Promoting Transmission Investment Through Pricing Reform, 1152-1173 [E6-22693]

Agencies

• DEPARTMENT OF ENERGY
• Federal Energy Regulatory Commission

[Federal Register Volume 72, Number 6 (Wednesday, January 10, 2007)]
[Rules and Regulations]
[Pages 1152-1173]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-22693]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket No. RM06-4-001; Order No. 679-A]


Promoting Transmission Investment Through Pricing Reform

Issued December 22, 2006.

AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Final rule; order on rehearing.

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SUMMARY: In this order on rehearing, the Federal Energy Regulatory 
Commission (Commission) reaffirms its determinations in part and grants 
rehearing in part of Promoting Transmission Investment through Pricing 
Reform, Order No. 679. Order No. 679 amended Commission regulations to 
establish incentive-based (including performance-based) rate treatments 
for the transmission of electric energy in interstate commerce by 
public utilities for the purpose of benefiting consumers by ensuring 
reliability and reducing the cost of delivered power by reducing 
transmission congestion.

DATES: Effective Date: This final rule and order on rehearing will be 
effective on February 9, 2007.

FOR FURTHER INFORMATION CONTACT: 

Jeffrey Hitchings (Technical Information), Office of Energy Markets and 
Reliability, Federal Energy Regulatory Commission, 888 First Street, 
NE., Washington, DC 20426, 202-502-6042.
Andre Goodson (Legal Information), Office of the General Counsel, 
Federal Energy Regulatory Commission, 888

[[Page 1153]]

First Street, NE., Washington, DC 20426, 202-502-8560.
Tina Ham (Legal Information), Office of the General Counsel, Federal 
Energy Regulatory Commission, 888 First Street, NE., Washington, DC 
20426, 202-502-6224.

SUPPLEMENTARY INFORMATION: 
Before Commissioners: Joseph T. Kelliher, Chairman; Suedeen G. Kelly, 
Marc Spitzer, Philip D. Moeller, and Jon Wellinghoff.

                            Table of Contents
 
                                                               Paragraph
                                                                numbers
 
I. Introduction.............................................           1
II. Background..............................................           9
III. Discussion.............................................          11
    A. Procedural Matters...................................          11
    B. Statutory Arguments..................................          13
        1. Rehearing Requests...............................          13
        2. Commission Determination.........................          14
    C. Nexus Requirement....................................          16
        1. Rehearing Requests...............................          17
        2. Commission Determination.........................          20
    D. Cost-Benefit Analysis................................          28
        1. Rehearing Requests...............................          29
        2. Commission Determination.........................          35
    E. Rebuttable Presumptions..............................          41
        1. Rehearing Requests...............................          42
        2. Commission Determination.........................          46
    F. ROE Sufficient to Attract Investment.................          51
        1. Rehearing Requests...............................          52
        2. Commission Determination.........................          59
    G. Incentives Available to Transcos.....................          71
        1. Rehearing Requests...............................          72
        2. Commission Determination.........................          76
    H. Transmission Organization Incentive..................          79
        1. Rehearing Requests...............................          80
        2. Commission Determination.........................          86
    I. Hypothetical Capital Structure.......................          91
        1. Rehearing Requests...............................          92
        2. Commission Determination.........................          93
    J. Single-Issue Ratemaking..............................          94
        1. Rehearing Requests...............................          95
        2. Commission Determination.........................          97
    K. Public Power.........................................         100
        1. Rehearing Requests...............................         101
        2. Commission Determination.........................         102
    L. Other Issues.........................................         103
        1. Recovery of Costs of Abandoned Facilities........         104
        2. Prudently Incurred Costs.........................         108
        3. Regional Planning................................         110
        4. CWIP.............................................         112
        5. Reporting Requirement: FERC-730..................         117
        6. Miscellaneous....................................         121
IV. Information Collection Statement........................         137
V. Document Availability....................................         138
VI. Effective Date..........................................         141
APPENDIX
 

Order on Rehearing

I. Introduction

    1. On July 20, 2006, the Commission issued a Final Rule in this 
proceeding.\1\ In the Final Rule, the Commission amended its 
regulations to establish incentive-based (including performance-based) 
rate treatments for the transmission of electric energy in interstate 
commerce by public utilities. These incentives are intended to benefit 
consumers by ensuring reliability and reducing the cost of delivered 
power by reducing transmission congestion. We took this action pursuant 
to section 1241 of the Energy Policy Act of 2005 (EPAct 2005),\2\ which 
added a new section 219 to the Federal Power Act (FPA). The Final Rule 
identified ratemaking treatments available under section 219. The Final 
Rule did not grant incentives to any particular entity, but rather 
required each applicant to demonstrate that it could meet the 
requirements of section 219 and the Final Rule.
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    \1\ Promoting Transmission Investment through Pricing Reform, 
Order No. 679, 71 FR 43294 (July 31, 2006), FERC Stats. & Regs. ] 
31,222 (2006) (Order No. 679 or Final Rule).
    \2\ Energy Policy Act of 2005, Pub. L. No. 109-58, 119 Stat. 
594, 315 and 1283 (2005).
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    2. Many entities sought rehearing of the Final Rule.\3\ The 
petitioners representing consumer interests argue that the Final Rule 
was too permissive in offering rate incentives. We have carefully 
reviewed these petitions and grant them in part in this order.
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    \3\ The parties who filed the requests for rehearing and/or 
clarification are listed in Appendix A.
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    3. In doing so, we do not, however, depart from a fundamental 
commitment to provide incentives to support the development of 
transmission infrastructure. Section 219 was enacted

[[Page 1154]]

