posted on Wednesday, June 29, 2005 3:45 PM by Gunnar Birgisson

FERC Takes a Second Look at the Independent Ownership and Operation of Power Transmission Systems

Hoping to encourage the formation of independent transmission companies ("ITC"), FERC adopted in June a new Policy Statement on the ownership of ITCs.  The Policy Statement addresses the types of ownership structures that are eligible for ITC status.  The Policy Statement clarifies that FERC will consider ITC proposals from applicants in which market participants have passive minority equity interests, based on FERC's evaluation of certain criteria.  

Under the Policy Statement, FERC will consider proposals involving passive participation of up to 49 percent ownership by a single market participant, as well as proposals involving multiple market participants owning greater than 49 percent of an ITC applicant's equity.  In evaluating ITC rate proposals, FERC will also consider various issues that could affect the independent operation, planning and construction of their transmission systems, including the composition of the applicant's board of directors and their responsibilities; the corporate governance structure of the applicant; and the nature of the applicant's capital investment policies and any relationship between those policies and policies governing capital contributions or dividend reinvestment by passive equity holders.  Ultimately, FERC will focus on the applicant's ability to operate free of market participant control or influence.

The new policy goes into effect immediately.  FERC views it as a complement to the transmission incentives contained in the Jobs Creation Act that Congress enacted last year, which allows companies that sell transmission assets to an ITC to realize their taxable gains over an eight-year period.  The policy comes on the heels of FERC's hitherto-unsuccessful attempts at implementing a transmission pricing policy by granting certain return on equity incentives.  Notably, the currently-pending Senate energy bill would require FERC to initiate a formal rulemaking to establish rate incentives for various investments in transmission systems.  With the departure of Pat Wood from the FERC Chairman's post, development of transmission rate incentives may be one of the key tasks for the incoming Chair.  [Policy Statement Regarding Evaluation of Independent Ownership and Operation of Transmission, 111 FERC ¶ 61,473 (2005)  [UPDATE]