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Titans of Transmission

ITC and AEP jockey for the lead in building the grid of tomorrow.

Fortnightly Magazine - March 2009

He told MSNBC in an interview in late October that, “if we’re going to be serious about renewable energy, I want to be able to get wind power from North Dakota to population centers, like Chicago.”

As with other major transmission projects proposed recently, ITC has filed a formal application with FERC, consistent with the commission’s 2006 pronouncement in Order 679, asking FERC for certain financial incentives for the project, including: 1) a rate-base allowance for construction work in progress (CWIP); 2) guaranteed recovery of prudently incurred sunk costs in the event of project abandonment; 3) an incentive-based rate of return on common equity of 12.38 percent; and 4) accrual and amortization of costs and carrying charges pending design and approval of a rate-making method to recover the project’s revenue-requirement cost—no small matter, as ITC does not serve load and so does not send out and collect monthly power bills from retail electric customers. (See FERC Dkt. ER09-681, filed Feb. 9, 2009; see also, www.thegreenpowerexpress.com).

‘Unparalleled’ in Risk

ITC’s Green Power Express has upped the ante on transmission project size only a few months after FERC had approved what then had been the largest grid-expansion project ever to win financial approval under Order 679.

That earlier project was the $6 billion Energy Gateway Transmission Expansion Project, a collection of eight distinct line segments operating at 230-, 345- and 500-kV (about 2,000 miles) across a six-state region including California, Idaho, Oregon, Utah, Washington and Wyoming. It was proposed by PacifiCorp to deliver up to 3,000 MW of renewable energy from Wyoming to distant load centers in Salt Lake City and Portland, and also to connect the utility’s West Coast and Rocky Mountain control areas for the first time.

Even then FERC described the Gateway project as “unparalleled” in size, cost and risk, and had rewarded the project with an ROE incentive of 200 basis points. Testimony during the incentive-rate case revealed that the Gateway Project’s estimated $6 billion cost would total more than three times the value of PacifiCorp’s then-current total transmission rate base of $1.8 billion. PacifiCorp added that, by contrast, it had spent an average of $111 million per year on capital investment in transmission between 2002 and 2007 (see Dkt. EL08-75, Oct. 21, 2008, 125 FERC ¶ 61,076).

Nevertheless, PacifiCorp’s reign at the top of the project heap lasted little more than four months, and ITC’s perch, assuming it too wins incentives, might prove to be just as short-lived.

That’s because FERC hasn’t yet promulgated, or even proposed, the idea of interconnection standards for transmission lines, including rules and protocols for establishing priority within the overall queue of projects awaiting completion of studies on feasibility and system impacts by grid-system operators and regional grid-planning committees, and ultimate certification in a given regional transmission expansion plan (TEP), as it has done for generating plants.

To make matters worse, FERC policy envisions a right of first refusal, whereby a utility entity that serves native load in a regulated service territory (load-serving entity or LSE) can review plans proposed by other