FERC grants incentive rates for MVP projects in MISO

FERC on Dec. 30 granted Otter Tail Power Company (NYSE:OTTR) and MidAmerican Energy Company incentive rates for six transmission projects that were identified as multi-value projects (MVPs) in the Midwest ISO’s 2011 transmission expansion plan (MTEP).

Otter Tail will be allowed to recover 100% of prudently incurred construction work in progress (CWIP) in its rate base and 100% of prudently incurred costs of transmission facilities that are cancelled or abandoned for reasons beyond its control (abandoned plant recovery) for the Big Stone South-Brookings project and the Ellendale-Big Stone South project.

MidAmerican will also be allowed 100% of CWIP recovery and 100% abandoned plant recovery in connection with four new transmission projects: the Sheldon-Webster project, the Hampton-Blackhawk project, the Oak Grove-Galesburg project, and the Ottumwa-Adair project. In addition, FERC authorized MidAmerican to use a forward-looking formula rate to recover costs in conjunction with those projects, rather than relying on historical data.

Otter Tail’s Big Stone South-Brookings project is a 65-mile, 345-kV line connecting Big Stone, S.D., to the Brookings County substation near White, S.D. The Ellendale-Big Stone South project will consist of a 145- to 175-mile, 345-kV transmission line connecting Ellendale, N.D., and the Big Stone South Substation near Big Stone, S.D.

MidAmerican’s Sheldon-Webster, Hampton-Blackhawk and Oak Grove-Galesburg projects will each consist of 345-kV and 161-kV transmission lines and associated improvements to connect Sheldon and Webster, Iowa. MidAmerican will construct and own approximately 219 miles of the projects’ 475 total miles. The Ottumwa-Adair project is a 345-kV, 71-mile project, of which MidAmerican expects to own at least 17 miles.

In its Dec. 2 filing, Otter Tail explained that, among the proposed projects in MISO’s MVP portfolio, the two projects stand out as “a key link in the regional package of major transmission projects and are essential to realization of the benefits delivered by that portfolio.”

Otter Tail stated that these “are the only projects among the MVP portfolio that directly access the resource-rich areas of North Dakota and South Dakota. Without these two vital links,” Otter Tail claimed, “the MVP portfolio could not achieve its objective of strengthening the MISO region’s ability to move power from the areas of high wind power potential in North and South Dakota – on the western edge of MISO – to points east.”

Company officials testified that Otter Tail is currently projected to spend an average of over $47m in each of the five peak project years (2015 through 2019), and that the expenditure is approximately 10 times greater than Otter Tail’s average annual capital transmission expansion expenditures of $4.8m.

Otter Tail stated that MISO determined the Big Stone South-Brookings project is required for reliability, and it estimates the line may facilitate the integration of more than 800 MW of new renewable generation.

The utility said MISO determined the Ellendale-Big Stone South project would maintain reliability in the region and provide the ability to interconnect more generation, including renewables. The line will also mitigate multiple transmission constraints on the transmission system.

In a joint Oct. 28 filing, MidAmerican and the Midwest ISO stated that none of the projects was routine. Each requires sizeable investments, estimated to be between $532m and $572m over a six-year period. In addition, each project involves at least one other project participant, integrates new generation resources to meet state renewable energy standards and to tap the strong potential for wind energy generation in the region; is a regional project that involve multiple utilities; and will utilize several advanced transmission technologies.

In addition, MidAmerican and MISO “expect each project to provide congestion relief, mitigate North American Electric Reliability Corporation (NERC) contingencies, improve reliability, integrate new renewable generation, and enhance transfer capabilities,” the filing stated.

Both incentive orders were granted over the objection of the Organization of MISO States (OMS), which argued that FERC should suspend the filings while it reevaluates its transmission incentive regulation and policies under a notice of inquiry issued May 19, 2011. The companies argued that suspending the filings “would cause regulatory uncertainty during a time when the Commission is encouraging the construction of transmission,” the FERC order said.