CWIP should not be treated as an ‘incentive,’ ATC says

American Transmission Company is asking FERC to draw a distinction between transmission incentives and rate treatments, specifically arguing that construction work in progress should not be considered an “incentive.”

Incentives are meant to offset the risk of constructing a transmission project, particularly for smaller capitalized companies taking on large projects, ATC said in a FERC docket filing (Docket RM11-26). Construction work in progress, or CWIP, is not intended to offset the risk of a particular project, but is an element to be included in the formulation of just and reasonable rates, the company argued.

The Waukesha, WI-based privately owned transmission company noted that since 2004, when FERC approved its use of CWIP in rate base, ATC has constructed more than $2bn in new transmission facilities. Its ability to use CWIP as a rate treatment has resulted in enhanced cash flows, more favorable debt ratings and a lower cost of capital, all of which produce lower costs to customers, the company said.

“As such, in ATCLLC’s view, CWIP is not an ‘incentive’ but an appropriate rate treatment that has provided demonstrated value to ATCLLC and its transmission customers,” the company said.

ATC, however, said it supports FERC’s use of incentives to encourage the development of needed transmission infrastructure.

The company further suggested that FERC should not draw a distinction between “routine” and “non-routine” projects, but rather should consider the risks arising from transmission developers’ size and experience, ability to complete construction in a “financially reasonable manner.”

“Incentives, and their applicability should be based on the applicant and the project and there should be a nexus between the incentive(s) sought, the investment being made and the risks that the incentive addresses as those risks are faced by the particular entity,” ATC said.

ATC also said the risks associated with building regional transmission are higher today than they were in 2006, when FERC issued Order No. 679 because of cost allocation concerns, with respect to identifying beneficiaries, and potential public policy shifts. Order 679 provides incentives for transmission infrastructure investment.

Regional projects that are identified to meet public policy requirements, such as state renewable portfolio standards or federal environmental regulations, face the risk that the public policy requirements will shift during the time the project is being planned and permitted, thus affecting the underlying need or reason to construct the project.

Lastly, ATC said FERC should not limit incentives to estimated project costs, as costs can change throughout the planning and construction process. Rather, planning estimates should be used in determining what cost allocation methodology should be applied to the project.

Subjecting proponents of large multi-value transmission projects to the possibility that the cost allocation method approved during the planning process could be altered based on cost increases will ultimately result in fewer of those projects being built, ATC said.

“Changing the cost allocation associated with a multi-benefit project after it is constructed would essentially vitiate the Commission’s efforts to promote large, regionally beneficial projects because the uncertainty caused would increase the risk to the transmission owner to a level that would likely be intolerable,” ATC said.

About Rosy Lum 525 Articles
Rosy Lum, Analyst for TransmissionHub, has been covering the U.S. energy industry since 2007. She began her career in energy journalism at SNL Financial, for which she established a New York news desk. She covered topics ranging from energy finance and renewable policies and incentives, to master limited partnerships and ETFs. Thereafter, she honed her energy and utility focus at the Financial Times' dealReporter, where she covered and broke oil and gas and utility mergers and acquisitions.