A settlement conference is scheduled for Jan. 19 at FERC concerning FERC’s Dec. 28, 2015, finding that ISO New England’s (ISO-NE) Transmission, Markets and Services Tariff “is unjust, unreasonable and unduly discriminatory or preferential,” Acting Chief Administrative Law Judge Carmen Cintron said in an order issued on Jan. 11.
The chief judge appointed Judge John Dring as the settlement judge to convene the settlement conference, explore the possibility of settlement, discuss the differences between the parties, and in general conduct the settlement negotiations, according to the Jan. 11 order.
In its December 2015 order, FERC said that ISO-NE’s tariff lacks adequate transparency and challenge procedures with regard to the formula rates for ISO-NE participating transmission owners (PTOs).
FERC said it also finds that the PTOs’ current regional network service (RNS) and local network service (LNS) formula rates appear to be unjust, unreasonable, unduly discriminatory or preferential, or otherwise unlawful. The formula rates appear to lack sufficient detail in order to determine how certain costs are derived and recovered in the formula rates, FERC said.
Accordingly, FERC said it would establish hearing and settlement judge procedures to develop just and reasonable formula rate protocols to be included in the ISO-NE tariff and to examine the justness and reasonableness of the RNS and LNS rates. FERC further established a refund effective date.
Under the ISO-NE tariff, the PTOs recover their transmission revenue requirements through a combination of local and regional rates, FERC said, adding that the PTOs provide RNS service over their regional high voltage lines under Attachment F of ISO-NE’s tariff.
The rate for RNS is calculated annually using a formula rate for all Pool Transmission Facilities in New England, FERC said, adding that the PTOs also maintain LNS and point to point transmission rates to recover costs not recovered through the RNS rate under Schedule 21 of the ISO-NE tariff.
The LNS rates are calculated either on a historical, current or projected basis determined by each utility under its respective Schedule 21, while the RNS rate is a single formula that all of the PTOs use to develop their respective RNS revenue requirements that make up the overall RNS rate, FERC said, noting that the RNS rate is determined on a historical basis using the previous year’s costs.
Each year on or before July 31, the PTOs collectively submit to FERC an annual informational filing update (annual update) for Scheduling System Control and Dispatch Service, Through or Out Service, and their respective revenue requirements that go into the RNS formula rate, FERC said.
Attachment F requires that, 45 days before an annual update is made with FERC, the PTOs make available to transmission customers and any other interested parties a draft of the proposed filing for review and comment, FERC said, noting that that is accomplished by posting the draft Annual Update on ISO- NE’s website.
Attachment F also grants ISO-NE discretion to conduct audits of charges under the RNS formula rate, with advisory stakeholder input on the scope of the audit, including any agreed-upon procedures to be used by the auditor, FERC said. Some of the PTOs are required by their respective Schedule 21 to submit an annual informational filing with FERC for their LNS rates, FERC said.
Regarding formula rates, FERC said that it has noted that “the formula itself is the rate, not the particular components of the formula.”
Thus, FERC said, periodic adjustments, typically performed on an annual basis, “made in accordance with the commission- approved formula do not constitute changes in the rate itself and accordingly do not require section 205 filings.”
FERC said that because the formula rates for transmission service presently on file with FERC do not typically require transmission owners to make a section 205 filing to update their annual transmission revenue requirement, FERC has required safeguards to be in place to ensure that the input data is correct and accurate, that calculations are performed consistently with the formula rate, that the costs to be recovered in the formula rate are reasonable and were prudently incurred, and that the rates are just and reasonable.
Formula rate protocols are often employed as such a safeguard and can be an effective tool to ensure just and reasonable rates, FERC said.
Noting that it has undertaken an analysis of the PTOs’ RNS and LNS formula rates, FERC said that of concern, several of the ISO-NE PTOs that provide LNS are not required to submit annual updates.
Also, although draft annual updates must be posted on ISO-NE’s website 45 days prior to being submitted to FERC and ISO-NE may conduct audits related to the RNS, interested parties are not provided with all the information necessary to understand and evaluate the implementation of the formula rate for either the correctness of inputs and calculations or the reasonableness and prudence of the costs to be recovered in the formula rate, FERC said.
