On another prong of its diabolical pitchfork, WIRES takes on the problem of recent FERC return on equity complaints alleging that transmission ROEs based on market conditions prior to the big crash are set too high. One such complaint was ruled on yesterday, when a FERC administrative law judge found that the 11.14% base ROE for New England transmission owners was unjust and unreasonable and recommended that it be reduced to 9.7%. The ALJ found that FERC’s ROE “zone of reasonableness” determined by the prior DCF analyses was inappropriate because there has been so much economic change.
With that in mind, we can approach WIRES’ petition to FERC requesting that it revamp or replace its current DCF process for setting returns, deny any future rate of return complaints under sec. 206 of the FPA as long as the ROE still falls safely within the zone of reasonableness, and that the “benefits” of a transmission project be considered as a factor worthy of a higher ROE than would ordinarily be found to be just and reasonable.
“Petitioner asks the Commission to explore methodological options that will reduce or eliminate the uncertainties and risks to investors and to customers and avoid potential reductions in investment in needed transmission facilities, higher costs, project delays, and disruption to infrastructure planning and growth.”
WIRES intends to provide electricity consumers with greater stability and predictability regarding regulated rates of return on equity (or “ROE”) for existing and future investments in high voltage electric transmission infrastructure. Well, gee, thanks, WIRES, I know that dilemma keeps everyone up at night… NOT. Are you sure you’ve really got the welfare of electricity consumers in mind? Who designated you as our representative anyhow? WIRES does NOT speak for electric consumers.
WIRES is simply stamping its gold-plated feet because the usurious ROEs it had gotten used to have come to an end. Now they want FERC to shore things up for them, and do it in a big hurry and in a way that shuts the consumers who will end up paying for it all out of the process. WIRES is frightened by all the recent section 206 complaints that are eating into transmission profit margins, and that’s because the complaints are well-founded.
Rah! Rah! Rah! Who loves transmission? Gimme a W, gimme an I, gimme an R, gimme an E, gimme an S… what does that spell? An expensive, unneeded transmission line in everyone’s back yard! Hooooooo-rayyyyyyyy!
WIRES says it’s all FERC’s fault for making the transmission biz just so gosh darn lucrative:
“…a major and substantial impetus for new investment was supplied by federal regulatory initiatives promoting regionally competitive power markets and transmission open access. It is no accident that modernization and expansion of the nation’s transmission system has coincided with implementation of the Energy Policy Act of 2005 and its directive to the Commission to provide “incentive-based rate treatments” for jurisdictional public utility transmission projects, including “a return on equity that attracts new investment in transmission facilities (including related transmission technologies).”
And therefore, it is FERC’s responsibility to continue to champion more transmission because transmission owners now depend on it as a profit center:
“Despite the continuing challenges to its planning and siting, transmission is the “critical link” between generation and customers, and its vitality is key to FERC’s bulk power market policy objectives. The industry’s principal game-changing developments of the last two decades -- open access and comparability requirements, regional wholesale power markets, accelerating network integration, the arrival of non-utility transmission investors as well as utility diversification into commercial transmission, deployment of digital monitoring and control technologies, and new forms of renewable energy -- depend significantly on the adequacy and efficiency of the grid. In recognition of that fact, transmission has emerged as a separate business and profit center, even for many incumbent transmission providers whose transmission investments were historically the by-product of service to native load.”
Well, someone has worked quite punctiliously on a strategy to dig in a foothold for transmission at a time when the composition of future energy generation and delivery is enormously uncertain, haven’t they? I don’t think this is a wise strategy for consumers, who may end up holding a gigantic bill for infrastructure that is not useful or economic. Instead of rushing headlong into $300B of new transmission intended to support more centralized generation and foster larger and costlier deregulated electricity markets, we should first be tackling the question of necessity. Even WIRES agrees with this point.
“Micro-grids, distributed generation, and energy storage technologies represent new and potentially important competition for investors’ resources.”
WIRES’ petition makes all sorts of spurious claims that all begin with a version of “once upon a time”:
“WIRES believes there is a binding norm obtained through rulemaking that would do more to ensure consistency than a policy statement. However, the need to address this particular matter within a short period of time and the familiarity of Commission staff and industry parties with the issues argue for a short comment period, followed by a Statement of Policy. Such action would shed light on the Commission’s intentions going forward while preserving its flexibility in the face of changing facts and events.”
Translation: "Let’s hurry up and get this done before someone notices!"
“Petitioner believes the investment community is, or will soon become, apprehensive about the prospect of declining transmission-related ROEs and other regulatory uncertainties.”
Translation: “Wah! You’re impeding our profits!”
“Petitioner believes that, even the most substantial increases in regulated transmission investment would rarely, if ever, result in transmission being more than one-fifth of retail rates regionally. Of course, the rate impact of regulated transmission investment on individual customers is reduced, perhaps dramatically, in relation to how broadly costs are shared. Moreover, adequate transmission enables more efficient use of generation resources; those savings will tend to offset, at least in part, any increases in transmission rates.”
Translation: “Those pesky consumers won’t notice the disgustingly high profits we’re making if we can socialize the costs broadly enough.” Again… who appointed WIRES to speak for consumers?
“Petitioner believes that the subjective judgments and evolving standards associated with application of DCF in litigated cases will significantly affect investor behavior and, if left to evolve solely through litigation, will add greater regulatory risk and uncertainty to the recognizable barriers that transmission development already faces.”
Translation: “If FERC doesn’t put a stop to ROE complaints, the investors are going to find other investments that pay higher returns, well, if they can find any that pay more than 12 – 14%, which they can’t.”
“In WIRES’ view, one key to sustaining transmission investment is rational application of the DCF methodology or such other methodologies as may appropriately fit the financial environment and Commission objectives.”
Translation: “And only high ROEs are rational, so therefore, show us the money!”
“Petitioner contends that challenges to existing or proposed rates of return need not be resolved simply on the basis of a mechanical application of the DCF model. Regulation should maintain a reasonable relationship between a project’s (or group of projects’) long-term benefits, including those that planners and regulators expect and those that flow from evolving grid operations, and the costs customers pay for securing those benefits through new transmission facilities or upgrades. Transmission benefits should therefore be part of any consideration of whether customers have been, or are likely to be, harmed by an existing allowed return.”
Translation: “We’ll make up new “benefits” for consumers if you just let us keep robbing them!”
“We are not suggesting a performance-based regulatory regime, as that is necessarily beyond the scope of the brief generic reassessment that this Petition recommends.”
Translation: “But let’s not be hasty here! Even though Congress expressly ordered that transmission incentives be subject to performance standards, FERC has failed to hold us to any standards, and that’s the way we like it!”
FERC simply cannot continue to reward failure and poor planning with unjust and unreasonable rates. If you’d like to read responses to this ridiculous and dangerous petition and/or follow this docket, you may find it here by searching for Docket No. RM13-18.
All this smoke and thunder signifies the wrath of a dying industry. Change or die, fellas, the future is here!