FERC, in a March 17 order, dismissed ITC Grid Development LLC’s petition in which the company requested that FERC find that binding revenue requirement bids selected as the result of FERC-approved, FERC Order 1000-compliant, and demonstrably competitive transmission project selection processes would be deemed just and reasonable when filed at FERC as a stated rate under the Federal Power Act (FPA).
The company had also requested that FERC find that such binding bids are entitled to Mobile-Sierra protection and may not subsequently be changed by means of a complaint filed under FPA section 206 unless required by the public interest.
While it dismissed ITC’s petition, FERC said, “[W]e recognize that this case highlights broader policy considerations and … we intend to convene a technical conference in the future to explore further these considerations.”
Daniel Oginsky, executive vice president, U.S. Regulated Grid Development for ITC Holdings (NYSE:ITC), told TransmissionHub on March 17, “We’re actually pleased that FERC recognized that the issue we raised is an important one and deserves attention and more discussion about it.”
He also noted that FERC separately on March 17 said it would hold a commissioner-led technical conference on cost containment issues. As noted in FERC’s notice, that conference will be held on June 27 and June 28 in Washington, D.C.
“[W]e’re pleased they recognize the importance of the issue we raised and that they want to devote attention to it and organize a discussion about it,” Oginsky said. “So, we will be there, ready to participate in that discussion and work with FERC and others to get to the right outcomes for how we move forward with the highest priority in mind being building the right grid that supports the needs of customers.”
Speaking of the petition, Oginsky said that the concern that the company raised is that in the Midcontinent ISO (MISO) and Southwest Power Pool (SPP), “when you submit a bid on a project, you’re required to submit with that a 40-year revenue requirement for the project and you may win the project based on the revenue requirement forecast you submitted, but then people may have another crack at changing that revenue requirement by filings they could make at FERC. So, the core concern we raised is that if you win a bid based on a revenue requirement you submitted, that revenue requirement that you submitted with your bid should be respected outside of” exceptional circumstances.
He continued, “We have been active in the implementation of Order 1000, especially because of our focus on making sure we are all building the right transmission grid for customers.”
Oginsky also said that the company will “be ready to participate on all the issues talked about, and keep helping with the work of figuring out how to make sure we’re building and maintaining the right grid for us all.”
Discussing ITC’s petition, FERC said in its order that ITC stated that it plans to submit bids in competitive transmission project selection processes in MISO, SPP and potentially other regions. ITC proposes to make 40-year – or life of asset – binding revenue requirement bids with exemptions, including a projected annual transmission revenue requirement, FERC said. ITC stated that its approach would fix the revenue requirement – except agreed upon exemptions – and this revenue requirement would be treated similar to a “black box settlement,” FERC said.
ITC stated that if FERC determines that the rates approved for a new transmission project in a competitive solicitation are not presumptively eligible for Mobile-Sierra protection, it requests in the alternative the FERC grant such protection on a case-by-case basis as a policy-based incentive under section 205 of the FPA. ITC stated that in approving rates for a transmission project, FERC could determine, based on the transparent and competitive attributes of the selection process, and the binding nature of the bid selected, that applying the Mobile-Sierra public interest test to future challenges to the rate is appropriate to encourage transmission investment. FERC also said that ITC stated that granting such an incentive would be similar to an abandoned plant incentive, which provides protection from risks for transmission developers arising from events beyond their control.
Among other things, FERC said that in support of its petition, ITC argued that binding revenue requirement bids currently present an asymmetrical risk for transmission developers. According to ITC, that is because any cost incurred by the winning bidder in excess of the stated rate that is based on the binding bid will not be recoverable, regardless of prudence or benefit to ratepayers, but any cost savings achieved below the binding bid may expose the transmission developer to an FPA section 206 complaint seeking to adjust the stated rate to lower the revenue requirement.
According to ITC, FERC added, the competitive transmission selection process loses its integrity if developers are not held to their bids. ITC argued that developers must have confidence that others will be bound by developers’ bids, just as developers are bound by those bids, unless otherwise required by the public interest.
FERC also noted that a number of parties argued that ITC’s request is inappropriate for a petition for declaratory order and that it should be dealt with in a rulemaking, or some other context, because it calls for the creation of rules of general applicability and, as a consequence, violates FERC regulations and the Administrative Procedure Act (APA). The Organization of MISO States, for instance, argued that granting ITC’s petition would violate the APA because ITC is seeking new rules that can only be established in a rulemaking, while California Cities maintained that ITC seeks an expansion of policy that is more properly accomplished through rulemaking procedures. Sempra Energy (NYSE:SRE) subsidiary San Diego Gas and Electric (SDG&E) stated that given the paucity of facts that ITC presented and the industry-wide implications of the petition, a generic approach, such as rulemaking or notice of inquiry, would provide a more appropriate way to consider the issues that ITC raised.
In its Aug. 24, 2015, answer, ITC said that it is not seeking new rules of general applicability, and that it is seeking to remove uncertainty regarding how binding bids with exemptions that ITC submits and are selected in qualifying competitive processes may be treated for ratemaking purposes.
In its Sept. 25, 2015, answer, ITC reiterated that it is not seeking a rule of general applicability, and it stated that “[a]s a business matter,” it is requesting “guidance to understand whether [ITC’s proposed binding bid with exceptions] can be accommodated by the current regulatory framework.”
FERC further noted that a number of parties supported ITC’s petition by arguing that ratepayers ultimately will benefit from the relief it seeks through reduction of costs. Some parties argued that the Order 1000 competitive transmission solicitation process includes fundamental safeguards that will yield just and reasonable stated rates.
FERC also said that a number of parties argued that granting ITC’s request for Mobile-Sierra protection is appropriate because ratepayers benefit from the downside risk that a developer assumes in submitting a binding bid, but if a developer’s actual revenue requirement falls below its binding bid level, the cost savings the developer realizes could be negated in an FPA section 206 proceeding. However, FERC noted, some parties who support Mobile-Sierra protection maintained that it should only be offered on a case-by-case basis.
A number of parties stated that ITC’s proposal creates inappropriate risks and burdens for ratepayers, while a number of parties argued that ITC’s petition is premature.
FERC also said that while SPP took no position on the merits of ITC’s requests, SPP said that if FERC grants the petition, it should specify that doing so does not restrict an RTO’s ability to apply its existing reevaluation or cost containment process to a transmission facility whose rate has been granted Mobile-Sierra protection.
While ITC’s petition highlights important policy issues related to the potential benefits of cost containment proposals in the context of competitive transmission development, FERC said that a petition for declaratory order is not the appropriate means for addressing those issues.
The type of uncertainty that ITC described is uncertainty that results from applying the law as it currently exists, not uncertainty about what the law requires or whether the law applies to particular facts, FERC said.
To mitigate that uncertainty as ITC requested involves matters of policy that are beyond the normal scope of a declaratory order proceeding, FERC said, adding that the broad scope of the requests in ITC’s petition confirms that they cannot be dealt with appropriately through a declaratory order.
While ITC stated that it is only seeking to remove uncertainty regarding the treatment for ratemaking purposes of the specific binding bids with exemptions that it submits and are selected in qualifying competitive processes, ITC’s petition seeks a more general finding, FERC said.
For instance, while ITC stated in its Sept. 25, 2015, answer that it is only seeking guidance concerning its proposed bids, ITC’s petition would require FERC to make binding determinations that certain rates filed at FERC will be deemed to be just and reasonable and that those rates will be entitled to Mobile-Sierra protection. Such determinations would create enforceable rights for successful bidders who file binding bids with exceptions, and those determinations would thus do more than provide guidance, FERC added.