Commissioner Christie’s Concurrence in NV Energy regarding Transmission Incentives, EL22-73

Docket No. EL22-73-000

Today’s order is consistent with the Commission’s existing policies regarding the CWIP Incentive and the 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 my concurrences to prior orders in which the Commission granted the Abandoned Plant Incentive to NextEra Energy Transmission Southwest, LLC for its investments in projects in SPP, 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.”  

Indeed, rising transmission costs are not going unnoticed at the state level.  Even here, the Office of the Nevada Attorney General, Bureau of Consumer Protection (Nevada Protection Bureau), as well as the Public Utilities Commission of Nevada (Nevada Commission) have raised concerns regarding rising transmission rates and their impact on Nevada ratepayers.  Nevada Protection Bureau protests NV Energy’s request for incentive rate treatment for the Greenlink Nevada Transmission Project (Greenlink Nevada project) “given that it will unnecessarily increase costs for Nevada’s electric ratepayers.”[7]  Nevada Protection Bureau represents that the two NV Energy companies, Nevada Power Company and Sierra Pacific Power Company, “had a combined $1.6 billion [] in net transmission plant-in-service at the end of 2021” and that “[t]he addition of the $2.5 billion [] Greenlink Nevada project is going to create significant upward pressure on the general rates paid by customers of the Nevada electric utilities.”[8]  Nevada Protection Bureau questions how it is just and reasonable to require consumers to pay for the costs of a plant that is not used and useful in providing electric service to them.[9]  The Nevada Commission also asks that the Commission consider the potential rate impacts to Nevada ratepayers in its evaluation,[10] on which the order is conspicuously silent.

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.[11]  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.[12]  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, as demonstrated by the Nevada Protection Bureau.

For these reasons, I concur.