Governors' Wind Energy Coalition

The Federal Energy Regulatory Commission yesterday said New England companies should make less money on power line projects and scheduled a hearing to review complaints that rates are also too high in the Midwest.

FERC commissioners agreed that the rate of return on equity — the amount transmission owners can earn from new power lines by charging ratepayers — of 11.14 percent in New England is unjust and unreasonable. The commission unanimously upheld an order that lowered the rate to 10.57 percent.

FERC also agreed to review in a hearing complaints that rates in the Midwest — set at 12.38 percent — are too high.

The commission has been balancing calls to build new transmission and support the grid with concerns that rates are too high across the country. The agency, notably, sets the rate of return on equity for power line projects, and regional grid operators like New England ISO then act as billing agents. In New England, transmission owners include Northeast Utilities, National Grid, VELCO, Bangor Hydro, Central Maine Power and United Illuminating.

FERC this summer adopted a new formula for setting such rates, citing the need to expand the grid to meet reliability challenges, including coal plant retirements and a surge of renewables. The new formula follows a policy applied to returns on natural gas and oil pipelines (Greenwire, June 19).

But FERC’s actions yesterday infuriated consumer advocates, who say rates are still too high.

“This is an expensive decision by FERC,” said Tyson Slocum, director of Public Citizen’s Energy Program. “This is definitely hundreds of millions of dollars, if not billions, over the life of a transmission project that ratepayers [will face].”

FERC’s dive into the issue of returns on equity stems from a 2011 complaint that Massachusetts Attorney General Martha Coakley (D), along with wholesale power customers, consumer advocates and state regulators from New England, filed with the commission, urging that the rate of return be reduced to no more than 9.2 percent. They argued that because economic conditions had worsened, transmission companies were charging significantly more than required for other comparable companies.

On the other side, renewable energy advocates and proponents of expanding the electric grid have said the system has been disregarded for years and new lines must be built.

Administrative Law Judge Michael Cianci Jr. last summer ruled that New England transmission companies should make 9.7 percent in states like Connecticut, Maine, New Hampshire, Vermont and Rhode Island (Greenwire, Aug. 9, 2013).

But FERC later rejected the judge’s decision in part and yesterday set the rate higher based on the national gross domestic product, a measurement of long-term growth. FERC also called on transmission owners in New England to issue refunds for the period of Oct. 1, 2011, through Dec. 31, 2012.

When asked whether she was concerned about lowering the rates at a time when the electric industry has said new transmission must be built, FERC Chairwoman Cheryl LaFleur told reporters the rate regime aims to ensure that companies receive a fair return on their investments.

“We don’t try to get the [returns on equity] higher or lower,” LaFleur said. “We’re trying to get them fair and correctly reflective of the economic conditions in which the transmission developers are operating.”

LaFleur added that the agency’s approach will avoid the ups and downs of the market, reflect true market conditions and provide for more predictability over time.

But National Grid said it continues to believe the current rate of return is just and reasonable. FERC has not yet acted on the utility’s request for a rehearing and clarification of the new formula it adopted this summer, said Jackie Barry, a spokeswoman for National Grid.