because of a long decline in transmission investment that is 
threatening reliability and causing billions of dollars in congestion 
costs. To reverse this historical trend, section 219 directed the 
Commission to ``establish, by rule, incentive-based (including 
performance-based) rate treatments'' that: ``Promote reliable and 
economically efficient transmission and generation of electricity by 
promoting capital investment in the enlargement, improvement, 
maintenance, and operation of all facilities for the transmission of 
electric energy in interstate commerce, regardless of the ownership of 
the facilities; provide a return on equity that attracts new investment 
in transmission facilities (including related transmission 
technologies); encourage deployment of transmission technologies and 
other measures to increase the capacity and efficiency of existing 
transmission facilities and improve the operation of the facilities; 
and allow recovery of--(A) all prudently incurred costs necessary to 
comply with mandatory reliability standards issued pursuant to section 
215 and (B) all prudently incurred costs related to transmission 
infrastructure development pursuant to section 216.'' \4\ The Final 
Rule fulfilled that command by providing a range of rate treatments 
that remove impediments to new investment or otherwise attract that 
investment.
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    \4\ 16 U.S.C.A. 824s(a), (b)(1) (West Supp. 2006).
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    4. This order retains those rate treatments, but modifies the way 
in which they are applied in three principal respects to address the 
concerns of petitioners.
    5. First, NARUC argues that we erred in rebuttably presuming that 
certain review processes (e.g., state siting approvals and regional 
planning processes) satisfy section 219's requirement that a 
transmission project ensure reliability or reduce congestion. NARUC 
contends that these review processes do not, in all cases, establish 
the need for a particular facility. We grant rehearing in part on this 
issue. The Commission created the rebuttable presumption because we do 
not wish to duplicate the work of state siting authorities, regional 
planning processes, or the U.S. Department of Energy (DOE) under EPAct 
section 1221. However, we agree with NARUC to the extent that, if 
review processes do not include a determination of whether a project 
ensures reliability or reduces congestion, no rebuttable presumption 
should exist for that project. We will therefore require that each 
applicant explain whether any process being relied upon for a 
rebuttable presumption includes a determination that the project is 
necessary to ensure reliability or reduce congestion. Furthermore, we 
clarify that this rebuttable presumption applies only to whether the 
project reduces congestion or encourages reliability, not the 
additional requirements of the Final Rule. As discussed more fully 
elsewhere in this order, we also grant rehearing with respect to the 
Final Rule's rebuttable presumption concerning a National Interest 
Electric Transmission Corridor (NIETC) designation.
    6. Second, the Final Rule required that each applicant demonstrate 
a nexus between the incentive being sought and the investment being 
made. Several petitioners argue that the nexus test is not sufficiently 
rigorous to protect consumers. We grant rehearing in part on this 
issue. The Final Rule stated that the nexus test is to be applied 
separately to each incentive, rather than to the package of incentives 
as a whole. We agree that this approach fails to protect consumers 
where an applicant both seeks incentives that reduce the risk of the 
project and seeks an enhanced rate of return on equity (ROE) for 
increased risk. We will therefore grant in part rehearing and require 
applicants to demonstrate that the total package of incentives is 
tailored to address the demonstrable risks or challenges faced by the 
applicant in undertaking the project.\5\ If some of the incentives in 
the package reduce the risks of the project, that fact will be taken 
into account in any request for an enhanced ROE.
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    \5\ The Commission will apply a rule of reason with respect to 
what is sufficient to meet the requirement of ``demonstrable'' risk 
or challenge. An applicant may provide specific evidence of a risk 
or challenge or a supported explanation of why it faces a particular 
risk or challenge.
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    7. Third, several petitioners argue that the Final Rule erred in 
its treatment of incentive returns on equity. Specifically, they fear 
the Commission will routinely grant ROEs at the top end of the zone of 
reasonableness. Although the Commission has broad discretion to 
establish returns on equity anywhere within the zone of reasonableness, 
we must be careful in the manner we exercise this discretion. The 
Commission clarifies below that we do not intend to grant incentive 
returns ``routinely'' or that, when granted, they will always be at the 
``top'' of the zone of reasonableness. Rather, each applicant will, 
first, be required to justify a higher ROE under the required nexus 
test and, second, to justify where in the zone of reasonableness that 
return should lie. Furthermore, we recognize that some investors may 
desire up-front certainty regarding ROE before they invest in a 
particular project. Because our traditional ratemaking practice 
typically determines ROE in a hearing only after an investment is made 
and a facility is constructed, it does not provide such up-front 
certainty. We therefore clarify that we will entertain requests for a 
specific ROE determination in a petition for declaratory order.
    8. In this order, the Commission denies in part and grants in part 
the requests for rehearing and/or clarification.

II. Background

    9. Section 1241 of EPAct 2005 directed the Commission to establish, 
no later than one year after enactment of section 219, by rule, 
incentive-based (including performance-based) rate treatments for the 
transmission of electric energy in interstate commerce by public 
utilities for the purpose of benefiting consumers by ensuring 
reliability and reducing the cost of delivered power by reducing 
transmission congestion.\6\ To that end, the Commission issued a Notice 
of Proposed Rulemaking (NOPR) \7\ on November 18, 2005 seeking comment 
on the Commission's proposal to comply with section 219. In the NOPR, 
the Commission stated that the purpose of this rulemaking is to promote 
greater capital investment in new transmission capacity, recognizing 
that the need for capital investment in energy infrastructure is a 
national problem that requires a national solution. Inadequate 
transmission infrastructure results in transmission congestion that 
impedes competitive wholesale markets and impairs the reliability of 
the electric grid.\8\
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    \6\ 16 U.S.C.A. 824s(a) (West Supp. 2006).
    \7\ Promoting Transmission Investment Through Pricing Reform, 
Notice of Proposed Rulemaking, 70 FR 71409 (Nov. 29, 2005), FERC 
Stats. & Regs., Proposed Regs. ] 32,593 (2005).
    \8\ Id. P 2.
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    10. After considering the comments on the NOPR, the Commission 
issued its Final Rule on transmission investment incentives to address 
the need for transmission capacity. In the Final Rule, the Commission 
provided incentives for transmission infrastructure investment that 
will help ensure the reliability of the bulk power transmission system 
in the United States and reduce the cost of delivered power to 
customers by reducing transmission congestion. The Final Rule 
identified specific incentives that the Commission will allow when 
justified in the context of individual declaratory orders or section 
205 filings

[[Page 1155]]

by public utilities under the FPA.\9\ The Commission stated that the 
Final Rule does not grant incentives to any public utility but instead 
permits an applicant to tailor its proposed incentives to the type of 
transmission investments being made and to demonstrate that its 
proposal meets the requirements of section 219. Further, incentives 
will be permitted only if the incentive package as a whole results in a 
just and reasonable rate.\10\
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    \9\ Order No. 679, FERC Stats. & Regs ] 31,222 at P1.
    \10\ Id. P. 2. Also, in the Final Rule, the Commission agreed 
with comments that new transmission technologies will be adopted 
when they are cost effective. The Commission determined that 
incentives will be considered for advanced technologies through the 
same evaluation process as other technologies. The Commission 
declined to make generic determinations regarding the applicability 
of incentives to particular technologies. Rather, the Final Rule 
determined that to the extent that applicants seek additional 
incentives for advanced technologies, the Commission will consider 
the propriety of such incentives on a case-by-case basis. Id. P 288-
93, 298-99. The Final Rule required applicants for incentive rate 
treatment to provide a technology statement that describes what 
advanced technologies have been considered and, if those 
technologies are not to be deployed or have not been deployed, an 
explanation of why they were not deployed. Id. P 302. No party 
sought rehearing concerning the Final Rule's determinations 
regarding advanced technologies.
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III. Discussion

