UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION San Diego Gas & Electric Company ) Docket No. EL15-103-000 REQUEST FOR REHEARING OF PACIFIC GAS AND ELECTRIC COMPANY AND SOUTHERN CALIFORNIA EDISON COMPANY Pursuant to Rule 713 of the Commission s Rules of Practice and Procedure, 18 C.F.R. 385.713, and Section 313 of the Federal Power Act, 16 U.S.C. 825l, Pacific Gas and Electric Company ( PG&E ) and Southern California Edison Company ( SCE ) request rehearing of the Commission s March 2, 2016 Order on Petition for Declaratory Order, 154 FERC 61,158 ( March 2, 2016 Order ) in this proceeding. The March 2, 2016 Order concerns a San Diego Gas & Electric Company ( SDG&E ) petition for declaratory order, filed pursuant to Section 219 of the Federal Power Act and the Commission s Order No. 679, 1 seeking authority to recover 100 percent of all prudently-incurred development and construction costs associated with SDG&E s South Orange County Reliability Enhancement ( SOCRE ) project, if abandoned or cancelled, in whole or in part, for reasons beyond SDG&E s control ( Abandonment Incentive ). I. SPECIFICATION OF ERROR Despite granting SDG&E s request for the Abandonment Incentive, the Commission erred by limiting SDG&E s future recovery to only 100 percent of prudently-incurred costs expended on or after the date of the March 2, 2016 Order, with 50 percent recovery for 1 Promoting Transmission Investment through Pricing Reform, Order No. 679, FERC Stats. & Regs. 31,222 (2006) ( Order No. 679 ), order on reh g, Order No. 679-A, FERC Stats & Regs. 31,236, order on reh g, 119 FERC 61,062 (2007). The Commission provided additional guidance regarding the application of transmission incentive policies in Promoting Transmission Investment Through Pricing reform, 141 FERC 61,129 (2012) ( 2012 Policy Statement ).
prudently incurred costs prior to that date.2 A distinction based on the date of the Commission s ruling is arbitrary and capricious and not in accordance with Section 219 of the Federal Power Act or Order No. 679. II. STATEMENT OF ISSUE The Commission improperly ruled that the Order No. 679 Abandonment Incentive can only be applied prospectively in this Section 219 proceeding. Where the Commission finds that a petitioner met the Order No. 679 rebuttable presumption and 2012 Policy Statement nexus test, as is the case here, the statute and regulations provide that the incentive be fully awarded. As a result, the Commission should have granted SDG&E s request for 100 percent recovery of all prudently incurred development and construction costs, including costs incurred prior to the date of its filing and the March 2, 2016 Order, if SOCRE is abandoned or cancelled, in whole or in part, for reasons beyond SDG&E s control. III. ARGUMENT A. Recent Rulings in California Must Be Reconciled The Commission s March 2, 2016 Order makes the following ruling on SDG&E s request for the Abandonment Incentive: We find that SDG&E has also demonstrated that substantial risks exist in developing this project and that a sufficient nexus exists between those risks and the requested incentive. As the Commission has explained in other proceedings, the recovery of abandonment costs is an effective means to encourage transmission development by reducing the risk of non-recovery of costs. We agree that SDG&E faces certain environmental, regulatory, and siting risks that could lead to abandonment of the SOCRE project. In addition, as SDG&E has 2 See March 2, 2016 Order at PP 18-19. - 2 -
demonstrated, we find that approval of the abandonment incentive will protect SDG&E from further losses if the SOCRE project is cancelled for reasons outside SDG&E s control. 3 In support of its ruling, the Commission cites a similar Section 219 and Order No. 679 filing by NextEra Energy Transmission West, LLC for the Abandonment Incentive for two other major transmission projects in California the Suncrest Project located in SDG&E s service territory and the Estrella Project located in PG&E s service territory. See NextEra Energy Transmission West, LLC, 154 FERC 61,009 (January 8, 2016) ( NEET West Order ). In the NEET West Order, the Commission explained: NEET West requests authorization pursuant to Order No. 679 for the following five incentive rate treatments for the Projects: (1) recovery of 100 percent of prudently incurred costs, including costs related to the Projects that have been incurred prior to the date of filing, in the event a Project must be abandoned for reasons outside NEET West s reasonable control (abandoned plant incentive); (2) recovery of