This week the Electricity Law Initiative filed comments in a FERC proceeding about transmission rates and planning processes. The comments respond to questions issued by FERC following an October 2022 technical conference on FERC’s oversight of utility transmission investments.
FERC regulates electric utilities’ interstate sales and service and must ensure that utilities’ transmission development activities benefit consumers. Traditionally, a utility pays for transmission construction and maintenance by requesting that state regulators or FERC approve rate increases that reimburse the utility for its transmission expenditures. Before approving the rate increase, regulators would ordinarily scrutinize the utilities’ costs and could deny cost recovery if it finds that the utility is spending imprudently. However, over the past twenty-five years, FERC has instituted several shortcuts. Utility rate increases go into effect automatically without FERC’s prior review. FERC now relies on customers and ratepayer advocates to discipline utility investment decisions by participating in transmission planning processes raising objections to utility rate increases.
The Electricity Law Initiative’s comment explains that the current regulatory construct is not protecting consumers from exorbitant rates. The central problem is that utilities are not being held accountable for transmission costs. The information asymmetry between a utility and its customers prevents meaningful participation in planning processes and rate proceedings. FERC policies make it all but impossible for customers to successfully challenge utility rate increases. The Electricity Law Initiative suggested two overarching goals for FERC reforms: 1) expand utility disclosures and 2) enable transmission customers and stakeholders to viably challenge rates.