On Aug. 21, 2006, the American Public Power Association and the National Rural Electric Cooperative Association jointly filed for rehearing of Order No. 679, the Federal Energy Regulatory Commission Final Rule on transmission rate incentives issued on July 20, 2006, in Docket No. RM06-4-000. APPA and NRECA assert that FERC’s Final Rule ignores the plain language of the Federal Power Act (FPA) and departs from decades of precedent interpreting that Act, and therefore contravenes the “bedrock statutory requirement” that all rates under the FPA must be “just and reasonable.”

Among the issues APPA and NRECA raise on rehearing of Order 679 are the following:

  • The Final Rule fails to require FERC-regulated public utilities to engage in open, regional transmission planning as a condition for obtaining transmission rate incentives.
  • Ignoring the plain meaning of the word “incentive,” the Final Rule allows public utilities to receive transmission rate incentives without any showing that they are in fact needed to stimulate the transmission investment Congress desired; all the public utility need show is some “nexus” between the incentive and the investment.
  • The Final Rule fails to require public utilities to show that the costs of the particular incentives they propose are outweighed by the benefits that customers will receive from the new transmission facilities.
  • Stretching the notion of “incentive” beyond all reasonable bounds, the Final Rule makes public utilities eligible for incentives for having previously joined a Regional Transmission Organization (RTO) or for having previously committed to transmission investment.
  • The Final Rule allows public utilities to obtain incentive rates for new transmission projects in “single-issue ratemaking” proceedings, while their existing transmission rates remain unchanged and unexamined.
  • The Final Rule provides for an incentive rate of return on equity (ROE) at the “upper end” of the zone of reasonableness established by the discounted cash flow (DCF) method, although the likely result will be arbitrary, exorbitant ROE allowances and a steady erosion of the reliability of the DCF analysis itself.

APPA and NRECA request the Commission to remedy these problems on rehearing of Order No. 679.