By Jason Fordney
Pacific Gas and Electric stands to lose millions of dollars in transmission revenues after a federal court this week challenged FERC decisions allowing the utility to include a CAISO participation adder in its transmission rates.
In a 3-0 ruling Monday, the 9th U.S. Circuit Court of Appeals remanded to FERC two previous orders authorizing the adders for 2016 and 2017, saying the commission’s interpretation of its authority to grant incentives “does not reflect thorough consideration, nor is it persuasive in its own right.”
The ruling could shake up FERC’s longstanding practice of routinely granting the 50-basis-point adder to transmission owners, a practice the California Public Utilities Commission has challenged because state law requires investor-owned utilities to be members of CAISO. (See CPUC Contests ISO Incentive for PG&E.) The CPUC has contended the adder provides a $30 million “unjustified windfall” for PG&E but has withdrawn previous challenges as a condition of settlement.
The Energy Policy Act of 2005 directed FERC to create the incentives, and the adders were introduced the following year in Order 679. Rather than being included as a “generic” adder to a TO’s formula rate, RTO incentives are subject to commission approval on a case-by-case basis — which the commission has routinely granted PG&E.
FERC last year rejected the CPUC’s request to rehear a decision permitting PG&E to include the adder in its 2017 rates, calling the incentive “longstanding practice.” (See FERC Upholds PG&E ISO Incentive Adder, Rebuffs CPUC.)
But the appeals court took issue with the commission’s approach.
“FERC did not reasonably interpret Order 679 as justifying summary grants of adders for remaining in a transmission organization,” the court said in its ruling. It called FERC’s practice “an unexplained departure from longstanding policy” and said the commission’s rationale for granting the incentives amounted to the creation of generic adder.
“FERC’s interpretation of Order 679 is plainly erroneous and inconsistent with the regulation,” the court said.
“We are disappointed with the ruling and intend to pursue the issue when FERC considers its next steps in the proceedings,” PG&E said.
The CPUC told RTO Insider that “FERC was going against its own longstanding policy that incentives should induce future voluntary conduct. By granting PG&E this incentive adder, FERC was essentially giving PG&E a windfall for action it had already taken and is legally required to do.”
If reversed on remand, the CPUC expects $25 million to be removed from PG&E’s current rate case and $30 million or more in future rate cases.
FERC spokesman Craig Cano said the commission had no comment on the decision.
The CPUC has also filed a separate protest with FERC over similar adders being considered in Southern California Edison’s current rate case, a position that has won sympathy from new Commissioner Richard Glick.
The commission last month ordered hearing and settlement proceedings over SCE’s latest rate proposal. (See FERC Sets Hearing on SCE Tx Rates; Glick Dissents.)