In a Petition for Declaratory Order filed yesterday, ITC wants the Commission to rule:
1) that binding revenue requirement bids selected as the result of Commission-approved, Order No. 1000-compliant, and demonstrably competitive transmission project selection processes will be deemed just and reasonable when filed at the Commission as a stated rate pursuant to Federal Power Act (“FPA”) Section 205; and 2) that such binding bids are entitled to protection under the Mobile-Sierra standard, and may not subsequently be changed by means of a complaint filed under FPA Section 206 unless required by the public interest.
On top of that, competition has inspired transmission companies to offer not to exceed "cost caps," where a transmission company eats any overages. This serves to make cost bids more accurate and encourages the company to actually perform, instead of its usual apathy to cost concerns because the company is simply passing its costs into rates that someone else pays.
Good idea, right? Except when a cost cap and company performance actually makes the project come in under budget, ratepayers can reap the benefits of even lower rates. ITC wants that to stop. It wants to recover the full amount of its cost cap, even if it spends less. How rickety will transmission become once corporate greed and shareholder returns enter the picture? How many equipment cost and construction practice corners will be cut to decrease costs and increase profits?
Here's a better idea: Dangle a fixed reward of a percentage of cost underruns for the economical company when a project is successfully constructed, instead of encouraging them to adopt a culture of greed by proposing an endless cycle of cost cutting to increase profits. ITC's proposal is crap.
First of all, RTOs don't know diddly doo about rates and ratemaking and care even less. RTOs are NOT regulators in the public interest. They operate in the interest of their investor owned members. There is no real public involvement in any of their decisions, and more importantly, no due process for ratepayers to participate in examination of the rates proposed in the cost cap "revenue requirements" that ITC wants to lock in at the RTO level.
There's a whole lot that goes into ratemaking aside from known costs, such as the company's rate of return. How is an RTO supposed to decide that? In addition, only the Commission has jurisdiction over transmission rate incentives that can increase return. Does ITC propose that the RTO take over this process in order to set the return at a "competitive" rate decided through the bidding process? And what about incentives that don't have anything to do with rates, such as guaranteed recovery in the case of abandonment? Would those still be the domain of the Commission, or shall they delegate those to RTOs as well?
Message unclear. Ask again later.
Having the utility design its own rates in a "competitive" manner would do nothing but encourage collusion that results in rates that are not just and reasonable. No rate should ever be bullet proof.