MISO Order No. 1000 Project authorized transmission rate incentives. On October 6, 2017, FERC granted Republic Transmission, LLC’s (a wholly owned subsidiary of LSP Transmission Holdings) (“Republic”) Petition for Declaratory Order seeking transmission rate incentives pursuant to Section 219 of the Federal Power Act (“FPA”) and Order No. 679. In MISO’s first competitive transmission solicitation pursuant to Order No. 1000, it selected Republic’s proposed 30-mile, single-circuit 345 kV transmission line extending from the Duff substation in southern Indiana to Big River Cooperative’s Coleman substation in western Kentucky, also known as the “Duff-Coleman Project or Duff-Colman.” Duff-Coleman was selected and approved as a Market Efficiency Project. As described under MISO’s Open Access Transmission Tariff, Market Efficiency Projects, unlike reliability or public policy projects, are driven by a project’s purported removal of transmission congestion and discernable improvement to the operation of MISO’s energy market.
FERC authorization of Order No. 679 transmission incentives hinges on whether an applicant satisfies the rebuttable presumption demonstrating that: “(1) the transmission project results from a fair and open regional planning process that considers and evaluates the project for reliability and/or congestion and is found to be acceptable to the Commission; (2) a project has received construction approval from an appropriate state commission or state siting authority;” Order No. 679, FERC Stats. & Regs. ¶ 31,222 at P 76., or where applicants cannot meet the criteria of (1) or (2), applicants may “demonstrate that their project is needed to maintain reliability or reduce congestion by presenting [to FERC] a factual record that would support such a finding.” Order No. 679-A, FERC Stats. & Regs. ¶ 31,236 at P 41. In addition to meeting the rebuttable presumption, Section 219 requires that applicants demonstrate a nexus between the transmission incentives sought and the project investment to be made. Order 679-A clarifies that an applicant may establish nexus by demonstrating the transmission incentives sought fairly compensate the transmission owner for the project investment risks and challenges faced.
In reviewing Republic’s Petition, FERC ruled that it satisfied Order No. 679’s rebuttable presumption because Duff-Coleman was selected in MISO’s regional planning process and as planned will relieve transmission congestion in zone 6 of the MISO control area. Republic also established the Section 219 nexus by identifying notable competitive, regulatory, environmental and economic risks the project faces on its way from siting and construction to eventually its commercial operation date. In authorizing Republic’s request for transmission incentives, FERC will allow Republic to establish a Regulatory Asset “to defer recovery of pre-construction costs, as well as start-up and development costs” inclusive of a carrying charge that will not result in an interest rate higher than that permitted for construction expenditures booked to an Allowance for Funds Used During Construction account. Republic Transmission, LLC, 161 FERC ¶ 61,036 at P 21 & 23. The Commission also granted Republic its request for an Abandoned Plant Incentive that may allow the developer to recover all prudently-incurred costs if the Duff-Coleman project “is abandoned due to an event beyond Republic’s control.” Id., at P 25-26. Furthermore, FERC authorized Republic’s requested hypothetical capital structure “of 45 percent equity and 55 percent debt until the Project is placed in service.” Id., at P 30. Lastly, the Commission granted Republic’s request for approval of a 50 basis point RTO Participation Incentive (which the Commission grants liberally, see also Delmarva Power) with a return on equity capped at the top end of the zone of reasonableness at the very low investment rate of 9.8 percent.
While Republic’s Petition for Declaratory Order resulted in success, the company is required to file at FERC pursuant to Section 205 to recover all prudently incurred pre-commercial costs, construction costs and carrying charges properly booked to FERC Account 182.3. Those costs are to be deferred throughout the entire pre-commercial and construction period, until Duff-Coleman is at last energized and placed in service under the operational control of the Midcontinent Independent System Operator.