Docket No. ER24-2001-000

I partially dissent from today’s order as it pertains to the Construction Work in Progress (CWIP) and Abandoned Plant Incentives being granted for Horizon West Transmission, LLC’s (Horizon West) North Gila – Imperial Valley #2 500 kV Line Project and Imperial Valley – North of North of San Onofre Nuclear Generating Station 500 kV Line and 500/230 kV Substation Project (together, Projects).  The CWIP and Abandoned Plant Incentives are nothing more than a transfer of wealth from consumers to transmission developers and risk from developers to consumers.  For reasons I explain below, it is long past time for the Commission to revisit its “check-the-box” practice of granting transmission incentives, including as set forth in Order No. 679.[1]  The longer the Commission does nothing to address these unfair transfers of wealth and risk, the more consumers are exploited.

This case graphically illustrates the fundamental unfairness of the Commission’s practices regarding incentives.  First, it is noteworthy that, in this case, no state approval to construct has been given to the Projects.  The California Public Utilities Commission and Arizona Corporation Commission have not yet granted Horizon West a Certificate of Public Convenience and Necessity (CPCN) and a Certificate of Environmental Compatibility, respectively, for the Projects.[2]  Instead, to justify granting these incentives, the order states that “[t]he Commission previously found that projects approved through a transmission planning process 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.”[3]  That justification is one of the major problems with this Commission’s incentives policies.  No state CPCN proceeding has been conducted reviewing both need and prudence, yet the Commission grants the incentives anyway.  Although the regional transmission planning process is only one rebuttable presumption established in Order No. 679 allowing qualification for incentive rate treatment, reliance on regional transmission planning in lieu of state approval to construct is one of the major problems with FERC’s policy.[4]  This practice is indefensible and always has been.

With all due respect to CAISO’s transmission planning process—and I do respect it along with planning processes in other RTOs/ISOs—the regional planning process in a transmission planning organization is not remotely the equivalent of a serious litigated state 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 must be reconsidered.  As a former state regulator, I know firsthand how important it is to conduct credible state CPCN proceedings that evaluate the need and cost of a proposed project.  It is especially timely now, in light of a recent federal district court decision,[5] that this Commission must make it clear once again—as it did in Order No. 1000[6]—that while FERC regulates RTOs and ISOs such as CAISO, 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.  One may argue that the FERC’s incentive rate treatment policy is separate and apart from any consideration of need or prudence, but that belief ignores the fact that, with the CWIP Incentive, transmission developers are immediately able to recover that money from ratepayers, without an evaluation for need or prudence having occurred.  Absent such an ex ante evaluation at the state level, FERC should not grant any incentives to a transmission project and should revisit its policy allowing that to occur.  The absence of state CPCN approval alone should result in a default practice of denying incentives until the state has acted.  But there are additional reasons, as this case illustrates.

Second, putting aside the flawed notion that regional transmission planning is somehow equivalent to a state CPCN proceeding, another major problem is that FERC’s practice in granting transmission incentives has become a “check-the-box” exercise.  Order No. 679 contemplates a fact-specific, careful evaluation of balancing the needs of consumers and the benefits to investors based on the nature of the transmission projects at issue.[7]  In no Commission order issued in my time as a commissioner has there been anything other than a cursory analysis with the barest mention of the specifics of the underlying transmission projects.  Every transmission developer seems to cite the same reasons for the same incentives—e.g., for the CWIP and Abandoned Plant Incentives, preserving the developer’s credit rating, financing will be a challenge due to regulatory risks,[8] etc.  Coincidentally, these are the same reasons identified as examples in Order No. 679 and parroted by developers in every proceeding.[9]  And to date, FERC has not contested the now too familiar reasons to actually attempt to evaluate whether each (and every, it seems) transmission project truly faces the same risks as the last.  Thus, whether the total package of incentives is tailored to address the demonstrable risks and challenges faced by the applicant undertaking the project, as required by Order No. 679-A,[10] is questionable at best.    

But even assuming today’s order could be construed as consistent with the Commission’s existing policies in Order No. 679, in my view those policies concerning the various incentives regularly awarded by this Commission produce rates that are unjust and unreasonable.  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.”[11]  In my prior statements, 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.[12]

In particular:

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 the CWIP Incentive, 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 has been and continues to be something really wrong with this picture.

