FERC rejected a transmission developer’s request that binding revenue requirement transmission project bids should be deemed just and reasonable and subject to Mobile-Sierra protections, but announced a technical conference to address the policy implications of binding transmission project bids.
On March 17, the Federal Energy Regulatory Commission rejected a request for heightened rate protections for transmission developers that submit binding revenue requirement bids for projects identified through Order No. 1000 regional transmission planning. FERC recognized that binding revenue requirement bids (i.e., those where the bidder promises a cost cap) provide certain benefits. But FERC concluded that the policy implications of those bids and the issue of how it should review rates with binding revenue requirements resulting from a competitive bidding process would need to be addressed through a future proceeding that could evaluate the broader policy considerations. FERC plans to hold a technical conference to explore those issues, among others.
ITC Grid Development, LLC (ITC Development) had requested a declaratory order to protect the transmission rates resulting from its cost-capped transmission development bids in Order No. 1000 regional planning processes. ITC Development asked FERC to make two determinations: (a) that FERC would find winning bids with a cost cap to be “just and reasonable” when filed with FERC to commence the collection of those rates and (b) that FERC would consider those binding bids to be subject to Mobile-Sierra protection and therefore only subject to changes if FERC finds them to not meet the high “public interest” standard. In the event that FERC would not grant Mobile-Sierra protections on a generic basis, ITC Development asked that FERC be willing to grant those protections on a case-by-case basis based on FERC’s evaluation of the bidding process and the binding nature of the winning bid.
ITC Development’s request was spurred by the increasing use of binding cost caps in bidding on transmission projects. Some of these bids must include the full revenue requirements of the projects for a 40-year period. These cost caps in these bids are subject to only limited exceptions, such as project routing changes, interest rate changes, legal changes, regulatory changes, and tax changes. ITC Development argued that a hard cost cap for transmission project bids without the rate protections it requested creates an “asymmetrical risk” for developers. Because of the cost cap, any costs incurred over the promised amount would not be recoverable, even if prudently incurred. However, if a developer is able to develop, operate, and maintain the project at a cost below the cap, it would be subject to a complaint under section 206 of the Federal Power Act seeking a reduction in the rate. ITC Development argued that the rate limits created by the cost caps must be respected to protect the integrity of the bidding process, which sets the market price on a project and establishes a developer’s return on investment.
FERC recognized the policy issues created by the use of cost-containment proposals in competitive bidding but refused to grant the requested declaratory order. According to FERC, ITC Development’s request was not a legal issue of the type typically addressed through declaratory orders. Instead, FERC concluded that the request “involves a policy matter regarding competitive transmission project selection processes.” The issues raised in the request, FERC noted, resulted from the application of existing law. There was no legal uncertainty that FERC could resolve through a declaratory order. Rather than an issue arising out of specific facts in particular transmission development proceedings, FERC found that ITC Development was seeking a generic finding to cover all of its bids in a variety of regions. Despite finding that the policy issues raised by ITC Development’s request are beyond the scope of a declaratory order proceeding, FERC concluded that they did “highlight broader policy considerations related to the potential benefits of binding revenue requirement proposals in the context of competitive transmission development.”
In a separate notice issued the same day, FERC announced its intention to hold a technical conference to explore issues related to competitive transmission development processes, including how FERC should evaluate proposed rates resulting from competitive bidding processes and the use of binding revenue requirements in those bids. That technical conference is scheduled for June 27 and June 28, 2016.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers: