ITC CEO: 100% transmission cost recovery policy is just, reasonable

ITC Holdings (NYSE:ITC) President and CEO Joseph Welch said the company is confident that FERC will find ITC Midwest’s use of a 100% transmission upgrade cost recovery mechanism to be consistent with FERC’s goal of creating a level playing field for generator developers.

In a Sept. 13 complaint, Interstate Power and Light (IP&L), an Alliant Energy (NYSE:LNT) company, asked that FERC investigate the justness and reasonableness of ITC Midwest’s Attachment FF policy allowing for up to 100% reimbursement of the costs of eligible network upgrades for qualifying generating facilities connecting to the ITC Midwest system.

IP&L also requested that FERC establish a refund effective date of Sept. 14 and set hearing procedures.

“In adopting the Attachment FF reimbursement policy within [the Midwest ISO (MISO)], the commission sited the importance of new transmission in encouraging new resources and reiterated the need to limit opportunities for transmission providers to favor their own generation, facilitate market entry for generation competitors by reducing interconnection costs in time, and encourage needed investment in generator and transmission,” Welch said during ITC’s 3Q12 earnings conference call on Oct. 24.

In its Oct. 4 reply to the complaint, ITC Midwest outlined why the company’s Attachment FF remains just and reasonable and requested that FERC dismiss the complaint given that IP&L did not meet a burden of proof.

“The response highlights the fact that this cost allocation methodology is not simply a policy approved four years ago for ITC Midwest service territory,” Welch said. “It is also consistent with the approach utilized by the commission for decades and formally adopted in order 2003.”

IP&L told FERC in its Oct. 22 response to ITC Midwest’s filing that its only obligation as the complainant is to provide adequate evidence to initiate a hearing.

“IP&L has proffered evidence in the form of an affidavit … that establishes the costs that IP&L and its customers incur through application of the 100% cost reimbursement policy for generator interconnection project network upgrades under MISO tariff Attachment FF, which is applicable in the ITC Midwest pricing zone, in contrast to the much lower costs that IPL and its customers would incur under the 10% cost reimbursement policy … in most MISO pricing zones,” IP&L said.

In its complaint, IP&L estimated that, from 2008 to 2011, it paid about $44.7m to ITC Midwest in connection with network upgrades under Attachment FF. IP&L additionally estimated that it would have paid $12.3m in upgrade costs during the same period if ITC Midwest followed the MISO tariff that applies in other MISO pricing zones.

The parties await FERC’s reply to the complaint.

“There is no stipulated period for FERC to act,” Welch said. “However, [we] expect that FERC will continue to find Attachment FF just and reasonable.”


ITC’s policy watch

Welch said ITC follows other external policy issues that could directly influence the company’s operations, interceding where applicable.

ITC is a party to FERC’s complaint, issued in May, against MISO formula rate protocols.

In the order, FERC initiated an investigation to determine whether formula rate protocols under the MISO tariff ensure reasonable rates.

FERC has indicated its intent to issue its findings in that proceeding by February 2013.

“As ITC is a MISO transmission owner, we are a party to the case – notwithstanding the fact that we have our own formula rate protocols,” Welch said. “ITC filed a response to this complaint detailing how our protocols and practices differ from the MISO-wide protocols and how ITC’s approach alleviates the specific concerns FERC sited in its complaint.”

While ITC is not a direct party in the complaint filed by Massachusetts Attorney General Martha Coakley against New England transmission owners, ITC continues to monitor the case.

Coakley filed the complaint with FERC in September 2011 seeking an order to reduce the base return on equity (ROE) from 11.14% to 9.2% for service rates under the New England ISO open access transmission tariff.

“With the impacts on settlement discussion in early August, the complaint has now moved to a full hearing, with the procedural schedule providing an initial decision in 2013,” Welch said. “The complainants have filed their brief and the New England transmission owners are expected to file theirs in November.”

ITC maintains its position on the issue.

“We continue to believe that FERC will support previously established ROEs that remain within a currently measured zone of reasonableness,” Welch said.

ITC also is watching FERC Order 1000 filings from MISO and the Southwest Power Pool to see what procedures each regional transmission organization (RTO) will establish for selecting parties to construct non-right-of-first-refusal projects.

MISO’s Oct. 25 FERC Order 1000 filing updates tariff and transmission owner agreements to enhance the existing collaborative nature of its regional planning processes.  The filing includes language complying with Order 1000’s limitations on federal rights of first refusal.

“We currently expect FERC to act on the compliance filings within the first half of 2013, with the RTOs likely beginning to implement the new requirements at the start of the subsequent planning process for each RTO,” Welch said. “The second phase of Order 1000 compliance filings related to the interregional coordination and cost allocation provisions are due on April of 2013.”

FERC has no stipulated period to rule on Order 1000 filings.