FERC Mulls Transmission Incentives for Cybersecurity Enhancements
Last month, the Federal Energy Regulatory Commission (FERC) published a whitepaper contemplating the payment of transmission incentives to electric utilities that make smart, proactive grid enhancements designed to fend off cyber-attacks.
Transmission Incentives Versus Regulatory Mandates
The main reason that an incentive-based approach is being considered is because regulations – i.e., the Critical Infrastructure Protection (CIP) cybersecurity reliability standards developed by the North American Electric Reliability Corporation (NERC) – are slow to adapt. Simply put, regulations sometimes take years to create and implement, and therefore they cannot keep up with the increased pace of technological change that is currently occurring.
Not only would financial incentives create faster change than regulatory mandates, they would also provide the impetus for utilities to do more than just the bare minimum required by the NERC CIP Reliability Standards. Thus, transmission incentives would create faster, more impactful changes.
The FERC whitepaper aims to garner feedback on the type and level of financial incentive that would be needed to promote action. The whitepaper outlines a few types of incentives that might be worth considering:
- Providing an additional 200-basis point return on equity for voluntary cyber-enhancements
- Making cybersecurity investments eligible for accelerated depreciation or recovery of abandoned costs.
- Changing accounting rules to allow utilities to defer and amortize costs that would otherwise hit the books immediately
- Allowing utilities to recover cybersecurity expenses as part of utilities’ stated rates
I think an approach that leverages financial incentives along with a regulatory framework makes a ton of sense for all the reasons previously outlined. And I applaud the FERC’s efforts to solicit feedback from utilities in order to make sure that the best possible transmission incentives are implemented. This is critical, because the incentives must be strong enough to motivate utilities to optimize and accelerate the rollout of improved grid security methods and techniques.
