FERC has denied San Diego Gas & Electric’s challenge of a commission order rejecting the utility’s request for an RTO adder to its transmission rates based on its participation in CAISO, saying SDG&E is ineligible for the adder under California law.
FERC found that SDG&E failed to show its participation in CAISO is voluntary, a condition for receiving the RTO adder, stating a 2022 California law requires electric utilities to join and remain members of CAISO, allowing them to leave only with the California Public Utility Commission’s approval (ER25-270).
Investor-owned utilities Pacific Gas and Electric and Southern California Edison joined SDG&E in challenging FERC’s order.
“We continue to find that SDG&E’s participation in CAISO is not voluntary,” FERC’s July 2 order stated. “Section 362(c) of the California Public Utilities Code provides that, ‘[c]onsistent with Section 851 and the [CPUC’s] regulation of transfers of operational control of electric facilities, an electric corporation subject to [the transfer order] … shall participate in [CAISO].’ California IOUs do not dispute that SDG&E is subject to the transfer order. Therefore, the plain meaning of section 362(c) requires SDG&E to participate in CAISO.”
In a separate but related order, FERC also affirmed a previous decision that SDG&E must refund adders with an effective date of June 1, 2019.
The decisions stem from a broader FERC order issued in December 2024 in which the commission partly accepted SDG&E’s proposed formula rate and recovery of costs associated with transmission facilities. But FERC also rejected the utility’s request for an adder and affirmed that decision July 2.
SDG&E proposed a base return on equity of 11.75% and an adder of 50 basis points for participating in CAISO — for a total ROE of 12.25%.
RTO adders are provided through federal ratemaking as a way for FERC to incentivize utilities to join RTOs or ISOs. However, to be eligible for the adder, utilities must show that participation in an RTO or ISO is voluntary and not mandated by state law.
Disputes around whether to allow California investor-owned utilities to recover an incentive for participating in the ISO have been ongoing. (See Citing California Law, FERC Rejects PG&E Request for RTO Adder.)
In a 2020 case involving PG&E, FERC rejected CPUC’s argument that PG&E was ineligible for the RTO adder because participation in CAISO was mandatory. FERC ruled that, based on California law, the utility’s participation in the ISO was voluntary and that it could decide unilaterally to leave. (See FERC Rejects RTO Incentive Adder Rehearing.)
But in September 2022, California amended its public utilities code to mandate participation in CAISO, with the ability to leave only with CPUC approval. Following this, FERC in December 2023 issued a decision holding that PG&E no longer was eligible for the RTO adder.
In the underlying case involving SDG&E, the San Diego-based utility told the commission it believed FERC wrongly ruled against PG&E in 2023 and had appealed the decision to the U.S. Court of Appeals for the Ninth Circuit.
According to the FERC July 2 order, the IOUs argue the CPUC code contains ambiguous language that allows them to leave CAISO, making their participation voluntary.
But FERC disagreed, instead finding “Contrary to California IOUs’ view, Section 362(c) mandates participation and does not address withdrawal at all.”
“While California IOUs argue that passages in the formula rate order and PG&E adder order suggest otherwise, the commission clarified in the PG&E adder rehearing order that Section 362(c) does not provide for withdrawal subject to CPUC approval,” the order stated. “To the extent the formula rate order leaves any ambiguity, we clarify that Section 362(c) does not provide for withdrawal.”
