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FERC approves incentives for Citizens Energy in transmission project with SDG&E

The Federal Energy Regulatory Commission on Feb. 23 approved transmission rate incentives for Citizens Energy Corp. associated with a 14-mile line transmission project in San Diego, Calif.

Citizens Energy and San Diego Gas & Electric Co., or SDG&E, plan to build a 230-kV transmission line between the Canyon and Penasquitos substations in San Diego at an estimated cost of $260 million, according to the FERC order. Approximately 11 miles of the Sycamore-Penasquitos project would be located underground.

The California ISO identified the project in its 2012-2013 transmission plan as necessary to maintain reliability and avoid system overloads during periods of high energy imports and to help deliver renewable energy into San Diego. Citizens and SDG&E, a subsidiary of Sempra Energy, are the joint sponsors of the project, which received a certificate of public convenience and necessity in October 2016 from the California Public Utilities Commission.

In a separate decision in April 2015, FERC rejected a portion of SDG&E's request for incentive rate treatment for its participation in the transmission project. (FERC docket No. EL15-11)

Construction of the transmission project began in early 2017, according to the filing, with commercial operation scheduled to begin in June.

In its petition, Citizens said it plans to finance $27 million of the project in return for a 30-year leasehold interest in a percentage of the transmission line proportional to its financing. When the project comes online, Citizens would turn over operational control of the project to CAISO, and recover costs as a participating transmission owner.

Citizens' proposed rate methodology includes the use of a formula rate plan to recover transmission operating and overhead costs, a 30-year levelized fixed rate to recover capital requirements not in excess of the rate SDG&E would charge for Citizens' interest in the project absent Citizens' participation, a hypothetical capital structure of 50% debt and 50% equity, and the use of a proxy return on equity subject to the submission of a future filing. Citizens also requested FERC approval to seek recovery of all prudently incurred development and construction costs should the project be abandoned due to factors beyond the company's control.

In the filing, Citizens asserted a nexus between the incentives it requested and the risks and challenges facing the project. Specifically, the company noted that although SDG&E bears the responsibility for developing the project, Citizens has incurred risks as well, specifically, its share of project financing at $27 million, plus development and financing costs of $2 million, compared to Citizens' net asset value of $67 million, among other factors.

FERC stated in its order that it found Citizens' total package of requested incentives and proposed cost recovery methodology reasonable, as well as its request to recover 100% of prudently incurred costs associated with the project if it is abandoned. (FERC docket No. EL18-29)