FERC Grants Risk Reducing Incentives but denies ROE Adder for Avangrid Transmission Project
On March 15, 2019, in Docket No. ER19-1359, the United Illuminating Company (UI), an affiliate of Avangrid, requested rate incentives for a substation replacement project. UI’s Pequonnock Substation Project will replace the existing Pequonnock substation and will include (1) a new 115-kV/13.8-kV gas insulated substation; (2) the relocation and installation of five existing 115-kV overhead transmission lines; and (3) the relocation and installation of two 115-kV underground high-pressure gas filled cables and one underground XLPE cable, each ranging in length from about 500 feet to 730 feet. The Pequonnock Substation Project is approximately a $101.6 million electric transmission investment and is expected to be placed in service on or before December 1, 2022. It will deploy smart grid communications-enabled technology and a resilient hardened substation design to improve the reliability of ISO-NE’s bulk electric system and to protect and maintain the transfer of uninterrupted power flow along the coast of southwestern Connecticut bordering Bridgeport Harbor.
UI requested (1) 100 percent recovery of prudently incurred costs in the event the Pequonnock Substation Project is abandoned, in whole or in part, for reasons outside of UI’s reasonable control (“Abandoned Plant Incentive”); (2) inclusion of 100 percent Construction Work in Progress in rate base (“CWIP Incentive”); and (3) a 50 basis point return on common equity (“ROE”) incentive adder (“ROE Incentive Adder”) for increased risks and challenges prompted by UI’s deployment of advanced technology and construction and operation of a substation that includes a resilient design. The Project is significant for UI as it represents over 12% of UIs existing transmission investment base.
On May 14, 2019, FERC found that the Pequonnock Project has received construction approval from an appropriate state siting authority that considered whether the project ensured reliability or reduced congestion and therefore the Project is entitled to the rebuttable presumption established in Order No. 679 and satisfies the section 219 requirement that a project ensure reliability or reduce the cost of delivered power by reducing transmission congestion. As a result, FERC granted the risk reducing incentives (Abandoned Plant and CWIP incentives) but denied the request for a 50-basis point ROE Incentive Adder. As for the ROE Incentive Adder, FERC found that United Illuminating failed to make the first demonstration set forth in the 2012 Policy Statement in that it has not shown that the Pequonnock Project 1) will relieve chronic or severe grid congestion that has had demonstrated cost impacts to consumers; (2) will unlock location constrained generation resources that previously had limited or no access to the wholesale electricity markets; or (3) will apply new technologies to facilitate more efficient and reliable usage and operation of existing or new facilities. United Illuminating has not shown that its use of smart grid technology or “hardened resilient design” reflects the application of new technologies to facilitate more efficient and reliable usage and operation of existing or new facilities. Lastly, United Illuminating also has not demonstrated that the Pequonnock Project otherwise faces risks and challenges either not already accounted for in United Illuminating’s base ROE or addressed through risk-reducing incentives.
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Dr. Paul Dumais
CEO of Dumais Consulting with expertise in FERC regulatory matters, including transmission formula rates, reactive power and more.