FERC on June 27 approved two transmission incentives requested by Southern California Edison (SCE) that would offset potential costs associated with building the Del Amo-Mesa-Serrano and Lugo-Victor-Kramer projects (EL24-71). 

In an order issued at its monthly open meeting by a 2-1 vote, FERC found the projects satisfy the Order 679 requirement for incentive rate treatment because they improve reliability or reduce congestion, as both projects are included in CAISO’s 2022-2023 Transmission Plan. 

FERC approved use of the construction work in progress (CWIP) and the abandoned plant incentives mainly because of the long lead times and potential local opposition for both projects. As has become common in transmission rate incentive requests, Commissioner Mark Christie dissented. 

The Del Amo project will extend through Los Angeles, San Bernardino and Orange counties. It includes constructing a new 500/230-kV substation with three new transformer banks and new 500-kV transmission line segments, including two approximately 13-mile segments from SCE’s Del Amo and Serrano substations. It will also include another 13-mile 500-kV line from the Del Amo substation and a 2-mile 500-kV line from the Mesa substation to create the Del Amo-Mesa line. Finally, the project will require a loop of SCE’s 230-kV Alamitos-Barre No. 1 and No. 2 transmission lines into the Del Amo substation. 

The Lugo project was selected by CAISO to increase access to solar resources and will help California meet its clean energy mandates, as well as increase reliability by addressing certain constraints and voltage instability identified in the region. The project will include the construction of a new 500/230-kV transformer, reconductoring of four 230-kV transmission lines, reconstruction of SCE’s 115-kV Kramer-Victor line to increase it to 230 kV, and looping a remaining old segment of the Kramer-Victor line into SCE’s Roadway substation. 

SCE requested to “include 100% of prudently incurred construction work in progress for the projects in rate base” and “recover 100% of prudently incurred costs of the projects if they are abandoned for reasons beyond SoCal Edison’s control.” 

The latter incentive is to account for the long lead times from the extensive licensing processes required by the California Public Utilities Commission for the projects, in addition to potential local opposition. The utility also argued that the projects qualify for the CWIP incentive because of the time between the commencement of construction and the anticipated final in-service dates in 2033. 

“SoCal Edison contends that requiring the investors to wait years before seeing a return on their investments would diminish the attractiveness of these investments, which CAISO has deemed necessary in its transmission plan,” FERC said. “SoCal Edison maintains that this rate treatment will provide upfront regulatory certainty, rate stability, improved cash flow at a time when SoCal Edison is financing significant wildfire mitigation-related capital expenditures, and substantial infrastructure replacement activities needed to support system reliability.”  

SCE also highlighted that the CWIP incentive would decrease the likelihood of “rate shock” to its customers. Without CWIP recovery, FERC said, all of SCE’s rate increases will apply to its customers at one time.  

The CPUC filed a protest against SCE’s request for the CWIP incentive in March. “While the CPUC does not oppose FERC granting SCE the abandoned plant incentive for these projects, the CPUC protests this filing because SCE has not demonstrated that the CWIP incentive should be granted here,” it told FERC. “The CWIP incentive has shown to be harmful to California ratepayers, providing premature and excessive rate recovery. Granting the incentive goes beyond the intended scope of Order 679 and would not result in just and reasonable rates.” 

The CPUC further explained that, with projects having longer lead times and higher costs than forecast when the incentives were granted, the incentives end up being costlier to customers, “resulting in customers effectively serving as lenders to the utility, with the benefit being one-sided toward the company.” 

The state commission also argued that SCE has a history of long delays and cost overruns associated with its projects and that CWIP removes the utility’s incentive to complete them on time. The CPUC requested that, should FERC grant the incentive, CWIP eligibility be capped at the cost of the project and be rescinded once CAISO’s in-service date has passed. 

In its answer to the protest, the utility asserted that the CPUC “ignores that CWIP is intended to address the very risks that the CPUC derides as SoCal Edison’s failures, disregards the benefits of CWIP to ratepayers and improperly requests that [FERC] implement widespread policy changes.” 

FERC granted the incentive without conditions. 

“We find that SoCal Edison has shown a nexus between the proposed CWIP incentive and its investment in the project. We agree that recovering CWIP expenditures in transmission rate base will help cash flow and smooth the projects’ rate impact,” FERC said. “The commission has also found that allowing companies to include 100% of CWIP in rate base would result in greater rate stability for customers by reducing the ‘rate shock’ when certain large-scale transmission projects come online.” 

SCE expects to start construction for the Lugo project in 2027 and the Del Amo project in 2030. 

While Commissioner Christie noted in his dissent that he continues to urge revisiting FERC’s policies under Order 679, he was particularly incensed by the majority’s approval of incentives because the CPUC has not yet approved the projects themselves. Under 679, the commission presumes that projects included in an RTO/ISO transmission plan will enhance reliability or reduce congestion. 

“Although regional transmission planning process is only one rebuttable presumption established in Order No. 679 allowing qualification for incentive rate treatment, reliance on regional transmission planning in lieu of state approval to construct is one of the major problems with FERC’s policy. This practice is indefensible and always has been,” Christie wrote. 

“With all due respect to CAISO’s transmission planning process — and I do respect it along with planning processes in other RTOs/ISOs — the regional planning process in a transmission planning organization is not remotely the equivalent of a serious litigated state [approval] process, which includes witness cross-examination and is open to intervenors such as consumer advocates.”