On December 12, 2011 and December 30, 2011, the Federal Energy Regulatory Commission (“FERC” or the “Commission”) issued orders allowing developers to recover abandonment costs related for abandoned transmission projects. The projects had been previously approved for incentive rate treatment by the Commission. FERC issued orders for Pacific Gas and Electric Company (“PG&E”) and Southern California Edison Company (“SoCal Edison”) to recover “prudently-incurred abandonment costs” associated with certain transmission projects. PG&E and SoCal Edison filed to recover $8.4 million and $11.028 million respectively for sunk project development costs.
In 2007, FERC granted SoCal Edison and PG&E transmission incentive rate treatment. One of the incentives FERC granted the utilities was authority to recover sunk project development costs in case the companies were forced to terminate the projects.
In October 2011, both companies applied for rate recovery of their abandoned projects stating that the projects were cancelled due to reasons beyond the control of both utilities. SoCal Edison abandoned the Arizona portion of their Dever-Palo Verde II (“DPV2”) project after it was denied a Certificate of Environmental Compatibility from the Arizona Corporation Commission. Also, reduced load forecasts made the project significantly less economic. PG&E abandoned its efforts to build a multi-party line from British Columbia to the Pacific Northwest and Northern California after: 1) the other sponsors withdrew from the project, 2) PG&E was unable to secure a vital power purchase agreement with BC Hydro, and 3) California enacted a 33 percent renewable standard requiring 75 percent of renewable power to come from in-state resources. These three factors were enumerated in PG&E’s original rate incentive application as reasons why the project might be terminated in the future.
The Commission agreed that PG&E and SoCal Edison abandoned their projects due to reasons out of their control, but set both matters for trial-type evidentiary hearings and encouraged settlement among the parties. Although the Commission approved cost-recovery for the abandoned facilities, FERC declared both utilities still had to demonstrate that the amounts sought for recovery are just and reasonable.
It will be interesting to see whether these cases settle, and if so, what settlement amount is agreed upon. At issue in these settlement proceedings will be whether the companies’ development costs were reasonably incurred. Transmission developers should watch these cases as it will be interesting to see the level of scrutiny that FERC trial Staff and interveners give to the costs at issue.