Wednesday, January 23, 2019

FERC OKs GridLiance West Incentives, Questions ROE

By Robert Mullin

FERC last week granted GridLiance West incentive rate treatments for upgrades to a Nevada transmission line that connects to the CAISO grid, but it also ordered that the project’s overall 10.6% return on equity be subject to settlement judge procedures (ER18-1693).

The commission approved full recovery of GridLiance’s “prudently incurred” costs for its investment in upgrading the 14-mile, 230-kV Bob-Mead line if the project is abandoned for reasons outside the company’s control, as well as a 100% full “construction work in progress” incentive. FERC also granted the company a 50-basis-point “transco” adder made available to independent transmission developers.

ferc caiso gridliance regulatory asset incentive

GridLiance West operates 164 miles of Nevada transmission acquired last year from CAISO member Valley Electric Association. | GridLiance

GridLiance last year acquired Valley Electric Association’s 230-kV network in a deal valued at about $200 million, providing the company with 164 miles of transmission between CAISO and the interior West. (See GridLiance Gets OK to Acquire Valley Electric Tx Assets.)

The Six Cities group of Southern California public utilities protested inclusion of the adder, contending GridLiance had requested it just four months after reaching a settlement allowing for an overall 10.1% overall ROE, which included a 50-basis-point RTO participation adder.

Six Cities argued there was “overlapping justification” for the company’s prior request for a regulatory asset incentive (coupled with the RTO adder) and its current request for the transco adder because the latter “is designed to recognize the business model-related benefits provided by independent transmission companies,” similar to the rationale for the regulatory asset incentive already granted to GridLiance, the commission noted in its order.

But the commission rebuffed that contention, saying the functions of the transco adder and the regulatory asset incentive differ, and that it was “not persuaded that they rely upon overlapping justifications.”

“As an independent transco, GridLiance West satisfies the requirements for the transco adder. In contrast, the commission granted GridLiance West the regulatory asset incentive based upon a determination that GridLiance West had demonstrated that its request for that incentive satisfied the nexus test established in Order No. 679,” the commission said.

FERC also rejected as beyond the scope of the proceeding Six Cities’ request that GridLiance be ordered to disclose all authorized incentive adders in future transmission development proposals to CAISO because the adders could have a “material impact” on transmission projects in the ISO.

But while the commission favored GridLiance’s request for the adders, it also said its preliminary analysis indicated the overall 10.6% ROE for the Bob-Mead project might be too generous.

“Based on the record in this proceeding, the commission does not have a basis for determining whether GridLiance West’s overall ROE, inclusive of the transco adder granted above, falls within the zone of reasonableness,” FERC said in ordering settlement procedures.