Commissioner Christie’s Concurrence in Midcontinent Independent System Operator, Inc. regarding Transmission Incentives, ER23-2284

Docket No. ER23-2284-000

Today’s order is consistent with the Commission’s existing policies regarding the Hypothetical Capital Structure Incentive, CWIP Incentive, and Abandoned Plant Incentive, as articulated in Order No. 679;[1] thus, I will concur rather than dissent.  This order illustrates, however, why I believe the Commission needs to revisit the array of incentives offered to transmission developers, including the CWIP Incentive and Abandoned Plant Incentive addressed in this order as well as the RTO participation adder.[2]

A core principle of utility law and regulation for decades is that consumers can only be forced to pay costs for assets that are “used and useful” to them.  In Order No. 679, the Commission determined that it may be necessary to depart from this long-standing ratemaking principle to “address the substantial challenges and risks in constructing new transmission.”[3]  In prior statements, I questioned, among other concerns, whether the Commission’s determination of whether “substantial challenges and risks” exist when granting the Abandoned Plant Incentive and other incentives has become nothing more than a check-the-box exercise.[4]

As I noted previously:

The Commission’s incentive policies—particularly the CWIP Incentive, which allows recovery of costs before a project has been put into service—run the risk of making consumers “the bank” for the transmission developer; but, unlike a real bank, which gets to charge interest for the money it loans, under our existing incentives policies the consumer not only effectively “loans” the money through the formula rates mechanism, but also pays the utility a profit, known as Return on Equity, or “ROE,” for the privilege of serving as the utility’s de facto lender.[5] 

Further, just as the CWIP Incentive effectively makes consumers the bank for transmission developers, the Abandoned Plant Incentive effectively makes them the insurer of last resort as well.  This incentive allows transmission developers to recover from consumers the costs of investments in projects that fail to materialize and thus do not benefit consumers.  Just as consumers receive no interest for the money they effectively loan transmission developers through CWIP, they receive no premiums for the insurance they provide through the Abandoned Plant Incentive if the project is never built.  And if the CWIP Incentive is a de facto loan and the Abandoned Plant Incentive is de facto insurance — both provided by consumers — then the RTO participation adder, which increases the transmission owner’s ROE above the market cost of equity capital, is an involuntary gift from consumers.[6]  There is something really wrong with this picture.

As this Commission considers other potential reforms related to regional transmission planning and development, it is imperative that incentives like the CWIP Incentive, Abandoned Plant Incentive, and RTO participation adder are all revisited to ensure that all the costs and risks associated with transmission construction are not unfairly inflicted on consumers while transmission developers and owners stand to gain all the financial reward.  Moreover, if the Commission determines it is appropriate to channel risks to consumers, those risks must be carefully weighed and considered and not simply awarded in an exercise of “check-the-box.”  

Early in 2021, a majority of this Commission voted to approve a supplemental notice of proposed rulemaking which proposed, among other things, to limit the RTO participation adder to the three years following a transmitting utility’s initial membership in an RTO.[7]  I joined in that vote and continue to support such a time limit.  That supplemental notice of proposed rulemaking remains pending.  Likewise, the Commission proposed to eliminate the CWIP Incentive in its April 2022 Transmission Planning and Cost Allocation NOPR, a proposal I continue to strongly support.[8]  It is clear that the Commission’s procedures and criteria for awarding the Abandoned Plant Incentive should also be reconsidered.  Revisiting all these incentives is imperative at a time of rapidly rising customer power bills.

For these reasons, I concur.