Additionally, FERC said that there are no challenge provisions to allow interested parties to informally resolve disputes related to the implementation of those formula rates or, in the event disputes are not resolved informally, to bring formal challenges to FERC without needing to file a formal complaint.
FERC also said that the formula rates themselves lack sufficient detail to determine how certain costs are derived and recovered in the formula rates, and FERC has concerns involving the timing and synchronization between the RNS and LNS formula rates.
FERC said that the RNS and LNS formula rates exclude the derivation of several components such as post-employment benefits other than pension costs, depreciation rates, and asset retirement obligations, nor are those components stated.
FERC further said that because the RNS and LNS formula rates cover different time periods for service, include different line item calculations, are a hybrid of historical and forward- looking costs, and are not filed together, the commission’s preliminary analysis indicates that the timing and synchronization of the RNS and LNS rates are not reconcilable through the filing of formula rate protocols alone, which could result in an over-recovery of costs.
FERC also said that the RNS formula rate defines the inputs and allocation factors to be used by every PTO for calculating its annual revenue requirement. However, because the PTOs formula rates are written out in words and not a mathematical formula, FERC said that its preliminary analysis indicates that the PTOs may have different interpretations of the single RNS formula applicable to all the PTOs.
FERC said that its policy requires that all of the formula calculations be incorporated into rate schedules so that public utilities cannot unilaterally revise the calculations at their discretion. Further, FERC said, formula rates must be stated with sufficient specificity, clarity, and transparency so as to be understandable and reviewable by those affected by them and by the commission.
Motions to intervene
Many entities have submitted motions to intervene in the docket (Docket No. EL16-19-000), including ISO-NE, which said that it has an interest in the proceeding because it administers the rate provisions at issue that have been set for hearing and settlement discussions.
Given its role, ISO-NE said that it must ensure that it is able to administer the rate design should changes be made as a result of hearing or settlement.
Those responsibilities create a direct and substantial interest in the proceeding and ISO-NE’s interests may be directly affected by the outcome of this proceeding, ISO-NE said.
ISO-NE also said that it will not be adequately represented by other parties to the proceeding and therefore has a right to intervene with full rights as a party.
New England Power Company d/b/a National Grid plc’s National Grid also filed a motion to intervene.
A National Grid spokesperson told TransmissionHub on Jan. 13: “Over the past few years, FERC has been reviewing tariff and rate protocols for the various ISOs and power pools across the country in an effort to increase transparency around the protocols used to design and set rates. They already have initiated similar proceedings in other parts of the country – now it’s simply New England’s turn.”
The spokesperson said that it is important to understand that this is normal course of business for FERC and is part of its ongoing review of transmission rates and tariffs. In fact, the spokesperson said, FERC in 2014 issued guidance on transmission rate protocols that has already been adopted in New England.
The spokesperson further noted, “It’s also worth noting that New England transmission owners are already involved in a similar effort with the Massachusetts Attorney General and other stakeholders, so we may have a bit of a head start.”
The spokesperson said that while it is still too early to tell exactly what the scope of the proceeding will be, some of the issues FERC raised include:
- FERC would like New England’s rate protocols to include a process whereby stakeholders can request additional detail and challenge any inputs included in the calculation of the rate
- ISO-New England’s formula for calculating transmission rates is written out in prose; FERC would prefer a mathematical formula
- Different types of transmission rates are calculated using different time periods and line items and are a hybrid of forward-looking and historical charges, so it’s difficult to compare them
The spokesperson added, “This sentence from the order sums it up well: ‘Further, formula rates must be stated with sufficient specificity, clarity, and transparency so as to be understandable and reviewable by those affected by them and by the commission.’”
An Eversource Energy (NYSE:ES) spokesperson told TransmissionHub on Jan. 13 that Eversource is directly participating in the FERC docket.
“Our shared objective with the FERC is to emerge from the current docket with appropriate formula rate protocols and processes that provide assurance to our customers that the transmission charges they pay are fair and reasonable,” the spokesperson said.