Commissioner Mark C. Christie Statement
February 7, 2022
Docket No. ER22-576-000
Today’s order is consistent with the Commission’s existing policies regarding 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 this incentive as well as the offer of potential cost recovery for Construction Work in Progress (CWIP),[2] for projects that never serve consumers.
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] Among other concerns, I question whether the Commission’s determination of whether “substantial challenges and risks” exist when granting the abandoned plant and other incentives has become nothing more than a check-the-box exercise.
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. There is something wrong with this picture.[4]
As this Commission considers other potential reforms related to regional transmission planning and development, it is imperative that incentives like the Abandoned Plant and CWIP Incentive are revisited to ensure that all the risks associated with transmission construction are not channeled to consumers while transmission developers and owners stand to gain all the financial reward.
For these reasons, I respectfully concur.
[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] I recognize that the CWIP incentive is not directly at issue in this proceeding.
[3] Order No. 679, 116 FERC ¶ 61,057 at PP 26, 117.
[4] As I have previously noted, the Commission’s ROE method is intended to compensate jurisdictional utilities for the risks inherent to their business operations. See Electric Transmission Incentives Policy Under Section 219 of the Federal Power Act, 175 FERC ¶ 61,035 (2021) (Christie, Comm’r, concurring). To the extent we are granting transmission developers incentives that represent additional compensation for those risks, like CWIP and abandoned plant, we are overcompensating transmission developers for risks already included in their ROE.