(November 2008)Economic uncertainties are raising doubts over utility returns. Will regulators feel the need to consider broader economic effects when engaging in ratemaking? While...
Transmission is Bubbling
A billion-dollar ‘gold rush’ could send grid rates through the roof.
summer, questioning the wisdom of granting open-ended ROE adders (since they grow in lockstep with project budgets) and urging FERC to step in and stop the bleeding.
In the NECPUC complaint, the New England state regulators advance the very sensible notion that transmission rate incentives must be keyed to consumer benefits, and so must be made subject to a downward adjustment ordered by FERC if costs should rise in the future, above the level projected in the original application for the incentive. In particular, NECPUC wants to roll back certain ROE adders that FERC granted to utility transmission owners participating in the New England RTO, a group known as the NETOs, which includes Central Maine Power.
In many cases, according to NECPUC, these cost overruns pertain to New England transmission projects that ISO-NE OK’d for its 2004 transmission expansion plan (RTEP-04), and that were scheduled to go into service by the end of calendar 2008, and so qualified for an incentive-driven 11.64 percent ROE under the terms of FERC Opinion 489, which governed incentive rates for the NETOs for projects proposed before Congress passed EPACT, and before the FERC issued interpretive rules under Order 679 (See, Opin. No. 489, Dkt. ER04-157, Kelly and Wellinghoff, dissenting, 117 FERC ¶61,129, Oct. 31, 2006) .
The state regulators cite numerous examples, some listed here, comparing project cost estimates from 2004, with actual or current estimated costs as given by ISO-NE in its Regional System Plans for 2007 or 2008:
• NSTAR 345-kV Trans. Reliab. Proj. Costs up $57 million (30 percent), from $217 million in RTEP-04, to $283 million in RSP-07.
• Central Maine Proj. ID 149. Costs up from $3.3 million (2006) to $7.5 million (Oct. 2007).
• National Grid Project ID 170. Estimates up from $5.54 million (2006) to $13.4 million (Oct. 2007).
• Northeast Utils Proj. ID 187. Costs up from $120 million to $183.2 million between July 2006 and Oct. 2007. And then to $234.2 million as of April 2008.
• Northeast Utils. Middletown-Norwalk Proj. Current price tag approximately $1.4 billion—“about twice as much as its estimated cost only a few years ago.” (Expected in service early 2009.) (See, Complaint of NECPUC, pp. 3-13, FERC Dkt. EL08-69, filed June 12, 2008.)
According to the Maine PUC, cost overruns like these, plus the incentive rate adders granted by FERC, have led recently to “extraordinary increases in regional transmission rates.”
For example, the PUC reports that the formula rate filing for the New England TOs shows an increase in rates from $27.90/kW-yr to $44.40/kW-yr between 2007 and 2008 ( see Figure 2 ), translating into an approximate 6.5 percent increase in the distribution component of Central Maine Power’s retail residential rates. The PUC adds:
“With the increases in transmission costs due to major new projects, a pattern of significant cost overruns, and the commission’s ubiquitous and generous grant of ROE adders in recent years, transmission is becoming an increasingly large component of the overall electricity rate.
“Currently it is close to 10 percent of the all-in rate for CMP residential customers and 20