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Commission Watch

FERC's AEP ruling begs the question: Can the feds bypass states that block transmission reform?
Fortnightly Magazine - January 2004
  • have paid the RTOR or T&O, either directly, or through a lower margin, so recovering those lost revenues entirely from end users might shift some costs from producers to consumers.
  • Fairness. An interregional transmission charge in theory is avoidable (use local generation instead of importing), so allowing its reimbursement through a nonbypassable surcharge represents a forced recovery of an operating expense that is not ordinary or necessary.
  • Illegal Incentive. According to Detroit Edison, SECA would qualify as a financial incentive for RTO participation, thus requiring a cost-benefit analysis for justification under FERC's own policy statement (61 FERC 61,168) governing incentive regulation.
  • Administrative Impossibility. Allocating the SECA surcharge on a license-plate basis to the load of a specific utility in a particular zone could prove impossible in PJM, since the entire PJM region is treated as a single zone (a single control area).

Illinois Power had ridiculed that last argument. The problem, said the company, was "akin to a group of diners in a Chinese restaurant who, having shared plates delivered to the table, inform the waiter that since they do not have a record of who ate how much of what, they will be unable to pay the bill."

At the end of the day, however, FERC faced an intractable problem: some of the utilities that benefit from revenues received from the RTOR and T&O tariffs had already counted those revenues in rate cases and rate settlements at state PUCs, and under rate freezes still in effect were powerless to go back to their states to gain reimbursement should they lose those revenues at the FERC.

Ameren, for example, noted it collected approximately $45 million (annually) in revenues from T&O rates applicable to transactions sinking outside its control area-revenues it would lose without recourse at the state level and without a SECA true-up. As is explained, its current retail rates in Missouri resulted from a "black box settlement" at the state PUC, with no specific line item identified in the settlement as attributable to RTOR revenue. Once lost, such revenue would be lost forever.

In the long run, it may prove difficult to verify if FERC's theory will hold: that by eliminating tariffs that are economically efficient, but not necessarily unjust or unreasonable-and then hitting consumers again for the very same rates, but in a different guise (the SECA surcharge)-it will make consumers better off.

Certainly, however, the SECA story is curious in one respect. According to FERC, in previous cases it had eliminated certain types of rate pancaking without imposing true-up adjustment clauses to capture the lost revenue. But, as the commission explains, those instances involved a voluntary surrender of pancaking revenues. Here, it says, the utilities and RTOs would not volunteer to give up their tariffs, but had to be carried along kicking and screaming, so that it was only fair to offer SECA as a carrot.

One might ask, at the very least, whether any utility ever again will volunteer freely to give up revenues from pancaked transmission rates, without assurance of a tit-for-tat surcharge.

RTO for AEP?