Duquesne Light Company requested from FERC authorization to use certain incentive rate treatments related to its investments in the Dravosburg-Elrama Expansion Project (the “Project”). The Project is part of a larger set of transmission upgrades that have been determined under the transmission planning process of PJM to be necessary to mitigate reliability criteria violations expected to result from the planned deactivation of two coal generation facilities in western Pennsylvania and eastern Ohio. Specifically, Duquesne Light seeks authorization to (1) include 100 percent of construction work in progress (“CWIP”) for the Project in rate base under its formula rate and (2) preauthorization to recover 100 percent of prudently incurred costs of the Project if it is abandoned or canceled, in whole or in part, for reasons beyond the control of the Company.
As a result of the planned deactivation of these two generating units, PJM identified approximately 145 reliability criteria violations across its footprint. The Project is part of $122 million of transmission upgrades that PJM determined are required to address the reliability criteria violations expected to result from these deactivations. Duquesne Light was designated by PJM as having the responsibility to construct and operate a portion of these upgrades which support the mitigation of approximately 20 of the reliability criteria violations. The Project has an estimated cost of $30 million and consists of new tie breakers, reconductoring four transmission lines, and expanding a planned 138 kV substation.
Duquesne supported its request for CWIP in rate base by explaining that its typical annual capital investment for transmission upgrades is $45 M and the Project will add significantly to its transmission capital investments. In addition, Duquesne supports its CWIP in rate base request as necessary to enhance cash flow in order to avoid downward pressure on the rating agency’s credit metrics. CWIP in rate base will also result in lower project costs and will avoid any rate shock when the project goes into service. To supports its request for the Abandonment Incentive, Duquesne states that it has no control over whether the generation resources with planned deactivations will deactivate as planned, or whether they will not, in which case PJM may need to cancel the Project as a result. Duquesne also states that the Project is subject to various state and local regulatory approvals, including transmission sitting and local permitting ordinances, which process can be both expensive and time-consuming and heavily contested. Multiple routing options must be studied and presented to the state commission to ensure that the most feasible and least impactful alternatives are pursued based on public input, land use, and environmental resources. Additionally, the Project is also subject to additional and unusual risk because Duquesne must coordinate closely with FirstEnergy as FirstEnergy’s transmission affiliates ATSI, Penelec, and West Penn have been designated with substantial construction responsibility for the remainder of the baseline projects necessary to mitigate the reliability criteria violations. This need for coordination creates substantial execution risk for Duquesne Light as changes to the nature and scope of the transmission upgrades to be constructed by First Energy’s affiliates could impact Duquesne’s construction of the Project.
Dr. Paul Dumais
CEO of Dumais Consulting with expertise in FERC regulatory matters, including transmission formula rates.