A. Procedural Matters

    11. In response to the Final Rule, a number of parties submitted 
timely requests for rehearing and/or clarification. On August 22, 2006, 
the Attorney General of the State of Connecticut (Connecticut AG) filed 
a request for rehearing out of time, seeking to support and join in all 
aspects the New England Commissions' request for rehearing. On 
September 21, 2006, International Transmission Company (International 
Transmission) filed an answer to SoCal Edison's request for rehearing.
    12. Pursuant to Rule 713(b) of the Commission's Rules of Practice 
and Procedure, 18 CFR 385.713(b) (2006), we will deny the request for 
rehearing of the Connecticut Attorney General because it was filed more 
than 30 days after issuance of the Final Rule.\11\ Rule 713(d) of the 
Commission's Rules of Practice and Procedure \12\ prohibits an answer 
to a request for rehearing. Therefore, we deny International 
Transmission's answer to SoCal Edison's request for rehearing.
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    \11\ We note, however, that the Connecticut Attorney General 
supports New England Commissions' request for rehearing, which we 
address in this order.
    \12\ 18 CFR 385.713(d) (2006).
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B. Statutory Arguments

1. Rehearing Requests
    13. APPA/NRECA argue that the Commission misinterpreted section 219 
as requiring greater flexibility in ratemaking practices. According to 
APPA/NRECA, ``incentives'' are not necessary to attract capital 
because, under existing Supreme Court precedent, ``a public utility's 
rate of return should also be sufficient to attract investment in new 
transmission facilities.'' \13\ APPA/NRECA therefore conclude that 
section 219 merely ``codified the longstanding Commission and judicial 
interpretations of FPA section 205's requirement that rates be just and 
reasonable.'' \14\
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    \13\ APPA/NRECA at 12.
    \14\ Id. at 12-13.
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2. Commission Determination
    14. We agree with APPA/NRECA that section 219 did not modify the 
requirement that rates be just and reasonable under section 205, but 
disagree that it did no more than restate that longstanding principle. 
Section 219 makes very clear that the Commission ``shall establish, by 
rule, incentive-based (including performance-based) rate treatments'' 
and that these rate treatments ``shall * * * promote reliable and 
economically efficient transmission and generation of electricity by 
promoting capital investment in the enlargement, improvement, 
maintenance, and operation of all facilities for the transmission of 
electric energy in interstate commerce, regardless of the ownership of 
the facilities; provide a return on equity that attracts new investment 
in transmission facilities (including related transmission 
technologies); encourage deployment of transmission technologies and 
other measures to increase the capacity and efficiency of existing 
transmission facilities and improve the operation of the facilities and 
allow recovery of--(A) all prudently incurred costs necessary to comply 
with mandatory reliability standards issued pursuant to section 215 and 
(B) all prudently incurred costs related to transmission infrastructure 
development pursuant to section 216.'' \15\ These words do far more 
than ``codify'' the just and reasonable standard; they command the 
Commission to use its discretion under section 205 to promote capital 
investment. Furthermore, Congress in section 219 even highlighted the 
importance of investment in economically or technologically efficient 
transmission infrastructure.\16\ Section 219 was enacted against the 
backdrop of a long decline in transmission investment that is imposing 
substantial costs--in congestion and service interruptions--on 
consumers. If Congress had deemed our existing practices sufficient to 
reverse this trend, there would have been little need to enact section 
219. Section 219 does not simply ``codify'' our legal authority; it 
requires us to take affirmative action to promote new investment. 
Although the resulting rates must be just and reasonable, the 
Commission has significant discretion under section 205 in making that 
determination and section 219 provides clear direction that we use that 
discretion to promote new infrastructure, not simply maintain the 
status quo.
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    \15\ 16 U.S.C.A. 824s(a), (b)(1)-(4) (West Supp. 2006).
    \16\ See id. at 824s(a) and (b)(3).
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    15. While section 219 requires us to do more than maintain the 
status quo for transmission pricing, we recognize that our traditional 
ratemaking authority also requires us to establish a return on a public 
utility's assets that is ``reasonably sufficient to assure confidence 
in the financial soundness of the utility and should be adequate to 
maintain and support its credit and enable it to raise money necessary 
for the proper discharge of its public duties'' \17\ and ``should be 
sufficient to assure confidence in the financial integrity of the 
enterprise, so as to maintain its credit and to attract capital.'' \18\ 
Thus, a base-level ROE sufficient to promote capital investment in 
transmission facilities historically has not been considered an 
``incentive,'' but a requirement of establishing a just and reasonable 
rate.\19\ In this regard, we

[[Page 1156]]

recognize that our responsibilities under section 205 and our 
responsibilities under section 219 overlap in significant ways. We 
recognize that it may be difficult to meaningfully distinguish between 
an ROE that appropriately reflects a utility's risk and ability to 
attract capital and an ``incentive'' ROE to attract new investment. 
Notwithstanding this difficult distinction, consistent with Congress' 
direction in section 219, we are obligated to establish ROEs for public 
utilities that both reflect the financial and regulatory risks 
attendant to a particular project and that are sufficient to actively 
promote capital investment. We will do so within the zone of 
reasonableness, including above the midpoint where appropriate, to 
accomplish these regulatory responsibilities.\20\ This end-result ROE, 
whether characterized as an incentive pursuant to section 219 or as a 
base-level ROE consistent with the just and reasonable standard of 
section 205, will take into consideration financial and regulatory 
risks attendant to the project and thereby satisfy Congress' direction 
that the Commission ``provide a return on equity that attracts new 
investment in transmission facilities * * *.'' \21\
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    \17\ Bluefield Waterworks & Improvement Co. v. Pub. Serv. Comm'n 
of W. Va., 262 U.S. 679, 693 (1923).
    \18\ FPC v. Hope Natural Gas Co., 320 U.S. 591, 603 (1944).
    \19\ In contrast to a base-level ROE that reflects the financial 
and regulatory risks of an investment, an ``incentive'' has been 
more typically associated with specific basis point additions to a 
base ROE to satisfy discrete policy objectives. See, e.g., Western 
Area Power, 99 FERC ] 61,306, reh'g denied, 100 FERC ] 61,331 (2002) 
(Western), aff'd sub nom. Public Utilities Commission of the State 
of California v. FERC, 367 F.3d 925 (D.C. Cir. 2004); Michigan 
Electric Transmission Co., LLC, 105 FERC ] 61,214 (2003) (METC); 
American Transmission Company, L.L.C., 105 FERC ] 61,388 (2003) 
(American Transmission); ITC Holdings Corp., 102 FERC ] 61,182, 
reh'g denied, 104 FERC ] 61,033 (2003) (ITC Holdings); Regional 
Transmission Organizations, Order No. 2000, 65 FR 809 (Jan. 6, 
2000), FERC Stats. & Regs. ] 31,089 (1999), order on reh'g, Order 
No. 2000-A, 65 FR 12088 (Mar. 8, 2000), FERC Stats. & Regs. ] 31,092 
(2000), aff'd sub nom. Pub. Util. Dist. No. 1 of Snohomish County, 
Washington v. FERC, 272 F.3d 607 (D.C. Cir. 2001) (Order No. 2000). 
Section 219 addresses both situations. In addition to requiring the 
Commission to establish, by rule, incentive rate treatments to 
promote transmission investment generally, section 219 also requires 
the Commission to establish incentive-based rates to encourage 
transmission technologies and other measures to increase the 
capacity and efficiency of existing transmission facilities. Thus, 
Congress intended for us to establish an ROE sufficient to reflect 
financial and regulatory risks and also to consider discrete ROE 
incentives for, among other things, participation in transmission 
organizations, projects with particular benefits to reliability or 
reducing congestion, new technologies and efficiency enhancements.
    \20\ Order No. 679, FERC Stats. & Regs. ] 31,222 at P 93.
    \21\ 16 U.S.C.A. 824s(b)(2) (West Supp. 2006).
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C. Nexus Requirement

