Docket No. ER26-2616
In today’s order, the Commission approves a package of incentives sought by Tri-State Generation and Transmission Association, Inc. (Tri-State) to support a new transmission project. I vote to approve the requested incentives. Nonetheless, I write separately to encourage the Commission to review its hypothetical capital structure policies for non-Investor-Owned Utilities (IOUs), specifically here electric cooperatives and municipal electric utilities, and with respect to the duration of the incentives.
In its filing, Tri-State requests, under section 219 of the Federal Power Act, a 50% equity, 50% debt hypothetical capital structure for the $351 million investment it expects to make in the Sidney-Holcomb Project (the Project). Tri-State requests to apply the hypothetical capital structure “for the 30-year initial financing period associated with the Project” which includes both the Project’s construction period and much of the Project’s subsequent life.[1] The Commission approves the requested incentives, which are consistent with relevant precedent. Specifically, for non-IOUs, where the projects are large relative to the utility’s existing rate base, the Commission has approved hypothetical capital structure transmission incentives that include 50% or less equity proportion, and for durations longer than the projects’ construction period, such as for the duration of the debt associated with projects.[2]
I reiterate the issues raised in my concurrence to the recent order approving Basin Electric Power Cooperative’s requested incentives, which has a broadly similar fact pattern.[3] Specifically, as the Commission evaluates possible reforms to its hypothetical capital structure policies, the Commission should consider whether the types of incentives sought here by Tri-State are an appropriate application going forward. Similar to the Commission using its discretion in balancing encouraging transmission with not unduly burdening ratepayers to arrive on specific magnitude for the returns on equity incentives, it should thoughtfully balance the cost and need for these incentives in determining the appropriate duration of the use of hypothetical capital structure incentive. These components, together with the specific debt and equity ratios in the hypothetical capital structure, determine the overall magnitude of the incentives and costs to ratepayers. I look forward to working with my colleagues to ensure our transmission incentive policy encourages transmission development while resulting in just and reasonable rates.
For these reasons, I respectfully concur.