Background: In late 2015, FERC initiated a Section 206 investigation of the New England transmission formula rate. FERC found that the existing formula rate lacked transparency, may not be treating certain cost components correctly, and may not synchronize local and regional revenue requirements such that overcollections could be occurring. After over two and one-half years of settlement negotiations with the six New England state regulators and municipal customers in Massachusetts, along with FERC trial staff, the New England Transmission Owners (“NETOs”) filed a settlement in August 2018. The Settlement is supported by the consumer advocates for Massachusetts, Connecticut and Maine as well as NESCOE. The consumer advocates and the states had technical experts and experienced counsel to assist them in the negotiations. ISO-NE stakeholders approved the Settlement by a vote of 96% in favor. The Massachusetts municipal customers and FERC trial staff filed comments opposing the settlement.
FERC may approve contested settlements under the following conditions, based upon the Trailblazer case: (1) the Commission may make a decision on the merits of each contested issue; (2) the Commission determines that the settlement provides an overall just and reasonable result; (3) the Commission determines that the benefits of the settlement outweigh the nature of the objections, and the contesting parties’ interests are too attenuated; and (4) the Commission determines that the contesting parties can be severed longstanding principle that it is the “end result” of the rate setting process that counts, not each individual component of the rate.
FERC Order dated May 22, 2019: In this Order, FERC rejected the settlement and remanded the case back to the Chief ALJ for hearing procedures to resume. FERC determined that it was unable to approve the settlement using the Trailblazer precedent. As for item 1, FERC found that the record is inadequate to weigh each issue individually. For example, the proposed formula rate templates include numerous references to an “Attachment,” but the attachments have not been provided for review; the allocators are not verifiable or transparent; and the formula rate templates include numerous external references, which are not clearly defined. As another example, the proposed formula rate templates alternate between using five-quarter average balances and beginning-of-year and end-of year average balances to calculate rate base items without explanation. As for item 2, FERC could not determine whether the overall settlement package falls within a just and reasonable range, because the record lacks crucial information, such as the method or derivation of the allocation factors, information to determine whether several components of the rates are discretionary and in excess of the cost of providing transmission service, preventative controls for double recovery of certain components of the rates, and how the rates exclude non-transmission amounts from the rates. Moreover, Contesting Municipals have provided evidence suggesting that the Settlement will leave them worse off than if the issues were litigated as they provide detailed calculations, testimony, and workpapers indicating that the Settlement’s proposal to retain existing service company allocations results in an increase in the transmission revenue requirement of $42.5 million over the transmission revenue requirement that would result if the Settlement used allocations that are known and measurable. As for item 3, FERC found that the record was insufficient to determine whether the Settlement’s benefits outweigh the objections to it; in fact, Contesting Municipals present evidence that there is more harm than benefit. For item 4, FERC determined that the issues raised by the Contesting Municipals were not severable because they raise valid concerns involving the overall costs of transmission service under the Tariff that apply to all parties. For these reasons and based on the overall lack of necessary detail and transparency throughout the Settlement, FERC was unable to approve the Settlement and remanded this proceeding to the Chief Administrative Law Judge to resume hearing procedures.
Dr. Paul Dumais
CEO of Dumais Consulting with expertise in FERC regulatory matters, including transmission formula rates.