    16. In the Final Rule, the Commission stated that the applicant 
must demonstrate that: (1) The facilities for which it seeks incentives 
either ensure reliability or reduce the cost of delivered power by 
reducing transmission congestion consistent with the requirements of 
section 219; (2) there is a nexus between the incentive sought and the 
investment being made; and (3) the resulting rates are just and 
reasonable.\22\ The Commission stated that an applicant is not required 
to show that, but for the incentives, the expansion would not occur 
because Congress did not require such a showing. Nevertheless, the 
Commission maintained that it will require applicants to show some 
nexus between the incentives being requested and the investment being 
made, i.e., to demonstrate that the incentives are rationally related 
to the investments being proposed.\23\
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    \22\ Order No. 679, FERC Stats. & Regs. ] 31,222 at P 2, 26.
    \23\ Id. P 26, 48.
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3. Rehearing Requests
    17. Industrial Consumers oppose allowing applicants to request 
multiple incentives, arguing that the Commission erred by determining 
that section 219 does not require applicants to demonstrate a 
relationship between an incentive proposal and transmission 
investment.\24\ According to Industrial Consumers, the just and 
reasonable requirements of section 219(d) require that incentive rates 
must be based on a showing that there is a relationship between 
increased rates and the attraction of new capital.\25\ They assert that 
customers should not be forced to pay for incentives unless those 
incentives are actually necessary to deliver additional transmission 
capacity. Therefore, Industrial Consumers claim that contrary to the 
Commission's conclusion, section 219 does not authorize the Commission 
to depart from judicial precedent on just and reasonable incentive 
rates.\26\ Further, to the extent that the Commission relies on non-
cost factors in determining just and reasonable incentive rates, the 
Commission must specify the nature of the relevant non-cost factors and 
offer a reasoned explanation of how the factors justify the resulting 
rates.\27\ Industrial Consumers contend that the reasoned explanation 
must calibrate the relationship between increased rates and the 
attraction of new capital, ensure that the increase is in fact needed, 
and is no more than needed to accomplish the objective.\28\
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    \24\ Industrial Consumers at 3-7.
    \25\ Id. at 4, citing Farmers Union Cent. Exch. v. FERC, 734 
F.2d 1486, 1503 (D.C. Cir. 1984) (Farmers Union).
    \26\ Id. at 5.
    \27\ Id. at 6-7
    \28\ Id.
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    18. APPA/NRECA also argue that applicants must demonstrate a need 
for the incentive rate treatments and make a showing sufficient for the 
Commission to find that a particular incentive rate treatment ``is in 
fact needed and no more than is needed'' under the FPA and the 
Administrative Procedure Act.\29\ APPA/NRECA consider the nexus 
requirement to be inadequate because it fails to require applicants to 
show that a particular rate treatment is actually a lawful incentive 
under sections 205 and 219 of the FPA.\30\ They assert that under the 
nexus requirement, an applicant could show a sufficient rational 
relationship merely by claiming that granting the incentive rate 
treatment will make the investment more profitable and thus more 
attractive to investors.\31\ TDU Systems repeat these points and claim 
that the nexus requirement will have no effect on the granting or 
denying of incentive applications unless the Commission provides 
concrete examples of categories of asserted relationships between 
proposed incentives and facilities that will not satisfy the nexus 
requirement. They also do not consider the nexus requirement to be a 
reasonable substitute for a cost-benefit analysis.\32\
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    \29\ 5 U.S.C. 556 (2000).
    \30\ APPA/NRECA at 22.
    \31\ Id. at 23, citing Order No. 679, FERC Stats. & Regs. ] 
31,222 at P 91, 117, and 133.
    \32\ TDU Systems at 19-20.
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    19. Likewise, TAPS argues that the nexus requirement is unduly 
vague because it fails to clearly require a causal connection between 
the incentive and consumer benefits. TAPS asserts that the nexus 
requirement should test whether a requested incentive would reasonably 
be expected to cause either a net decrease in delivered power costs 
even after considering incentive-increased transmission costs, or, 
where the expected net effect on delivered power costs is an increase, 
reliability gains that make that increase worthwhile.\33\ To remedy the 
alleged deficiencies of the nexus requirement, TAPS proposes that the 
nexus requirement be revised to provide: ``That the incentive sought is 
designed to result in those facilities being invested in, completed, 
and placed into service.'' \34\ TAPS also recommends that the rule be 
amended to explicitly retain a reasonable calculation test, so that the 
Commission can determine which incentives return net consumer benefits 
and will be able to verify the accuracy of its prediction that granting 
incentives will spur increased investment.\35\
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    \33\ TAPS at 8-9.
    \34\ Id. at 11.
    \35\ Id. at 16, citing City of Charlottesville v. FERC, 661 F.2d 
945, 955 (D.C. Cir. 1981).
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3. Commission Determination
    20. Petitioners raise two related objections to the nexus 
requirement: (i) That it is too vague and therefore will be too easy to 
satisfy, and (ii) because it is not sufficiently rigorous, a different 
standard should be adopted. We address each in turn.
    21. The required nexus test requires an applicant to demonstrate 
that the

