On October 29, 2010, FERC granted Southern California Edison Company (“SoCal Edison”) incentive rate treatment for their Lugo-Pisgah Transmission Project (“Lugo-Pisgah”) and Red Bluff Substation Project (“Red Bluff”) (collectively, the “Projects”).  Though the Commission determined in their October 29, 2010 order (the “Order”) that SoCal Edison did not meet the requirements of Federal Power Act (“FPA”) section 219 and Order No. 679 as projects which would improve reliability or reduce the cost of delivered power by reducing transmission congestion, the Commission exercised its authority under section 205 of the FPA to grant requested rate incentives on policy grounds.

SoCal Edison applied for incentive rate treatment for the Projects on August 4, 2010, stating that the Lugo-Pisgah project will bring renewable generation from the Mojave Desert to Southern California, and support interconnection of renewable generation.  Additionally, SoCal Edison stated that Red Bluff will add a new transmission loop to two separate Transmission lines, and interconnect renewable generation.  SoCal Edison sought incentive rate treatment to deal with the “exigencies” of the American Recovery and Reinvestment Act (“ARRA”) deadlines and numerous licensing and permitting requirements for the Projects. 

In its Order, the Commission found that SoCal Edison did not make a “sufficiently independent showing” under section 219 of the FPA that the Projects would reduce the cost of delivered power by reducing transmission congestion or improve reliability.  Additionally, the Commission pointed to the fact that the Projects have not been reviewed through the California Independent System Operator’s (“CAISO”) planning process, or garnered approval of a state commission or state citing authority.  The Commission found that SoCal Edison relied on the Large Generator Interconnection Procedure (“LGIP”), which offers limited interconnection studies and cannot help SoCal Edison satisfy the FPA section 219 test.  Under this finding, SoCal Edison is not entitled to a rebuttable presumption, and therefore, the Commission did not reach a determination under section 219 of whether the “nexus” test between the projects and incentives sought is met. 

Despite the failure of the Projects to satisfy the FPA section 219 test, the Commission found that they would deliver location-constrained renewable energy from the Mojave Desert and work towards meeting the Renewable Portfolio Standard (“RPS”) in California.  The Commission pointed to the risks and uncertainties of the Projects and the extensive approvals needed from various regulatory agencies, along with the deadlines imposed by the ARRA.  The Commission granted SoCal Edison’s requested rate incentives, including 100 percent of Construction Work in Progress in rate base and Abandoned Plant Recovery.  The Commission also found that the Projects’ facilities would count as network facilities.  The Commission declined, however, to grant any further Return on Equity (“ROE”) Incentive adders for the Projects, beyond the 50 basis point ROE adder it had already granted for participation in CAISO. 

A copy of the Commission’s Order is available at www.ferc.gov and here.