Power & Pipes

FERC, CFTC, and State Energy Law Developments

FERC initiated show-cause proceedings on April 21, 2022, to investigate the justness and reasonableness of the formula rate protocols of five public utility transmission providers in the West.

Based on its preliminary review, FERC concluded that each of the transmission formula rate protocols appeared to (1) lack transparency on who can participate in the process to obtain information and review annual formula rate updates from transmission providers, (2) provide insufficient transparency with respect to information about the transmission owners’ costs and revenue requirements, and/or (3) set forth inadequately the procedures through which interested parties can informally challenge a transmission provider’s proposed inputs to its formula.

Most transmission formula rates are updated annually by providing the up-to-date cost information of the transmission owner in the formula. No Federal Power Act (FPA) Section 205 filing is required to update the rates, but FERC typically requires that customers and other interested parties be provided notice of the updated rates and have an opportunity to review and, if warranted, challenge the updated rates to ensure that the rates conform to the formula. Under FERC policy, transmission formula rate protocols are the procedures by which customers may review and challenge the updating of formula rates.

Preliminary Findings

In its FPA Section 206 show-cause orders, FERC determined that each of the five utilities’ formula rate protocols appear to be unjust, unreasonable, unduly discriminatory, or preferential.

FERC found, among other things, that several of the formula rate protocols may limit the ability of certain interested parties to obtain information about annual updates from transmission owners, and do not adequately define the term “interested party.”

FERC also found that provisions in several of the formula rate protocols may not provide interested parties the information necessary to understand and evaluate the implementation of the formula rate on the correctness of the inputs and calculations or the reasonableness and prudence of the costs to be recovered in the formula rate.

Further, FERC found that the challenge procedures in two of the formula rate protocols do not appear to include provisions that specify how challenges are made by an interested party.

FERC directed the five transmission owners to, within 60 days, (1) show cause as to why their formula rate protocols under their tariffs remain just and reasonable and not unduly discriminatory or preferential; or (2) explain what changes to their tariffs would remedy the identified concerns if FERC determined that the tariffs have become unjust and unreasonable or unduly discriminatory or preferential.