[[Page 1157]]

incentives being requested are `` tailored to the risks and challenges 
faced'' by the project.\36\ By this we mean that the incentive(s) 
sought must be tailored to address the demonstrable risks and 
challenges faced by the applicant in undertaking the project.\37\ The 
required nexus test therefore satisfies the Industrial Consumers 
request that there be a relationship between the rate treatments sought 
and the attraction of new capital.\38\ It also satisfies TAPS' request 
that ``the incentive sought is designed to result in'' new facilities 
being constructed.\39\ We disagree with TAPS and APPA/NRECA, however, 
that the test is designed to be lenient or that it will necessarily be 
satisfied in every case. As we indicated in the Final Rule, ``[n]ot 
every incentive will be available for every new investment. Rather, 
each applicant must demonstrate that there is a nexus between the 
incentive sought and the investment being made.'' \40\ In evaluating 
whether the applicant has satisfied the required nexus test, the 
Commission will examine the total package of incentives being sought, 
the inter-relationship between any incentives, and how any requested 
incentives address the risks and challenges faced by the project.
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    \36\ Order No. 679, FERC Stats. & Regs. ] 31,222 at P 26.
    \37\ We also note that the Commission retains its discretion to 
provide policy-based incentives. As the courts have said, even prior 
to our new authority in section 219, the Commission's incentive rate 
determinations ``involve matters of rate design * * * [and] policy 
judgments [that go to] the core of [the Commission's] regulatory 
responsibilities.'' Maine Public Utilities Commission v. FERC, 454 
F.3d 278, 288 (D.C. Cir. 2006). See also Permian Basin Area Rate 
Cases, 390 U.S. 747 (1968) (Permian).
    \38\ Industrial Consumers at 4.
    \39\ TAPS at 11.
    \40\ Order No. 679, FERC Stats. & Regs. ] 31,222 at P 26.
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    22. TDU Systems complain that we did not provide ``concrete 
examples'' of showings that would either satisfy or fail the nexus 
test. Although that was not the purpose of the Final Rule--the purpose 
was to enunciate the criteria to be applied in individual cases--we did 
provide certain illustrations. For example, we emphasized the need for 
incentives for new transmission projects that can integrate new 
generation and load and thereby improve reliability and reduce 
congestion:


    New transmission is needed to connect new generation sources and 
to reduce congestion. However, because there is a competitive market 
for new generation facilities, these new generation resources may be 
constructed anywhere in a region that is economic with respect to 
fuel sources or other siting considerations (e.g., proximity to wind 
currents), not simply on a ``local'' basis within each utility's 
service territory. To integrate this new generation into the 
regional power grid, new regional high voltage transmission 
facilities will often be necessary and, importantly, no single 
utility will be ``obligated'' to build such facilities. Indeed, many 
of these projects may be too large for a single load serving entity 
to finance. Thus, for the Nation to be able to integrate the next 
generation of resources, we must encourage investors to take the 
risks associated with constructing large new transmission projects 
that can integrate new generation and otherwise reduce congestion 
and increase reliability.[\41\]
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    \41\ Id. P 25.

    We also emphasized that ``this does not mean that every new 
transmission investment should receive a higher return than otherwise 
would be the case. For example, routine investments to meet existing 
reliability standards may not always * * *, qualify for an incentive-
based ROE.'' \42\
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    \42\ Id. P 27.
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    23. The Commission reaffirms that the most compelling case for 
incentives are new projects that present special risks or challenges, 
not routine investments made in the ordinary course of expanding the 
system to provide safe and reliable transmission service. We therefore 
reject the arguments of EEI and Southern Companies that such routine 
investments should be treated the same, for purposes of applying the 
required nexus test, as new projects that present special risks or 
challenges.\43\
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    \43\ See infra P 52.
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    24. We also believe that the guidance provided in the Final Rule is 
sufficient. The purpose of the Final Rule was to establish criteria to 
be applied in individual cases, not to provide an exhaustive list of 
situations where incentives will be granted or denied. The decision 
whether to grant or deny incentives to a particular project is 
appropriately the subject of an individual rate application (or 
declaratory order) where the Commission can evaluate whether the 
applicants have fully supported any incentive rate treatments being 
sought.
    25. We now turn to the alternative tests advocated by petitioners, 
discussing the ``but for'' test in this section and the ``cost-
benefit'' test in the following section. The Final Rule rejected a 
``but for'' test as inconsistent with Congressional intent in enacting 
section 219.\44\ We reaffirm that finding here. In doing so, we 
emphasize that both the required nexus test and the ``but for'' test 
share one thing in common: Their common objective is to ensure that 
incentives are not provided in circumstances where they do not 
materially affect investment decisions. They differ sharply, however, 
in the means by which they seek to achieve that objective. The ``but 
for'' test requires an applicant to show that a facility would not be 
constructed unless the incentive is granted. We reject that test 
because it erects an evidentiary hurdle that could only, in very rare 
cases, be satisfied. There are many impediments to investing in new 
transmission, including siting concerns, financing challenges, rate 
recovery concerns, etc. It is therefore unreasonable to expect or 
require an applicant to show that a facility could not be constructed 
``but for'' the removal of a single impediment--e.g., increased cash 
flow through 100 percent construction work-in-progress (CWIP) or an 
enhanced ROE. This test could rarely, if ever, be satisfied, 
particularly given that incentives are ordinarily sought before 
investment decisions are made and, hence, before any siting impediments 
are even confronted.
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    \44\ Order No. 679, FERC Stats. & Regs. ] 31,222 at P 48.
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    26. The Commission therefore reaffirms its rejection of the ``but 
for'' test as the appropriate test for applying section 219. It would 
erect a barrier that is nearly impossible to meet and is thereby 
fundamentally incompatible with Congressional intent in enacting 
section 219. In enacting EPAct 2005, Congress plainly understood that 
there are many impediments to new transmission investment. Congress 
therefore took a variety of actions to address that problem, including 
giving the Commission backstop siting authority, requiring that 
entities have long-term transmission rights to support new investment 
and, in section 219, providing appropriate rate incentives. We decline 
to render section 219 essentially an empty letter by requiring the 
demonstration of a negative--that absent an incentive rate treatment, 
under no circumstance would a transmission project possibly be built. 
This would be directly contrary to the intent of Congress to encourage 
the construction of needed transmission.
    27. We will grant rehearing, however, in one respect. The Final 
Rule states that the nexus test is to be applied separately to each 
incentive, rather than to the package of incentives as a whole. We 
agree that this approach fails to protect consumers where an applicant 
seeks incentives that both reduce the risk of the project and offer an 
enhanced ROE for increased risk. Even though the applicant no longer 
has to apply the nexus requirement separately to each incentive, the 
applicant will be required to demonstrate that the total package of 
incentives is tailored to address the

[[Page 1158]]

demonstrable risks or challenges faced by the applicant. In presenting 
a package to the Commission, applicants must provide sufficient 
explanation and support to allow the Commission to evaluate each 
element of the package and the interrelationship of all elements of the 
package. If some of the incentives would reduce the risks of the 
project, that fact will be taken into account in any request for an 
enhanced ROE. We are revising Sec.  35.35(d) to reflect this 
clarification.

