

approve prudently-incurred costs 

related to transmission infrastructure 

development pursuant to section 216 of 

the FPA. 

15. The proposed new paragraph (h) 

would require that jurisdictional public 

utilities file an annual report with the 

Commission specifying current and 

projected transmission investment 

activity. 

16. The Commission does not propose 

to require applicants for incentive 

ratemaking treatment under section 

35.35 to support their applications with 

cost-benefit analyses. Customers will be 

protected by the Commission’s review 

of applications pursuant to sections 205, 

206 and 219 of the FPA, which require 

that all rates be just and reasonable and 

not unduly discriminatory or 

preferential. 

III. Proposed Incentives and Issues for 

Comment 

17. Public comments on this notice of 

proposed rulemaking (NOPR) are due on 

January 11, 2006. The Commission will 

carefully weigh and consider all public 

comments received. 

18. The following sections detailing 

the proposed incentives are organized as 

follows: 

(1) Provisions applicable to all public 

utilities; 

(2) Provisions applicable to transcos; 

and 

(3) Provisions applicable to public 

utilities that join Transmission 

Organizations. 

These explanations are intended to 

clarify certain aspects of the proposed 

regulations in this NOPR in terms of 

their role in fulfilling the goals of EPAct 

2005 and thereby allow for more 

informed comments. Public utilities 

would be required to file for approval of 

any incentives under section 205 of the 

FPA and include an explanation of the 

proposed accounting for these 

incentives. 

A. Incentives Available to All 

Jurisdictional Public Utilities 

19. As mentioned earlier, EEI reports 

that transmission capital spending must 

increase an estimated 25 percent 

annually to assure system reliability and 

accommodate wholesale markets. 

Undertaking significant new 

transmission investment can present 

cash flow, revenue recovery and 

financing issues, regardless of corporate 

structure. This section proposes 

incentives applicable to all public 

utilities, consistent with section 219 of 

the FPA, that would foster transmission 

investment and thereby help to ensure 

reliability and reduce transmission 

congestion. 

1. Providing an ROE That Attracts New 

Investment in Transmission Facilities 

20. Public utilities investing in 

transmission capacity will not invest 

unless they can earn a return they 

consider to be sufficiently attractive. 

The Commission’s historical approach 

to developing an allowed rate of return 

on equity begins with developing a 

proxy group of similar risk companies. 

Next, a discounted cash flow (DCF) 

analysis is performed on the applicant, 

if possible, and on the companies in the 

proxy group, and a zone of 

reasonableness is typically developed 

based on the proxy group. A DCF return 

within the zone of reasonableness is 

then typically specified for the 

applicant based on a comparison of risk 

factors between the applicant and the 

proxy group. While the Commission has 

typically utilized a DCF analysis, we 

seek comment on whether the 

Commission should consider 

alternatives to the DCF analysis as a way 

to incent investment in new 

transmission capacity. 

21. As we recognized in Order No. 

2000, the risk profile of the transmission 

business is changing and the historical 

data typically used to evaluate returns 

on equity may not be reliable since it 

reflects a different industry structure 

from the one that currently exists. A 

sufficient return that reflects the current 

industry environment is fundamental to 

a public utility’s decision to invest in 

new capacity. Therefore, the 

Commission will continue to consider 

and approve ROE levels that attract 

investment for new transmission 

projects, thereby fulfilling a requirement 

of section 219.13 For example, the 

Commission approved an ROE adder for 

Pacific Gas and Electric Company, and 

a 13.5 percent ROE for the recently 

completed Path 15 project in 

California.14 Similarly, Sierra Pacific 

Power Company received a ROE of 12.5 

to 13.5 percent for certain new facilities 

it proposed that were designed to 

relieve congestion, increase the transfer 

capability of electricity to other markets, 

enhance regional reliability and connect 

new merchant generation supply 

throughout the region.15 We seek 

comment on whether ROE adders are an 

appropriate mechanism for requesting 

and receiving approval for an acceptable 

ROE. 

22. Specifically, the Commission will 

consider granting an incentive-based 

ROE to all public utilities (i.e., 

traditional public utilities and Transcos) 

that build new transmission facilities 

that benefit consumers by ensuring 

71412 Federal Register / Vol. 70, No. 228 / Tuesday, November 29, 2005 / Proposed Rules 

16See 18 CFR 35.25(c)(3). 

17The Commission recognizes that not all 

corporate models ascribe to the philosophy of early 

cash returns; some prefer the stable long-term 

returns resulting from the higher rate base. 

18The Commission conditionally accepted the 

proposal for filing, set it for hearing, subject to 

refund. Subsequently, the Commission accepted a 

settlement that allowed American Transmission to 

recover transmission-related CWIP and precertification costs in rate base. See American 

Transmission Company, LLC, 105 FERC ¶ 61,388 

(2003), order approving settlement, 107 FERC 

¶ 61,117 (2004). 

19See Removing Obstacles to Increased Electric 

Generation and Natural Gas Supply in the Western 

United States, 94 FERC ¶ 61,272, further order on 

removing obstacles to increased energy supply and 

reduced demand in the Western United States and 

dismissing reh’g, 95 FERC ¶ 61,225, order on reh’g, 

96 FERC ¶ 61,155, order on reh’g, 97 FERC ¶ 61,024 

(2001) (Removing Obstacles). See also Western Area 

Power Administration, supra note 14. 

20 Id. 

reliability and reducing the cost of 

delivered power by reducing 

transmission congestion. To receive an 

incentive-based ROE, a public utility 

must submit a request in an application 

under section 205 of the FPA and must 

support the ROE request by 

demonstrating how the new facilities 

will improve regional reliability and 

reduce transmission congestion. In 

addition, the application must explain if 

the facilities are part of an independent 

regional planning process, such as that 

administered by an RTO or ISO or 

another independent regional planning 

process recognized by the Commission 

and how the proposed ROE was derived 

and why it is appropriate to encourage 

new investment. We also seek comment 

on whether the final rule should 

establish a definition of ‘‘independent 

regional planning process’’ or if the 

Commission should consider them on a 

case-by-case basis. 

2. Prudently Incurred Construction 

Work in Progress and Prudently 

Incurred Pre-Commercial Operations 

Costs 

23. The long lead times required to 

plan and construct new transmission 

can impact utility cash flow, in turn 

affecting the overall financial health of 

a company and its ability to attract 

capital at reasonable prices. For 

example, during the initial phases of a 

transmission construction project, a 

utility may have significant expenses 

associated with planning and siting that 

typically are not 100 percent recovered 

in rate base until commercial operation. 

The Commission believes that there are 

at least two ways it can further the goals 

of section 219 by relieving the pressures 

on utility cash flows associated with 

transmission investment programs: (1) 

Including 100 percent of CWIP in rate 

base; and (2) expensing rather than 

capitalizing pre-commercial operations 

costs associated with new transmission 

investment. 

24. The inclusion of CWIP in rate base 

rather than the accrual of allowance for 

funds used during construction 

(AFUDC) on new construction 

expenditures is one way to increase 

cash flow. Since 1987, the 

Commission’s general policy has been to 

allow only 50 percent of the nonpollution control/fuel conversion 

construction costs as CWIP in rate 

base.16 The remaining construction 

costs (including an AFUDC which 

provides a return on those expenditures) 

generally would have been capitalized 

and included in rate base only when the 

plant went into commercial operation, 

i.e., when the plant became used and 

useful. Allowing some portion of the 

costs in rate base prior to commercial 

operation provides utilities with 

additional cash flow in the form of an 

immediate earned return. 

