On December 31, 2019, in ER20-159, FERC approved, subject to two revisions, Pioneer’s request to recover pre-commercial costs related to a transmission project (Pioneer had previously received the pre-commercial cost incentive from FERC). Pioneer is a joint venture formed by AEP and Duke. Pioneer requested that it be allowed to recover approximately $10.0 M of pre-commercial costs incurred for the March 2009 through December 31, 2019 period, including carrying charges, for development of the Greentown-to-Reynolds segment, which Pioneer has deferred as a regulatory asset. Pioneer asserted that the identified pre-commercial operation costs were prudently incurred and properly recorded and categorized as: (1) business services; (2) legal services; (3) FERC regulatory services; (4) Indiana regulatory services; (5) tax services; and (6) carrying costs. Pioneer stated that these prudently incurred costs would have otherwise been chargeable to expense in the period incurred, but Pioneer’s formula rate was not then in effect. Pioneer also asserted that such costs associated with owning and operating facilities that are used to provide utility service are recoverable in rates.
Pioneer proposed to recover approximately $4.4 M in carrying charges for the period March 2009 through December 31, 2019. Pioneer stated that it calculated the carrying charges without the 150 basis point ROE adder (it had previously been granted an ROR Adder for a larger but related project) in accordance with the July 2019 Order. Pioneer stated that the cost of capital used in the determination of the carrying charges is generally based on a hypothetical capital structure reflecting 50 percent equity and 50 percent debt. Pioneer explains that for the period March 2009 through November 11, 2013, the cost of capital reflects an 11.04% ROE (10.54% base ROE approved in Pioneer I plus 50 basis points for RTO participation), and for the period November 12, 2013, through December 31, 2019, it reflects a 10.82% ROE (10.32% base ROE approved for MISO transmission owners in Docket No. EL14-12 plus 50 basis points for RTO participation). Pioneer requested to amortize the pre-commercial operation costs deferred as a regulatory asset over a five-year period beginning on the effective date to be granted by the Commission in the instant filing. Pioneer requests an effective date of January 1, 2020.
In a prior order, FERC authorized Pioneer to utilize a 50 percent debt/50 percent equity hypothetical capital structure until the completion of the project, finding that Pioneer did not provide a sufficient nexus for the use of a hypothetical capital structure beyond the completion of the project. FERC directed Pioneer, upon completion of the project, to adopt a capital structure based upon its actual financing presented in its Form No. 1. In the instant filing, Pioneer proposes to utilize the 50 percent debt/50 percent equity hypothetical structure beyond the completion date of the project, June 24, 2018. However, Pioneer’s Form No. 1 annual update, filed April 15, 2019, shows that Pioneer’s actual capital structure for the year ending 2018 was approximately 51.1 percent debt and 48.9 percent equity. Accordingly, FERC directed Pioneer to submit a compliance filing utilizing Pioneer’s actual capital structure as presented in its Form No. 1 in calculating its carrying charges beginning June 25, 2018. And consistent with the August 2018 order, FERC’s acceptance of Pioneer’s request to use the MISO regional base ROE for the period November 12, 2013 – February 11, 2015 and prospectively from September 28, 2016, is subject to the outcome of the complaint proceedings in Docket Nos. EL14-12 and EL15-45.
Dr. Paul Dumais
CEO of Dumais Consulting with expertise in FERC regulatory matters, including transmission formula rates, reactive power and more.