American Municipal Power and the ratepayer advocates for Maryland and Ohio are challenging the proposed return on equity for a roughly $1.1 billion transmission project by Grid Growth Ohio, according to protests filed at the Federal Energy Regulatory Commission. Grid Growth Ohio is a joint venture of Transource Energy — a partnership between American Electric Power and Evergy — and FirstEnergy Transmission.
Data centers are driving the 765-kV and 345-kV project in Ohio, but about 60% of the project’s cost will be paid for by Ohio ratepayers, according to the Office of the Ohio Consumers’ Counsel.
Ohio has enacted legislation and adopted policies that aim to protect consumers from the costs of serving new data centers, but the proposed formula rate from Grid Growth Ohio lacks similar protections, the OCC said in a Friday filing at FERC.
The proposal includes incentives that would lead to an “impermissible transfer of risk onto ratepayers,” the Maryland Office of People’s Counsel said.
The competitively selected project, expected to start operating by 2032, is part of the PJM Interconnection’s most recent regional transmission expansion plan. The plan is designed to bolster grid reliability that is strained by load growth in areas across its Mid-Atlantic and Midwestern footprint. PJM’s board approved the $11.8 billion plan in mid-February.
Earlier this month, Grid Growth Ohio asked FERC to approve formula rates and transmission incentives for the project, including a 10.8% return on equity. The forward-looking formula rates are used to determine how much revenue Grid Growth can collect from ratepayers for the project and would be adjusted each year to reflect the company’s actual expenses.
Grid Growth Ventures — parent to Grid Growth Ohio — asked FERC to allow it to use this set of rates and incentives for transmission projects its other subsidiaries develop as well. The proposed rates are similar to other ones FERC recently approved and address the financial risks Grid Growth faces as a new entrant in the field of competitive transmission, according to the company.
In separate protest filings, AMP, the OCC and the Maryland OPC said Grid Growth’s proposed ROE appears excessive.
“Grid Growth’s own filing indicates that following the Commission’s preferred approach for establishing base return on equity produces a return on equity of 10.66%,” AMP said. Also, Grid Growth’s methodology for determining an ROE differs significantly from FERC’s preferred approach, the wholesale power provider for municipal utilities said.
Grid Growth’s analysis “significantly departs from Commission precedent and norms,” the Maryland OPC said.
“Grid Growth seeks a treasure trove of risk-reducing incentives — [construction work in progress] and Project Abandonment Incentives — plus regulatory asset treatment for pre-commercial costs,” the OPC said. “Redundancies and overlaps in risk mitigation efforts, either already in place or being proposed undermine Grid Growth’s requests.”
Grid Growth failed to adequately support its proposal for a 60% equity/40% debt hypothetical capital structure that it would use until the project comes into service, according to the OPC.
“Regulated utilities can afford to take on more debt than other industries because they have large amounts of fixed assets, stable earnings, and lower risk levels,” the OPC said.
Also, the proposed incentives aimed at easing Grid Growth’s new-entrant status are misplaced given its utility company parents, according to the OPC.
“The start-up risk for Grid Growth is minimal, and the requested incentives are unwarranted,” the OPC said.
If FERC doesn’t reject the filing, it should suspend the proposed effective date of May 6 by five months as allowed under the Federal Power Act, subject to refund, and hold hearings on it, according to the proposal’s challengers.
