Commissioner Christie’s Dissent to Award of Transmission Incentives to NIPSCO, ER23-1904

Docket No. ER23-1904-000

I dissent from today’s order.  I would have set NIPSCO’s transmission rate incentives filing for hearing before an ALJ, as the evidence Industrial Customers have presented casts serious doubt on whether NIPSCO’s requested CWIP Incentive and Abandonment Incentive are tailored to address the risks and challenges of the Projects.

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,[1] 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.”[2]  In my concurrences to prior incentive rate orders, I questioned, among other concerns, whether the Commission’s determination of whether “substantial challenges and risks” exist when granting the CWIP Incentive, Abandoned Plant Incentive, and other incentives has become nothing more than a check-the-box exercise.[3]  Today’s order demonstrates that my concern has been realized. 

I disagree with the finding in today’s order that NIPSCO has demonstrated that each of the requested incentives, and the incentives package as a whole, address the risks and challenges faced by NIPSCO in undertaking the Projects.[4]  In point of fact, the order does not adequately grapple with evidence raised by the Industrial Customers.  Specifically, Industrial Customers cite to a June 26, 2023 section 203 application in Docket No. EC23-99-000 (NIPSCO-Blackstone Application), in which NIPSCO and its public subsidiaries request authorization for the sale of a 19.9% indirect minority interest in NIPSCO to a buyer that is indirectly and wholly owned by funds managed or advised by affiliates of Blackstone Inc.[5]  Industrial Customers allege that the sale price to NiSource Inc., NIPSCO’s parent, will be for $2.15 billion, including $250 million in working capital “to fund ongoing capital requirements.”[6]  Industrial Customers assert that this “planned substantial infusion of equity” to NIPSCO’s parent substantively undermines NIPSCO’s assertions of financial risk in its transmission rate incentives filing.[7]  Indeed, by my calculations, the $250 million in working capital reflects about 89% of the approximately $280 million in estimated costs for the Projects. 

Further, Industrial Customers note that in the NIPSCO-Blackstone Application, the applicants have highlighted NIPSCO’s plans to develop the Projects and have requested expedited action on the NIPSCO-Blackstone Application because such “expedited action . . . will enable NIPSCO to deploy this new capital to fund the transformation of its generation fleet and its substantial transmission investments as soon as possible.”[8]  It is apparent that NIPSCO is already keen to invest the money from the pending sale in the Projects, regardless of the outcome of the instant transmission rate incentives proceeding.

In contrast, NIPSCO argues that developing the Projects will require significant capital expenditures during the construction period and will still put significant pressure on NIPSCO’s cash flows, notwithstanding the proposed minority sale.[9]  It asserts that “the proposed sale does not bear on whether NIPSCO has satisfied the Commission’s nexus test.”[10]  It also argues, inter alia, that Industrial Customers fail to explain how the proposed minority sale negates the cash flow risks attendant to developing the Projects.[11]  That is, NIPSCO appears to ask this Commission to pay no attention to the big pile of money that would result from the proposed sale.  I fail to see how the answer as to whether a planned $250 million infusion in working capital would mitigate NIPSCO’s financial risks should not be of interest to this Commission or potentially affect the Commission’s calculus on whether NIPSCO’s requested incentives are tailored to meet its risks and challenges. 

Accordingly, I believe there is a material issue of fact whether NIPSCO has met the Commission’s nexus test for its requested CWIP Incentive and Abandoned Plant Incentive, and the order errs in rubberstamping NIPSCO’s request without further inquiry.  All the Commission currently has in this proceeding to make findings are the current pleadings of NIPSCO and the Industrial Customers and associated exhibits.  The Commission should have established hearing procedures to develop a more robust evidentiary record.  For example, hearing procedures would have allowed NIPSCO and the Industrial Customers to engage in discovery, present evidence before an ALJ, and cross-examine opposing witnesses.  Particularly given the impact NIPSCO’s requested incentives will have on consumers, such procedures are necessary here to determine whether the incentives are appropriate and thus to meet the Commission’s statutory obligation to ensure just and reasonable rates.

This order illustrates 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.[12]

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.[13] 

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.[14]  There is something really wrong with this picture.

9. 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 be mitigated at the expense of consumers in an exercise of “check-the-box.” 
10. 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.[15]  I joined in that vote and continue to support such a time limit.[16]  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,[17] which I described as “a major step forward in consumer protection and is a big reason I am voting for [the NOPR].”[18]  It is clear to me that the Commission’s procedures and criteria for awarding the Abandoned Plant Incentive should also be reconsidered.  In short, revisiting all these incentives is imperative at a time of rapidly rising customer power bills.

For these reasons, I respectfully dissent.

______________________________

Mark C. Christie

Commissioner