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FERC Orders Investigation into New England Transmission Rates

January 20, 2016 By Cheryl Kaften

The Federal Energy Regulatory Commission (FERC) has instituted a section 206 proceeding (Docket No. EL16-19-000) to determine why New England ratepayers are paying more for transmission than energy customers in other parts of the country.

Sections 205 and 206 of Federal Power Act deal with the authority of the commission over a public utility’s rates, terms and conditions for transmitting or selling electric energy in interstate commerce. The rates, terms and conditions are required to be just and reasonable and not unduly discriminatory or preferential; otherwise, they are deemed unlawful. This is generally referred to as the “just and reasonable” standard.

In an order issued on Dec. 28, the commissioners found that “ISO-New England’s (ISO-NE) Transmission, Markets, and Services Tariff (ISO-NE Tariff) is unjust, unreasonable, and unduly discriminatory or preferential.”

They noted that the Regional Network Service (RNS) and Local Network Service (LNS) formula rates “lack sufficient detail in order to determine how certain costs are derived and recovered,” and, accordingly, established hearing and settlement judge procedures to develop just and reasonable rates – as well as to establish a refund effective date. A judge was to be appointed within 15 days of the order.

“Rate protocols should afford adequate transparency to affected customers, state regulators or other interested parties, as well as provide mechanisms for resolving potential disputes,” the order states, adding that, “integrity and transparency … are critically important to ensuring just and reasonable rates.”

“It used to be a few years ago, about 50 or 60 percent of the electric bill would be made up of the cost of the energy,” Dan Dolan, president of the New England Power Generators Association, told the Manchester Union Leader news organization in New Hampshire. “Now we are seeing upwards of 60 percent of a bill being made up of transmission and distribution costs. It’s been a complete flip from the historical norms, with a massive build-out that the utilities have undertaken.”

Another factor contributing to the high cost of transmission in New England, former New Hampshire PUC Commissioner Michael Harrington told the Union Leader, is the high rate of return that transmission builders are guaranteed on a basically no-risk investment.

“With interest rates near zero, it’s hard to understand how they can continue to justify rates of return in the 9 to 12 percent range, paid by ratepayers,” he said.

The New England States Committee on Electricity (NESCOE), which represents the collective perspective of the six New England governors in regional electricity matters, held a regional forum on competitive transmission last October and has hired a consultant to determine and report back on how transmission costs are set in each region nationwide.

As the FERC and NESCOE discovery efforts move forward, information-sharing and revisions to the current process can be expected. Reports from the FERC-appointed administrative law judge are due to the commission every 30 days during the proceedings.

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