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FERC Approves Requests for Transmission Investment Incentives

November 20, 2007

In a move expected to enhance grid reliability, the Federal Energy Regulatory Commission (FERC) on November 15 approved several requests for transmission investment incentives for new grid construction.

The requests came from Southern California Edison (SCE) for three proposed transmission projects in California and Arizona, and from Baltimore Gas and Electric Co. (BG&E) for several transmission owner initiated (TOI) projects in Maryland. FERC said the new projects will improve system reliability, reduce transmission congestion and provide lower-cost power to customers.

Under Order No. 679, FERC allows a public utility to obtain incentive rate treatment for transmission infrastructure investments if it demonstrates that the new facilities either will ensure reliability or reduce the cost of delivered power by reducing transmission congestion.

In the SCE decision, FERC found that the company’s proposed projects meet the rebuttable presumption, established in Order No. 679, of eligibility for incentive rate treatment because they have been approved by a regional planning process. Transmission projects are eligible if they result from either a fair and open regional planning process that considers projects for reliability and/or congestion and are acceptable to FERC, or have received construction approval from an appropriate state commission or state siting authority.

SCE is proposing to build three projects: the Devers-Palo Verde II (DPV2) Project, which consists of the construction of two major transmission lines; the Tehachapi Project, which consists of more than 200 miles of 500 kV transmission line, approximately 10 miles of 220 kV transmission line and three new substation facilities; and the Rancho Vista Project, which includes a proposed new 500 kV substation. The Tehachapi Project will allow significant amounts of wind generation to interconnect with the SCE transmission system. That is intended to support compliance with California’s renewable portfolio standard and the state’s efforts to require reductions in greenhouse gas emissions.

FERC found that SCE satisfied the Commission’s “nexus” standard under Order No. 679 for each of its requested incentives. The Commission also found that SCE’s overall risk is reduced by construction work in progress (CWIP) and abandoned plant cost incentives, and therefore adjusted the return on equity (ROE) incentives to allow a 125-basis point ROE incentive for the DPV2 and Tehachapi Projects and a 75-basis point ROE incentive for the Rancho Vista Project.

Source: Federal Energy Regulatory Commission

—Julie Jones