New England Formula Rate - Settlement Judge Weighs in

​In late 2015, FERC initiated a Section 206 investigation of the New England electric 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 Massachusetts municipal customers (“munis”) and FERC trial staff filed comments opposing the settlement. 
Today the Settlement Administrative Law Judge issued his comments on the contested settlement.  He first recognized that settlement judges certify only uncontested settlements and that the substantive determinations necessary to certify a contested settlement are not appropriately made by a settlement judge, as the settlement judge may well be privy to confidential, non-record information and may have had off-the-record discussions about the merits of issues with not all parties present.  FERC’s Rule 603 does not empower settlement judges to make substantive findings regarding a contested offer of settlement or to certify a contested offer of settlement.  Therefore, FERC will consider the record in this proceeding as it has been developed to date, address the merits of the issues presented in and by the settlement, and determine what, if any, additional procedures may be necessary.
The settlement judge then put the settlement in perspective. 

1. The settlement addresses the needs of more than 97 percent of the electric load in New England and is the product of two-and-a-half years of intense negotiations among transmission owners, state regulators, consumer advocates, and municipal governments operating throughout the region;
2. There are 28 signatories to this settlement, and the filings associated with this settlement include no less than 46 separate tariffs;
3. All parties consistently demonstrated a firm desire to address and satisfy all the Commission’s concerns in their 2015 Order over shortcomings in the current ISO New England tariff; and
4. The case was a massive undertaking, and the complexity and importance of any outcome of negotiations encouraged all parties to settle, as it was obvious to all participants that trying this case would be extremely burdensome. 

The settlement is opposed by the munis, on narrow grounds, and by FERC Trial Staff only.  The munis sole complaint is that the settlement eliminates the lag between the timing of updates to the regional and local rates, thereby removing the subsidy that regional-only customers have enjoyed under the current formula rate.  As the NETOs said in their comments, the munis believe that this subsidy is an entitlement.  The settlement judge concurred with the NETOs’ conclusion that the new rate structure, which removes the subsidy, is cost-based, consistent with Commission precedent, and altogether just and reasonable.
The settlement judge then moves to Trial Staff, where he said that the most difficult and unsettling aspect of this settlement has become Staff’s statement of opposition to it.  The NETOs described the Staff opposition as follows:  “Trial Staff sat silent during the negotiation of economic terms, and during the broader negotiations with other parties [Trial Staff] raised only a handful of issues that were openly considered in the negotiations.  Trial Staff then showed up at the end, after the negotiations were completed and a deal had been announced to the Settlement Judge, with a list of approximately 100 issues.  Many of the issues on the list had not been raised during the prior two-and-a-half years of negotiations.”  The settlement judge ends by saying that he is in complete agreement with the statements that were filed in support of this settlement and commended the comments filed by the NETOs for a complete and accurate detail of the reasons why the Staff’s opposition and that of the munis is in error.