FERC on Oct. 1 granted incentive rate treatment for WPPI Energy‘s investment in the Hampton-Rochester-La Crosse transmission project.
WPPI on May 9 requested recovery of its La Crosse project-related, pre-commercial expenses and other transmission-related expenses through a regulatory asset; a hypothetical capital structure of 45% equity and 55% debt; and 100% recovery of prudently incurred costs of facilities that are cancelled or abandoned for reasons beyond WPPI’s control (Docket No. EL12-67-000).
FERC said WPPI may use the generally applicable Midwest ISO (MISO) return on equity (ROE) of 12.38%, conditional upon WPPI becoming a MISO transmission owner.
The project is expected to cost about $488m, of which WPPI is responsible for about $14.6m. The project is scheduled to be placed in service near the end of 2015.
The La Crosse project satisfies Section 219 of the Federal Power Act, which directs FERC to establish, by rule, incentive-based rate treatments to promote capital investment in transmission infrastructure, FERC said.
Under Order No. 679, an applicant may seek to obtain incentive rate treatment for transmission infrastructure investment that satisfies the requirements of section 219; for example, the applicant must show that “’the facilities for which it seeks incentives either ensure reliability or reduce the cost of delivered power by reducing transmission congestion,’” FERC said.
“We find that the total package of incentives that we are approving for WPPI is tailored to address the risks and challenges that WPPI faces in constructing the La Crosse project,” FERC said in the Oct. 1 order.
WPPI is authorized to amortize the cost of the project over five years, consistent with rate recovery, FERC said. The company is also authorized to recover 100% of prudently incurred costs.
With respect to its request for a hypothetical capital structure, WPPI argued that it should receive the 45%/55% structure for the duration of the La Crosse project’s financing, “as opposed to only during the construction period, because, unlike investor-owned utility CapX2020 owners, it is has no ability to issue common stock,” FERC said. “Otherwise, according to WPPI, it would never obtain a return comparable to investor-owned utilities investing in the same project.”
Consistent with precedent in which FERC has granted use of a hypothetical capital structure by municipal entities that have relied upon non-equity financing, the commission accepted the use of a hypothetical capital structure for the project’s entire 30-year bond issuance period, and found use of a 45% to 55% equity-to-debt ratio in conjunction with the generally-applicable MISO ROE of 12.38% appropriate.