(November 2006)Our annual return on equity (ROE) survey broadly shows a continuing decline in the level of debate over issues specific to restructuring of the electric market. It also...
Transmission is Bubbling
A billion-dollar ‘gold rush’ could send grid rates through the roof.
share would run nearly 10 times the total value ($19 million) of transmission plant dedicated to service at MPS, as of year-end 2007 (See www.mainepowerconnection.com).
Given the huge size of the projects, both utilities say they would rely on external financing. And to aid that effort, the utilities also have filed separate applications for each project at the FERC, seeking incentive rates that include ROE adders, current rate recovery of construction work in progress (CWIP—but only for the MPRP) and even possible cost recovery in the event of project abandonment.
As sole sponsor, Central Maine Power advances its MPRP project as a “reliability transmission upgrade” (RTU) approved by the ISO New England RTO (regional transmission organization) as a part of the regional system plan (RSP), and thus eligible for incentive rates under Federal Power Act sec. 219, and FERC Order 679, as a project necessary to maintain grid system reliability (See, Petition for Declaratory Order Authorizing Incentive Rates, FERC Dkt. EL08-74, filed July 1, 2008).
Central Maine’s request, if granted, would boost ROE by 150 basis points—from 11.64 percent (OK’d in 2006 in FERC Opinion 489, for all New England grid owners participating in the RTO), all the way to 13.14 percent. Yet Maine PUC utility analyst Richard Kivela points out that CMP’s own data shows that CMP and other Energy East subsidiaries get by at the retail rate level with ROEs of 10.55 or less, granted by state PUCs in the region. And Eric J. Bryant, senior counsel in the Maine Public Advocate’s office, views ROE adders as “one of the primary causes for rising costs in this part of the country,” as seen in this excerpt from an email message that Bryant sent to the FERC on June 19:
“I just negotiated a multi-million dollar distribution rate decrease with our largest utility, and the entire decrease was wiped out by an increase in transmission costs.
“The adder is only part of the problem. FERC’s delegation of all cost responsibility to the ISO-NE (a utility that is not required to examine least costs) is the rest of it.”
The MPC project, sponsored jointly by CMP and Maine Public Service, stands on entirely different footing.
At present, Maine Public Service does not belong to ISO New England, and its service territory remains isolated as well, lacking a direct connection to the rest of New England, and instead relying on grid connections with New Brunswick and the Canadian Maritimes for a good measure of fuel diversity, resource adequacy, and ancillary services.
Thus, the MPC project, proposing 200 miles of new 345-kV line in Northern Maine, would not be required to ensure and maintain reliability within Maine and New England; the region is getting along fine today without the line. Rather, the project for the first time would forge a direct and sturdy link with the rest of Maine and New England, spanning a 25-mile gap and allowing MPS to join the RTO. (The remaining 175 miles of 345-kV line would reinforce portions of the MPS and ISO grid systems to enable