In an Order issued August 28, 2020 in ER20-2472 and ER20-1726, FERC has reaffirmed its position on the inclusion of prepaid pension costs in the rate base of transmission formula rates. FERC stated that a prepaid pension cost is the amount by which cumulative contributions to a pension trust exceed
cumulative pension expenses. FERC further stated that, consistent with this definition, the appropriate way to calculate prepaid pension costs includable in rate base would be to calculate the cumulative differences between each year’s pension contributions and pension expenses.
In its April 2015 filing that led to Opinion No. 570, Entergy asserted that its proposal to use a different formula (i.e., Funded Status minus Unrecognized Gains/ Losses) to calculate prepaid pension costs instead of the Commission’s prescribed formula of annual pension contributions minus annual pension expenses reached the same result as FERC’s prescribed formula. In Opinion No. 570, FERC had previously found that Entergy had not adequately supported its claim, nor had it adequately explained what comprises the different components of the formula and why it is appropriate to use those components to calculate prepaid pension costs. FERC therefore rejected Entergy’s proposed formula rate template line item “without prejudice to Entergy making a future filing that adequately demonstrates that its
proposal, including its methodology for calculating prepaid and accrued pension costs, is just and reasonable.”
In the August Order, FERC approved Entergy’s new proposal as FERC found that it adequately addresses the concerns in Opinion No. 570 and that Entergy has met its burden to demonstrate that its proposed formula rate line item is just and reasonable. FERC found that Entergy has made a sufficient showing, through its explanations as well as its mathematical proof, that its alternative formula leads to the same result as the formula based on cumulative differences between each year’s contributions and expenses. Though FERC has set forth a formula for calculating prepaid pension costs, alternative formulas may also be just and reasonable if adequately supported and if their sponsors can prove that the alternative yields the same result as the formula laid out in Opinion No. 570. We also find that Entergy has sufficiently demonstrated, through its explanations and responses, what comprises the different components of the formula.
Dr. Paul Dumais
CEO of Dumais Consulting with expertise in FERC regulatory matters, including transmission formula rates.