New England Transmission Rates Are Unjust And Unreasonable

New England Transmission Rates Are Unjust And Unreasonable
December 31, 2015 By Nicholas Cicale

New England transmission rates are unjust and unreasonable, according to the Federal Energy Regulatory Commission. Notably, on December 28, 2015 the FERC found the Independent System Operator-New England (“ISO-NE”) Tariff to be unjust, unreasonable, unduly discriminatory or preferential. Independent System Operator-New England, 153 FERC ¶ 61,343, at P 7 (Dec. 28, 2015) (ISO-NE). The Commission’s December 28, 2015 Order Instituting Federal Power Act Section 206 Proceeding and Establishing Hearing and Settlement Procedures, Docket No. EL16-19-000 (hereinafter referred to as the “Order”), specifically determined that (1) ISO-NE’s Tariff lacked “adequate transparency and challenge procedures with regard to the formula rate for ISO-NE [Participating Transmission Owners (PTOs)]” and (2) the PTOs’ current Regional Network Service (“RNS”) and Local Network Service (“LNS”) “formula rates appear to be unjust, unreasonable, unduly discriminatory or preferential, or otherwise unlawful.” Pursuant to section 206 of the Federal Power Act, FERC is unilaterally opening Docket No. EL16-19-000 for the purpose of (1) investigating and more transparently revealing how the ISO-NE Tariff and PTOs’ formula rates are unjust and unreasonable; and (2) developing formula rate protocols for the RNS and LNS formula rates.

Regional transmission facilities are referred to as Pool Transmission Facilities, whereas, local transmission facilities are referred to as Non-Pool Transmission Facilities. “Under the ISO-NE Tariff, [Participating Transmission Owners] recover their transmission revenue requirements through a combination of local and regional” formula rates. Order P. 2. It is FERC’s policy “to permit utilities to establish [transmission] rates through formulas.”  FERC Staff’s Guidance on Formula Rate Updates, July 17, 2014. The Commission requires that such rates include “adequate safeguards to ensure that the input data is correct and accurate, that calculations are performed consistently with the formula rate, and that the costs to be recovered in the formula rate are reasonable and prudently incurred.” Order P. 6. The regional formula rate or more specifically, the Regional Network Service formula rate “is calculated annually using a formula rate for all Pool Transmission Facilities in New England.” Order P. 2. Regional Network Service or (“RNS”) is a transmission service that each Participating Transmission Owner purchases from ISO-NE in order to serve its retail service area’s load. The local formula rate also known as the Local Network Service formula rate is a rate designed for the purpose of recovering costs incurred by the PTOs in their local area networks for the operation of Non-Pool Transmission Facilities. PTOs that operate Non-Pool Transmission Facilities calculate LNS rates on either a “historical, current or projected basis” and file such rates in Schedule 21 submissions that are attached to the ISO-NE Tariff. Local Network Service or (“LNS”) is a transmission service that is not provided by ISO-NE, but by the Participating Transmission Owner in its respective service area, if such local service is necessary and available.

Through Docket No. EL16-19-000, the Commission seeks to establish formula rate protocols for the ISO-NE control area to add an additional safeguard and “effective tool to ensure just and reasonable rates.” Order P. 5. According to FERC, formula rate protocols “provide the parties paying such rates [with] specific procedures for notice and review of, and challenges to, the transmission owner’s annual updates.” Id. Furthermore, such protocols “should afford adequate transparency to affected customers, state regulators or other interested parties, as well as provide mechanisms for resolving potential disputes.” Id.  The Commission expressed particular concern that the following “PTOs that provide LNS under Schedule 21 of the ISO-NE Tariff” are “currently not required to submit annual information filings of their formula rates … :”  Connecticut Transmission Municipal Electric Energy Cooperative; New Hampshire Transmission, LLC; Eversource Energy; Unitil Energy Systems, Inc.; United Illuminating Company; Vermont Electric Cooperative; and Vermont Transco, LLC. Id. at note 16. Given these strong concerns, the Commission found it to be consistent with its precedents that development of “formula rate protocols are an appropriate mechanism…” Id. at P. 6.

FERC has levied criticism upon the ISO-NE PTOs’ current RNS and LNS formula rates because such rates appear too vague “to determine how certain costs are derived and recovered” through such rates. Id. at P. 8. After preliminary analysis, the Commission concluded that the current “timing and synchronization of the RNS and LNS rates are not reconcilable through the filing of formula rate protocols alone, which could result in an over-recovery of costs.” Id. FERC believes that because the current formula rates are written in words rather than actual mathematical formulas, that such a paradigm is causing the PTO’s to “have different interpretations of the single RNS formula [which is] applicable to all the PTOs.” Id. at 9. American Electric Power Service Corporation, 120 FERC ¶  61,205 (2007) and Duquesne Light Company, 18 FERC ¶ 61,087 (2007) require “that all of the formula calculations be incorporated into rate schedules so that public utilities cannot unilaterally revise the calculations at their discretion.” Id.

The Commission is “setting the justness and reasonableness of the ISO-NE PTOs’ current RNS and LNS formula rates and the development of formula rate protocols” for such rates “for a trial-type evidentiary hearing…” However, FERC is encouraging “the parties to make every effort to settle their dispute” before any hearing is commenced. Id. at P. 11. Follow the course of this docket as it becomes more and more volatile at EL16-19-000. Intervenors thus far include: the New England Power Pool Participants Committee; National Grid; New England States Committee on Electricity; Connecticut Office of Consumer Counsel; Massachusetts Attorney General; Connecticut Public Utilities Regulatory Authority; and George Jepsen, Attorney General of the State of Connecticut.  Stay tuned to FERCBlog and other available resources as this exciting dispute takes shape.  Happy New Year!

Filed Under: FERC Orders, ISO-New England, Transmission