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.”  Any decision that is a result of this “check-the-box” exercise cannot be anything but unjust and unreasonable.  Until the Commission develops a meaningful analysis that does not simply transfer risk to and extract wealth from consumers, I cannot in good conscience support the outcome here.   

In early 2021, the 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.  More than three years after that vote, no further action has been taken on that supplemental notice of proposed rulemaking.  And although the Commission initially proposed to eliminate the CWIP Incentive in the Transmission Planning and Cost Allocation NOPR,[16] the Commission then reversed course and declined to adopt that proposal in Order No. 1920.  It instead chose to reject what should have been the easiest of decisions for the Commission if Order No. 1920 were truly about fulfilling its duty to protect consumers, which is its primary duty under the Federal Power Act (FPA).[17]  This continuing failure to protect consumers by eliminating the CWIP Incentive was one of the pillars of my dissent to Order No. 1920.[18]

Despite the appearance of action by the Commission to address unfair and excessive transmission costs to consumers from incentives and other Commission policies,[19] the record of the past three years shows that nothing has been accomplished to reform these incentives.  Indeed, this order is yet another graphic example of why I have repeatedly argued that the Commission needs to revisit Order No. 679 and its “check-the-box” practice of granting the array of incentives offered to transmission developers, including the CWIP and Abandoned Plant Incentives addressed in this order, as well as the Hypothetical Capital Structure Incentives and the RTO participation adder.[20]  

Finally, as a sobering case study, ‘“attention must be paid’” to the Potomac-Appalachian Transmission Highline (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.”[21]  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.[22]

Among the multitude of incentives available to PATH were the very CWIP and Abandoned Plant Incentives Horizon West requests here.  It is well past time for the Commission to address the unfairness of “check-the-box” awards of incentives to transmission 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 and Abandoned Plant Incentives, and possibly other incentives, until after state regulators have had the opportunity to vet and approve transmission projects through their own CPCN proceedings.  Costs associated with the Commission’s inaction have been mounting and will continue to mount and be inflicted on consumers.  We have failed to act for three years.  It is time to act now.

For these reasons, I respectfully dissent in part.

 

[1] Promoting Transmission Investment through Pricing Reform, Order No. 679, 116 FERC ¶ 61,057, order on reh’g, Order No. 679-A, 117 FERC ¶ 61,345 (2006), order on reh’g, 119 FERC ¶ 61,062 (2007).

[2] See Transmittal at 8-9. 

[3] Order at P 13 (footnote omitted).

[4] Order No. 679 provides a few avenues for rebuttable presumptions.  As relevant, the first, as noted, is project approval in a regional transmission planning process, and the second is where a project has received state approval to construct.  However, Order No. 679 suggests that regional transmission planning processes determine whether a given project is needed, whether it is the better solution, and whether it is the most cost-effective option in light of other alternative (e.g., generation, transmission, and demand response).  Order No. 679, 116 FERC ¶ 61,057 at P 58.  Stated differently, Order No. 679 interprets the regional transmission planning process to be the equivalent of a state CPCN.  And of course, almost all transmission incentives granted to date have been based on the regional transmission planning process rebuttable presumption, not any state approval to construct.

[5] Transource Pennsylvania, LLC v. DeFrank, No. 1:21-CV-01101, 2023 WL 8457071 at *6-*7, *17 (M.D. Pa. Dec. 6, 2023) (finding, inter alia, that by rescinding Transource’s provisional certificate of public convenience after engaging in its state analysis and finding insufficient evidence to establish “need” under Pennsylvania law for the project, the Pennsylvania Public Utility Commission is “attempting to supplant the role of the RTO and expand its state authority into the regulatory territory occupied by the federal government. . . .  Because the [Pennsylvania Public Utility Commission’s] decision presents an obstacle to achieving federal objectives, it is conflict preempted and violates the Supremacy Clause.”).

[6] See, e.g., Transmission Plan. & Cost Allocation by Transmission Owning and Operating Pub. Utils., Order No. 1000, 136 FERC ¶ 61,051, at PP 227, 253 n.231, 287 (2011), order on reh’g, Order No. 1000-A, 139 FERC ¶ 61,132, at P 342, order on reh’g & clarification, Order No. 1000-B, 141 FERC ¶ 61,044 (2012), aff’d sub nom. S.C. Pub. Serv. Auth. v. FERC, 762 F.3d 41 (D.C. Cir. 2014).

