By William Opalka

The New York Public Service Commission has come out against the New York Power Authority’s bid for a nearly 10% increase in its transmission rates, saying its requests for an adder for ISO participation and use of a 60% equity capital structure are excessive.

The Power Authority asked the Federal Energy Regulatory Commission on June 2 for approval of a formula rate including a 50-basis-point adder to its return on equity for participation in NYISO and permission to base its ROE on a capital structure with 60% equity. It also sought recovery of its costs for a transmission project to address reliability concerns if the Indian Point nuclear power plant is closed.

The proposal, which includes a base ROE of 8.85%, would increase the organization’s annual transmission revenue requirement by approximately 9.6%, from $175.5 million to $192.4 million, effective Sept. 1.

The PSC said in a filing last week that the adder for participation in NYISO “is unnecessary and unwarranted” because the authority has already agreed to turn operational control of its transmission facilities over to the ISO (ER15-2102).

Regulators said the requested capital structure also is excessive and unnecessary “since a 50% equity ratio would adequately balance collections from customers and ensure that the utility has access to capital markets at reasonable terms.”

The PSC also said FERC should defer action on proposed performance-based incentives regarding the Marcy-South Series Compensation (MSSC) project, pending resolution of settlement discussions in a separate docket.

ISO Participation Adder

The NYPSC said the ROE adder for participation in NYISO is unnecessary.

The PSC said it supports ROE incentive adders “that truly provide consumer benefits, such as encouraging the use of innovative technologies or providing congestion relief. … An additional incentive for NYISO participation is not justified where the commission’s goals of incentivizing the creation of the NYISO and transferring operational control of their transmission facilities to the NYISO have already been achieved. Awarding NYPA an ROE incentive for what it must do in any event is not warranted since the incentive will have no effect on its behavior.”

Capital Structure

The PSC also said NYPA’s equity ratio should be limited to 50%, consistent with utilities similar to the authority.

The PSC said ratepayers would also pay excessive costs to maintain NYPA’s “exceedingly strong” credit rating. Its equity ratio as of 2014 was 76.4%. The PSC notes that Moody’s Investors Service has called the authority’s debt ratio “one of the lowest of any major U.S. public power electric utility with generation.”

The PSC said the authority’s proposal to cap its equity at 60% “incorrectly suggests that the costs associated with maintaining these high-end financial metrics do not come at an increased cost to ratepayers, relative to investor-owned utilities.”

“While NYPA has certain tax advantages over investor-owned utilities, having financial ratios in the Aaa-range come at a cost to ratepayers due to an overall increase in equity costs. All else equal, NYPA could collect less from ratepayers while maintaining its metrics in the ‘Aa’ range. … Slightly lower credit metrics, due to a lower equity ratio, will in no way hinder NYPA’s ability to raise capital on reasonable terms.”

Marcy-South

The PSC also challenged as “premature” the authority’s request for recovery of its costs if the Marcy-South project is abandoned for reasons outside the NYPA’s control.

The MSSC project is one of the Transmission Owner Transmission Solutions (TOTS) projects being developed by the authority and New York Transmission Co. as a result of recent PSC proceedings to address reliability concerns over the potential retirement of Indian Point.

The authority said it intended to “include the same risk-sharing or performance-based incentive components that are ultimately agreed to by the NY Transco in Docket No. ER15-572 with respect to future competitive projects.”

The PSC said that because of the overlapping issues between the two dockets, FERC should defer the issue pending the outcome of the NY Transco proceeding.