25. The second way to improve utility 

cash flows, as mentioned above, is to 

allow utilities to expense precommercial operations costs related to 

new transmission investment rather 

than capitalize these costs. Expensing 

the costs provides immediate cash flow 

that the utility can then use as and 

where needed, whereas capitalizing the 

costs would produce cash flow over the 

life of the asset.17

26. In 2004, the Commission accepted 

a proposal by American Transmission 

Company (American Transmission) to 

include 100 percent of CWIP in the 

calculation of transmission rates and to 

expense pre-commercial operations 

costs for new transmission investment, 

instead of capitalizing those costs and 

earning a return.18 American 

Transmission stated that these 

incentives would help maintain 

adequate cash flow during the 

construction process and that without 

these incentives it could face a 

downgrade of its fixed income rating 

over the next several years due to 

inadequate cash flow, thereby 

increasing its capital costs by $176 

million over a twenty-year horizon. 

27. The Commission believes that 

allowing public utilities to include up to 

100 percent of prudently incurred 

transmission-related CWIP in rate base 

and permitting them to expense 

prudently incurred pre-commercial 

operations costs will further the goals of 

section 219 by relieving the pressures 

on utility cash flows associated with 

their transmission investment programs 

and providing up-front regulatory 

certainty. We propose to evaluate the 

applicability of these incentives to 

transmission investment applications on 

a case-by-case basis. 

28. In addition to inviting comment 

on this provision, we specifically 

request comment on (1) the types of 

costs that should be considered ‘‘precommercial operation costs’’; and (2) 

whether there should be a presumption 

that these incentives meet the 

requirements of FPA section 219 that 

investments ensure reliability and 

reduce the cost of delivered power. 

3. Hypothetical Capital Structure 

29. The Commission has largely relied 

on the actual capitalization of a utility 

in setting its rate of return, but we 

recognize that an overly rigid approach 

to evaluating a proposed capital 

structure could be a disincentive to 

investment in new transmission 

projects. Each project may have unique 

financial and cash flow requirements, 

and a rigid approach to acceptable 

capital structures could threaten the 

viability of some projects. Accordingly, 

we propose that applicants be permitted 

to propose an overall rate of return 

based on a hypothetical capital 

structure, and have the flexibility to 

refinance or employ different 

capitalizations as may be needed to 

maintain the viability of new capacity 

additions. We expect that applicants 

will develop their proposals based on 

the specific requirements and 

circumstances of their projects, and that 

the Commission will evaluate proposals 

for this incentive on a case-by-case 

basis. In their applications for incentive 

treatment, public utilities should 

provide support for why the 

hypothetical capital structure incentive 

is needed to promote investment 

consistent with the goals of section 219. 

The applicant must also provide its 

transmission investment plan and 

explain the specific projects to which 

the proposed return will apply. We seek 

comment on this proposal. 

4. Accelerated Depreciation 

30. Accelerated depreciation is 

another way to increase cash flow to 

utilities, thereby removing a potential 

disincentive to investing. The 

Commission has determined in some 

circumstances that allowing accelerated 

depreciation is warranted as an 

incentive to encourage investment in 

transmission infrastructure because it 

provides improved cash-flow and better 

positions public utilities for longer-term 

transmission investments.19 While the 

Commission has allowed accelerated 

depreciation for emergency conditions 

or special projects,20 we believe that 

permitting accelerated depreciation 

Federal Register / Vol. 70, No. 228 / Tuesday, November 29, 2005 / Proposed Rules 71413 

21Removing Obstacles, 94 FERC at 61,968–69. 

22For example, in Removing Obstacles, Id., the 

Commission permitted a 10-year depreciable life for 

facilities that will increase transmission capacity to 

relieve existing constraints and could be in service 

within a few months. 

23See New England Power Co., Opinion No. 295, 

42 FERC ¶ 61,016 at 61,068, 61,081–83, order on 

reh’g, 43 FERC ¶ 61,285 (1988). 

24Under this policy, ratepayers are entitled to the 

income tax deduction associated with that portion 

of the loss for which they are paying. In addition, 

they are entitled to a rate base reduction to reflect 

the accumulated deferred income tax amounts 

associated with 50 percent of the abandonment loss 25 75 FERC ¶ 61,266 at 61,859 (1996). 

26Southern California Edison Co., 112 FERC ¶

61,014 at P 58–61, reh’g denied, 113 FERC ¶ 61,143 

at P 9–15 (2005) (SoCal Edison). 

27 Id. at P 61. 

28The Commission has approved for Trans-Elect, 

Inc. (Trans-Elect) a proposal for a deferred cost 

recovery provision that allowed Trans-Elect to 

commence recovery of the cost of new facilities 

upon the end of the retail rate moratorium. See 

Trans Elect, Inc., 98 FERC ¶ 61,142, reh’g denied, 

98 FERC ¶ 61,368 (2002). 

more broadly may further the goals of 

section 219 by providing incentives to 

undertake transmission projects that 

have the potential to reduce the cost of 

delivered power and ensure reliability. 

We therefore propose to allow 

transmission facilities to be depreciated 

over a period of 15 years,21 in place of 

the typical Commission practice to 

allow depreciation over the useful life of 

the facilities, and seek comment on 

whether 15 years is an appropriate time 

period for cost recovery or whether the 

Commission should establish a 

presumption of a shorter or longer 

depreciable life for new transmission 

facilities.22 We also seek comment on 

whether accelerated depreciation has 

any longer-term negative impacts that 

would undermine the goals of the Act. 

5. Recovery of Costs of Abandoned 

Facilities 

31. Public utilities, in considering 

investments that fulfill the requirements 

of FPA section 219, may encounter 

investment opportunities with 

significant risk associated with factors 

beyond their control, such as generation 

developers’ decisions to develop or 

terminate the development of potential 

resources or state or local siting decision 

problems. In these circumstances, it 

may be appropriate to consider ways to 

reduce the risk associated with potential 

upgrades or other improvements to the 

transmission system. By providing for 

recovery of the costs of facilities that 

may be later cancelled or abandoned 

due to factors beyond the control of the 

public utility, the Commission could 

reduce the uncertainty associated with 

higher risk projects, thereby facilitating 

investment in these projects. 

32. Until recently, the Commission’s 

abandoned plant policy was based on a 

50/50 sharing.23 The intent of this 

policy was to equitably balance the 

interests of ratepayers and investors. 

The Commission noted that the 

competing standards of ‘‘used and 

useful to the ratepayer’’ and ‘‘recovery 

of prudent investment’’ were both 

relevant and determined that 50 percent 

of the prudently incurred costs of a 

cancelled generating plant should be 

amortized as an expense over a period 

reflecting the life of the plant if it had 

been completed and that the remaining 

50 percent of the prudently incurred 

costs of the cancelled plant should be 

written off as a loss.24 The Commission 

in Public Service Company of New 

Mexico,25 extended its abandoned plant 

policy to include transmission projects, 

finding that the policy was not limited 

to generation facilities only, or to 

facilities that had no customer support 

or involvement or to cancellations that 

were the result of economics. 

33. The policy was further expanded 

in a recent decision by the Commission 

to allow Southern California Edison 

Company (SoCal Edison) to recover all 

prudently incurred costs related to 

certain proposed transmission facilities 

if those facilities were later cancelled or 

abandoned.26 The Commission noted 

that the company’s management did not 

control the decision to develop or 

cancel the wind farm generation project 

and that the company’s shareholders 

did not share in the earnings associated 

with the generation project. The 

Commission further determined that the 

company might be at a higher risk in 

developing the project because of factors 

beyond its control, such as a developer’s 

decision to develop or terminate 

development of the project. It also noted 

that SoCal Edison was not a wind farm 

developer and therefore would not 

directly benefit from the facilities. Thus, 

the Commission concluded that SoCal 

Edison should not shoulder the risk of 

the project.27

34. We believe that extension of the 

recent precedent on abandoned plant 

cost recovery is warranted in light of the 

need to attract new transmission 

investment. We propose to permit 

recovery of 100 percent of the prudently 

incurred costs of transmission facilities 

that are cancelled or abandoned due to 

factors beyond the control of the public 

utility because it will reduce regulatory 

uncertainty associated with investments 

in new transmission capacity and 

therefore meet the objectives of FPA 

section 219. We seek comment on this 

proposal. 

