The Federal Energy Regulatory Commission granted NextEra Energy Transmission New York Inc.'s request for transmission rate incentives associated with its Empire State Line project.
The $181 million project was selected by the New York ISO to ease congestion in western New York. It includes new Dysinger and East Stolle switchyards and a 20-mile, 345-kV transmission line to connect the switchyards. The Dysinger substation is intended to become the new 345-kV hub in western New York where seven 345-kV lines are connected.
"We find that NEET New York has demonstrated that each of the requested incentives that we grant here, and the incentives package as a whole, address the risks and challenges faced by NEET New York in undertaking the Empire Project," FERC said.
In asking for four rate incentives (FERC docket ER18-125), NEET New York in October 2017 told the commission that the Empire State Line will help relieve severe transmission congestion in Western New York. Citing a 2015 NYISO study, the company said the Western New York interface is one of the most congested in its system, costing $29.1 million annually from 2012 to 2014 and over $82.8 million in 2015. A separate study showed that of the 1,875 MW of import capability over the Ontario-New York tie-lines to Zone A of the NYISO, only 125 MW is being imported under summer peak load conditions due to transmission constraints, the developer added.
FERC in a March 5 order granted NEET New York's request for an incentive under which it can recover 100% of prudently incurred costs if the Empire Project is abandoned for reasons outside its control. The agency further ruled that the company can include 100% of construction-work-in-progress costs in its rate base — an incentive NEET New York said it needs to help address the financial challenges of being a new transmission company. And while it initially will obtain capital from parent NextEra Energy Capital Holdings Inc., the company said the incentive will boost its credit profile to pursue possible third-party financing.
The commission also approved a 50-basis-point return on equity incentive adder to address the risks and challenges NEET New York faces in developing the Empire State Line, which has a required in-service date of June 1, 2022. FERC said the adder is justified because the project faces certain regulatory, environmental and siting risks that are beyond the company's control. The commission also approved a 50-basis-point ROE adder for independent transmission company ownership of the project.
However, the commission conditioned both adders on the resulting overall ROE being "within the zone of reasonableness" established in a separate FERC case (FERC docket ER16-2719), which currently is going through hearing and settlement judge procedures. There, the commission in November 2017 authorized NEET New York's use of a hypothetical capital structure of 60% equity and 40% debt, to remain in effect until the first transmission project is placed in service. FERC additionally granted the developer a 50-basis-point ROE adder for participating in a regional transmission organization or independent system operator, as long as the company commits to joining the NYISO and transferring operational control of completed projects to the grid operator, but the agency attached the same zone of reasonableness condition to that approval as well.
NextEra Energy Capital is a subsidiary of NextEra Energy Inc.
