Energy Law

Incentive Rates to Support Transmission from Midwest Wind Projects

By Gunnar Birgisson

The Federal Energy Regulatory Commission (FERC) granted Xcel Energy Services, Inc.?s request for incentive transmission rates as part of Xcel?s plan for a $1 billion upgrade of its transmission grid inside the territory of the Midwest Independent Transmission System Operator (Midwest ISO).  The upgrades will help Xcel?s utilities meet state renewable electricity standards and serve increased power demand in the Upper Midwest.

Reflecting concerns that the Nation's transmission grid was not being adequately maintained and expanded, the Energy Policy Act of 2005 directed FERC to develop incentive-based rate provisions for transmission projects.  FERC did so in a later rulemaking, establishing numerous rates incentives comprising cost recovery, accelerated depreciation, and higher rates of return on equity for assets operated by ISOs/RTOs.  Utilities can establish eligibility for these incentives by demonstrating a relationship between the incentive sought and the transmission investments being made.   

Xcel proposed changes to its transmission rate formula under the Midwest ISO tariff to avail itself of two of the incentive rates.  FERC approved the proposal, which will grant Xcel (1) recovery of return on 100% of prudently incurred construction work in progress and (2) recovery of prudently incurred costs of transmission facilities that are canceled or abandoned for reasons beyond the control of Excel and its parent, the NSP companies.  FERC stated that the transmission upgrades will help bring renewable energy projects on-line, in compliance with various state renewable energy procurement requirements.  Xcel Energy has stated that it is seeking to build transmission to accommodate between 300 and 700 MWs of wind power.

Full post as published by Energy Legal Blog on December 31, 2007 (boomark / email).