Docket No. ER26-2665-000
In today’s order, the Commission approves a package of incentives sought by LS Power Grid California (LS Power Grid) to support the Northern Receiving Station-San Jose B 230 kV Line Project (2026 Project). I vote to approve the requested incentives. Nonetheless, I write separately to encourage the Commission to review its hypothetical capital structure policies both with respect to the support needed for the specific requested hypothetical capital structure and its duration.
For background, in 2020, the Commission granted LS Power Grid transmission incentives for LS Power Grid’s first projects, the Gates 500 kV Dynamic Reactive Support Project and the Round Mountain 500 kV Area Dynamic Reactive Support Project (collectively, the 2020 Projects), including a 45% equity and 55% debt hypothetical capital structure, with an estimated total cost of $143 million.[1] The hypothetical rate base would be in place until both projects were placed in service. The Commission, in 2024, granted the same hypothetical capital structure for four additional projects (collectively the 2022 Projects) whose rate base impact would be approximately 15 times greater than the 2020 Projects.[2] That hypothetical capital structure applies to all six projects until the last of the 2022 Projects is complete – estimated to be in 2028.
Here, LS Power Grid seeks to apply that same incentive to the 2026 Project, which will have an estimated cost of $172 million, in the ballpark of the combined total of the 2020 Projects, with an expected completion date of 2030. Rather than requesting to apply the incentive until the 2026 Project is in service, LS Power Grid seeks to apply the hypothetical capital structure until the last of the 2022 Projects are complete. Thus, depending on the completion of the 2022 Projects, this request potentially extends the incentive for the 2026 Project beyond its in-service date.
Consistent with my prior statements, I believe that applicants for hypothetical capital structures, under either Federal Power Act sections 205 or 219, must provide evidence justifying their specific proposed hypothetical capital structure percentages.[3] Ideally, LS Power Grid would have done so here. However, unlike the other proceedings where I have dissented, LS Power Grid chose a relatively conservative 45% equity, 55% debt hypothetical capital structure, less equity than contained in most investor-owned utilities’ actual capital structures. Accordingly, I approve this requested hypothetical capital structure, though I encourage the Commission to provide clarity for the type of support necessary for future requests for this incentive.
In addition, the fact pattern here regarding the duration of the hypothetical capital structure is unusual compared to other proposed uses of this incentive. In most cases, new entities receive this incentive only until the first project is in service.[4] Where subsequent projects are much larger than the initial project, the overall capital structure will be volatile throughout the construction of the subsequent projects due to infusions of debt and equity—as was the case for the 2022 Projects compared to the 2020 Projects—potentially justifying continuation of the hypothetical capital structure. Continuing the use of a hypothetical capital structure is less supported where the proposed project is small relative to the existing rate base. As for the case here for the 2026 Project, once the 2022 Projects are complete, the hypothetical capital structure would not materially mitigate the risks and challenges of having a volatile capital structure. In such cases, the risks and challenges intended to be addressed by the incentive—unpredictability and volatility of the utility’s capital structure during the construction period—would no longer be applicable.
This proceeding raises similar questions regarding the duration of hypothetical capital structure incentives as those that I recently discussed for Basin Electric Power Cooperative, which requested the incentive for 30 years after the project was complete.[5] As it evaluates its hypothetical capital structure policies, the Commission should clarify, where there are multiple projects, when, if at all, the hypothetical capital structure should potentially extend beyond the completion of the first project. It should also clarify when the hypothetical capital structure should apply to individual projects or the entire capital structure as LS Power Grid requests here. I look forward to working with my colleagues to clarify and update our incentives policy accordingly.
For these reasons, I respectfully concur.
[1] LS Power Grid Cal., LLC, 171 FERC ¶ 61,222, at P 29 (2020).
[2] LS Power Grid Cal., LLC, 189 FERC ¶ 61,027, at P 32 (2024).
[3] See, e.g., Midcontinent Grid Solutions Iowa, LLC, 192 FERC ¶ 61,208 (2025) (Comm’r Chang, dissenting in part).
[4] See, e.g., Viridon California LLC, 186 FERC ¶ 61,143, at P 3 (2024); Transource Kansas, LLC 151 FERC ¶ 61,010, at P 22 (2015).
[5] Basin Electric Power Coop., 196 FERC ¶ 61,036 (2026) (Comm’r Chang, concurring).