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FERC on Sept. 30 accepted and set for hearing Pacific Gas and Electric’s rate increase under the utility’s transmission owner tariff, setting an effective date of March 1, 2016, subject to refund, and establishing hearing and settlement procedures.
With forecasts to spend about $1.1 billion on projects in 2015, and another nearly $1.2 billion in 2016, PG&E said its 2016 period II network transmission rate base would be about $5.9 billion, a 25.3 percent increase from the 2014 period I rate base of about $4.7 billion.
PG&E, a unit of PG&E Corp., sought a rate of return on equity of 10.96 percent, with a base return of 10.46 percent and a 50 basis point incentive adder for its participation in the California ISO. In support of the request, PG&E sought to increase the depreciation rate to 3.28 percent from the current level of 2.52 percent, asserting that the low depreciation rates that FERC has approved in previous rate cases places PG&E at risk of deferring cost recovery into the future, leading to potential rate shock for customers.
Several transmission customers and the California Public Utilities Commission protested the rate increase, arguing that the base ROE of 10.46 percent is unjust and unreasonable, FERC said in the order.
The protestors said PG&E calculated the ROE using the methodology FERC adopted in Order No. 531, involving merchant transmission owners in New England, but they claimed that PG&E failed to show that similar market conditions or unusual circumstances exist to merit an upward adjustment to the base ROE as FERC found in Order No. 531.
Several protestors said using the discounted cash flow analysis not adopted in Order No. 531 would produce a base ROE of 8.62 percent and lower PG&E’s revenue requirement by $96 million, according to the order.
As it has in an earlier rate case, the CPUC disputed PG&E’s request for a 50 basis point adder to the ROE for its continued participation in the California ISO, asserting that participation is not voluntary but required by state law, and that the adder is unreasonable given the magnitude of the California ISO grid management charge paid by PG&E customers.
FERC said the proposed rates “may yield substantially excessive revenues,” and it suspended them for five months. It said a settlement judge should be appointed and it encouraged parties to reach a settlement before the hearings begin.
FERC, as it has in previous orders, accepted PG&E’s request for the 50 basis point ROE adder for the utility’s participation in the California ISO. FERC said the ROE incentive adder is appropriate and is in no way related to the California ISO grid management charge, disputing the CPUC arguments.
PG&E sought the transmission rate increase while the ROE adder incentive issue was being debated in a previous rate case. As TransmissionHub has reported, the ROE incentive was the only element not resolved in a settlement in that case (FERC Docket No. ER14-2529).