D. Cost-Benefit Analysis

    28. In the Final Rule, the Commission adopted the proposal in the 
NOPR not to require applicants for incentive-based rate treatments to 
provide cost-benefit analyses. The Commission noted that courts have 
recognized that the Commission may consider non-cost factors in its 
ratemaking decisions.\45\ Therefore, the Commission stated that it may 
consider non-cost factors as well as cost factors and that it will 
consider the justness and reasonableness of any proposal for incentive 
rate treatment in individual proceedings.
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    \45\ Id. P 65, citing Permian, 390 U.S. 747, 815 (1968); Pub. 
Utils. Comm'n of Cal. v. FERC, 367 F.3d 925, 929 (D.C. Cir. 2004) 
(CPUC v. FERC); Maine Pub. Utils. Comm'n. v. FERC, 454 F.3d 278, 
slip op. at 19 (D.C. Cir. 2006) (Maine PUC v. FERC).
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1. Rehearing Requests
    29. TDU Systems and APPA/NRECA contend that the Final Rule's 
failure to require that incentive rates be justified by a cost-benefit 
analysis is inconsistent with sections 205 and 219 of the FPA. They 
assert that the Commission needs the information in the cost-benefit 
analysis to determine whether a particular incentive rate is just and 
reasonable, i.e. whether its cost is outweighed by the benefits 
customers will receive.\46\ APPA/NRECA also contend that the Commission 
has no basis for concluding that a particular incentive provides 
consumers with a net benefit, as required under section 219(a), without 
a cost-benefit analysis.\47\ TDU Systems also point out that the 
Commission and affected customers must have the information necessary 
to distinguish between proposed projects that would benefit customers a 
great deal and proposed projects that would benefit customers minimally 
if at all.\48\ Further, in considering non-cost factors, these parties 
argue that the Commission cannot make a reasoned decision about the 
appropriateness of non-cost factors in approving an incentive rate 
without first knowing the costs and benefits of the incentive rate.\49\ 
They assert that intervenors also need this information to evaluate the 
impact of the rate proposal on them and to understand how much the 
applicant is relying on non-cost considerations. Moreover, APPA/NRECA 
contend, if the applicant is not required to present any evidence that 
consumers obtain net benefits from an increase in their transmission 
rates, the Commission cannot strike a fair balance between the 
financial interests of the regulated company and the relevant public 
interests, both existing and foreseeable.\50\ Further, TDU Systems and 
APPA/NRECA state that the plain language of section 219 demonstrates 
that Congress' intent is to promote only efficient investment, 
investment that benefits consumers. They assert that Congress' 
unqualified adoption in section 219(d) of the statutory just and 
reasonable standard demands a cost-benefit analysis.
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    \46\ APPA/NRECA at 26; TDU Systems at 11.
    \47\ APPA/NRECA at 26-27.
    \48\ TDU Systems at 12.
    \49\ Id. at 15; APPA/NRECA at 27.
    \50\ APPA/NRECA at 29, citing Farmers Union, 734 F.2d at 1502.
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    30. TDU Systems and APPA/NRECA also argue that elimination of the 
cost-benefit analysis will be harmful to customers because of the two-
stage application procedure.\51\ They assert that applicants should be 
required to provide the Commission and customers with all relevant 
facts concerning costs and benefits at the petition for declaratory 
order stage, where the applicant's right to the incentive will be 
decided, because the Final Rule precludes relitigation of these issues 
in the later section 205 proceeding.\52\ They state that the interested 
parties must have the information needed to raise specific issues as to 
whether the likely customer benefits of the project justify the likely 
costs of the incentives to be awarded. They also argue that without a 
rigorous cost-benefit analysis at the initial stage, the benefits that 
formed the Commission's initial approval would be so amorphous that 
there would be little objective data for the Commission to assess in 
its periodic progress assessments. Allowing recipients of incentives to 
fix the term of their incentive-rate awards in the absence of a 
rigorous initial cost-benefit analysis would serve only to perpetuate 
the contravention of the statutory just and reasonable standard, 
according to APPA/NRECA. TDU Systems agree, stating that they can 
perceive no justification for allowing incentive awardees to define the 
duration of their own awards in the absence of a rigorous initial cost-
benefit analysis.
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    \51\ Under the Commission's two-stage application procedure, an 
applicant can petition for a declaratory order seeking an incentive-
based rate treatment for its project. After the Commission issues 
the declaratory order, the applicant must seek to put the rates into 
effect through a separate single-issue or comprehensive section 205 
filing. See Order No. 679, FERC Stats. & Regs. ] 31,222 at P 76-78.
    \52\ TDU Systems at 12-14; APPA/NRECA at 29-30.
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    31. Industrial Consumers argue that the Commission impermissibly 
departed from Order No. 2000,\53\ without a reasoned explanation, by 
eliminating the cost-benefit analysis. They assert that the Commission 
wrongly concluded that the cost-benefit analysis is not necessary 
because customers will be protected by the Commission's review of 
applications pursuant sections 205, 206, and 219 of the FPA, which 
require that all rates be just and reasonable and not unduly 
discriminatory or preferential.\54\ They state that in Order No. 2000, 
the Commission required applicants for innovative transmission rate 
treatments to demonstrate how the investment in the transmission system 
benefits consumers and to provide a cost-benefit analysis, including 
rate impacts. Such a disconnect with Commission precedent reflects an 
absence of reasoned decision making.\55\
---------------------------------------------------------------------------

