On May 14, 2019, FERC granted in part, and denied in part, United Illuminating Company’s (“United Illuminating”) request for approval of three transmission rate incentives for investments in the Pequonnock Substation Project (“Project”).  United Illuminating asked FERC to approve three transmission incentives: (i) a 50-basis point return on equity (“ROE”), (ii) an Abandoned Plant Incentive, and (iii) a Construction Work in Progress (“CWIP”) Incentive.  United Illuminating also requested waivers of several of FERC’s regulatory requirements, including the requirements related to anti-competitive impacts of CWIP recovery and the requirement to file Statement BM under section 35.13(h)(38) of the Commission’s regulations.   In the May 14 Order, FERC granted United Illuminating’s requested Abandoned Plant and CWIP Incentives and its waiver requests, but denied the requested ROE Incentive adder.

As a matter of background, through the Energy Policy Act of 2005, Congress added section 219 to the Federal Power Act, which requires FERC to establish incentive-based rate treatments to promote capital investment in certain transmission infrastructure.  In response, FERC issued Order No. 679, which explains how a public utility may seek such transmission rate incentives.  FERC also issued a policy statement to provide guidance on how it evaluates transmission rate incentive applications.  FERC created a rebuttable presumption that applicants can use to establish that its facilities meet the requirements of section 219, i.e., that the facility seeking incentives either ensures reliability or reduces transmission congestion.  Because the Connecticut Siting Council had already found that the Project was necessary to provide electric reliability to the area and granted construction approval for the Project, FERC found that United Illuminating’s Project was entitled to the rebuttable presumption established in Order No. 679.  Specifically, as explained in the Order No. 679 process, that standard is met if a project has received construction approval from the appropriate state siting authority.  FERC also found that United Illuminating satisfied the section 219 requirement, which requires a project to ensure reliability or reduce the cost of delivered power by reducing transmission congestion.

To that end, United Illuminating’s Project involves the rebuild and relocation of the existing Pequonnock Substation, in Bridgeport, Connecticut, which serves a significant portion of the city, including its fire, police, and hospital facilities.  United Illuminating estimates that the costs associated with the Project, which has an expected in-service date of December 1, 2022, is $101.6 million.  United Illuminating acknowledged that the total amount of the ROE Incentive Adder is subject to the outcome of another ongoing FERC proceeding, which would set the upper limit of United Illuminating’s allowed total ROE, such as the base ROE and any incentive ROE adders.

FERC granted United Illuminating’s request to include 100 percent of CWIP in the rate base for its Project, effective May 15, 2019, and found that United Illuminating demonstrated a nexus between the requested CWIP recovery and its investment in the Project.  FERC noted that the CWIP Incentive will help insulate United Illuminating’s customers from rate shock that might otherwise accompany the use of Allowance for Funds Used During Construction (“AFUDC”).  FERC also found that United Illuminating sufficiently demonstrated it has appropriate accounting procedures and internal controls in place to prevent recovery of AFUDC to the extent CWIP is allowed in the rate base.  FERC granted United Illuminating’s request for recovery of 100 percent of its prudently-incurred costs associated with abandonment of its Project, provided the abandonment is a result of factors beyond United Illuminating’s control.  FERC specifically found that United Illuminating has demonstrated a nexus between the Project’s risk and the need for the Abandoned Plant Incentive.  This incentive went into effect on May 15, 2019, as requested by United Illuminating.  FERC further noted it will not determine the justness or reasonableness of United Illuminating’s recovery of costs for abandoned electric transmission facilities, if any, until United Illuminating seeks such recovery in a future section 205 filing.

Finally, FERC denied United Illuminating’s ROE Incentive Adder, finding that United Illuminating failed to show that the Project falls within the types of projects that FERC previously indicated may qualify for such an incentive adder.  FERC noted, for example, that United Illuminating has not shown that what it characterizes as the Project’s use of smart grid technology or “hardened resilient design” reflect the application of new technologies to facilitate more efficient and reliable usage and operation of existing or new facilities.  FERC also noted that United Illuminating failed to demonstrate that its Project otherwise faced risks and challenges either not already accounted for in United Illuminating’s base ROE or addressed through risk-reducing incentives.

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