6. Deferred Cost Recovery 

35. Public utilities with a retail rate 

moratorium may have less incentive to 

build transmission facilities that could 

reduce congestion or ensure reliability 

because of concerns about cost recovery 

for those facilities. Accordingly, the 

Commission proposes to permit such 

utilities to use a deferred cost recovery 

mechanism which allows them to 

commence recovery of new facility costs 

in FERC-jurisdictional rates at the end 

of a retail rate moratorium. By providing 

a mechanism to facilitate cost recovery 

by public utilities that build 

transmission facilities during a retail 

rate moratorium, we will meet the goals 

of FPA section 219 by providing 

certainty to investors that costs can be 

recovered as quickly as possible.28 We 

seek comment on whether there are 

other mechanisms that the Commission 

could institute to provide regulatory 

certainty of the recovery of the costs of 

transmission facilities both through 

retail as well as wholesale rates. 

B. Incentives for Transco Formation and 

Transco Investment 

36. While the incentives we are 

proposing in this rule should facilitate 

transmission expansion for all 

jurisdictional entities in furtherance of 

the goals of section 219, we recognize 

that for any transmission rate incentive 

that is approved by the Commission, 

utilities whose rates are 100 percent 

FERC jurisdictional may derive more 

benefit. Consequently, incentives may 

be more effective in fostering new 

transmission investment for transcos 

than for traditional public utilities that 

are dependent upon retail regulators for 

some portion of their transmission rate 

recovery. 

37. In this NOPR, the Commission 

proposes to define a transco as a standalone transmission company, approved 

by the Commission, which sells 

transmission service at wholesale and/ 

or on an unbundled retail basis, 

regardless of whether it is affiliated with 

another public utility. We invite 

comments on this proposed definition 

of transcos. 

38. We believe that transcos are an 

important part of the Commission’s 

mandate to support transmission 

capacity investments that reduce the 

cost of delivered power by reducing 

transmission congestion and that ensure 

reliability. This is because they have 

demonstrated the capability to invest, 

on a timely basis, significant amounts of 

capital in transmission projects and in 

efforts to reduce congestion. For 

example, Michigan Electric 

Transmission Company (METC) is 

doubling the net book value of its 

71414 Federal Register / Vol. 70, No. 228 / Tuesday, November 29, 2005 / Proposed Rules 

29April 22, 2005 Technical Conference, Tr. 187 

(statement of Paul McCoy, Trans-Elect, Inc.). 

30April 22, 2005 Technical Conference, Tr. 192 

(statement of Dan Langren, American 

Transmission). 

31See American Transmission’s 10-Year 

Transmission System Assessment Summary Report 

2005 at p. 12, which is available on ATC’s Web site 

at http://www.atc10yearplan.com. 

32April 22, 2005 Technical Conference, Tr. 79 

(statement of Joe Welch, International 

Transmission). 

33See, e.g., ITC Holdings Corp., 102 FERC ¶

61,182 at P 62, reh’g denied, 104 FERC ¶ 61,033 

(2003) (ITC Holdings Corp.) (‘‘Moreover, we believe 

that International Transmission’s for-profit, standalone transmission business will bring significant 

benefits through, among other things, improved 

asset management, development of innovative 

services, and improved access to capital markets 

given a more focused business model than that of 

vertically-integrated utilities.’’); TRANSLink 

Transmission Co., L.L.C., 99 FERC ¶ 61,106 at 

61,455 (2002), order on reh’g, 101 FERC ¶ 61,140 

(2003) (‘‘We have recognized that the ITC business 

model can bring significant benefits to the industry. 

Their for-profit nature with a focus on the 

transmission business is ideally suited to bring 

about: (1) Improved asset management including 

increased investment; (2) improved access to capital 

markets given a more focused business model than 

that of vertically-integrated utilities; (3) 

development of innovative services; and (4) 

additional independence from market 

participants.’’). 

34See April 22, 2005 Technical Conference, Tr. 

44 (statement of Jon Larson, Trimaran Capital 

Partners). 

35We also note that, as entities that do not own 

or control generation assets, transcos further ensure 

non-discriminatory transmission service. 

36 Michigan Electric Transmission Co., LLC, 105 

FERC ¶ 61,214 (2003); ITC Holdings Corp., supra 

note 33. 

37Section 35.34(b)(2) of the Commission’s RTO 

regulations defines a market participant as: 

(i) Any entity that, either directly or through an 

affiliate, sells or brokers electric energy, or provides 

ancillary services to the [RTO], unless the 

Commission finds that the entity does not have 

economic or commercial interests that would be 

significantly affected by the [RTO’s] actions or 

decisions; and 

(ii) Any other entity that the Commission finds 

has economic or commercial interests that would be 

significantly affected by the [RTO’s] actions or 

decisions. 

38See, e.g., International Transmission Co., 92 

FERC ¶ 61,276 at 61,915–16 (2000) (explaining 

potential disincentives to sellers and buyers of 

transmission system over seven years.29

Similarly, since launching its capital 

program in 2001, American 

Transmission has more than doubled 

the net book value of its system, much 

of which is in a highly congested area 

in the Midwest Independent 

Transmission System Operator 

(Midwest ISO),30 and plans to invest 

$3.4 billion over the next 10 years.31 In 

addition, International Transmission 

Company (International Transmission) 

made transmission investments of $81 

million in 2004 and plans to invest $100 

million in 2005.32

1. ROE-Based Incentive for Transcos 

39. The positive record of transco 

investment in transmission facilities is, 

we believe, related to the stand-alone 

nature of these entities. For instance, 

transcos may be better situated to meet 

the transmission infrastructure goals of 

the FPA section 219 because they 

eliminate the competition for capital 

between the generation and 

transmission functions within 

corporations. In addition, transcos, 

unlike some traditional public utilities, 

do not face a potential decrease in value 

to their generation assets as a result of 

additional transmission. Further, by 

their structure, transcos have incentives 

to better manage transmission assets, 

have incentives to develop innovative 

services, and may have better access to 

capital markets given a more focused 

business model.33 Also, because 

transcos’ sole focus is on the business of 

transmission, they may be in a better 

position to respond to market signals 

that indicate when and where 

transmission investment is needed, and, 

therefore, are more likely to yield 

additional capital investment in 

transmission. Unlike investments by 

traditional public utilities subject to 

company-wide state-level rate case risks 

that can undermine incentive 

ratemaking at the Federal level,34

ratemaking for transcos is entirely 

subject to Federal jurisdiction. Thus, 

unlike many traditional public utilities, 

transcos avoid potential uncertainty 

associated with the need for additional 

rate recovery approval by state 

regulatory agencies. 

40. Given the positive contribution to 

transmission investment made by 

transcos in the relatively short period 

since their creation, we believe the 

formation of additional transcos will 

promote needed investment in 

transmission facilities and we therefore 

want to encourage their formation.35 As 

part of this encouragement of transco 

formation, we will permit properly 

structured transcos to receive an ROE 

that both encourages transco formation 

and is sufficient to attract investment. 

For example, the Commission approved 

equity returns for METC and 

International Transmission that reflect 

the significant benefits that their status 

as transcos provide, and are higher than 

those approved for integrated entities.36

Continuing to allow a higher ROE (that 

falls within a zone of reasonableness) in 

recognition of the benefits transcos 

provide, we believe, is an appropriate 

way to ensure that the objectives of new 

FPA section 219 are achieved. 

Therefore, the Commission will 

consider the positive impact transcos 

have on transmission investment and in 

turn on the reliable and economically 

efficient transmission and generation of 

electricity when it evaluates ROEs 

proposed by properly structured 

transcos. 

41. We recognize that transcos can be 

structured with varying degrees of 

independence, ranging from entities 

where some measure of control and/or 

ownership continues to be exercised by 

market participants 37 to total structural 

independence, such as International 

Transmission and METC. The 

Commission’s Transco Independence 

Policy Statement recognized the range 

of independence that would be 

acceptable for Commission approval, 

including passive ownership subject to 

the evaluation of factors that affect the 

independent operation, planning and 

construction of transmission systems. 

