Lack of oversight on transmission spending results in larger electrical payments, client advocate says

Electrical clients have fallen right into a “regulatory hole” that’s allowed billions of {dollars} of transmission development to occur with out oversight of want, prudence or value effectiveness, in response to a criticism filed with federal regulators by the Workplace of the Ohio Shoppers’ Counsel.

And although the criticism to the Federal Vitality Regulatory Fee was made on behalf of Ohio ratepayers, the identical concern exists throughout a lot of the nation, a lot in order that the fee itself has weighed whether or not extra monitoring of transmission spending is important.

FERC has broad authority over electrical transmission, however utilities are making the most of what critics name an insufficient regulatory regime and spending billions of {dollars} throughout the nation on smaller traces, replacements for outdated wires or new initiatives that fall beneath the edge for federal or state evaluation as to whether or not they’re really wanted or make monetary sense.

“Just about in each state there’s going to be some subset of transmission that’s not going to be topic to some regulatory scrutiny,” stated Nick Guidi, a senior lawyer with the Southern Environmental Regulation Heart who focuses on transmission planning and different electrical grid points.

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Typically what utilities make on these initiatives are set by means of FERC “components charges,” which, as an alternative of counting on a contested price case to determine the utility’s value of service for transmission, permits the businesses to file info with FERC in numerous classes — together with price of return, operations and upkeep, depreciation, taxes and different components — that’s used to calculate what they’re capable of cost clients.

“Formulation charges are a car for avoiding burdens of proof and limiting protests. The fee’s default presumption that each one transmission expenditures are prudent permits utility prices to stream by means of to shoppers’ payments with out scrutiny,” wrote Ari Peskoe, director of Harvard College’s Electrical energy Regulation Initiative, in feedback filed with FERC final 12 months. The foundations, Peskoe stated in an interview, “push utilities to speculate domestically as a result of that’s the place you will get the straightforward cash.”

Andrew French, a member of the Kansas Company Fee, stated final 12 months that transmission prices on a mean Kansas electrical buyer’s invoice had gone from $4 a month a few decade in the past to $20 in 2022, a state of affairs that “screams out for extra oversight.” In North Carolina, a state regulator informed FERC officers final 12 months, state regulatory evaluation is simply triggered for traces 161 kilovolts or bigger, which results in a lot of development of smaller traces that his workplace doesn’t discover out about till “it reveals up in charges.”

At 16.42 cents per kilowatt hour, Ohio ranked 18th within the nation (highest to lowest) for residential retail electrical costs as of June 2023, in response to the U.S. Vitality Info Administration. That was up from 9.76 cents per kilowatt hour in 2021, when the state ranked thirty second. Transmission and distribution prices are solely a portion of that, however they’ve led to “vital will increase” in clients’ payments, the shoppers’ counsel stated in its criticism, filed Sept. 28. Nevertheless, a spokesman for the workplace stated it doesn’t have “complete knowledge on how the transmission and distribution expenses (as a proportion of whole electrical charges) on particular person buyer payments have elevated over time.”

The shoppers’ advocate criticism says that greater than 85% of utilities’ proposed new transmission spending was for “supplemental initiatives,” that means native initiatives that aren’t topic to want, prudence or value effectiveness evaluation by the state’s Public Utilities’ Fee, its Energy Siting Board, or PJM, which is the regional grid operator for Ohio.

“As an alternative, these PJM governing paperwork assume that state regulatory authorities will adequately shield shoppers relating to the necessity, prudence and value of supplemental initiatives,” the criticism says. “That assumption is misplaced.”

The Ohio Energy Siting Board is liable for overseeing environmental results, reviewing potential various areas and the necessity for some electrical services, however that authority is proscribed to transmission services rated at 100 kilovolts and above and it doesn’t evaluation any initiatives for value effectiveness, the shoppers’ counsel says. The Public Utilities Fee of Ohio “likewise has declined to evaluation the necessity, prudence and cost-effectiveness of those deliberate native transmission services in Ohio, regardless of OCC requesting it to take action,” the criticism notes.

