WASHINGTON – The Federal Energy Regulatory Commission today rejected settlements by FirstEnergy and Duke Energy affiliates over their moves to PJM, ruling that the companies unfairly imposed transition costs on transmission customers who were not party to the agreements.
The orders involve FirstEnergy’s American Transmission Systems Inc. (ATSI), which moved from MISO to PJM in June 2011, and Duke Energy’s Ohio and Kentucky utilities, which moved to PJM in May 2010.
In both cases, the commission ruled that the settlements improperly reinstated transition costs that the commission previously ruled should be borne by the utilities, unfairly leaving non-settling parties liable.
The cases originated from the companies’ filings of revised transmission tariffs that reflected their revenue requirements as PJM members. American Municipal Power Inc. (AMP) challenged both Duke and ATSI’s rate filings.
Duke Settlement
In February 2013, Duke Energy Ohio and Duke Energy Kentucky filed a settlement agreeing to reimburse AMP for any transition costs resulting from Duke’s move to PJM. The companies also agreed to reimburse AMP for 75% of “legacy” transmission expansion costs — Duke’s share of MISO transmission projects approved before the company joined PJM. Duke estimated the transition costs and legacy costs at $518 million.
The settlement also reduced the return on equity included in Duke’s wholesale rates from 12.38% to 10.88% percent (plus 50 basis points for its membership in a regional transmission organization). AMP — which buys transmission from Duke on behalf of Hamilton and Lebanon, Ohio and Williamstown, Ky. — agreed not to seek a lower ROE before 2016.
In today’s order (docket # ER12-91), the commission ruled that Duke had “not shown why it is not unduly discriminatory for AMP, but not other customers, to be exempted from paying” the transition costs.
ATSI Settlement
ATSI’s rate filing sought recovery of $38 million in transition costs while agreeing to forgo recovery of $360 million in legacy transmission expansion charges.
The company’s settlement, filed in December 2012, exempted AMP and Buckeye Power Inc., from paying any costs of the utility’s move to PJM but left it to the Ohio Public Utility Commission to determine what costs would be passed on to retail customers served by other distribution companies.
Buckeye Power is a generation and transmission cooperative owned by 25 electric distribution cooperatives in Ohio.
“While other wholesale customers may not have objected to the [AMP, Buckeye] settlement, these customers are largely served by ATSI’s distribution affiliates,” the commission ruled (docket # ER11-2814). “Thus, the lack of objection from these affiliates … has no bearing on the justness and reasonableness” of the agreement.”
The ruling was a victory for the Ohio Consumers’ Counsel (OCC), the lone challenger to the ATSI settlement.
OCC contended that ATSI was seeking to use the settlement as an “end-run” to include in its transmission rates charges prohibited by FERC in a May 2011 order.
Next Steps
The commission said ATSI and Duke could attempt to recover their transition costs through section 205 filings. Those filings would have to demonstrate that the benefits received by the companies’ customers as a result of the move to PJM exceeded the transition costs assigned to them.
FERC also remanded the issue of Duke’s ROE for further hearing and settlement judge procedures. The commission said that although the reduced ROE provisions “appear just and reasonable,” it was unable to accept them because of a “non-severability” clause in the settlement.