42. Furthermore, the Commission 

believes that the expansion and 

investment objectives of section 219 are 

best met by a definition of transcos that 

does not restrict the formation of 

transcos to only certain organized 

markets. Therefore, the Commission 

proposes to clarify and broaden the 

definition of transcos to be stand-alone 

transmission companies approved by 

the Commission, without a condition of 

membership in a RTO or ISO. We 

request comment on how to factor the 

level of independence into any request 

for ROE-based incentives for transcos. 

We seek comment on whether the 

Commission should specify additional 

incentive levels, that remain within the 

zone of reasonableness, to correspond to 

certain levels of independence and if so, 

what those amounts should be. We also 

seek comments concerning whether 

membership in an RTO or ISO should 

be considered in setting incentive-based 

ROEs approved by the Commission for 

a transco. We also seek comment on 

whether the Commission should 

reconsider how it establishes a zone of 

reasonableness associated with standalone transmission companies. 

2. Recovery of Accumulated Deferred 

Income Taxes (ADIT) 

43. In order to encourage transco 

formation, we must also remove 

disincentives that might prevent the sale 

or purchase of transmission assets. For 

example, transmission owners are 

unlikely to sell transmission assets at 

book value if they are not held harmless 

from capital gains taxes on such sales by 

including an adjustment for taxes 

associated with those sales. At the same 

time, buyers of transmission assets may 

be unwilling to pay such an adjustment 

without some assurance that they will 

be able to recover the adjustment in 

their rate base.38 The Commission 

Federal Register / Vol. 70, No. 228 / Tuesday, November 29, 2005 / Proposed Rules 71415 

transmission assets if the ADIT adjustment is not 

granted). 39See ITC Holdings Corp., 102 FERC ¶ 61,182 at 

P 62 (with regard to International Transmission 

Company); Trans-Elect, Inc., 98 FERC ¶ 61,368 at 

62,590 (2002) (with regard to METC). 40Regional Transmission Organizations, Order 

No. 2000, 65 FR 809 (Jan. 6, 2000), FERC Stats. & 

Regs., Regulations Preambles July 1996–December 

2000 ¶ 31,089 (1999), order on reh’g, Order No. 

2000–A, 65 FR 12088 (Mar. 8, 2000), FERC Stats. 

& Regs., Regulations Preambles July 1996–December 

2000 ¶ 31,092 (2000), aff’d sub nom. Public Utility 

District. No. 1 of Snohomish County, Washington v. 

FERC, 272 F.3d 607 (D.C. Cir. 2001). 

41An Electric Reliability Organization is the 

organization certified by the Commission to 

establish and enforce reliability standards for the 

bulk power system, subject to Commission review. 42See 18 CFR 35.34(e)(4) (2005). 

addressed those concerns in two orders 

in which it allowed two Transcos 

(International Transmission and METC) 

to include in their rates an adjustment 

to recover ADIT.39 To remove any 

disincentive, the Commission will 

continue to consider proposals to 

include adjustments for ADIT in rates 

when a transco is purchasing 

transmission facilities. In addition, we 

clarify that a transco that requests an 

incentive ROE would not be precluded 

from also requesting the ADIT 

adjustment 

3. Other Potential Incentives for 

Transcos 

44. We seek comments on whether 

there are other potential rate treatments 

that would provide incentives to form 

transcos and promote capital investment 

or reduce disincentives to the 

divestiture of transmission facilities. Do 

any of the incentives we are proposing 

need to be modified or adapted to 

recognize the inherent regulatory 

differences between transcos and 

traditional public utilities? 

C. ROE Incentive for Joining a 

Transmission Organization 

45. FPA section 219 requires that the 

Commission issue a rule to provide 

incentives to transmitting or electric 

utilities that join a Transmission 

Organization and to ensure that any 

recoverable costs associated with 

joining may be recovered through 

transmission rates charged by the utility 

or through the rates charged by the 

Transmission Organization. For certain 

RTOs, such as the Midwest ISO and the 

Pennsylvania-New Jersey-Maryland 

Interconnection (PJM), the Commission 

has considered incentives for public 

utilities that join an RTO by allowing a 

public utility that joins an RTO to 

receive an ROE within the zone of 

reasonableness that is higher than it 

would have received had it not joined. 

We will continue to consider requests 

for ROE-based incentives for utilities 

that join an RTO, in recognition of the 

benefits such organizations bring to 

customers, as outlined in detail in Order 

No. 2000.40 In addition, we will 

consider similar requests by utilities 

that join an ISO for an incentive ROE 

that, while still in the zone of 

reasonableness, is higher than the ROE 

the Commission might otherwise allow 

if the utility did not join. We will 

require a public utility to make a request 

for the incentive by making a filing with 

the Commission under section 205 of 

the FPA. 

46. We also seek comment on whether 

the Commission should consider 

incentive-based ROE requests for public 

utilities that are not in an RTO but that 

join a Commission-approved regional 

planning organization. 

D. Approval of All Prudently Incurred 

Costs Associated With Reliability 

Standards and Transmission 

Infrastructure Development 

47. Under new FPA section 215 

(Electric Reliability), an Electric 

Reliability Organization may propose, 

and the Commission may approve by 

rule or order, reliability standards.41

New FPA section 219(b)(4)(A) requires 

that the Commission allow recovery of 

all prudently incurred costs necessary to 

comply with these mandatory reliability 

standards. Proposed new section 

35.35(f) allows for such recovery. 

48. New FPA section 216 (siting of 

interstate electric transmission facilities) 

gives the Commission certain backstop 

siting authority for transmission 

facilities when the Secretary of Energy 

designates a geographic area 

experiencing electric transmission 

capacity constraints or congestion that 

adversely affects consumers as a 

National Interest Electric Transmission 

Corridor. New FPA section 219(b)(4)(B) 

requires that the Commission allow 

recovery of all prudently incurred costs 

related to infrastructure development 

pursuant to new section 216. Proposed 

new section 35.35(g) allows for recovery 

of such prudently incurred costs. 

E. Commission Reporting Requirement 

49. To provide a basis for determining 

the effectiveness of the proposed rules 

and to provide the Commission with an 

accurate assessment of the state of the 

industry with respect to transmission 

investment, proposed section 35.35(h) 

would require that jurisdictional public 

utilities provide information annually 

on their current and projected 

transmission investment activity. This 

information would be reported to the 

Commission on a proposed new form 

which would consist of a basic 

spreadsheet. For purposes of this NOPR, 

the proposed form is designated as 

‘‘Form X.’’ It is an appendix to this 

NOPR. 

F. Proposal To Remove 18 CFR 35.34(e) 

Concerning Innovative Transmission 

Rate Treatments for RTOs 

50. Section 35.34(e) of the 

Commission’s regulations provides that 

the Commission will consider 

authorizing certain innovative 

transmission rate treatments for an 

approved RTO, including: A 

transmission rate moratorium; 

innovative treatment of rates of return; 

non-traditional depreciation schedules 

for new transmission investment; 

transmission rates based on levelized 

recovery of capital costs; transmission 

rates that combine elements of 

incremental cost pricing for new 

transmission facilities with an 

embedded-cost access fee for existing 

transmission facilities; and 

performance-based transmission rates. 

51. Unless otherwise ordered by the 

Commission, the authorization for RTOs 

to include innovative rate treatments in 

their rates expired after January 1, 2005, 

with respect to transmission rate 

moratoriums and rates of return that do 

not vary with capital structure.42

52. In view of section 219’s mandate 

to provide incentives to the entities 

identified therein and in order to avoid 

confusion that could arise from 

potential conflicts between innovative 

rate treatments available under section 

35.34(e) and the proposed incentives 

discussed in this proposed rule, the 

Commission proposes to remove section 

35.34(e) from the regulations. 

