Compliance Trends
During the past several years, DAA observed noncompliance in certain areas that warrant highlighting for jurisdictional entities and their corporate officials. Although there are other areas of noncompliance associated with the topics presented below, the areas discussed relate to areas where DAA has found consistent patterns of noncompliance. Greater attention is needed in these areas to prevent noncompliance and to avoid enforcement action.

Formula Rate Matters. DAA rigorously examines the accounting that populates formula rate recovery mechanisms that are used in determining billings to wholesale customers. In recent formula rate audits, DAA observed certain patterns of noncompliance in the following areas:
Merger Goodwill – including goodwill in the equity component of the capital
structure absent Commission approval;
Depreciation Rates – using state-approved, rather than Commission-approved,
depreciation rates;
Merger Costs – including merger consummation costs (e.g., internal labor and other general and administrative costs) without Commission approval;
Tax Prepayments – incorrectly recording tax overpayments which are not applied
to a future tax year’s obligation as a prepayment leading to excess recoveries
through working capital;
Asset Retirement Obligation (ARO) – including ARO amounts in formula rates,
without explicit Commission approval;
Below-the-Line Costs – attempting to move below-the-line costs into formula rates (e.g., lobbying, charitable contributions, fines and penalties, and compromise settlements arising from discriminatory employment practices); and
Improper Capitalization – seeking to include in rate base (and earn a return on) costs that should be expensed.

Mr. Glotfelty also noted that there could be circumstances under which the Grain Belt Project could find it necessary to depart from the cost recovery model described and instead seek cost recovery through regional or inter-regional cost allocation mechanisms.

Mr. Berry testified that while Petitioner currently has no plans to seek cost recovery for this Project through regional cost  allocation, Petitioner is not in a position to make an irrevocable commitment not to seek cost allocation. He stated that such a  commitment would be premature and would potentially go against the public interest. If regulations change in the future, an irrevocable commitment not to recover costs in a certain manner may compromise the ability of Petitioner to complete the Project.

D. Public Outreach
Public outreach and active stakeholder involvement are key components of Applicant’s approach to development of the Project. Beginning in 2010, Grain Belt Express implemented an extensive, methodical, multi-level public outreach strategy across Kansas, Missouri, Illinois, and Indiana, which has resulted in more than 1,000 in-person meetings across the Project area as of November 2013. Grain Belt Express also has maintained an active presence online and through social media. The Project’s website, www.grainbeltexpresscleanline.com, has been actively updated since the beginning of the Project in 2010. Among other information, the website contains: a project video that describes the need for the Project and how Grain Belt Express will bring significant economic benefit to states through much-needed transmission expansion for new wind energy projects; an FAQ section for all stakeholders to learn greater details about the Project; a section on how local businesses can learn about opportunities to participate in the construction of the Project; and information regarding Project meetings, maps, studies, regulatory filings, and third-party resources. In addition, Grain Belt Express distributes a newsletter on a regular basis to hundreds of stakeholders. These newsletters provide information on Project milestones, recent events and meetings, as well as upcoming Project activities. The newsletter is available to anyone who is interested in receiving a copy. Applicant’s participation in multiple state regulatory proceedings also has publicized information regarding the Project.
E. Project Schedule
Applicant continues to work closely with land use and routing experts as well as landowners, local government officials, state and federal agencies, and other stakeholders in the areas where the Project will be built in order to gather input and determine the specific route for the transmission line in each state that it will traverse. Applicant is consulting experts on topics such as threatened and endangered species, archaeology, and cultural resources to ensure that appropriate considerations are taken into account in the routing decisions. Applicant expects to obtain all necessary authorizations from federal, state, and local governments and agencies for the Project by 2016.

Applicant is assuming all market risk associated with the development and construction of the Project, and Applicant does not have and will not have any captive customers. Accordingly, Applicant has no ability to pass through the Project’s costs to captive ratepayers.

Once the Project is completed, Applicant will turn over operational control of the Project to an RTO, which will operate the line pursuant to a FERC-approved non-discriminatory rate schedule filed under the RTO’s OATT.

Pipelines are monopolies regulated by a little-known agency, the Federal Energy Regulatory Commission, which is financed not with tax dollars, but with fees paid by the regulated companies. In 2007 the commission authorized pipelines to collect the corporate income tax in the rates charged to customers. But instead of just charging the 35 percent federal tax on profits, the commission let companies charge what is known as the “grossed up” tax of 54 percent.

But since 1987 pipelines have been exempt from paying the corporate income tax as long as they are organized not as corporations, but as Master Limited Partnerships.

Forcing customers to pay a tax that never gets to government sounds like an issue someone might want to get before a judge. This issue was taken before three federal judges on the District Court of Appeals in Washington. Judge David B. Sentelle, a conservative, wrote that while he was troubled that taxes were even considered in setting pipeline rates, the court had no authority to interfere.

“Transmission assets, when they're already built, are goldmines,” he said. “They've got a long life, they're stable, and generally not as subject to tariff reductions as other asset classes because the percentage of the bill that ultimately goes to the end user that revolves around transmission is relatively light.”