• FERC Grants Transmission Rate Incentives Prior to State Siting Actions and Completion of Regional Planning Processes--Encouraging Transmission Infrastructure Development
  • April 29, 2009 | Author: Steven W. Snarr
  • Law Firm: Holland & Hart LLP - Salt Lake City Office
  • In an April 10, 2009, Order1, the Federal Energy Regulatory Commission (FERC) approved various transmission infrastructure investment incentives, certain accounting treatments and pro forma tariff sheets for the proposed Green Power Express Project (Green Power), even though Green Power had not yet obtained approval from regional planning authorities or state siting authorities. FERC’s Order may serve as a precedent for similar treatment of major transmission development in the Western United States and elsewhere.

    Green Power includes approximately 3,000 miles of 765 kV transmission lines that could bring up to 12,000 MW of wind energy and stored energy from the Dakotas, Minnesota, and Iowa to load centers in Chicago, southeastern Wisconsin and Minneapolis. Green Power has been described as a “superhighway” network with interconnected loops and transmission substations that would connect with existing lower voltage transmission facilities. The proposed project would provide access to various renewable energy projects for regional electric markets in the Midwest, improve electric transmission reliability, and enhance competitive supply alternatives while decreasing congestion on existing facilities.

    While FERC’s willingness to take action in response to Green Power’s request for a declaratory order prior to completion of regional planning processes and before state siting actions was criticized in protests by some industry participants, others applauded FERC’s precedent-setting guidance in addressing key economic factors that will encourage investor interest in transmission infrastructure development.

    FERC Chairman Jon Wellinghof noted that “getting these types of projects built will require effective transmission planning that looks beyond the needs of a single utility, a single state or even a single region.” Wellinghof also said, “The Commission is examining the adequacy of transmission planning processes and is committed to working with transmission providers and state and regional entities to provide consumers with greater access to renewable resources.”2

    FERC found that under Section 219 of the Federal Power Act3, and under FERC’s subsequent Order No. 6794, a sufficient showing had been made that the proposed facilities would ensure reliability and relieve congestion, thereby justifying approval of Green Power’s proposed investment incentives.

    In granting various transmission infrastructure investment incentives, FERC found that Green Power had shown an adequate nexus between the incentives sought and the investments being made. Specifically, FERC approved:

    • Authorization for an abandoned plant incentive that would allow Green Power to recover prudently incurred costs if the project is abandoned due to forces beyond Green Power’s control;
    • Authorization for Green Power to create regulatory assets for recovery of start-up and development costs, including carrying costs, to be recovered over a ten-year period commencing with recovery of the regulatory assets as part of Green Power’s revenue requirement;
    • Inclusion of 100 percent of construction work in progress (CWIP) in rate base for the project;
    • Use of a 60 percent equity and 40 percent debt hypothetical capital structure until the project is placed in service, at which time Green Power would use its own capital structure;
    • Approval of a 10 basis point adder as an ROE incentive for the project, justified by the special risks the project faces in securing approval through two regional transmission organizations (RTOs), seven states, and an estimated project cost of between $10 billion and $12 billion;
    • Approval of a 50 basis point adder as an ROE incentive to participate in an RTO; and
    • Approval of a 100 basis point adder as an ROE incentive for being a fully independent transmission-only company.

    FERC also approved Green Power’s proposal to allow recovery of its costs (subject to an annual true-up) via a rate formula that would allocate costs between two different RTOs with actual rate formulas to be reviewed in further hearings or settlement discussions.

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    1. Green Power Express LP, Docket No. ER09-681, Order on Transmission Rate Incentives and Formula Rate Proposal and Establishing Hearing and Settlement Judge Procedures, 127 FERC ¶ 61,031 (2009).

    2. FERC Press Release, dated April 13, 2009 (http://www.ferc.gov/news/news-releases/2009/2009-2/04-13-09.pdf).

    3. Added by the Energy Policy Act of 2005 (Pub. L. No. 109-58 § 1241 (2005)).

    4. See Promoting Transmission Investment through Pricing Reform, Order No. 679, FERC Stats. & Regs. ¶ 31,222 (2006), order on reh’g, Order No. 679-A, FERC Stats. & Regs. ¶ 31,236 (2006) order on reh’g, 119 FERC ¶ 61,062 (2007).