G. Other Options 

53. To fully meet the requirements of 

section 219, the Commission must 

consider all incentives that will 

encourage capital spending that reduces 

congestion and ensures reliability, 

including incentives that have not been 

fully evaluated by the Commission, or 

may require additional modifications to 

past Commission policy. Accordingly, 

the Commission is proposing that 

eligible incentives not be limited to the 

list of proposed incentives, but also 

include any potential incentives 

proposed by public utilities and 

ultimately approved by the Commission 

that are determined to be just and 

reasonable, and not unduly 

discriminatory or preferential. To 

facilitate comments on the full range of 

eligible incentives, we identify several 

potential incentives and their 

applicability to FPA section 219. We 

request comments on these potential 

71416 Federal Register / Vol. 70, No. 228 / Tuesday, November 29, 2005 / Proposed Rules 

43See, e.g., City of Westerville, Ohio v. Columbus 

Southern Power Co., 111 FERC ¶ 61,307 at P 18 & 

n.11 (2005). 

44See Removing Obstacles, supra note 20, for one 

type of approach utilizing a limited section 205 

filing. 

45See, e.g., UtiliCorp United Inc. and Centel 

Corp., 56 FERC ¶ 61,031 at 61,120 & nn. 26–28, 

reh’g denied, 56 FERC ¶ 61,427 at 62,528–29 (1991); 

Minnesota Power & Light Co., 43 FERC ¶ 61,104 at 

61,341–42, reh’g denied, 43 FERC ¶ 61,502 (1989), 

appeal dismissed, No. 88–2234 (8th Cir. Sept. 14, 

1989). While the proposed ADIT incentive 

discussed above would adjust book value and 

therefore may be considered a premium on net book 

value, we note that the acquisition premium 

discussed here is separate and distinct from the 

proposed ADIT incentive. 

46See April 22, 2005 Technical Conference, 

Docket No. AD05–5–000, Tr. 44–45 (statement of 

Jon Larsen, Trimaran Capital Partners); Tr. 215 

(statement of Christopher Leslie, MacQuarie 

Securities (USA), Inc.). 

47The Commission has approved performancebased rates for oil pipelines based on this model. 

See Revisions To Oil Pipeline Regulation Pursuant 

to the Energy Policy Act of 1992, Order No. 561, 

FERC Stats. & Regs. ¶ 30,985 (1993), 58 FR 58753 

(Nov. 4, 1993), order on reh’g, Order No. 561–A, 

FERC Stats. & Regs. ¶ 31,000 (1994), 59 FR 40243 

(Aug. 8, 1994), aff’d, Association of Oil Pipelines v. 

FERC, 83 F.3d 1424 (D.C. Cir. 1996). 

48The term ‘‘public power’’ as used in this NOPR 

refers to such traditional entities as municipal and 

cooperatively owned utilities, state power 

authorities, Federal power marketing 

administrations and power authorities, and others 

that do not fall within the Commission’s FPA 

sections 205 and 206 ratemaking jurisdiction as 

public utilities. 

incentives and invite commenters to 

propose any other potential incentives. 

1. Single Issue Ratemaking 

54. We recognize that transmission 

pricing issues are some of the most 

difficult issues facing the industry and 

that the Commission’s policy of not 

allowing selective adjustments to a costof-service may serve as a disincentive to 

transmission investment.43 Certain 

applicants for incentive rate-making 

treatment will be making investments 

potentially affecting currently effective 

transmission rates on file at the 

Commission. Potential applicants may 

consider the time requirements and the 

uncertainties associated with rate 

proceedings that encompass their entire 

transmission systems to be disincentives 

to making incentive filings, as specified 

in this NOPR. To ensure that the 

approval process for incentive treatment 

is as streamlined as possible, thereby 

ensuring timely infrastructure 

investments, the Commission is willing 

to consider incentive filings that 

propose rates applicable only to the new 

transmission project.44 Such an 

incentive would be applicable to both 

Transcos and traditional public utilities. 

We invite comments on this option. 

2. Acquisition Premiums for Transco 

Creation 

55. The Commission has historically 

allowed acquisition adjustments (the 

premium paid above net book value) in 

rates only upon a specific showing of 

ratepayer benefit.45 However, given the 

positive contributions of transcos on 

transmission investment noted above, it 

may be appropriate to adopt a new 

policy regarding the recovery in rates of 

an acquisition premium for purchases of 

transmission facilities by a transco.46

We request comments on whether the 

Commission should make a generic 

determination that general benefits 

would accrue to ratepayers as a result of 

transco formation. We also seek 

comment on whether any change in the 

acquisition premium/ratepayer benefits 

review at the Federal level would risk 

increased resistance to such acquisitions 

at the state level. And, we seek 

comment on whether there are other 

mechanisms that the Commission could 

institute to provide regulatory certainty 

of the recovery of the acquisition 

premium both through retail as well as 

wholesale rates. Also, we seek comment 

on what measure the Commission might 

use in evaluating the appropriateness of 

such premiums as measured against, for 

example, the size of the premium, the 

location of the assets, the level of 

independence of the transco, and other 

relevant factors. 

H. Other Issues for Comment 

56. In addition to seeking comments 

on the proposed rules and options 

contained herein, the Commission seeks 

comments on the following issues: 

1. Performance-Based Ratemaking 

57. Because it is difficult to observe 

directly the level of effort a utility, 

transmission company, ISO or RTO 

expends on cutting costs and improving 

efficiency, performance-based 

regulation may provide a valuable tool 

to motivate transmission entities to 

maintain and operate their systems 

reliably and efficiently. In addition to 

incentive regulation proposed in this 

NOPR to encourage expansion of the 

electric transmission system generally, 

performance-based regulation would 

establish rewards for cost saving 

measures or specific performance (apart 

from transmission expansions). 

Common performance-based models 

include: (1) Price-cap regulation which 

places ceilings on the average price that 

a regulated company can charge, 

allowing the company rate flexibility;47

(2) targeted incentives, which give a 

regulated company incentives to 

improve specific components of its 

operation; and (3) benchmark incentives 

which establish rewards based on the 

performance of a reference group 

performing similar activities. The 

Commission seeks comment on specific 

methods to incent efficiency in the 

maintenance and operation of existing 

transmission facilities, including rate 

moratoria as well as sophisticated 

methods of performance based 

ratemaking based on specific 

performance metrics. 

58. We seek comment on ways 

performance-based regulation might 

apply to for-profit transcos and 

traditional public utilities, and not-forprofit public utility ISOs and RTOs. In 

the case of for-profit entities, we seek 

comment on specific transmission 

performance metrics and other relevant 

quality-of-service measures that should 

be subject to a performance standard. 

The Commission seeks comment on 

whether there should be mechanisms 

for sharing gains with ratepayers and, if 

so, what those mechanisms should be. 

In the case of not-for-profit public utility 

ISOs and RTOs, we seek comment on 

whether and how performance-based 

regulation developed for for-profit 

entities might be applied to not-forprofit entities. For example, we are 

interested in comments on whether and 

how executive performance measures 

might be relevant, and whether and how 

performance might be benchmarked to 

that of for-profit entities or other not-forprofit entities. Further, in the discussion 

of advanced technologies, infra, we seek 

comment on whether performancebased benchmarks for transmission 

costs would provide incentives for the 

deployment of advanced technologies. 

2. The Role of Public Power 

59. Although the transmission 

infrastructure provisions of section 219 

apply only to public utilities, it is 

important that the Commission 

encourage needed transmission 

expansion from all sectors of the 

industry, including public power.48

Public power has demonstrated its 

ability to provide capital and build 

transmission capacity in some of the 

most critical transmission projects. For 

example, public power participates as 

an equity owner in the American 

Transmission transco, providing capital 

to fund transmission construction in a 

highly congested market. In addition to 

equity ownership, public power entities 

have shown that they can participate in, 

and benefit from, grid expansion 

opportunities as counterparties to longterm contracts such as the long-term 

commitment to purchase capacity from 

transmission projects that are needed to 

allow such projects to go forward. The 

Long Island Power Authority’s (LIPA) 

Federal Register / Vol. 70, No. 228 / Tuesday, November 29, 2005 / Proposed Rules 71417 

49See LIPA’s description at http://www.

lipower.org/projects/neptune.html. 

