By Rory D. Sweeney
FERC approved a formula rate requested by Transource Energy for its AP South Congestion Improvement Project, but suspended its implementation pending a hearing on whether the company’s proposed return on equity is reasonable (ER17-419).
PJM last year approved a $340.6 million proposal by Transource and Dominion High Voltage to address the congestion issue along the border of southwestern Pennsylvania and northwestern Maryland, despite criticism from other stakeholders. Transource’s part will include two 230-kV double-circuit lines about 42 miles in total: one between the Ringgold substation and a new Rice substation, and another between the Conastone substation and a new Furnace Run substation. (See FERC OKs Transource Pact on AP South Congestion Project.)
Transource, a joint venture of American Electric Power and Great Plains Energy, had requested a 10.4% base ROE, but protesters — including Old Dominion Electric Cooperative and American Municipal Power — argued that Transource incorrectly calculated the median of comparable rate proposals on which it based its request. The commission questioned the proposal as well and ordered an evidentiary hearing. The rate formula, including the approved ROE, will be effective Feb. 1.
The commission also rejected Transource’s proposed 50-basis-point “risks and challenges” adder, saying Transource “has not demonstrated that the project faces risks and challenges either not already accounted for in the applicant’s base ROE or addressed through risk-reducing incentives.”
The commission granted other requests, including a 50-point adder for RTO participation, 100% recovery if the project is abandoned, inclusion of the project under construction into the rate base and a hypothetical 60% equity/40% debt capital structure until the project is in service or secures permanent financing.
ODEC and AMP had protested the hypothetical structure, but Transource argued it was helpful for securing investors during a critical period for the project. Transource noted that it will likely have to negotiate for access to about 300 properties.
AP South is the first competitively awarded transmission project in Maryland and Pennsylvania, as well as the first competitive market efficiency project in PJM. The RTO expects it to produce approximately $620 million in congestion savings over 15 years. It’s expected to be in service by June 1, 2020.