The Federal Energy Regulatory Commission Tuesday unanimously approved a set of incentives for Great River Energy to use on a $970 million transmission project in Minnesota and a $573.5 million project between Minnesota and South Dakota.
However, Commissioner Mark Christie said it was “imperative at a time of rapidly rising customer power bills” that the agency reconsider the financial and regulatory incentives it provides utilities and other companies to build power lines.
The incentives will apply to the Iron Range and Big Stone projects, which are part of the $10.3 billion first tranche of the Midcontinent Independent System Operator’s long-range transmission plan approved in July.
Great River is set to own 52.3% of the Iron Range project and Minnesota Power, an Allete utility, would own the remainder. The project includes a 150-mile, double-circuit 345-kV line and is set to be in-service in 2030.
Great River is slated to own 5% of the Big Stone project, which includes 128 miles of single-circuit 345-kV transmission line that could be expanded to a double circuit. The project’s other owners are Missouri River Energy Services, Otter Tail Power, Minnesota Power and Xcel Energy’s Northern States Power subsidiary.
Under FERC’s decision, Great River will be able to use a hypothetical capital structure of 50% equity and 50% debt for the Iron Range project.
The generation and transmission cooperative will also be able to place its Iron Range construction expenses in its ratebase as they are incurred and recover all prudent expenses for both projects, even if they aren’t completed.
The generation and transmission cooperative argued that without the hypothetical capital structure and “construction work in progress,” or CWIP, incentives, it wouldn’t have enough cash flow from the project to keep its investment-grade credit rating.
FERC said Great River showed the incentives were tailored to the risks and challenges faced by the Iron Range project.
In giving Great River the “abandoned plant” incentive, FERC said the cooperative showed the projects face regulatory, environmental and siting risks beyond its control and could lead to the projects not being built.
The order is consistent with FERC’s transmission incentive policies, but highlights why they should be reconsidered with a return on equity “adder” the agency gives utilities for belonging to a regional transmission organization, Christie said in a concurrence.
“Just as the CWIP Incentive effectively makes consumers the bank for transmission developers, the Abandoned Plant Incentive effectively makes them the insurer of last resort,” Christie said. “If the CWIP Incentive is a de facto loan and the Abandoned Plant Incentive is de facto insurance — both provided by consumers — then the RTO participation adder, which increases the transmission owner’s ROE above the market cost of equity capital, is an involuntary gift from consumers.”
Christie’s comments come as FERC is considering sharply narrowing its RTO adder and ending the CWIP incentive under a pending transmission planning and cost allocation proposal. Christie supporters trimming the RTO incentive and eliminating the CWIP incentive.
FERC’s procedures and criteria for awarding the abandoned plant incentive should also be reconsidered, Christie said.