The Federal Energy Regulatory Commission plays a vital role in the nation's energy infrastructure through regulation of the electric and gas industry sectors, providing companies in these sectors with a reasonable opportunity to earn a fair return on their investments while ensuring safe and reliable service at just and reasonable rates.
Climate change and the clean energy transition present regulated electric and gas companies with unprecedented challenges and growing regulatory uncertainty. Evolving state and federal policies and transformational changes in the nation's generation portfolio mix are introducing new regulatory complexities and testing current regulatory frameworks, including the challenge of integrating increasing amounts of renewable and other nontraditional resources into the electric distribution and transmission system while maintaining reliability and grid security.
In light of these challenges and the essential role of regulators, a comprehensive review from Regulatory Research Associates examines FERC's functions and responsibilities as well as policy issues from rate cases to open access transmission and interstate gas pipelines to mergers and acquisitions. The biannual, newly updated review provides current and historical perspectives on a wide range of FERC policies with implications for all stakeholders in the electric power and natural gas industry sectors.
In the electric power sector, key matters that await FERC action in 2022 include a series of transmission-related proceedings, most notably pending rulemakings related to return on equity policy and transmission planning. See "FERC ROE orders spark opposition, implications for pending cases uncertain" and "Update: FERC transmission rulemaking "extremely high" priority for chairman."
With respect to ROE policy, FERC in early 2019 announced a sweeping review of how authorized ROEs are determined for electric utilities. The generic inquiry sought public comments on all aspects of the commission's ROE policies, including the selection of financial models, model mechanics and implementation, the composition of proxy groups and the placement of the base ROE within a reasonable range.
In addition to the still-pending generic ROE inquiry, FERC issued a notice of proposed rulemaking March 20, 2020, that would dramatically increase and expand ROE incentives and fundamentally revise the commission's approach for evaluating requests for those incentives.
On April 15, 2021, FERC reversed course on the NOPR's proposal to increase the ROE incentive for utilities that are members of a regional transmission organization or independent system operator to 100 basis points from 50 basis points. Instead, the commission proposed to maintain the incentive adder at 50 basis points, limit the adder for three years for companies that newly join an RTO/ISO, and eliminate the incentive entirely for companies that have been members of an RTO/ISO for three or more years.
With respect to transmission planning, FERC launched a broad new effort July 15, 2021, to revisit the commission's current transmission planning and cost allocation processes by seeking stakeholder comments on a range of potential regulatory reforms. Among other things, the new inquiry sought comments on whether transmission providers should be required to identify zones that have the potential for large amounts of renewable generation and plan transmission to facilitate the integration of renewable resources in those zones.
In the natural gas sector, FERC action is expected in an expanded rulemaking examining the commission's policies related to certifying new pipeline projects, particularly how the commission considers the effects of greenhouse gas emissions and evaluates a proposed project's upstream and downstream emissions. See "Concerns on costs, duplication as FERC weighs greenhouse gas mitigation for pipelines" and "FERC weighs pipeline climate impacts in new permitting compromise."
FERC continues to analyze new natural gas projects under its decades-old regulatory framework contained in a 1999 policy statement establishing guidelines and criteria for the evaluation and certification of new projects.
However, in 2018, FERC launched a comprehensive review of the 1999 policy statement. Among other things, the commission sought comments on the its methodology for determining the need for a proposed project and the evaluation of the potential environmental impacts of a proposed project.
On Feb. 18, 2021, the commission relaunched and expanded the comprehensive review and invited a new round of stakeholder comments on a series of questions in five categories: potential adjustments to the commission's determination of the need for a project, the exercise of eminent domain and landowner interests, the commission's consideration of environmental impacts, improvements to the efficiency of the commission's review process, and the commission's consideration of effects on environmental justice communities.
In addition to these issues, RRA's biannual regulatory review analyzes FERC policies related to demand response, electricity storage, formula transmission rates, federal tax reform, gas-electric coordination and gas storage.
Regulatory Research Associates is a group within S&P Global Market Intelligence.
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.