[7] See Order No. 679, 116 FERC ¶ 61,057 at PP 21-29.

[8] See Transmittal at 8-10.

[9] See, e.g., Order No. 679, 116 FERC ¶ 61,057 at PP 117, 165 (providing that the CWIP Incentive may be appropriate to preserve a utility’s credit rating and that regulatory risk signals the need for the Abandoned Plant Incentive).

[10] See Order No. 679-A, 117 FERC ¶ 61,345 at PP 6, 21, 27, 40.

[11] See Order No. 679, 116 FERC ¶ 61,057 at PP 26, 117.

[12] See, e.g., Bldg. for the Future Through Elec. Reg’l Transmission Plan. & Cost Allocation & Generator Interconnection, Order No. 1920, 187 FERC ¶ 61,068 (2024) (Christie, Comm’r, dissenting at P 118) (Order No. 1920 Dissent), https://www.ferc.gov/news-events/news/e-1-commissioner-christie-dissent-transmission-planning-and-cost-allocation-rule; Baltimore Gas & Elec. Co., 187 FERC ¶ 61,030 (2024) (Christie, Comm’r, dissenting at P 6), https://www.ferc.gov/news-events/news/commissioner-christies-dissent-award-incentives-exelon-er24-1313; PJM Interconnection, L.L.C., 185 FERC ¶ 61,200 (2023) (Christie, Comm’r, concurring at P 2), https://www.ferc.gov/news-events/news/e-7-commissioner-christies-concurrence-exelons-application-abandoned-plant; The Potomac Edison Co., 185 FERC ¶ 61,083 (2023) (Christie, Comm’r, concurring at P 2), https://www.ferc.gov/news-events/news/commissioner-christies-concurrence-concerning-potomac-edisons-abandoned-plant; Montana-Dakota Utils. Co., 185 FERC ¶ 61,015 (2023) (Christie, Comm’r, concurring at P 2), https://www.ferc.gov/news-events/news/commissioner-christies-concurrence-montana-dakota-utilities-co-regarding; Midcontinent Indep. Sys. Operator, Inc., 184 FERC ¶ 61,136 (2023) (Christie, Comm’r, concurring at P 2), https://www.ferc.gov/news-events/news/commissioner-christies-concurrence-midcontinent-independent-system-operator-inc-0; GridLiance W. LLC, 184 FERC ¶ 61,129 (2023) (Christie, Comm’r, concurring at P 2), https://www.ferc.gov/news-events/news/commissioner-christies-concurrence-gridliance-west-regarding-transmission; Midcontinent Indep. Sys. Operator, Inc., 184 FERC ¶ 61,034 (2023) (Christie, Comm’r, dissenting at P 2), https://www.ferc.gov/news-events/news/commissioner-christies-dissent-award-transmission-incentives-nipsco-er23-1904; Otter Tail Power Co., 183 FERC ¶ 61,121 (2023) (Christie, Comm’r, concurring at P 2), https://www.ferc.gov/news-events/news/e-18-commissioner-christies-concurrence-otter-tail-power-company-regarding; LS Power Grid Cal., LLC, 182 FERC ¶ 61,201 (2023) (Christie, Comm’r, concurring at P 2), https://www.ferc.gov/news-events/news/commissioner-christies-concurrence-ls-power-grid-regarding-transmission-incentives; Nev. Power Co., 182 FERC ¶ 61,186 (2023) (Christie, Comm’r, concurring at P 2), https://www.ferc.gov/news-events/news/commissioner-christies-concurrence-nv-energy-regarding-transmission-incentives; The Dayton Power and Light Co., 182 FERC ¶ 61,147 (2023) (Christie, Comm’r, concurring at P 2), https://www.ferc.gov/news-events/news/commissioner-christies-concurrence-dayton-power-and-light-company-regarding; Midcontinent Indep. Sys. Operator, Inc., 182 FERC ¶ 61,039 (2023) (Christie, Comm’r, concurring at P 2), https://www.ferc.gov/news-events/news/commissioner-christies-concurrence-midcontinent-independent-system-operator-inc; NextEra Energy Transmission Sw., LLC, 180 FERC ¶ 61,032 (2022) (Christie, Comm’r, concurring at P 2) (July 2022 Concurrence), https://www.ferc.gov/news-events/news/commissioner-christies-concurrence-nextera-energy-transmission-southwest-llc; NextEra Energy Transmission Sw., LLC, 178 FERC ¶ 61,082 (2022) (Christie, Comm’r, concurring at P 2) (February 2022 Concurrence), https://www.ferc.gov/news-events/news/commissioner-mark-c-christie-concurrence-nextera-energy-transmission-southwest-llcSee also DCR Transmission, L.L.C., 184 FERC ¶ 61,199 (2023) (Christie, Comm’r, concurring at P 6), https://www.ferc.gov/news-events/news/commissioner-christies-concurrence-dcr-transmission-regarding-transmission-cost.

