miso proposes Selection and cost allocation changes for market efficiency projects
On January 21, 2020, in ER20-857, MISO and the MISO TOs (“MISO”) proposed changes to the cost allocation for Market Efficiency Projects. These changes result from an extensive stakeholder process and are described generally below:
NYISO Proposes cost caps be included in transmission project competitive evaluations
On December 17, 2019, in ER20-617, the NYISO proposed changes to its public policy transmission process to establish provisions for cost containment of transmission projects proposed by developers. As detailed in its filing, the NYISO’s proposed revisions will establish: (A) the cost containment mechanisms that a Developer may voluntarily include as part of a proposed Public Policy Transmission Project in the Public Policy Process; (B) how the NYISO will evaluate in a quantitative and qualitative manner cost containment commitments made by Developers to select the more efficient or cost effective transmission solution to a Public Policy Transmission Need; (C) the manner in which cost containment commitments will be implemented as part of the rate recovery for a selected transmission project; (D) the requirements to include any cost containment commitment in the pro forma Development Agreement that must be entered into between the NYISO and the Developer of the selected project; and (E) additional, related tariff revisions.
Cost Cap – needs to include all capital costs except 1) the cost of system upgrades identified through the interconnection process; 2) cost of financing during construction period; 3) unforeseeable environmental remediation and mitigation costs (Note 1); and 4) real-estate costs for existing rights of way which will not be owned by the developer (can be excluded or included by developers).
Note 1: Costs relating to environmental remediation and environmental mitigation that are not anticipated by the Developer or are otherwise indeterminable based upon information reasonably available to the Developer at the time of submission, including any environmental remediation or mitigation costs that cannot be estimated by the Developer without performing an environmental site assessment or investigation . . . . Costs attributable to environmental investigation, remediation, and mitigation that exceed the amount estimated in the Developer’s bid based on, among other things, changes in the extent of known contamination will be considered “unforeseeable environmental remediation and environmental mitigation costs.”
Developers can propose hard cost caps or soft cost caps. Hard cost caps contain an amount over which the developer cannot recover costs from customers. Soft cost caps contain an amount over which the developer will recover less than or equal to 80% of the costs from customers.
NYISO will evaluate developers capital cost containment commitments qualitatively and quantitatively, as with other evaluation metrics.
NYISO proposes to require the Developer of a selected transmission project to file with FERC any Cost Cap that it proposed as part of the rate for its project. It will amend the pro forma Development Agreement between the NYISO and Developer to include the Cost Cap proposed by the Developer of a selected project.
NYISO proposes limited, specified excusing conditions from the Cost Cap. Those conditions are: (i) Transmission Project changes, delays, or additional costs that are due to the actions or omissions of the ISO, Connecting Transmission Owner(s), Interconnecting Transmission Owner(s), or Affected Transmission Owner(s); (ii) a Force Majeure event as defined in the Development Agreement, (iii) changes in laws or regulations, including but not limited to applicable taxes; (iv) material modifications to scope or routing arising from siting processes under Public Service Law Article VII or applicable local laws as determined by the New York State Public Service Commission or local governments respectively; and (v) actions or inactions of regulatory or governmental entities, and court orders.
On December 31, 2019, in ER20-159, FERC approved, subject to two revisions, Pioneer’s request to recover pre-commercial costs related to a transmission project (Pioneer had previously received the pre-commercial cost incentive from FERC). Pioneer is a joint venture formed by AEP and Duke. Pioneer requested that it be allowed to recover approximately $10.0 M of pre-commercial costs incurred for the March 2009 through December 31, 2019 period, including carrying charges, for development of the Greentown-to-Reynolds segment, which Pioneer has deferred as a regulatory asset. Pioneer asserted that the identified pre-commercial operation costs were prudently incurred and properly recorded and categorized as: (1) business services; (2) legal services; (3) FERC regulatory services; (4) Indiana regulatory services; (5) tax services; and (6) carrying costs. Pioneer stated that these prudently incurred costs would have otherwise been chargeable to expense in the period incurred, but Pioneer’s formula rate was not then in effect. Pioneer also asserted that such costs associated with owning and operating facilities that are used to provide utility service are recoverable in rates.
Pioneer proposed to recover approximately $4.4 M in carrying charges for the period March 2009 through December 31, 2019. Pioneer stated that it calculated the carrying charges without the 150 basis point ROE adder (it had previously been granted an ROR Adder for a larger but related project) in accordance with the July 2019 Order. Pioneer stated that the cost of capital used in the determination of the carrying charges is generally based on a hypothetical capital structure reflecting 50 percent equity and 50 percent debt. Pioneer explains that for the period March 2009 through November 11, 2013, the cost of capital reflects an 11.04% ROE (10.54% base ROE approved in Pioneer I plus 50 basis points for RTO participation), and for the period November 12, 2013, through December 31, 2019, it reflects a 10.82% ROE (10.32% base ROE approved for MISO transmission owners in Docket No. EL14-12 plus 50 basis points for RTO participation). Pioneer requested to amortize the pre-commercial operation costs deferred as a regulatory asset over a five-year period beginning on the effective date to be granted by the Commission in the instant filing. Pioneer requests an effective date of January 1, 2020.
In a prior order, FERC authorized Pioneer to utilize a 50 percent debt/50 percent equity hypothetical capital structure until the completion of the project, finding that Pioneer did not provide a sufficient nexus for the use of a hypothetical capital structure beyond the completion of the project. FERC directed Pioneer, upon completion of the project, to adopt a capital structure based upon its actual financing presented in its Form No. 1. In the instant filing, Pioneer proposes to utilize the 50 percent debt/50 percent equity hypothetical structure beyond the completion date of the project, June 24, 2018. However, Pioneer’s Form No. 1 annual update, filed April 15, 2019, shows that Pioneer’s actual capital structure for the year ending 2018 was approximately 51.1 percent debt and 48.9 percent equity. Accordingly, FERC directed Pioneer to submit a compliance filing utilizing Pioneer’s actual capital structure as presented in its Form No. 1 in calculating its carrying charges beginning June 25, 2018. And consistent with the August 2018 order, FERC’s acceptance of Pioneer’s request to use the MISO regional base ROE for the period November 12, 2013 – February 11, 2015 and prospectively from September 28, 2016, is subject to the outcome of the complaint proceedings in Docket Nos. EL14-12 and EL15-45.
Dr. Paul Dumais
CEO of Dumais Consulting with expertise in FERC regulatory matters, including transmission formula rates, reactive power and more.