all pre-commercial costs that are not capitalized through establishment of a regulatory asset to include all such expenses that are incurred in connection with the Projects prior to the time costs first flow through to customers pursuant to CAISO s transmission access charge and authorization to amortize the regulatory asset over five years thereafter (regulatory asset incentive);(3) use of a hypothetical capital structure of 50 percent debt and 50 percent equity until the first project achieves commercial operation (hypothetical capital structure incentive); (4) a 50 basis point ROE adder for NEET West s participation in CAISO (RTO participation incentive); and (5) an incentive ROE adder equal to the difference between 10 percent and NEET West s base ROE, to be applied only if NEET West s base ROE is determined to be below 10 percent and in no case to exceed 150 basis points (conditional ROE incentive). 4 It warrants repeating that NEET West s Abandonment Incentive request (under Section 219) is for the recovery of 100 percent of prudently costs, including costs related to the Projects that have been incurred prior to the date of the filing.... 5 The Commission did 3 4 5 See March 2, 2016 Order at P 17 (citation omitted) See NEET West Order at P 13. Id. (emphasis added). - 3 -
not expressly address this aspect of the Abandonment Incentive request, and made the following ruling: We grant NEET West s request for recovery of 100 percent of prudently-incurred costs associated with abandonment of the Projects, provided that the abandonment is a result of factors beyond NEET West s control, which must be demonstrated in a subsequent FPA section 205 filing for recovery of abandoned electric transmission facilities costs. As the Commission has explained in other proceedings, the recovery of abandonment costs is an effective means to encourage transmission development by reducing the risk of non-recovery of costs. We agree that NEET West faces certain environmental, regulatory, and siting risks that could lead to abandonment of the projects. In addition, as NEET West has demonstrated, we find that approval of the abandonment incentive will both attract financing for the Projects and protect NEET West from further losses if the Projects are cancelled for reasons outside NEET West s control. 6 Unlike the March 2, 2016 Order, the Commission was silent as to NEET West s ability to recover 100 percent of prudently-incurred costs incurred prior to the date of the Commission s Order. In light of NEET West s explicit proposal that such costs be included, and the Commission s silence on that issue, PG&E and SCE understand that the NEET West Order to have approved NEET West s request, or at a minimum, not precluded such recovery at the outset in the Section 219 proceeding. This inconsistent treatment is legal error and, as discussed below, underscores the Commission s failure in the March 2, 2016 Order, to follow the statutory rules prescribed under Section 219 of the Federal Act. 7 6 7 Id. at P 26 (footnotes omitted) In Order No. 679-A at P 76, the Commission noted that [w]e affirm the finding in the Final Rule that the Commission will not limit an applicant s ability to seek incentive-based rate treatments based on corporate structure or ownership. The Commission will evaluate these applications to determine if incentive treatment is justified based on their demonstrations that the projects meet the requirements of section 219 and this rule. - 4 -
B. Section 205 Cases are Not Controlling The March 2, 2016 Order cites several cases (at PP 18-19) in supposed support of its limiting of the application of the Abandonment Incentive. Those cases are simply not controlling, because they involved filings under Section 205 of the Federal Power Act and the prescribed notice requirements for Section 205 filings. The Commission committed error by looking to the fact that it appropriately imposed effective dates in those prior Section 205 orders without any discussion of the fact that, under Section 219 of the Federal Power Act, there are no comparable concerns about imposing effective dates or retroactive ratemaking. This very real distinction is illustrated by the Commission s ruling in the PJM Interconnection II case cited in footnote 42 of the March 2, 2016 Order: Here, the PHI Companies are requesting retroactive recovery of abandonment costs which were incurred before the effective date of the MAPP Incentives Order. We find the timing of the request requires us to deny recovery of retroactive abandonment costs, greater than 50 percent, pursuant to Opinion No. 295. 8 There is no such timing issue or restriction in this Section 219 proceeding. PG&E and SCE are not attempting to prejudge the prudency of the costs that SDG&E has already incurred or will incur in proceeding with the SOCRE Project. However, it is inconsistent with Commission policy for the Commission to have predetermine that SDG&E is ineligible to seek the 100% abandoned plant incentive prior to SDG&E s actually making a Section 205 filing and demonstrating the prudence of its actions. 8 142 FERC at P 54. The MAPPS Incentive Order concerned a filing under Section 205 of the Federal Act. See 125 FERC 61,130(2008). - 5 -
