Citing 30 years of insufficient transmission investment and a growing strain on the power grid, the Federal Energy Regulatory Commission has proposed rule changes to spur construction of new transmission infrastructure, as directed by the Energy Policy Act of 2005.

The proposed rules, announced Nov. 17, would allow utilities to include precommercial operations in their rates, allow for a better rate of return on equity and allow recouping of losses on certain types of projects. Comments are due to FERC by Jan. 11. Observers say the rules will not take effect for another year.

Transmission owners are skeptical of rate reform. "The CEOs that I talked to are taking a wait-and-see approach," says Bill Koertner, president and CEO of constructor MYR Group, Rolling Meadows, Ill. A labor shortage means transmission construction can’t ramp up for three years, he says. "Once the ball gets rolling, I expect growth to be 15 to 20% for four to five years."

Pure transmission companies won’t see major changes, but the rule could profoundly affect vertically integrated utilities, says Jose Delgado, CEO of American Transmission Co., Madison, Wis. FERC rules now allow his transmission company to generate cash flow on capital investments, cutting construction cost by up to 16%, he says. Integrated utilities could see similar benefits under the changes.

"Improving the transmission system will provide a more competitive wholesale market," says Nicholas P. Guarriello, CEO of R. W. Beck, Seattle. Increased availability of more cost-effective generation might offset the potential rate of return by keeping old plants offline and reducing need for investment in generation, he says.