On October 15, 2020, FERC issued Opinion 572 in Docket No. ER16-2320 on Pacific Gas and Electric’s (PG&E) 2018 electric transmission rate. In this order, among other things, FERC directed further briefing regarding PG&E’s ROE (initial briefs shall be due in 60 days, with responses due 30 days later).
PG&E requested an expedited decision from FERC on its request in Docket No. AC19-122 whereby PG&E proposed to determine its AFUDC rate in a manner that excludes certain liability provisions required by GAAP that do not have an impact on cash available to fund construction. Specifically, PG&E had requested the Commission’s authorization to exclude from the AFUDC rate formula calculation the 2017 Northern California Wildfires and the 2018 Camp Fire contingent liabilities, net of accrued insurance proceeds and accrued tax benefits (and any future regulatory asset offset), from its equity balance (i.e., capital structure calculation). On October 15, 2020, PG&E filed an Offer of Settlement and Stipulation (Settlement) in its Formula Rate Proceedings (ER19-13, ER19-1816 and ER20-2265) which included adjustments to PG&E’s regulatory capital structure used in its Formula Rate. In the Settlement, the Parties agreed to a fixed capital structure for use in the Formula Rate with common stock being fixed at 49.75%, preferred stock being fixed at 0.5%, and long-term debt being fixed at 49.75%. The Parties also agreed that this capital structure should be used in PG&E’s AFUDC calculation for the permanent capital component of the AFUDC rate. As a result, PG&E revised its request in Docket No. AC19-122 to reflect the terms of the settlement as to how the AFUDC calculation adjustment to the permanent capital component (i.e., non short-term debt) of the AFUDC rate be determined. PG&E requested that these changes apply to AFUDC calculations effective as of May 1, 2019 through June 30, 2020 as the 2017 Northern California Wildfires and the 2018 Camp Fire contingent liabilities were paid upon PG&E’s emergence from bankruptcy on July 1, 2020.
On October 15, 2029, in Docket No. ER20-1783, FERC approved a request by NEET MidAtlantic Indiana for a formula rate that accommodates its acquisition of certain transmission facilities from Commonwealth Edison Company of Indiana, Inc. (ComEd) and rejected its request to establish a regulatory asset for transaction costs related to the acquisition. FERC approved the tariff changes to become effective upon the date NEET MidAtlantic Indiana becomes a transmission-owning member in PJM. FERC denied NEET MidAtlantic Indiana’s request for pre-approval to record the transaction costs as regulatory assets as the transaction costs at issue here are not the type of incentives, such as formation and pre-commercial costs related to competition for transmission enhancements as part of the RTEP process, that the Commission has previously found further the policy goal of facilitating the participation of nonincumbent transmission developers in transmission planning processes, thereby encouraging competition. Rather these costs are associated with the acquisition of existing transmission assets. FERC’s policy is to accept acquisition adjustments in rate base, and thus allow their recovery, only if utility can show that “the investment decision is prudent and if it can demonstrate that the acquisition provides measurable benefits to ratepayers.” To recover such acquisition adjustments, the utility must show specific, tangible, non-speculative, quantifiable benefits in monetary terms, which NEET MidAtlantic Indiana did not do.
Dr. Paul Dumais
CEO of Dumais Consulting with expertise in FERC regulatory matters, including transmission formula rates, reactive power and more.