LSP Power Requests Transmission Formula Rate for MISO Project
- January 4, 2019
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Republic Transmission, which is owned by LSP Power and Hoosier Energy Rural Electric Cooperative, filed a formula rate at FERC in ER 19-605. Republic Transmission was selected in a MISO competitive process to build a new 345 kV transmission line providing market efficiency benefits, to be constructed between the existing Duff substation in Indiana and the existing Coleman substation in Kentucky (the “Project”). The Project has an expected in-service date of June 2020.
The formula rate has some innovative approaches in order to incorporate the results of the competitive process. The formula rate includes:
- Previously approved incentives in EL17-52, including deferred recovery of prudently incurred pre-commercial costs through creation of a regulatory asset; full recovery of prudently-incurred costs if the Project is abandoned for reasons beyond Republic’s control; use of a hypothetical capital structure consisting of 55% debt and 45% equity until the Project achieves commercial operation; and a 50 basis point adder to Republic’s return on equity for participating in MISO, subject to an overall return on equity cap described below;
- A total rate base cap of $58.1 million, inclusive of all costs necessary to develop, construct, and place the project in-service including escalation and AFUDC;
- A ROE cap at the lesser of 9.80% inclusive of incentives or the MISO region-wide base ROE plus an RTO participation adder. If the MISO region-wide base ROE plus Republic’s RTO adder is below 9.80%, then that is the ROE;
- A schedule guarantee under which the ROE will be reduced if the schedule is not met. In the event the completion date is later than January 1, 2021, subject to extension due to events outside of Republic’s control, Republic will decrease its Project-specific ROE for every month of delay, up to a total of 30 basis points for a delay of 12 months or longer. To the extent that the schedule guarantee results in a reduction in the Project ROE, the reduction is for the life of the Project.; and
- An Equity Percentage Cap of 45% that applies for the life of the Project. The equity ratio is the lessor of actual or 45%.