U.S. energy regulators conditionally approved of some of the rate incentives sought by a few Midwest power companies for a proposed $1.6 billion power line in Illinois and Indiana that would help connect wind farms expected to be built in that area over the next several years.
The U.S. Federal Energy Regulatory Commission (FERC) conditioned the incentives on the transmission developers returning to FERC once they obtained approval for the project from PJM, which operates the power grid in parts of the U.S. Mid-Atlantic and Midwest states.
This decision comes as consumer groups, state utility regulators and even some U.S. Congressmen question whether FERC is giving transmission developers too many incentives to build new projects, which ultimately must be paid for by ratepayers.
The federal government is promoting the construction of more transmission lines to help maintain reliability, reduce power prices, integrate renewable energy projects and create jobs to help spur the economy, among other things.
The developers include units of power companies owned by Exelon (EXC.N) of Illinois, American Electric Power (AEP.N) of Ohio and Berkshire Hathaway’s (BRKa.N) MidAmerican of Iowa.
The companies want to build a 420-mile, 765-kilovolt project that will strengthen the transmission system in Illinois, Indiana and Ohio. It will include five substations and will permit the integration of about 5,000 megawatts of additional renewable transmission, the companies said.
The companies said they could put the project into service about five to six years after obtaining approval in PJM’s regional transmission expansion plan (RTEP).
PJM releases a new RTEP every February.
When considering a request for rate incentives, FERC said it wants developers to show a project would improve reliability or reduces power congestion costs. If a project is approved by a regional grid operator, FERC said it assumes that project passes the incentive test.
Once the parties get PJM approval, FERC said it will allow some incentives – though not all that the companies requested.
FERC gave the project a base return on equity (ROE) of 9.93 percent. The companies asked for 10.7 percent.
FERC also awarded 150 basis points of ROE adders – 50 basis point for regional transmission organization participation and 100 to compensate for the risks and challenges associated with investing in new transmission.
The companies however sought 250 basis points of ROE adders – 50 for RTO participation, 50 for the use of advanced transmission technology and 150 to compensate for risks and challenges.
FERC also granted the companies 100 percent recovery of construction work in progress (CWIP) during the development and construction of the project and 100 percent recovery of all prudently incurred costs in the event the project must be abandoned for reasons outside of the companies’ control.
(Reporting by Scott DiSavino in New York;editing by Sofina Mirza-Reid)
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