Transmission ruling sets off alarms in clean energy industry

Source: Hannah Northey, E&E reporter • Posted: Monday, August 12, 2013

A federal judge’s decision this week that New England electric transmission companies should make less money on power line projects has triggered concern among wind and solar generators hoping to see a revitalization and expansion of the country‚Äôs aging grid.

Administrative Law Judge Michael Cianci Jr. issued an initial decision that would reduce the return of transmission owners’ investments from 11.14 percent to 9.7 percent in New England states like Connecticut, Maine, New Hampshire, Vermont and Rhode Island. The decision now goes before the full Federal Energy Regulatory Commission, where the commissioners can reject the decision entirely, approve it or make changes.

The case highlights an ongoing debate over how new transmission lines should be financed. Renewable energy advocates and proponents of expanding the electric grid say the system has been disregarded for years and new lines must be built, but opponents say the rates are too high and must be reined in.

The case in New England is trailed by nine other complaints at FERC that touch on the same issue, one industry source said.

“Clearly, there’s a lot at stake in this case, and we are watching it very closely,” said Ken Johnson, a spokesman for the Solar Energy Industries Association. “Our biggest concern is that policies which increase risks to transmission investors may ultimately scare them away.”

Cianci’s ruling stems from a 2011 complaint that Massachusetts Attorney General Martha Coakley (D) filed with FERC, along with wholesale power customers, consumer advocates and state regulators from New England, urging that the rate of return be reduced to no more than 9.2 percent. They argued that because economic conditions had worsened, transmission companies were charging significantly more than required for other comparable companies.

Coakley released a statement yesterday hailing Cianci’s ruling as a “groundbreaking decision” that will save ratepayers $145 million annually by 2017. Coakley said that ratepayers have been “overcharged for years” and that her office has “long argued that current electric transmission rates are excessive and place too high a burden on businesses and families.”

But the solar and wind industry argues that this is no time to step back from investing in much-needed transmission, and lowering return on investment shakes up investments in power lines needed for a number of reasons, including shipping wind and solar power from rural areas to populated urban hubs. The return on equity (ROE) is also critical because utilities must decide where to spend limited funds, and transmission is a long-term necessity that must compete with the likes of generation, cybersecurity and other expenditures, one industry source said.

SEIA and the American Wind Energy Association backed a petition that WIRES, a coalition of transmission providers and vendors, filed with FERC earlier this year. WIRES and the Edison Electric Institute have argued that although interest rates have declined substantially since the beginning of the recession in 2008, FERC should not reduce returns on investment for transmission projects.

“The nonprofit group WIRES is asking FERC to re-examine its ROE policy and ensure that there’s some ‘certainty’ for investors,” SEIA’s Johnson said. “SEIA supports this re-examination. It’s critically important to ensure that necessary transmission investments are made in the years ahead in order to facilitate the delivery of clean, renewable solar power to the growing number of Americans who want it.”

The American Wind Energy Association and SEIA also filed comments with FERC arguing the importance of building new transmission lines.

The groups said that “compared to other assets, transmission investments are extremely risky and require long lead times for the planning process and stakeholder involvement,” and that the lack of new transmission capacity is hampering existing and proposed clean energy projects.

“The lack of transmission capacity has proven to be a significant barrier to integrating renewable generation into the nation’s electric supply, largely due to the fact that the regions that possess the most renewable energy potential are generally located far from population or load centers,” the groups wrote. “Additionally, inadequate transmission even prohibits existing renewable projects, already connected to the grid and operating, from transporting their full output to load centers.”

Parties now have until Sept. 20 to ask FERC for a rehearing of Cianci’s decision.

FERC’s five commissioners will vote on whether to affirm, reject or modify the judge’s decision — although there’s no time frame — and based on that order, the agency may require New England’s grid operator to change its tariff. If FERC agrees, transmission owners will have to refund customers for any rates with a ROE exceeding 10.6 percent for October 2011 through December 2012.