By Michael Kuser and Robert Mullin

FERC on Wednesday rejected a contested offer of settlement on network service rates for a group of New England transmission owners (NETOs) (ER18-2235, EL16-19).

The settlement proposed new rates and a new rate design for regional network service (RNS), local network integration transmission service (LNS) and point-to-point (PTP) transmission service for all the TOs in the region. It would have replaced the existing RNS and LNS rates with new formula rate templates and associated protocols. The PTP rates fall under the same Tariff schedule as LNS.

FERC instituted the proceeding in December 2015, saying ISO-NE’s Tariff “lacks adequate transparency and challenge procedures” on the NETOs’ formula rates and that the network rates “lack sufficient detail” to determine how costs are derived and recovered.

In responding to requests for rehearing of its December 2015 order that established hearing and settlement judge procedures over the matter, the commission noted that it would not be possible to ensure the justness and reasonableness of the transmission rates in the ISO-NE Transmission, Markets and Services Tariff unless the NETOs “were all considered together in a single proceeding due to the possibility of a mismatch in the synchronization of the rates, timing of true-ups, cost allocation or methodology for calculating the RNS rate and LNS rates.”

Last September, the New England States Committee on Electricity (NESCOE), New England Power Pool Participants Committee and the NETOs separately filed comments in support of the settlement, while municipal utilities individually submitted comments in opposition.

The municipals contended that the settlement disadvantaged them by imposing costs for local — or “non-pool” — transmission facilities that provide them with no material benefit. They also contested the settlement’s inclusion of a five-year moratorium prohibiting Federal Power Act Section 205 or Section 206 filings to change the settlement. They argued that it was “heavily lopsided” because it would have subjected non-settling parties to the “most stringent standard of review under applicable law” in challenges under Section 206 while its exceptions “essentially eliminate most constraints that a moratorium would otherwise impose on the Section 205 filing rights of a transmission-owning utility.”

FERC trial staff argued that the settlement was unfair because it contained unreasonable rates and “contains fundamental defects.” Staff cited the TOs’ ability to: conduct “extra-formulaic, ad hoc” ratemaking for all externally sourced inputs every year; over-recover certain plant costs; and recover a return greater than 50% of funding for construction work in progress.

In its order rejecting the settlement, FERC noted that under the approach outlined in its Trailblazer decision, the commission may approve a contested settlement if it determines that “the contesting party’s interest is sufficiently attenuated that the settlement can be analyzed under the fair and reasonable standard applicable to uncontested settlements” and that it makes an independent finding that the settlement benefits the “directly affected” settling parties.

“Here, there are two obstacles to this approach,” FERC wrote. “First, the record is insufficient to determine whether the settlement’s benefits outweigh the objections to it; in fact, contesting municipals present evidence that there is more harm than benefit. Second, the parties who are directly affected by the settlement’s RNS and LNS rate calculation provisions include both parties who support the settlement (NETOs) and those who oppose the settlement (contesting municipals).”

The commission said that based on “the overall lack of necessary detail and transparency,” it could not accept the settlement, and it remanded the proceeding to the chief judge to resume hearing or settlement procedures.

The next day, the chief judge issued a procedural order assigning a hearing judge, a procedural track for the hearing, and a dispute resolution specialist to serve as a settlement facilitator.

The NETOs are Central Maine Power; Emera Maine; Eversource Energy Service; Fitchburg Gas and Electric Light; Maine Electric Power; National Grid; Unitil Energy Systems; United Illuminating Co.; Vermont Electric Power Co.; and Vermont Transco.