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Environmentalists Join Chorus Opposing Grid Expansion

Groups urge federal agency to overhaul incentives for upgrading transmission lines.

It is not only consumer advocates who believe the federal government is being too generous in handing out incentives to utility companies to build new transmission lines.

In a filing made earlier this week, a number of leading environmental groups joined with state utility regulators, state attorneys general, and consumer advocates in urging the Federal Energy Regulatory Commission (FERC) to overhaul its system of awarding incentives to companies to upgrade the nation's power grid.

"The current incentive structure places unwarranted burdens on consumers, and diverts ratepayer capital away from other important electric infrastructure improvements," the groups said in a letter to the federal agency filed Monday.

The letter, signed by more than three dozen organizations, reflects the growing concern from consumer advocates and now environmentalists over the expansion of the nation's power grid, a trend that is being propelled by overly generous incentives to utilities, according to critics of the system.

To promote the upgrading of the nation's transmission system, the federal agency has developed special incentives to encourage high-risk projects to go forward. Since FERC initiated the policy, it has received more than 70 applications from transmission owners seeking special incentive rates for $50 billion worth of projects.

In response to the criticism, the federal agency has launched a notice of inquiry to look at the issue, a decision that prompted the letter from the organizations, which include the attorneys general of Connecticut, Illinois, Massachusetts, and Rhode Island, as well as representatives from the Natural Resources Defense Council, Earthjustice, the Environmental Defense Fund, the Sierra Club's Beyond Coal Campaign, and the National Audubon Society.

Stefanie Brand, director of the New Jersey Division of Rate Counsel, said the rising concern expressed by critics of the incentive system might help change minds at the federal agency.

"Enough people are stirring things up so that maybe people are beginning to realize that the status quo isn't so perfect," said Brand, who also signed the letter. "Maybe, FERC is beginning to see they need to take a look at some of these issues."

Paul Patterson, an energy analyst at Glenrock Associates, agreed, noting the federal agency would not have launched the notice of inquiry unless it was serious about reviewing the incentives.

The incentives typically include higher rates of return on equity investments, as well as provisions that allow the owner of the transmission system to begin collecting payments from ratepayers while construction is in progress, in addition to a full recovery of costs if the project is cancelled.

For instance, Public Service Electric & Gas has repeatedly won special incentive rates for various transmission project upgrades, which have been opposed by both the Division of Rate Counsel and the New Jersey Board of Public Utilities. In January, it was granted an 11.93 percent return on equity, far higher than the 10.30 percent it earns on investments in its local distribution system, which delivers power to homes and businesses.

PSE&G also has received special incentive rates for two other major transmission projects, including the controversial Susquehanna-Roseland project, which cuts through a number of national parks and recreation areas.

For environmentalists, the expansion of the power grid is designed in part to wheel so-called "dirty coal" into power markets where electricity prices are the highest, including the Northeast and New Jersey.

"We see this as a way to develop a market for coal plants in the Midwest into the metropolitan area," said Jeff Tittel, director of the New Jersey Sierra Club. "It will undermine investments in clean energy programs and energy efficiency projects."

The federal agency and utilities argue the incentives are needed to modernize an aging power grid, particularly for projects that are risky and difficult to build because of local opposition to power lines going through preserved public lands or densely populated areas.

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