On November 23, 2009, FERC approved Green Energy Express LLC’s (“Green Energy”) request for rate incentives, conditioned on approval by the California Independent System Operator (“CAISO”). The line is estimated to cost approximately $400 million and will transport up to 2,000 MW, mostly from large-scale solar generation.
On September 9, 2009, Green Energy filed a petition for declaratory order requesting approval of certain transmission rate incentives for its proposed transmission project under Federal Power Act (“FPA”) section 219 and Order No. 679. The project will interconnect Southern California Edison Company’s (“SoCal Edison”) Devers Substation to a new substation near the Eagle Mountain Substation. CAISO is currently reviewing the project as part of its 2010 Transmission Plan, and asked FERC to make the petition conditional on approval of their regional planning process.
Green Energy states the design phase of the projects should be completed in 2011 and the entire project in-service by mid-2013. However, after the design phase, Green Energy explained it will need to secure financing for actual construction. Therefore, Green Energy petitioned FERC to grant the following transmission rate incentives:
1. deferred recovery of pre-commercial expenses;
2. inclusion of 100 percent of construction work in progress in the rate base;
3. abandoned plant recovery;
4. a return on equity (“ROE”) adder of 50 basis points for participation in a qualifying Transmission Organization;
5. a ROE adder of 100 basis points in recognition of Green Energy’s status as an independent transmission company;
6. a ROE adder of 50 basis points for unique risks and challenges facing the project and investors; and
7. a hypothetical capital structure of 50 percent equity and 50 percent debt until the new project is in service.
The Commission determined they did not have adequate information to find the Green Energy project created a rebuttable presumption in favor of rate incentives, but they did grant incentives based on the project meeting the “nexus” test by showing that the incentives are tailored to the meet the demonstrable risks and challenges of the applicant’s project.
Commissioner Kelly dissented in part by disagreeing with the use of a 50-point ROE adder for unique risks and hurdles of being an independent transmission developer. Kelly said Green Energy’s application lacked any details on the need for this adder, contrary to the requirements in Order No. 679-A that incentives be tailored to demonstrable risks and challenges of a project. Kelly also believes the 50-point adder overlaps with the 100-point adder for independent transmission company status.
The Order is available at http://www.ferc.gov/whats-new/comm-meet/2009/111909/E-30.pdf.