Tammy Ridout, a spokesperson for American Electrical Energy, one of many utility firms named within the submitting, stated the corporate is reviewing the criticism. AEP Ohio has greater than 1.5 million clients within the state.

“We’re dedicated to clear transmission planning as we work to offer dependable, reasonably priced service to clients,” Ridout stated. She added that PJM’s present course of for planning so-called supplemental initiatives “is among the most sturdy and clear processes within the nation” and the same framework is being proposed for different areas by FERC in a new rule the company is engaged on coping with transmission planning and value allocation.

In a information launch final 12 months, AEP stated it plans to spend $26 billion between 2023 and 2027 on transmission and distribution operations “to proceed constructing a contemporary, environment friendly, dependable and resilient vitality grid.”

Ferreting out ‘gold-plating’

Jeff Shields, a PJM spokesman, stated FERC “has made it clear that sure asset administration actions, reminiscent of end-of-life selections that don’t broaden the transmission system, are particular to the person transmission homeowners.” For these supplemental initiatives, he stated the group has “efficiently labored with stakeholders to reinforce the transparency of planning” and integrated them into PJM’s larger regional planning efforts.

The Shoppers’ Counsel needs FERC to place in a “backstop” to guard Ohio electrical clients by altering the foundations (referred to as a “tariff”) that govern PJM.

“By this mechanism, FERC would evaluation the necessity, prudence and cost-effectiveness of native transmission initiatives in Ohio,” the criticism says. “Any utility gold-plating … must be ferreted out by regulators.”

The Edison Electrical Institute, an affiliation for investor-owned utilities, projected that its members would spend about $87.8 billion on transmission and distribution this 12 months. Provided that, and the way a lot work is required to improve an getting older grid to bolster reliability and accommodate the transition to extra renewable energy, it’s essential to ensure ratepayers aren’t being subjected to “gold-plating,” that means overspending on capital initiatives to spice up revenue margins, Guidi stated.

“It makes charges go up however it additionally makes utilities some huge cash. It’s necessary that it’s rigorously policed,” Guidi stated. “In any other case utilities are going to make some huge cash on the expense of ratepayers with out a number of considerable acquire.”

The Ohio Shoppers’ Counsel additionally inspired FERC to nominate an unbiased transmission monitor to evaluation “planning, want, prudence and cost-effectiveness of native transmission initiatives for shoppers in Ohio.” Impartial monitoring has been a part of discussions between FERC commissioners and state regulators, a lot of whom say they typically lack the experience and authority to vet utilities’ native transmission spending.

The Ohio company additionally needs FERC to bar Ohio utilities from utilizing components charges for transmission, preferring that Ohio transmission utilities get prior FERC approval “for all native transmission initiatives at or exceeding a set value threshold.”

“FERC must step in now and halt the hurt to Ohio shoppers,” the criticism says.

What the fee would possibly do is unclear.

The commissioners might dismiss the criticism by discovering that the shoppers’ counsel hasn’t made the case that the charges ensuing from the shortage of transmission oversight are unjust and unreasonable, stated Guidi, the SELC lawyer. Or it might “kick the can down the highway,” he stated, and look at the problem as a part of a much bigger continuing

The company is grappling with a number of transmission points, together with its draft rule on transmission planning and value allocation. On Oct. 4, greater than 230 state legislators from 43 states despatched a letter to FERC asking the fee to finalize and strengthen that rule.

The Ohio criticism, Peskoe stated, is extra proof of a damaged system for transmission improvement oversight.

“FERC already has reams of proof that its guidelines fail to guard shoppers and incentivize utilities to rebuild final century’s transmission community,” he stated. “FERC is, initially, a utility regulator that’s supposed to forestall monopolists from abusing their native market energy.”