The Commission s reliance on DCR Transmission LLC is equally misplaced. While that case did involve a Section 219 filing, it simply cites previously discussed Section 205 cases with no further discussion. 9 In addition, it bears noting that the Commission granted DCR Transmission LLC s request to recover pre-commercial costs charged to a regulatory asset account that were incurred prior to the date of the Commission order in that case. 10 C. Order No. 679 and Policy Considerations The March 2, 2016 Order contains no citation to Order No. 679 to support the March 2, 2016 effective date for 100 percent cost recovery under the Abandonment Incentive. As the Commission is aware, Order No. 679 provides: D. Effective Date and Duration of Effectiveness For Incentives 1. Background 30. Congress directed the Commission to issue a rule establishing incentive-based rate treatments no later than one year after enactment of EPAct 2005, or by August 8, 2006. * * * 3. Commission Determination 34. Section 219 of the FPA became effective on August 8, 2005. Codification of section 219 on that date and the requirement for a rule authorizing investment incentives provided notice to the industry that Congress intended that the Commission provide incentive-based rate treatments promptly. Thus, the Final Rule will become effective 60 days after publication in the Federal Register. However, we clarify that any investment made in, or costs incurred for, transmission infrastructure after August 8, 2005 that ensures reliability or lowers the cost of delivered power by reducing transmission congestion will be eligible for incentive-based rate treatments under this Rule. Applicants seeking incentive-based rate treatments for investments made or costs incurred after August 8, 2005 will need to satisfy the requirements of this Rule to obtain and recover any incentives and will need to make an appropriate filing under section 205. Order No. 679 at PP 30, 34 (emphasis added). 9 10 See 153 FERC at P 42 n. 60. Id. at PP 35-38. - 6 -
As noted above, when the Commission finds that a Section 219 petitioner meets the Order No. 679 rebuttable presumption and the 2012 Policy Statement nexus test, the statute and regulations provide that the incentives may be fully awarded, subject to the subsequent Section 205 prudency review. The timing of a Commission order approving a Section 219 petition for the Abandonment Incentive should not be the cutoff point for potential incentive recovery. Such a policy could delay development of projects and promote an avalanche of potentially unnecessary petitions for declaratory orders at the Commission. 11 11 The Commission has already rejected blanket type requests for Abandonment Incentives approved under an Order No. 1000 competitive transmission process. See Transource Kansas, LLC, 153 FERC 61,010 at PP 33-35. - 7 -
IV. CONCLUSION For the forgoing reasons, PG&E and SCE request rehearing of the March 2, 2016 Order. Respectfully submitted, By: /s/ KEITH T. SAMPSON Pacific Gas and Electric Company 77 Beale Street, B30A P.O. Box 7442 San Francisco, CA 94120 Telephone: (415) 973-5443 E-mail: kts1@pge.com Attorneys for PACIFIC GAS AND ELECTRIC COMPANY By: /s/ REBECCA A. FURMAN Southern California Edison Company 2244 Walnut Grove Avenue P.O. Box 800 Rosemead, CA 91770 Telephone: (626) 302-3475 E-mail: rebecca.furman@sce.com Attorney for SOUTHERN CALIFORNIA EDISON COMPANY Dated: April 1, 2016-8 -
CERTIFICATE OF SERVICE In accordance with the Commission s Rules of Practice and Procedure, I hereby certify that I have this day served the foregoing document upon each person designated on the official service list compiled by the Secretary in this proceeding. Dated at San Francisco, California this 1st day of April, 2016. /s/ Ollen Erich Hunt Pacific Gas and Electric Company Electric Transmission Rates Department 77 Beale Street, Room 1334 MS B13L San Francisco, California 94105 E-mail: exh7@pge.com