50See April 22, 2005 Technical Conference, Tr. 

166 (statement of Joe Desmond, Deputy Secretary of 

Energy for the State of California). 

51See April 22, 2005 Technical Conference, Tr. 

75–76, Tr. 123–124 (statement of Audrey Zibelman, 

PJM Interconnection); Supplemental Comments of 

PJM Interconnection at p. 4 (submitted May 2, 2005, 

Docket No. PL03–1–000). 

52New FPA section 219(b)(3), added by EPAct 

2005, requires that the rule established pursuant to 

section 219 ‘‘encourage deployment of transmission 

technologies and other measures to increase the 

capacity and efficiency of existing transmission 

facilities and improve the operation of the 

facilities.’’ 53 5 CFR 1320.13 (2005). 

success in the Cross Sound Cable 

project’s open season resulted in LIPA 

securing long-term rights to schedule 

power between nodes in two RTOs. 

LIPA also obtained rights for 20 years to 

all 660 megawatts on the Neptune 

merchant transmission project, a 67- 

mile-long cable capable of transporting 

electricity to Long Island, and in 

conjunction with the Cross Sound Cable 

between New Haven, Connecticut, and 

Shoreham, will, according to LIPA, 

open up an energy corridor from the 

Mid-Atlantic states through Long Island 

into New England and Canada.49

60. Another option is for public 

power to participate in specific 

transmission projects along with 

developers with other business models. 

For example, Western Area Power 

Administration helped the Path 15 

project to move forward by serving as 

project manager, acquiring needed land 

rights, and owning the transmission line 

and the land. When public power 

entities voluntarily participate in grid 

investments with entities that are under 

the Commission’s rate jurisdiction, 

those non-jurisdictional public power 

entities can benefit from the rate 

policies described in this NOPR that 

provide for improved certainty and 

possibly enhanced revenues. 

61. New forms of public power 

entities may also be formed to address 

infrastructure challenges. For example, 

the western states spearheading the 

development of the Frontier 

transmission line project (Frontier Line) 

are identifying potential business 

models to complete the project. 

Participants in the planning of the 

Frontier Line are looking to the 

Commission to, among other things, 

provide the necessary certainty to attract 

investment to this type of project,50 and 

incentives in this proposed rule may 

encourage interest in this type of 

regional partnership, which involve 

both public and private entities across 

several states. 

62. A consortium approach to 

building new transmission may also 

provide an avenue for public power to 

participate in new transmission 

projects. Under a consortium approach, 

as described by PJM,51 the RTO 

planning process becomes the platform 

to facilitate development of 

transmission business solutions—

solutions in which all parties can 

participate. For example, should public 

power wish to lend its access to lower 

cost financing to help fund such a 

project, the planning process would 

become the forum for such discussions. 

63. Given the importance of public 

power participation and the 

requirements of section 219, we request 

comments on what actions the 

Commission should take in this 

rulemaking to encourage public power 

participation in new transmission 

projects. For example, would the 

consortium approach help to promote 

expansion of the transmission grid? If 

so, should consortia receive incentives 

similar to those proposed for Transcos, 

and what, if any, additional incentives 

could the Commission provide to 

encourage such consortia? 

3. Advanced Technology 

64. We also want to encourage the use 

of advanced technology in new 

transmission projects.52 Advanced 

transmission technologies are defined in 

section 1223 of EPAct 2005 to be 

technologies that increase the capacity, 

efficiency, or reliability of an existing or 

new transmission facility, including: 

(1) High-temperature lines (including 

superconducting cables); 

(2) Underground cables; 

(3) Advanced conductor technology 

(including advanced composite 

conductors, high temperature low-sag 

conductors, and fiber optic temperature 

sensing conductors); 

(4) High-capacity ceramic electric 

wire, connectors, and insulators; 

(5) Optimized transmission line 

configurations (including multiple 

phased transmission lines); 

(6) Modular equipment; 

(7) Wireless power transmission; 

(8) Ultra-high voltage lines; 

(9) High-voltage DC technology; 

(10) Flexible AC transmission 

systems; 

(11) Energy storage devices (including 

pumped hydro, compressed air, 

superconducting magnetic energy 

storage, flywheels, and batteries); 

(12) Controllable load; 

(13) Distributed generation (including 

PV, fuel cells, and microturbines); 

(14) Enhanced power device 

monitoring; 

(15) Direct system state sensors; 

(16) Fiber optic technologies; 

(17) Power electronics and related 

software (including real time monitoring 

and analytical software); 

(18) Mobile transformers and mobile 

substations; and 

(19) Any other technologies the 

Commission considers appropriate. 

65. Generally, we expect that the 

proposed incentives discussed in this 

NOPR, including the ROE-based 

incentives, will stimulate investment in 

new transmission facilities, which will, 

in turn, provide opportunities for the 

deployment of innovative technologies 

for those new transmission facilities. 

Consequently, providing the proposed 

incentives will fulfill the requirement of 

section 219(b)(3) to encourage 

deployment of transmission 

technologies and other measures to 

increase the capacity and efficiency of 

existing transmission facilities and 

improve the operation of facilities. We 

ask for comments on whether, in 

applications for incentive-based 

treatment, we should require a 

technology statement. This technology 

statement could, for example, describe 

what advanced transmission 

technologies were considered and, if 

those technologies were not employed, 

why not. We also seek comment on any 

other incentives that the Commission 

could offer to fulfill the goals of section 

219(b)(3) regarding transmission 

technologies. 

66. We seek comment on whether 

performance-based benchmarks for 

transmission costs would provide 

incentives for the deployment of 

advanced technologies. In this risksharing approach, the project sponsor 

would be allowed to recover costs up to 

a benchmark level and ratepayers would 

be protected from costs above the 

benchmark level. If the new technology 

is adopted and fails to live up to 

expectations, how are those costs shared 

with ratepayers? And, if the new 

technology is successful, how are the 

gains shared with ratepayers? 

67. In addition to the comments 

invited above, the Commission 

welcomes comments on additional 

provisions that commenters believe 

would accomplish the transmission 

infrastructure objectives of the Act. 

IV. Information Collection Statement 

68. The Office of Management and 

Budget (OMB) regulations require 

approval of certain information 

collection requirements imposed by 

agency rules.53 Upon approval of a 

collection(s) of information, OMB will 

assign an OMB control number and an 

expiration date. Respondents subject to 

71418 Federal Register / Vol. 70, No. 228 / Tuesday, November 29, 2005 / Proposed Rules 

54 44 U.S.C. 3507(d) (2000). 

55Order No. 486, Regulations Implementing the 

National Environmental Policy Act, 52 FR 47897 

(Dec. 17, 1987), FERC Stats. & Regs., Regulations 

Preamble 1986–1990 ¶ 30,783 (1987). 

56 18 CFR 380.4 (2005). 

57 18 CFR 380.4(a)(2)(ii) and 380.4(a)(15). 

the filing requirements of this rule will 

not be penalized for failing to respond 

to these collections of information 

unless the collections of information 

display a valid OMB control number. 

The NOPR amends the Commission’s 

regulations to implement the statutory 

provisions of section 1241 of EPAct 

2005. The Act directs the Commission 

to establish incentive-based (including 

performance-based) rate treatments for 

the transmission of electric energy in 

interstate commerce by public utilities 

in order to benefit consumers by 

ensuring reliability and reducing the 

cost of delivered power by relieving 

transmission congestion. Entities 

seeking to build new transmission 

facilities must file under part 35 of the 

Commission’s regulations, an 

application describing how the entity 

will bring benefits to the grid. The 

information provided for under part 35 

is identified as FERC–516. 

