By Robert Mullin

The California Public Utilities Commission is protesting FERC’s decision to allow Pacific Gas and Electric to include a 50-basis-point ISO participation adder in its 2017 transmission rates proposal.

The CPUC said that the commission’s ruling “ignores the need to demonstrate that an incentive must be ‘justified’ pursuant to [FERC] Order 679,” which allows transmission owners to collect the adder as motivation to join an RTO.

The Sacramento Municipal Utility District (SMUD) joined the CPUC’s request that the commission reconsider its Sept. 30 order granting the adder, which the CPUC contends will provide PG&E an annual $30 million “unjustified windfall” at the expense of its ratepayers (ER16-2320). As a transmission customer of CAISO, SMUD uses part of the PG&E system to serve its own load and is subject to any rate changes.

While the commission’s Sept. 30 order accepted and then suspended PG&E’s request for a 10.9% return on equity based on concerns that the proposed rate adjustment could produce “substantially excessive revenues,” it denied a CPUC request to disallow the incentive adder. (See FERC Sets PG&E Rate Increase Proposal for Talks.)

The CPUC argued that California law requires PG&E — as well as the state’s other investor-owned utilities — to maintain membership in CAISO, invalidating the need for a financial incentive. Furthermore, justification for the adder is the subject of an ongoing proceeding before the 9th U.S. Circuit Court of Appeals, the CPUC noted.

FERC countered in its September order that the court challenge “does not operate as a stay of the commission’s consideration” of the issues.

In its Oct. 31 rehearing request, the CPUC pointed out that the commission has granted the adder to nearly every utility that has asked for it since it was implemented almost 10 years ago — including PG&E. The PUC has four times sought rehearing on the issue, but in each instance it withdrew the requests as a condition of a settlement.

“Faced with rapidly escalating transmission access charges, with no end in sight, the CPUC, and the California ratepayers who the CPUC represents, can no longer afford to let the FERC orders, which grant unjustified ROE incentives to California utilities for doing something they are already required to do, go unchallenged,” the CPUC wrote.

The CPUC estimates that the adder has so far cost PG&E ratepayers $125 million.

SMUD previously disputed the appropriateness of the adder and questioned whether it furthers California or FERC objectives with respect to the cost-benefits of ISO membership for PG&E customers. Like the CPUC, SMUD asked the commission to defer action on the incentive until the 9th Circuit’s decision.

FERC has scheduled a Feb. 7-8, 2017, settlement conference to address PG&E’s 2017 rate proposal.