 

[13] Order No. 1920 Dissent at P 118 (citing, inter alia, February 2022 Concurrence at P 3 (emphasis in original); July 2022 Concurrence at P 3 (citation omitted)); see also Bldg. for the Future Through Elec. Reg’l Transmission Plan. & Cost Allocation & Generator Interconnection, Notice of Proposed Rulemaking, 179 FERC ¶ 61,028 (2022) (Transmission Planning and Cost Allocation NOPR) (Christie, Comm’r, concurring at P 15) (“CWIP is, of course, passed through as a cost to consumers, making consumers effectively an involuntary lender to the developer . . . .  Consumers should be protected from paying CWIP costs during this potentially long period before a project actually enters service, if it ever does.”), https://www.ferc.gov/news-events/news/commissioner-christies-concurrence-e-1-regional-transmission-planning-and-cost.

 

[14] See, e.g., Rockland Elec. Co., 178 FERC ¶ 61,232 (2022) (Christie, Comm’r, concurring at P 4), https://www.ferc.gov/news-events/news/commissioner-christies-concurrence-rockland-electric-er22-910.

[15] Elec. Transmission Incentives Policy Under Section 219 of the Fed. Power Act, Supplemental Notice of Proposed Rulemaking, 175 FERC ¶ 61,035, at P 9 (2021).  

[16] 179 FERC ¶ 61,028 at P 333 & n.530.  This proposal was “a major step forward in consumer protection and . . . a big reason I am voting for [the Transmission Planning and Cost Allocation NOPR].”  Id. (Christie, Comm’r, concurring at P 15).

[17] Order No. 1920, 187 FERC ¶ 61,068 at P 1547.  Of course, Order No. 1920 was not about fulfilling the Commission’s duty to protect consumers.  Order No. 1920 rationalized this decision to walk back the removal of the CWIP Incentive by finding that any action on the CWIP Incentive is more appropriately considered in a separate proceeding where incentives can be comprehensively evaluated for all regional transmission facilities.  However, as I have stated in my dissent to Order No. 1920, I regard that as nothing more than an excuse for a continuing failure to act.  Order No. 1920 Dissent at P 119.

[18] Order No. 1920 Dissent at P 119 (“[I]nstead of adopting the proposal to remove the CWIP Incentive, [Order No. 1920] chose to side with developers and special interest groups, rather than with consumers.”); id. P 120 (“[Order No. 1920] . . . is astoundingly silent on the consumer impact of retaining the CWIP Incentive.”); id. P 121 (“Unfortunately, this is simply a continuation of the Commission punting on any meaningful reevaluation of transmission incentives. . . .  By walking back the removal of the CWIP Incentive, [Order No. 1920] reveals . . . its failure to protect consumers as required by the FPA.”); see also, e.g., id. PP 18-19.

[19] See, e.g., Notice of Technical Conference, Transmission Planning and Cost Management, Docket No. AD22-8-000 (Apr. 21, 2022); [Fifth] Supplemental Notice of Technical Conference, Transmission Planning and Cost Management, Docket No. AD22-8-000 (Oct. 8, 2022); Notice Inviting Post Technical Conference Comments, Transmission Planning and Cost Management, Docket No. AD22-8-000 (Dec. 23, 2022).

[20] I recognize that the Hypothetical Capital Structure Incentive and the RTO participation adder are not at issue in this specific proceeding. 

[22] Id. PP 2-3 (emphasis in original) (footnote omitted).

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