69. The Commission is submitting 

these reporting requirements to OMB for 

its review and approval under section 

3507(d) of the Paperwork Reduction 

Act.54 Comments are solicited on the 

Commission’s need for this information, 

whether the information will have 

practical utility, the accuracy of 

provided burden estimates, ways to 

enhance the quality, utility, and clarity 

of the information to be collected, and 

any suggested methods for minimizing 

the respondent’s burden, including the 

use of automated information 

techniques. 

Burden Estimate: The Public 

Reporting burden for the requirements 

contained in the NOPR is as follows: 

Data collection Number of 

respondents 

Number of 

responses 

Hours per 

response 

Total annual 

hours 

FERC–516 

Transco ..................................................................................................... 30 1 296 8,880 

Traditional Public Utilities ......................................................................... 200 1 211 42,200 

Totals ................................................................................................. 230 1 222 51,080 

Total Annual Hours for Collection: 

(Reporting + recordkeeping, (if 

appropriate)= 51,080 hours. 

Information Collection Costs: The 

Commission seeks comments on the 

costs to comply with these 

requirements. It has projected the 

average annualized cost to be the total 

annual hours of 51,080 times $120 = 

$6,129,600. (The hourly rate was 

determined by taking the median annual 

salary from Bureau of Labor Statistics, 

Department of Labor Occupational 

Outlook Handbook. The figures reported 

by BLS are for 2002 and added to them 

was an inflation factor of 4.73 percent 

for the period January 2003 through 

December 2004.) 

Title: FERC–516 ‘‘Electric Rate 

Schedule Filings.’’

Action: Proposed Collections. 

OMB Control No: 1902–0096. 

Respondents: Business or other for 

profit. 

Frequency of Responses: On occasion 

for applicants and annually for 

transmission investment report. 

Necessity of the Information: This 

proposed rule, if adopted, would 

implement the Congressional mandate 

of the Energy Policy Act of 2005 to 

establish incentive-based (including 

performance-based) rate treatments for 

the transmission of electric energy in 

interstate commerce. This mandate 

addresses an identified need to 

encourage construction of transmission 

infrastructure and encourage 

investment. Sufficient supplies of 

energy and a reliable way to transport 

those supplies are necessary to assure 

reliable energy availability and to enable 

competitive markets. Without sufficient 

delivery infrastructure, some suppliers 

will not be able to enter the market, 

customer choices will be limited, and 

prices may be needlessly higher or 

volatile. The implementation of 

incentive and performance-based rate 

treatments support the Commission’s 

mandate to support investments in 

transmission capacity to reduce the cost 

of delivered power by reducing 

congestion. 

Internal review: The Commission has 

reviewed the requirements pertaining to 

public utilities and transmission 

companies and determined the 

proposed requirements are necessary to 

meet the statutory provisions of the 

Energy Policy Act of 2005. 

70. These requirements conform to 

the Commission’s plan for efficient 

information collection, communication 

and management within the energy 

industry. The Commission has assured 

itself, by means of internal review, that 

there is specific, objective support for 

the burden estimates associated with the 

information requirements. 

71. Interested persons may obtain 

information on the reporting 

requirements by contacting: Federal 

Energy Regulatory Commission, 888 

First Street, NE., Washington, DC 20426 

[Attention: Michael Miller, Office of the 

Executive Director, Phone: (202) 502–

8415, fax: (202) 273–0873, e-mail: 

michael.miller@ferc.gov]. Comments on 

the requirements of the proposed rule 

may also be sent to the Office of 

Information and Regulatory Affairs, 

Office of Management and Budget, 

Washington, DC 20503 [Attention: Desk 

Officer for the Federal Energy 

Regulatory Commission]. 

V. Environmental Analysis 

72. The Commission is required to 

prepare an Environmental Assessment 

or an Environmental Impact Statement 

for any action that may have a 

significant adverse effect on the human 

environment.55 The Commission has 

categorically excluded certain actions 

from these requirements as not having a 

significant effect on the human 

environment.56 The actions proposed 

here fall within categorical exclusions 

in the Commission’s regulations for 

promulgation of rules that are clarifying, 

corrective, or procedural, and for 

electric rate filings submitted by public 

utilities, the establishment of just and 

reasonable rates, and confirmation, 

approval and disapproval of rate filings 

submitted by Federal power marketing 

agencies.57 Therefore, an environmental 

assessment is unnecessary and has not 

been prepared for this NOPR. 

Federal Register / Vol. 70, No. 228 / Tuesday, November 29, 2005 / Proposed Rules 71419 

58 5 U.S.C. 601–612 (2000). 

VI. Regulatory Flexibility Act 

Certification 

73. The Regulatory Flexibility Act 

(RFA) 58 requires that a rulemaking 

contain either a description and analysis 

of the effect that the proposed rule will 

have on small entities or a certification 

that the rule will not have a significant 

economic impact on a substantial 

number of small entities. However, the 

RFA does not define ‘‘significant’’ or 

‘‘substantial’’ instead leaving it up to 

any agency to determine the impacts of 

its regulations on small entities. The 

proposed regulations would not have a 

significant adverse impact on a 

substantial number of small entities. 

The proposed rule applies only to 

entities that own, control, or operate 

facilities for transmitting electric energy 

in interstate commerce and not to 

electric utilities per se. Small entities 

that believe this proposed rule will have 

a significant impact on them may apply 

to the Commission for waivers. 

VII. Comment Procedures 

74. The Commission invites interested 

persons to submit comments on the 

matters and issues proposed in this 

notice to be adopted, including any 

related matters or alternative proposals 

that commenters may wish to discuss. 

Comments are due on or before January 

11, 2006. Comments must refer to 

Docket No. RM06–4–000, and must 

include the commenter’s name, the 

organization they represent, if 

applicable, and their address in their 

comments. Comments may be filed 

either in electronic or paper format. 

75. Comments may be filed 

electronically via the eFiling link on the 

Commission’s Web site at http:// 

www.ferc.gov. The Commission accepts 

most standard word processing formats 

and commenters may attach additional 

files with supporting information in 

certain other file formats. Commenters 

filing electronically do not need to make 

a paper filing. Commenters that are not 

able to file comments electronically 

must send an original and 14 copies of 

their comments to: Federal Energy 

Regulatory Commission, Office of the 

Secretary, 888 First Street NE., 

Washington, DC 20426. 

76. All comments will be placed in 

the Commission’s public files and may 

be viewed, printed, or downloaded 

remotely as described in the Document 

Availability section below. Commenters 

on this proposal are not required to 

serve copies of their comments on other 

commenters. 

VIII. Document Availability 

77. 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 p.m. Eastern time) at 888 First 

Street, NE., Room 2A, Washington, DC 

20426. 

78. From FERC’s Home Page on the 

Internet, this information is available in 

the Commission’s document 

management system, 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. 

79. User assistance is available for 

eLibrary and the FERC’s website during 

normal business hours. For assistance, 

please contact the Commission’s Online 

Support at 1–866–208–3676 (toll free) or 

TTY (202) 502–8659, or e-mail at 

FERCOnlineSupport@ferc.gov. You may 

also contact the Public Reference Room 

at (202) 502–8371 or e-mail at 

public.referenceroom@ferc.gov. 

List of Subjects in 18 CFR Part 35 

Electric power rates, Electric utilities, 

Reporting and recordkeeping 

requirements. 

By direction of the Commission. 

Magalie R. Salas, 

Secretary. 

In consideration of the foregoing, the 

Commission proposes to amend part 35 

of Chapter I, Title 18, Code of Federal 

Regulations, as follows: 

PART 35—FILING OF RATE 

SCHEDULES AND TARIFFS 

1. The authority citation for part 35 

continues to read as follows: 

Authority: 16 U.S.C. 791a–825r, 2601–

2645; 31 U.S.C. 9701; 42 U.S.C. 7101–7352. 

