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FERC disallows developers' recovery of millions in abandoned PATH costs

FERC on Jan. 19 upheld much of an administrative law judge's September 2015 initial decision finding that millions of dollars in costs the developers of the abandoned Potomac-Appalachian Transmission Highline, or PATH, project sought to recover from ratepayers are unrecoverable.

The commission affirmed Judge Philip Baten's rejection of recovery for certain costs related to the developers' attempts to secure certificates of public convenience and necessity, or CPCN, and other approvals from regulators in Maryland, Virginia and West Virginia. But some other aspects of Baten's initial decision were reversed, including his finding that the project developers' in-house legal expenses could not be recovered.

Perhaps most significantly, FERC disagreed with Baten that the 10.4% base ROE previously approved by FERC for the project should be reduced to 6.27% based on the "low business, financial, and operational risk of the PATH project in the context of this abandonment phase," effective on the date that phase began.

Like Baten, the commission said the existing base ROE is too high because the threat to the developers' investments posed by any continuing risk "falls short of the cumulative risks facing an ongoing utility." But FERC rejected the judge's assertion that the ROE should be set at the bottom of the zone of reasonableness because PATH faces no risk at this point; the agency instead said it should be set at the median of the lower half of that zone, or 8.11%, effective prospectively, to reflect the developers' lowered level of risk.

Consumers, notably West Virginia residents Keryn Newman and Alison Haverty, and their advocates for years have waged a relentless campaign challenging certain costs that the project's developers — Potomac-Appalachian Transmission Highline LLC and its operating companies PATH West Virginia Transmission Co. LLC and PATH Allegheny Transmission Co. LLC — included in their recoverable transmission revenue requirements.

The PATH project, a joint venture between American Electric Power Co. Inc. and Allegheny Energy Inc., now part of FirstEnergy Corp., was to have consisted of a roughly 275-mile, 765-kV transmission project that was set to run mainly across West Virginia and a portion of Northern Virginia to Frederick County, Md. But the project was canceled in 2012 for reasons beyond the developers' control, and FERC subsequently set for hearing the PATH companies' request to recover $121.5 million in abandoned plant costs.

In his initial decision, Baten found unrecoverable more than $3 million used to fund activities that the developers classified as educational, $2.62 million in general advertising costs, and $331,843.56 that was paid to a contractor for conducting a public opinion poll. In each case, the judge found that the developers provided inadequate documentation to show that the purpose of those expenditures was anything other than to influence public officials with respect to a project.

FERC concurred with those findings, and in doing so essentially clarified the rules on what constitutes expenditures for political purposes.

"Influencing public opinion for the goals that PATH admits, such as acquiring a CPCN, are not simply general efforts to influence public opinion to be favorable to PATH, but are efforts to influence public opinion with respect to specific political actions that fall within the ambit of referenda, legislation, ordinances, the grant of franchise and the like," FERC said.

But the agency disagreed with Baten's conclusion that the costs of in-house legal services are not recoverable because PATH failed to provide certain data to show that those expenses were prudently incurred. Noting that an eight-person projects control team "ensured all in-house counsel timesheets were based on proper documentation," FERC said "[n]othing in the record disputes that these charges were incurred in pursuit of PATH's CPCN applications and other matters that required extensive legal support."

The commission also reversed Baten's finding that PATH cannot recover anything for the "considerable losses" it incurred on land purchased for the project and subsequently sold. Concluding that the developers "undertook reasonable business efforts to sell the properties at prevailing market prices," FERC said "PATH acted as a prudent utility in effectuating the sales required by the abandonment."

Finally, among other things, Opinion 554 explained how PATH should book the property to its formula rate if it chooses to transfer some of its remaining land holdings to affiliates in the future. (FERC dockets ER09-1256-002, ER12-2708-003)