NOVI, Mich., July 28, 2015 /PRNewswire/ -- ITC Holdings Corp. (NYSE: ITC), the nation's largest independent electricity transmission company, today filed a Petition for Declaratory Order with the Federal Energy Regulatory Commission (FERC) asking for needed guidance on issues critical to the regional competitive transmission bidding processes established under Order 1000. ITC's Petition seeks guidance from FERC as to how winning bids will be treated for ratemaking purposes: whether bids selected through FERC-approved competitive transmission solicitation processes are deemed to be just and reasonable. In addition, the Petition asks FERC to award winning binding, full revenue requirement bids protection from future rate challenges unless required by the public interest.
ITC's Petition comes at a time when Regional Transmission Organizations (RTOs) are initiating their recently approved competitive solicitation processes. Southwest Power Pool (SPP) currently has an open bidding window for its first competitive project. The Midcontinent Independent System Operator (MISO) is expected to launch its competitive process prior to year end. Both SPP and MISO require 40-year, annual revenue requirement (project costs plus return) estimates. Based on experience in other regions, it is likely developers will seek to submit binding bids for these revenue requirements as well. Full revenue requirement bids raise questions as to how a regulated cost-of-service methodology works in a competitive environment. This question has not been addressed to date, because CAISO and PJM, the only other regions that have conducted competitive processes to award new transmission projects, only require that developers bid on project costs, not full revenue requirements.
"As Order 1000 is being implemented, cost containment measures, including binding bids, are becoming commonplace, which shifts more risk to transmission developers," said Daniel Oginsky, executive vice president of U.S. Regulated Grid Development for ITC. "To have veracity in the competitive process, cost containment mechanisms make sense, but it is also necessary for FERC to address this untenable 'head's I win; tails you lose' situation for developers," said Oginsky.
Any costs incurred by the winning bidder in excess of a binding bid, regardless of prudence or benefit to ratepayers, will not be recoverable. To be fair then, cost savings achieved below the binding bid level should benefit the developer who achieved those savings. However, developers would be exposed to Federal Power Act Section 206 complaints seeking to lower rates. Thus, a developer is faced with receiving the lower of cost or bid, a situation that is unfair and will not for long support genuine competition in transmission development.
The Petition proposes the Commission grant Mobile-Sierra protection for a winning binding bid, at FERC's discretion, upon approval of an implementing FPA Section 205 rate filing. Such a result would be consistent with the United States Supreme Court's Mobile-Sierra cases, which protect agreements freely entered into and has been extended to rates and rate elements developed through competitive market processes, including rates established through capacity auctions.
"It is illogical to require developers to offer 40-year bids with rate components that could be changed through future regulatory proceedings. We do not need a lengthy, costly and complex new competitive process to regulate transmission rates. The goal should be that competition will result in disciplined rates and drive innovation," Oginsky said.
A member of three RTOs, ITC has invested $5.2 billion in transmission infrastructure since its inception in 2003 through March 31, 2015, completing four large-scale regional transmission projects in the past four years alone across the Midwest and Great Plains. "To make competitive transmission work, we need to know when we make our bid whether that bid will be acceptable to federal regulators and how durable it is. If a developer takes on greater risk by binding its bid, and that bid is found to be superior to all others and selected through a FERC-approved process, customers should not be able to undo that agreement, unless there is a higher public interest reason for doing so," Oginsky explained.
ITC's Petition does not seek to require any developer to offer a binding bid, nor does it suggest FERC must determine that all Order 1000 solicitation processes are functionally competitive.
About ITC Holdings Corp.
ITC Holdings Corp. (NYSE: ITC) is the largest independent electric transmission company in the United States. Based in Novi, Michigan, ITC invests in the electric transmission grid to improve reliability, expand access to markets, lower the overall cost of delivered energy and allow new generating resources to interconnect to its transmission systems. Through its regulated operating subsidiaries ITCTransmission, Michigan Electric Transmission Company, ITC Midwest and ITC Great Plains, ITC owns and operates high-voltage transmission facilities in Michigan, Iowa, Minnesota, Illinois, Missouri, Kansas and Oklahoma, serving a combined peak load exceeding 26,000 megawatts along approximately 15,600 circuit miles of transmission line. ITC's grid development focus includes growth through regulated infrastructure investment as well as domestic and international expansion through merchant and other commercial development opportunities. For more information, please visit ITC's website at www.itc-holdings.com. (ITC-itc-F).
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SOURCE ITC Holdings Corp.