FERC Unanimously Approves Transmission Incentives for PEPCO's Grid Expansion

On October 31, FERC unanimously approved rate incentives for Pepco Holdings Inc.’s (“Pepco”) proposed 500 kV, 230 mile Mid-Atlantic Power Pathway (“MAPP”) project. The line is to run from Northern Virginia, through Maryland and Delaware, into southern New Jersey. The line is scheduled to be in service by 2013.

Order No. 679 implemented section 1241 of the Energy Policy Act of 2005, which directed FERC to establish incentive-based rates to encourage the construction of new transmission. To receive incentives, an applicant must demonstrate among other things that the facilities either ensure reliability or reduce the cost of delivered power by reducing transmission congestion. On August 18, 2008, Pepco filed revised tariff sheets to the PJM Interconnection LLC (“PJM”) Open Access Transmission Tariff (“OATT”) requesting transmission incentives for the MAPP project. Pepco argued that the project met the criteria established in Order No. 679 for receiving incentive rate treatment.

The MAPP Project was identified in the PJM RTEP as a baseline project and has been approved by the PJM Board of Managers. It is expected to resolve 33 overloads on several interfaces in the region and relieve congestion in the Baltimore-Washington area. The project also will provide access to more than 1,300 MW of renewable wind generation in the western part of PJM. In addition, it will be operated as a “smart grid” providing operating efficiencies, and minimizing sags, spikes and other disturbances.

The Commission authorized a 1.5 percent return on equity (“ROE”) adder to Pepco’s existing 11.3 percent ROE. FERC also granted full recovery of construction work-in-progress and prudently incurred abandonment costs. The rates were effective as of November 1.

Significantly, the Commission’s approval was unanimous. Dissents by Commissioners Jon Wellinghoff and Suedeen Kelly on transmission incentive cases have become the rule rather than the exception (see September 12, 2008 edition of the WER). Commissioner Jon Wellinghoff issued a separate statement to highlight important characteristics of the MAPP project that he believes warranted the significant ROE adder in this case. Specifically, he pointed to the connection of wind generation and the use of advanced technologies. Wellinghoff has previously dissented in transmission incentive cases because he felt that the majority overlooked Order No. 679’s requirement that there be a “nexus” between the incentives sought and the investment made. In previous cases, he argued that the Commission inappropriately granted incentive ROE adders for routine projects. In contrast, he said that he agreed that the MAPP project satisfies the nexus requirement.

Commissioner Kelly concurred with a “separate statement to be issued at a later date.” The order is available at: http://www.ferc.gov/EventCalendar/Files/20081031174052-ER08-1423-000.pdf