Subpart F—Procedures and 

Requirements Regarding Regional 

Transmission Organizations 

§ 35.34 [Amended] 

2. In § 35.34, remove and reserve 

paragraph (e). 

3. A new subpart G is added to read 

as follows: 

Subpart G—Transmission 

Infrastructure Investment Provisions 

§ 35.35 Transmission infrastructure 

investment. 

(a) Purpose. This section establishes 

rules for incentive-based (including 

performance-based) rate treatments for 

transmission of electric energy in 

interstate commerce by public utilities 

for the purpose of benefiting consumers 

by ensuring reliability and reducing the 

cost of delivered power by reducing 

transmission congestion. 

(b) Definitions. 

(1) Transco means a stand-alone 

transmission company that has been 

approved by the Commission and that 

sells transmission services at wholesale 

and/or on an unbundled retail basis, 

regardless of whether it is affiliated with 

another public utility. 

(2) Transmission Organization means 

a Regional Transmission Organization, 

Independent System Operator, 

independent transmission provider, or 

other transmission organization finally 

approved by the Commission for the 

operation of transmission facilities. 

(c) General rule. All rates approved 

under the rules of this section, 

including any revisions to the rules, are 

subject to the filing requirements of 

sections 205 and 206 of the Federal 

Power Act and to the substantive 

requirements of sections 205 and 206 of 

the Federal Power Act that all rates, 

charges, terms and conditions be just 

and reasonable and not unduly 

discriminatory or preferential. 

(d) Incentive-based rate treatments for 

transmission infrastructure investment. 

The Commission will authorize any 

incentive-based rate treatment, as 

discussed in this paragraph (d), for 

transmission infrastructure investment, 

provided that the proposed incentivebased rate treatment is just and 

reasonable and not unduly 

discriminatory or preferential. An 

applicant’s request, to be made in a 

filing pursuant to section 205 of the 

Federal Power Act, or in a petition for 

a declaratory order that precedes a filing 

pursuant to section 205, must include a 

detailed explanation of how the 

proposed rate treatment justifies 

incentive-based (or performance-based) 

treatment based on the purposes and 

requirements of this section. For 

purposes of this paragraph (d), 

incentive-based rate treatment means 

any of the following: 

(1) The Commission will authorize 

the following incentive-based rate 

treatments for investment by public 

utilities, including Transcos, in new 

transmission capacity that reduces the 

cost of delivered power by reducing 

71420 Federal Register / Vol. 70, No. 228 / Tuesday, November 29, 2005 / Proposed Rules 

transmission congestion and ensures 

reliability, as demonstrated in an 

application to the Commission: 

(i) A rate of return on equity sufficient 

to attract new investment in 

transmission facilities; 

(ii) 100 percent of prudently incurred 

Construction Work in Progress (CWIP) 

in rate base; 

(iii) Recovery of prudently incurred 

pre-commercial operations costs; 

(iv) Hypothetical capital structure; 

(v) Accelerated regulatory book 

depreciation; 

(vi) Recovery of 100 percent of 

prudently incurred costs of transmission 

facilities that are cancelled or 

abandoned due to factors beyond the 

control of the public utility; 

(vii) Deferred cost recovery; and 

(viii) Any other incentives approved 

by the Commission, pursuant to the 

requirements of this paragraph, that are 

determined to be just and reasonable 

and not unduly discriminatory or 

preferential. 

(2) In addition to the incentives in 

paragraph (d)(1) of this section, the 

Commission will authorize the 

following incentive-based rate 

treatments for Transcos, provided that 

the proposed incentive-based rate 

treatment is just and reasonable and not 

unduly discriminatory or preferential: 

(i) A return on equity that both 

encourages Transco formation and is 

sufficient to attract investment; and 

(ii) An adjustment to the book value 

of transmission assets being sold to a 

transco to remove the disincentive 

associated with the impact of 

accelerated depreciation on federal 

capital gains tax liabilities. 

(e) Incentives for joining a 

Transmission Organization. The 

Commission will authorize an 

incentive-based rate treatment, as 

discussed in this paragraph (e), for 

public utilities that join a Transmission 

Organization, provided that the 

proposed incentive-based rate treatment 

is just and reasonable and not unduly 

discriminatory or preferential. 

Applicants for the incentive-based rate 

treatment must make a filing with the 

Commission under section 205 of the 

Federal Power Act. For purposes of this 

paragraph (e), an incentive-based rate 

treatment means a return on equity that 

is higher than the return on equity the 

Commission might otherwise allow if 

the public utility did not join a 

Transmission Organization. The 

Commission will also permit public 

utilities that join a Transmission 

Organization the ability to recover 

prudently incurred costs associated 

with joining the Transmission 

Organization, either through 

transmission rates charged by public 

utilities or through transmission rates 

charged by the Transmission 

Organization that provides services to 

the public utilities. 

(f) Approval of prudently-incurred 

costs. The Commission will approve 

recovery of prudently-incurred costs 

necessary to comply with the mandatory 

reliability standards pursuant to section 

215 of the Federal Power Act, provided 

that the proposed rates are just and 

reasonable and not unduly 

discriminatory or preferential. 

(g) Approval of prudently incurred 

costs related to transmission 

infrastructure development. The 

Commission will approve recovery of 

prudently-incurred costs related to 

transmission infrastructure 

development pursuant to section 216 of 

the Federal Power Act, provided that 

the proposed rates are just and 

reasonable and not unduly 

discriminatory or preferential. 

(h) Reporting transmission investment 

activity to the Commission. 

Jurisdictional public utilities are 

required to report annually to the 

Commission no later than April 18, 

2007 and, in succeeding years, on the 

date on which Form 1 information is 

due, the following information on Form 

X: 

(i) In dollar terms, actual transmission 

investment for the most recent calendar 

year, and planned investments for the 

next five years. 

(ii) For all current and planned 

investments over the next five years, a 

project by project listing that specifies 

for each project the expected 

completion date, percentage completion 

as of the date of filing, and reasons for 

delays. 

BILLING CODE 6717–01–P 

Federal Register / Vol. 70, No. 228 / Tuesday, November 29, 2005 / Proposed Rules 71421 

[FR Doc. 05–23404 Filed 11–28–05; 8:45 am] 

BILLING CODE 6717–01–C 

DEPARTMENT OF THE INTERIOR 

Minerals Management Service 

30 CFR Part 205 

RIN 1010–AC29 

Reporting and Paying Royalties on 

Federal Leases on Takes or 

Entitlements Basis 

AGENCY: Minerals Management Service 

(MMS), Interior. 

ACTION: Advance notice of proposed 

rulemaking and announcement of 

public meeting. 

SUMMARY: The MMS requests comments 

and suggestions to assist us in proposing 

regulations regarding so-called ‘‘takes 

versus entitlements’’ reporting and 

payment of royalties when oil and gas 

production is commingled upstream of 

the point of royalty measurement. See 

IV, Description of Information 

Requested, for details. 

DATES: You must submit your comments 

by January 30, 2006. A public meeting 

will be held on December 14, 2005. 

ADDRESSES: Please use the regulation 

identifier number (RIN), RIN 1010–

AC29, in all your correspondence. 

Submit your comments, suggestions, or 

objections regarding the advanced 

notice of the proposed rulemaking by 

any of the following methods: 

By regular U.S. mail. Minerals 

Management Service, Minerals Revenue 

Management, P.O. Box 25165, MS 

302B2, Denver, Colorado 80225–0165; 

By overnight mail, courier, or handdelivery. Minerals Management Service, 

Minerals Revenue Management, 

Building 85, Room A–614, Denver 

Federal Center, West 6th Avenue and 

Kipling Blvd., Denver, Colorado 80225; 

or 

By e-mail. mrm.comments@mms.gov. 

Please submit Internet comments as an 

ASCII file and avoid the use of special 

characters and any form of encryption. 

Also, please include ‘‘Attn: RIN 1010–

AC29’’ and your name and return 


EP29no05.000</GPH>