California regulators are gaining more support for their call to reduce the incentives Pacific Gas and Electric Co. can get for a now-defunct transmission project, a move that comes as the Federal Energy Regulatory Commission is taking a broad look at its transmission incentives policy.
At issue is PG&E Corp. subsidiary PG&E's 68-mile, 230-kV Central Valley Transmission Upgrade Project. The California ISO had approved the project as part of its 2012-2013 Transmission Plan to address overload issues in the Fresno, Calif., area and to expand use of a pumped storage facility. FERC approved rate incentives for the project in 2014 under its Order 679.
But four years later, the ISO put the project on hold, finding that increased behind-the-meter solar generation and lower forecast demand had reduced the need for the project. In March of this year, CAISO canceled the project, finding that its need has been deferred by more than 10 years. The project was one of six that CAISO canceled this year in PG&E's service territory.
PG&E's request for recovery
In August, PG&E filed with FERC to recover $9.2 million in project abandonment costs amortized over a five-year period, for a total customer cost of $11.4 million.
The California Public Utilities Commission and other state parties on Sept. 3 filed a protest seeking to reduce the total amount that PG&E can recover from ratepayers. The state agencies' argument was supported by a group of six California cities in a separate protest.
While PG&E can recover 100% of its prudently incurred costs after FERC's 2014 order approving an abandonment incentive for the project, the utility should only be able to recover half of the costs it incurred before the FERC order, the PUC and state agencies said.
FERC should also set PG&E's request for hearing so parties can determine which costs were prudent, the state agencies said, noting that the estimated cost of the project appeared to have increased to between $200 million and $250 million — up from $157 million — over the course of a year.
Participation adder
The state agencies also argued that the project should not get the 50 basis point return on equity adder for participation in a regional transmission organization or independent system operator because the project will never be completed, put into service or turned over to CAISO.
In addition, FERC should require amortization of the project over one year rather than five, a change that would save ratepayers $1.7 million, the agencies said.
PG&E said it is reviewing the protests and will respond at the appropriate time. (FERC Docket ER19-2582)
FERC in March launched a review (PL19-3) of its transmission incentives policy. But the debate in the PG&E proceeding will not move the needle on the incentives discussion more generally, Christi Tezak managing director of research at ClearView Energy Partners, said Sept. 4. That is because the protests delve into how certain incentives should be applied, not whether they are still a good idea, she explained.
The protestors have strong arguments to get rid of the RTO adder and reduce the cost recovery allowed before FERC granted the abandonment incentive, Tezak said. But whether the issue goes to hearing will turn on whether there is enough information in the docket, she said. "I think PG&E faces tough sledding on the 12% [ROE] they are after and that alone might drive a hearing," she added.
Kate Winston is a reporter for S&P Global Platts. S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.
