On May 31, 2022, FERC accepted and set for hearing Southwest Power Pool, Inc.’s (“SPP”) proposal to revise its Open Access Transmission Tariff (“OATT”) to establish a formula rate template (“Formula Rate”) on behalf of People’s Electric Cooperative (“People’s Electric”) when People’s Electric transfers functional control of its transmission facilities to SPP on June 1, 2022. The Commission granted People’s Electric’s request to include a 50-basis point adder for participating as a member of SPP, a regional transmission organization (“RTO”). Commissioner Christie wrote separately in concurrence to express his continued support for limiting the RTO participation adder to three years.

People’s Electric’s proposed Formula Rate includes a return on common equity (“ROE”) of 10.93%, reflecting a base ROE of 10.43% and a 50-basis point adder for its membership in SPP. People’s Electric also proposed that the 10.93% ROE be applied to the higher of the equity component of its actual capital structure or an equity component floor of 35.24%.

The Commission granted the request for a 50-basis point adder to People’s Electric’s base ROE for its participation in SPP, but set all other issues, including the base ROE, for hearing. The Commission noted that Order No. 679 provides that an entity will be presumptively eligible for the incentive adder if it is a member of a RTO. Accordingly, the Commission conditioned approval of the incentive adder on People’s Electric continuing membership in SPP.

Commissioner Christie wrote separately in concurrence expressing his view, as supported by the position recently taken by a majority of Commissioners in a pending Supplemental Notice of Proposed Rulemaking (“Supplemental NOPR”), that the RTO participation adder should be limited to the three years following a utility’s initial membership in a RTO. The Supplemental NOPR corresponds to an earlier-issued NOPR addressing various ROE-related policies, but is focused more narrowly on issues related to the RTO participation adder. Those issues include, among others: (a) whether to shorten the duration of a utility’s eligibility to receive the RTO participation adder; (b) whether to codify the Commission’s current practice of granting a 50-basis point RTO participation adder; and (c) whether to restrict the availability of the RTO participation adder to utilities meeting certain criteria (see April 23, 2021 edition of the WER). Commissioner Christie made clear his continued support to limit the applicability of the RTO adder to three years as a means of reducing costs to consumers at a time when electricity prices are rising.

A copy of FERC’s order can be found here.