FERC Denies Cross-Sound Cable Company’s Application for Incentive Rate Treatment to Comply with IROL-CIP Costs

Troutman Pepper

Troutman Pepper

On August 31, 2021, FERC denied Cross-Sound Cable Company, LLC’s (“Cross-Sound Cable”) application for incentive rate treatment to create a regulatory asset to recover costs incurred between 2016 and 2021 to comply with Interconnection Reliability Operating Limits (“IROL”) Critical Infrastructure Protection (“IROL-CIP”) costs under Schedule 17 of the ISO-New England (“ISO-NE”) Tariff.

In May 2020, the Commission approved ISO-NE’s proposed Schedule 17 of the ISO-NE Tariff, in which ISO-NE provided a cost recovery mechanism for IROL-CIP costs incurred by facilities that ISO-NE identifies as critical to the derivation of IROL.  FERC found that Schedule 17 only permits recovery of IROL-CIP costs incurred on or after the effective date of a FPA section 205 filing made by an IROL-critical facility owner to recover those costs.  On rehearing, the Commission clarified that IROL-critical facility owners could seek recovery of undepreciated costs of past capital expenditures made to comply with IROL-CIP requirements, but provided that the rule against retroactive ratemaking would apply to any such recovery.

On July 1, 2021, Cross-Sound Cable, a merchant transmission owner of a link between ISO-NE and Long Island, New York, filed a request for incentive rates pursuant to FPA section 219 to create a regulatory asset, to defer, amortize, and recover its IROL-CIP costs incurred from January 1, 2016 through May 31, 2021 under Schedule 17.  Cross-Sound Cable also requested an incentive under the Commission’s FPA section 205 authority, in the event that the Commission finds that incentive treatment under FPA section 219 is inappropriate.  Alternatively, Cross-Sound Cable requested Commission authorization of its IROL-CIP costs pursuant to the Commission’s remedial authority in FPA section 309.

The Commission denied Cross-Sound Cable’s request, finding that the proposed recovery of IROL-CIP costs incurred prior to the effective date of any FPA section 205 filing would violate the Commission’s rule against retroactive ratemaking, under which the Commission is prohibited “from imposing a rate increase for [power] already sold” or “adjusting current rates to make up for a utility’s over- or under-collection in prior periods.”  The Commission also disagreed with Cross-Sound Cable’s argument that application of the filed rate doctrine and rule against retroactive ratemaking are inconsistent with FPA section 219, which the Commission interprets as directing it to allow recovery of “all” such costs consistent with FPA section 205, pursuant to which utilities propose rates to the Commission and provide notice to potentially affected ratepayers.

Finally, the Commission declined to exercise its FPA section 309 authority to allow Cross-Sound Cable to recover past expenses from ISO-NE ratepayers by establishing a regulatory asset.  The Commission acknowledged its broad authority under that section, but provided that it only allows the Commission “to advance remedies not expressly provided by the FPA, as long as they are not inconsistent with the Act.  In this case, the Commission found that exercising authority under section 309 would run afoul of both the filed rate doctrine and the rule against retroactive ratemaking, which preclude recovery under FPA sections 205 and 219.

The Commission’s order is available here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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