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PG&E and the 50 Basis Point RTO Adder

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In ER14-2529, in a series of Commission orders, FERC granted PG&E’s requests for a 50-basis point return-on-equity (ROE) adder to its transmission rates (RTO-Participation Incentive) for its continuing membership in CAISO. In granting the request, FERC rejected the California Public Utilities Commission’s (CPUC) argument that PG&E was not eligible for the incentive because California law required PG&E to participate in CAISO. On appeal, the U.S. Court of Appeals for the Ninth Circuit (Ninth Circuit) remanded the underlying orders and instructed FERC to “inquire into PG&E’s specific circumstances, i.e., whether it could unilaterally leave [CAISO] and thus whether an incentive adder could induce it to remain in [CAISO].”  On August 20, 2018, the Commission issued an initial order on remand establishing briefing procedures regarding those issues.   Having reviewed the record, including the additional briefing provided by parties to this proceeding, FERC found that California law does not mandate PG&E’s participation in CAISO, and that the RTO-Participation Incentive induces PG&E to continue its membership.  FERC therefore reaffirmed its prior grant of PG&E’s request for the RTO-Participation Incentive.

Commissioner Glick consented with a separate statement.  In his statement, Commissioner Glick states that this PG&E case reinforces the importance of taking a hard look at the RTO-Participation Incentive in the Commission’s ongoing incentive proceeding (PL19-3).  He went on to state that FERC’s current approach to incentivizing RTO participation hands transmission owners across the country hundreds of millions of dollars every year with little indication that any of that money makes a meaningful difference in their decisions to enter or remain in an RTO, and FERC must carefully review whether the RTO-Participation Incentive remains money well spent and is consistent with FERC’s obligation under the FPA to ensure that transmission rates are just and reasonable.

Paul Dumais's picture

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Bob Meinetz's picture
Bob Meinetz on Jul 28, 2019 5:12 pm GMT

Paul, call it "Enron, Part Deux."

California, as it attempts to establish a policy of clumsy regulated-deregulation in the wake of PG&E's Chapter 11 bankruptcy, edges ever-closer to an economic abyss foreseen by many before key federal legislation was repealed in 2005.

"...FERC’s current approach to incentivizing RTO participation hands transmission owners across the country hundreds of millions of dollars every year with little indication that any of that money makes a meaningful difference in their decisions to enter or remain in an RTO..."

Reality check: if PG&E, the company which owns half of California's transmission, even has a "decision" whether it will remain in our state's RTO, vs. let the lights go out for half of the world's 5th-largest economy; if it's up to California ratepayers/taxpayers to make a "meaningful difference" to a corporation acting in its own self-interest, that's a problem. A big one.

The possiblity any business interest, private or public, might be allowed to hold a state's electricity for ransom was why utility electricity was regulated in the first place - and here we are again. A thought experiment: what's to prevent PG&E's boardmembers from paying themselves severance, declaring Chapter 7 bankruptcy, clearing out desks, locking doors behind them, and walking away from this mess?

If "letting the lights go out" is not an option, I have yet to see a good reason why.

Matt Chester's picture
Matt Chester on Jul 29, 2019 11:24 am GMT

He went on to state that FERC’s current approach to incentivizing RTO participation hands transmission owners across the country hundreds of millions of dollars every year with little indication that any of that money makes a meaningful difference in their decisions to enter or remain in an RTO, and FERC must carefully review whether the RTO-Participation Incentive remains money well spent and is consistent with FERC’s obligation under the FPA to ensure that transmission rates are just and reasonable.

This can be concerning for sure-- the allocation of these funds is of great public interest and it should be of top priority to make sure it's well spent

Bob Meinetz's picture
Bob Meinetz on Jul 29, 2019 5:35 pm GMT

Matt, how could FERC ensure it's "money well-spent" with no strings attached? Handing money to a utility monopoly to "do what's right" only gives them an incentive to gouge ratepayers to their heart's content.

This will not end well.

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