Commissioner Christie’s Dissent to Award of Incentives to ALLETE, ER24-1473

Docket No. ER24-1473-000

In today’s order, the majority grants the Construction Work in Progress (CWIP) Incentive and Abandoned Plant Incentive – transfers of wealth from consumers to transmission developers and risk from developers to consumers (one may ask whether this is exactly a fair exchange) – even though the Minnesota Public Utilities Commission has set for hearing ALLETE’s application for a Certificate of Need and a Route Permit for the Eastern Segment of the Big Stone South Project and for the Iron Range Project,[1] and these applications are still pending.  The order states that “[t]he Commission has previously found that projects approved through a transmission planning process [here, the MISO Transmission Expansion Plan] that evaluated whether the identified transmission projects will enhance reliability and/or reduce congestion are entitled to the rebuttable presumption established under Order No. 679.”[2]  This policy is one of the major problems with FERC’s practice. 

With all due respect to MISO’s transmission planners:  the regional planning process is not remotely the equivalent of a litigated state certificate of public convenience and necessity (CPCN, or its individual state equivalent) process, which includes witness cross-examination and is open to intervenors such as consumer advocates.  FERC’s long-time policy of ignoring whether a state CPCN proceeding took place before granting incentives is one of the central issues that should be reconsidered.  It is especially timely now, in light of a recent federal district court decision,[3] that this Commission must make it clear once again – as it did in Order No. 1000[4] – that while FERC regulates RTOs such as MISO, in no way does that regulatory oversight represent any intent to preempt the states’ decades-old authority to conduct CPCN proceedings that consider issues of need and prudence.

Reconsidering the Commission’s policy on granting incentives is also timely because this case comes just a few months after this Commission approved a final settlement in the Potomac-Appalachian Transmission Highline (PATH) matter, a case in which consumers were charged just over a quarter-billion dollars for a transmission project which never received a single state CPCN from the three situs states, not a single ounce of steel ever went in the ground, and yet the CWIP Incentive, Abandoned Plant Incentive, and other incentives were nevertheless awarded by this Commission that inflated the costs that consumers ultimately paid.[5]  Here we go again.

Although today’s order may be consistent with the Commission’s existing policies regarding the CWIP Incentive and Abandoned Plant Incentive as articulated in Order No. 679,[6] in my view those policies concerning the various incentives regularly awarded by this Commission produce rates that are arguably unjust and unreasonable. 

In early 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.  Three years after we took that vote, 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,[8] which I described as “a major step forward in consumer protection and . . . a big reason I am voting for [the NOPR].”[9]  It is clear to me that the Commission’s procedures and criteria for awarding the Abandoned Plant Incentive and Hypothetical Capital Structure Incentive should also be reconsidered.  In short, revisiting all these incentives is imperative at a time of rapidly rising customer power bills.

Nonetheless, despite the appearance of action by the Commission to address unfair and excessive transmission costs to consumers from incentives and other Commission policies,[10] the record of the past three years shows nothing has been accomplished to reform these incentives.  Indeed, this order is another graphic example of why I have repeatedly argued that 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 Hypothetical Capital Structure Incentive and the RTO participation adder.[11]  It is far past time for me to dissent from these orders.

A core principle of utility law and regulation for decades is that consumers can be forced to pay costs only 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.”[12]  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.[13]

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.[14] 

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.[15]  There has been and continues to be something really wrong with this picture, especially in light of the Commission’s continued inaction to holistically review and reform transmission incentives.

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, Hypothetical Capital Structure Incentive, and the 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 be mitigated at the expense of consumers in an exercise of “check-the-box.”  Until the Commission develops a meaningful analysis that does not simply transfer risk from transmission developers to consumers and extract wealth from consumers and transfer it to transmission developers, I cannot in good conscience support the outcome here.

Finally, as I have made perfectly clear, ‘“attention must be paid’” to the PATH project “because of the major lessons – and warnings – it holds for long-term regional transmission planning driven by policy goals, the substantial costs that go with such projects, and how FERC’s policies inflate those costs to consumers.”[16]  As I explained:

The PATH project was planned as a long-distance, high-voltage transmission line crossing three states that was approved for construction and regional cost allocation through selection for PJM’s regional transmission expansion plan (RTEP).  PATH applied for certificates of public need in three states – West Virginia, Virginia, and Maryland – none of which ever issued a certificate.  PJM later removed PATH from the RTEP, and it was never built.

Even though not a single ounce of steel was ever put in the ground, PATH’s developers have been collecting money from retail customers in the PJM states ever since it was approved for PJM’s RTEP.  Since 2008, the total amount that consumers have been forced to pay to PATH’s developers has been approximately $250 million – that’s right, let me repeat:  consumers have paid roughly $250 million for a project that was never built nor found needed by a single state regulator.  Adding insult to consumers’ injury, that amount was caused and inflated by a whole host of Commission-approved transmission incentives.[17]

Among the multitude of incentives available to PATH were the very CWIP Incentive and Abandoned Plant Incentive ALLETE requests here.  It is well past time for the Commission to address the unfairness of “check the box” awards of incentives to developers at the expense of consumers.  There are obvious compromise reforms that could be implemented; both PATH and this proceeding illustrate that one such possibility is not to award the CWIP Incentive, Abandoned Plant Incentive, or possibly other incentives until state regulators have had the opportunity to vet and approve transmission projects through their own CPCN proceedings.  Costs associated with the Commission’s continued inaction will be paid by consumers.  We have delayed acting for three years.  It is time to act.