    \53\ Order No. 2000, supra note 19.
    \54\ Industrial Consumers at 7-8.
    \55\ Id.
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    32. Further, Industrial Consumers contend that, to successfully 
balance the competing interests of providing incentives to encourage 
transmission investment and its statutory responsibility of protecting 
customers from excessive rates, the Commission must narrowly tailor 
incentives that require a close calibration between the increased rates 
and a corresponding level of benefits. Without such a close calibration 
between the proposed incentive rates and the anticipated benefit, the 
Commission risks thwarting the just and reasonable requirements of the 
FPA. Thus, according to Industrial Consumers, applicants for incentive 
treatment must be required to demonstrate that incentives will actually 
yield a positive return in the form of otherwise unachievable 
reliability improvements and reduced congestion costs.\56 \
---------------------------------------------------------------------------

    \56\ Id. at 10.
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    33. SMUD contends that the nexus requirement is not sufficient to 
justify eliminating the cost-benefit analysis required under Order No. 
2000. It asserts that there is no connection between the lawfulness of 
non-cost factors and the elimination of the cost-benefit test for 
incentive rates. SMUD states that, while the Commission recognized the 
non-cost-based nature of incentive ratemaking in the 1992 Policy

[[Page 1159]]

Statement, the Commission, nonetheless concluded that benefits to 
consumers must be quantifiable, and SMUD asserts that nothing in 
section 219 alters the requirement for a cost-benefit test.\57\ 
Further, SMUD contends that the nexus test results in a lower burden of 
proof for applicants without explaining why a cost-benefit test is no 
longer necessary. SMUD requests the Commission to clarify that the 
incentives for new construction to reduce congestion will be capped so 
that the delivered cost of power to the consumer is lower than what it 
was before the facilities were constructed, thereby ensuring that 
consumers will not pay incentive rates for congestion-reducing 
construction unless the result is a lower cost of delivered power. SMUD 
also requests clarification that incentives for reliability upgrades 
will not reward the construction of more transmission capacity than is 
reasonably necessary to meet new reliability standards, thereby 
ensuring that incentive payments for reliability improvements will not 
be awarded for more than what is needed to ensure reliability.
---------------------------------------------------------------------------

    \57\ SMUD at 2, citing Incentive Ratemaking for Interstate 
Natural Gas Pipelines, Oil Pipelines, and Electric Utilities: Policy 
Statement on Incentive Regulation, 61 FERC ] 61,168 at 61,590 (1992) 
(1992 Policy Statement).
---------------------------------------------------------------------------

    34. TAPS asserts that the Commission's authority to award above-
cost incentives has always turned on whether the incentive's cost is 
outweighed by the benefits customers will receive.\58\ TAPS advocates 
that the Final Rule be amended to explicitly retain a reasonable 
calculation test that analyzes which incentives spur increased 
investment, and require the Commission to use this test to replace the 
cost-benefit requirement.
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    \58\ TAPS at 9, citing CPUC v. FERC, 367 F.3d at 929.
---------------------------------------------------------------------------

2. Commission Determination
    35. The Commission reaffirms the decision not to adopt a ``cost-
benefit'' analysis for four principal reasons.
    36. First, the arguments in favor of a cost-benefit analysis start 
from the premise that our traditional approach to setting transmission 
rates is fully sufficient to attract new transmission investment in all 
cases. This premise cannot be squared with section 219. As discussed 
above, section 219 was enacted to counteract a long decline in 
transmission investment. Its provisions are mandatory, not permissive, 
and they proceed from the premise that the Commission must use its full 
discretion under section 205 to ``promot[e] capital investment.'' It 
did not, as noted above, simply codify the status quo; it required the 
Commission to pass a new rule adopting incentive-based rate treatments.
    37. These facts readily distinguish the Final Rule from prior 
instances where the Commission required a cost-benefit analysis.\59\ 
None of those policies was adopted in response to a Congressional 
directive to use the Commission's discretion under section 205 to 
address a national problem--the decline in transmission investment that 
is threatening reliability and imposing billions of dollars in 
congestion costs on consumers.
---------------------------------------------------------------------------

    \59\ Order No. 2000 required as a condition for any innovative 
transmission rate treatment that the applicant demonstrate ``a cost-
benefit analysis, including rate impacts.'' 18 CFR 35.34(e)(ii) 
(2006). The Commission notes that in the 6 years since Order No. 
2000 was issued, we have not received a single application seeking 
any of the innovative rate treatments that were provided for in that 
order. We believe that the requirement of a cost benefit analysis 
was perceived as an insurmountable hurdle which inhibited the 
utilities from seeking innovative rate treatments. Accordingly, in 
developing incentive rate treatments under section 219, the 
Commission expressly deleted the requirement for a cost-benefit 
analysis.
---------------------------------------------------------------------------

    38. Second, petitioners fail to recognize that applicants will be 
required to show that all rates are just and reasonable under section 
205. For example, any ROE will remain within the range of reasonable 
returns. Further, many of the incentives described in the Final Rule 
only change the timing of cost recovery (e.g., 100 percent CWIP), not 
the level of cost recovery. Others reduce the risks of investment 
(e.g., abandoned plant recovery), rather than changing the cost levels. 
We reiterate that each of the incentives adopted by the Final Rule is 
fully consistent with our responsibility to ensure that rates are just 
and reasonable under section 205.
    39. Third, those advocating a cost-benefit analysis fail to 
recognize that the courts have held that the Commission may consider 
non-cost factors in setting rates.\60\ Our authority to consider non-
cost factors applies equally in the development of incentive rate-
treatments.\61\
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    \60\ See Permian, 390 U.S. 747 at 791-2; CPUC v. FERC, 367 F.3d 
925 at 929.
    \61\ Maine PUC v. FERC, 454 F.3d at 289 (``particularly in view 
of the [Commission's] authority to consider non-cost factors in 
setting rates, the State Commissions' position on calibration 
demands too much'').
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    40. Finally, although the Commission is rejecting a cost-benefit 
analysis for the reasons stated above, applicants will nonetheless be 
required, as discussed above, to demonstrate the required nexus between 
the incentive being sought and the investment being made. This 
requirement will ensure that incentives are granted only where the 
incentives are tailored to address the demonstrable risks or challenges 
faced by the applicant.

