Why Rate-of-Return Adders Are Unlikely to Increase Transmission Investment

The Energy Policy Act of 2005 mandated that the Federal Energy Regulatory Commission develop incentives to enhance investment in transmission. In Order 679 FERC authorized the use of rate-of-return “adders” as an incentive mechanism, and it has subsequently approved them in individual proceedings. The evidence suggests that such adders are unlikely to be effective tools for enhancing investment.