In ER14-2529, in a series of Commission orders, FERC granted PG&E’s requests for a 50-basis point return-on-equity (ROE) adder to its transmission rates (RTO-Participation Incentive) for its continuing membership in CAISO. In granting the request, FERC rejected the California Public Utilities Commission’s (CPUC) argument that PG&E was not eligible for the incentive because California law required PG&E to participate in CAISO. On appeal, the U.S. Court of Appeals for the Ninth Circuit (Ninth Circuit) remanded the underlying orders and instructed FERC to “inquire into PG&E’s specific circumstances, i.e., whether it could unilaterally leave [CAISO] and thus whether an incentive adder could induce it to remain in [CAISO].” On August 20, 2018, the Commission issued an initial order on remand establishing briefing procedures regarding those issues. Having reviewed the record, including the additional briefing provided by parties to this proceeding, FERC found that California law does not mandate PG&E’s participation in CAISO, and that the RTO-Participation Incentive induces PG&E to continue its membership. FERC therefore reaffirmed its prior grant of PG&E’s request for the RTO-Participation Incentive.
Commissioner Glick consented with a separate statement. In his statement, Commissioner Glick states that this PG&E case reinforces the importance of taking a hard look at the RTO-Participation Incentive in the Commission’s ongoing incentive proceeding (PL19-3). He went on to state that FERC’s current approach to incentivizing RTO participation hands transmission owners across the country hundreds of millions of dollars every year with little indication that any of that money makes a meaningful difference in their decisions to enter or remain in an RTO, and FERC must carefully review whether the RTO-Participation Incentive remains money well spent and is consistent with FERC’s obligation under the FPA to ensure that transmission rates are just and reasonable.
On June 27, 2019 in ER19-2272, Xcel Energy Services, on behalf of its affiliate Public Service Company of Colorado (PSCo), requested the inclusion of a regulatory asset tariff provisions for the early retirements of Comanche Unit 1 and Comanche Unit 2 in the production formula rate template (Formula Rate) used to derive wholesale rates under the PSCo Assured Power and Energy Requirements Service Tariff (Tariff). Xcel requests FERC accept the Formula Rate revisions providing for the creation of the regulatory assets for Comanche Unit 1 and Comanche Unit 2 and the seven-year amortization period for the rate recovery starting at the retirement dates for Comanche Unit 1 and Comanche Unit 2, effective September 1, 2018.
Comanche Unit 1 and Comanche Unit 2 are steam production (electric generation) units whose costs are presently recovered in the Production Formula. Comanche 1 is a coal-fired generating unit located near Pueblo, Colorado, with a capacity of 325 MW which had a scheduled retirement date of 2033. Comanche 2 is a coal-fired generating unit located on the same site with a capacity of 335 MW and had a scheduled retirement date of 2035. The two units are currently used to serve both retail native load customers in Colorado and wholesale requirements service customers under the Tariff. The request is supported by the approval by the Colorado Public Utilities Commission (“CoPUC”) of the early retirement of Comanche Unit 1 and Comanche Unit 2 in its Decision No. C18-0761 in Proceeding No. 16A-0396E, issued on September 10, 2018. In addition, in Decision No. C18-0762 in Proceeding No. 17A-0797E, which was issued contemporaneously with Decision No. C18-0761, the CoPUC approved creation of a regulatory asset to collect the incremental, accelerated depreciation costs associated with the early retirements.
The requested regulatory assets will reflect the differences between depreciation expense at the currently effective depreciation rates and the depreciation expense at accelerated depreciation rates required by Generally Accepted Accounting Principles due to the earlier retirement. The regulatory asset for Comanche Unit 2 also includes any common assets that will be retired when Unit 1 and 2 are retired. The regulatory assets are estimated to be accumulated to $125.3 million for Comanche Unit 1 on December 31, 2022 (date of retirement), and $101.1 million for Comanche Unit 2 on December 31, 2025 (date of retirement). The portion of the regulatory asset costs associated with wholesale requirements services (approximately 8 percent) would be amortized over seven years beginning the first rate year after retirement: January 1, 2023 for the regulatory asset for Comanche Unit 1, and January 1, 2026 for the regulatory asset for Comanche Unit 2.
Dr. Paul Dumais
CEO of Dumais Consulting with expertise in FERC regulatory matters, including transmission formula rates, reactive power and more.