E. Rebuttable Presumptions

    41. In the Final Rule, the Commission adopted a set of processes 
that, if an applicant satisfies them, its project will be afforded a 
rebuttable presumption that it qualifies for transmission incentives. 
First, it created a rebuttable presumption that an applicant has met 
the requirements of section 219 if that project results from a fair and 
open regional planning process that considers and evaluates projects 
for reliability and/or congestion and is found to be acceptable to the 
Commission.\62\ Second, the Commission stated that regional planning 
processes can provide an efficient and comprehensive forum for 
evaluating transmission investments' qualifications under section 219 
by looking at a variety of options across a large geographic footprint. 
For example, such a process has the ability to determine whether a 
given project is needed, whether it is the better solution, and whether 
it is the most cost-effective option among other alternatives.\63\ The 
Commission also adopted a rebuttable presumption that an applicant has 
met the requirements of section 219 if a proposed project is located in 
a NIETC or has received construction approval from an appropriate state 
commission, agency or state siting authority.\64\ The Commission also 
stated that ``other applicants not meeting these criteria may 
nonetheless demonstrate that their project is needed to maintain 
reliability or reduce congestion by presenting [to the Commission] a 
factual record that would support such a finding.'' \65\
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    \62\ Order No. 679, FERC Stats. & Regs. ] 31,222 at P 58.
    \63\ Id. The Commission noted that the value of regional 
planning was expressly recognized when it proposed to amend the pro 
forma Open Access Transmission Tariff of jurisdictional public 
utilities to require regional planning to ensure that transmission 
is planned and constructed on a nondiscriminatory basis to support 
reliable and economic service to all eligible customers in the 
region. See Preventing Undue Discrimination and Preference in 
Transmission Service, Notice of Proposed Rulemaking, 71 FR 32,536 
(June 6, 2006), FERC Stats & Regs., Preambles ] 32,603 at P 36 
(2006) (OATT Reform NOPR).
    \64\ Order No. 679, FERC Stats. & Regs. ] 31,222 at P 58.
    \65\ Id. P 57.
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1. Rehearing Requests
    42. NARUC and TAPS contend that the Final Rule's rebuttable 
presumption is not consistent with the statutory requirements of 
section 219. They state that there was no showing in the Final Rule 
that assessments in the regional planning processes satisfy the

[[Page 1160]]

requirements of section 219 and there is no basis to assume that the 
criteria employed in regional planning processes utilize the criteria 
set out in section 219.\66 \Therefore, they argue that it cannot be 
reasonably presumed that every project that is subject to regional 
planning will benefit customers by ensuring reliability and reducing 
the cost of delivered power by reducing transmission congestion. NARUC 
further contends that incentives for using regional planning processes 
are inappropriate in view of the Commission's proposal in the OATT 
Reform NOPR to require all jurisdictional public utilities to engage in 
regional planning.\67\ Under such a mandatory requirement, all projects 
will effectively qualify for the rebuttable presumption because all 
projects will, presumably, be included in approved regional plans.\68 \
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    \66\ NARUC at 5-6; TAPS at 7-8.
    \67\ See OATT Reform NOPR, FERC Stats & Regs., Preambles ] 
32,603 at P 36.
    \68\ NARUC at 6.
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    43. APPA/NRECA, NARUC, TDU Systems, and TAPS argue that the 
rebuttable presumption for state approvals should be deleted because 
there is no legal or logical basis to presume that projects falling 
into this category will ensure reliability or reduce the cost of 
delivered power.\69\ They assert that the criteria applied by the state 
may not resemble the criteria that the Commission is required to apply 
under section 219 of the FPA. They argue that state commissions are 
mainly concerned with protecting retail customers in their respective 
states and state authorities apply state laws to construction-permit 
applications. Accordingly, states are not focused on public utility 
wholesale customers who may be in other states, or ensuring reliability 
or reducing transmission congestion. Therefore, APPA/NRECA assert that 
the Commission cannot delegate its responsibilities under section 219 
to state authorities that may of necessity have a very different 
mission.\70\
---------------------------------------------------------------------------

    \69\ Id. at 7; TAPS at 6; APPA/NRECA at 37-39; TDU Systems at 
25-27.
    \70\ APPA/NRECA at 38.
---------------------------------------------------------------------------

    44. NARUC also claims that projects receiving a designation as 
projects in NIETC should not receive a rebuttable presumption because 
such a designation, alone, cannot assure that the statutory 
prerequisites of section 219 have been satisfied when the criteria for 
NIETC designation do not mirror those set out for incentives under the 
statute.\71\
---------------------------------------------------------------------------

    \71\ NARUC at 7.
---------------------------------------------------------------------------

    45. Additionally, NARUC, APPA/NRECA, and TDU Systems claim that the 
scope of the rebuttable presumption is ambiguous and needs to be 
clarified. They state that it is not clear to which part of the three-
part showing that the rebuttable presumption applies to.\72\ They state 
that the rebuttable presumption should only apply to the first part 
(ensure reliability or reduce the cost of delivered power by reducing 
transmission congestion) of the three-part showing because the only way 
an applicant can appropriately satisfy the statutory requirements of 
FPA section 219 is to demonstrate on the record that the project either 
ensures reliability or reduces the cost of delivered power and that the 
rates satisfy sections 205 and 206 of the FPA. Therefore, the applicant 
must still demonstrate with factual evidence that there is a nexus 
between the incentive sought and the investment being made and that the 
resulting rates are just and reasonable.\73\ APPA/NRECA also request 
the Commission to clarify that this interpretation applies to both 
section 205 filings and petitions for declaratory order.\74\ TAPS 
contends that the rebuttable presumptions conflict with the 
Commission's intended limitations on the receipt of incentives, such as 
routine investments, which may be included in a regional plan and 
required to receive state siting approval prior to construction, but 
may not always qualify for an incentive-based ROE.\75\
---------------------------------------------------------------------------

    \72\ Under section 35.35(d) of the regulatory text, an applicant 
for incentive rates is required to make a three-part showing that: 
(1) The facilities for which it seeks incentives either ensure 
reliability or reduce the cost of delivered power by reducing 
transmission congestion consistent with the requirements of section 
219; (2) there is a nexus between the incentive sought and the 
investment being made; and (3) resulting rates are just and 
reasonable. 18 CFR 35.35(d) (2006).
    \73\ APPA/NRECA at 35-36; NARUC at 7-8; TDU Systems at 24-25.
    \74\ APPA/NRECA at 36.
    \75\ TAPS at 8, citing Order No. 679, FERC Stats. & Regs. ] 
31,222 at P 94.
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2. Commission Determination
    46. We will grant rehearing and clarification in part. The 
Commission created the rebuttable presumption for the purpose of 
avoiding duplication in determining whether a project maintains 
reliability or reduces congestion. We do not wish to repeat the work of 
state siting authorities, regional planning processes, or the DOE in 
evaluating these issues. However, we agree with NARUC that if such 
processes do not in fact include such a determination, a rebuttable 
presumption would not be appropriate. Accordingly, we grant rehearing 
and are modifying Sec.  35.35 in three ways.
    47. First, we agree with NARUC that the NIETC process will not 
necessarily determine that every transmission project within a 
designated corridor will m