“MCR’s database and analytics were critical for us, as we lacked these capabilities in-house. MCR was given a specific task: to perform an analysis of historical transmission levels in key RTOs and then present their results and policy recommendations in supporting testimony that we planned to include as part of our comments in a FERC administrative proceeding. They delivered exactly what we were looking for, on schedule, and within budget.”
—Vice President, Government Affairs, Independent Transmission Developer
An independent transmission developer was filing comments at FERC to a Notice of Inquiry (“NOI”) to support transmission incentives. The independent transmission developer engaged MCR to support two specific return on equity (“ROE”) incentives: the continuance of an existing Transco ROE adder and the introduction of a new ROE adder to encourage joint investment with public power and cooperatives.
In order to support the continuance of the Transco ROE adder, MCR provided a study comparing five investment-related metrics between traditional investor-owned utilities (“IOUs”) and transmission-only companies, or Transcos. The study covered IOUs and Transcos in MISO and SPP using data gathered in MCR’s Proprietary Transmission Investment and Load (“PTIL”) database. All five metrics, developed and analyzed by MCR, showed that Transcos had higher levels of investment than traditional IOUs over the comparison period of the last six years. MCR testimony concluded that the Transco business model has been effective in encouraging new transmission investment and that the key to Transcos’ superior investment levels is their management’s focus on transmission as a singular business function and ready access to capital, both hallmarks of a Transco.
In order to support the introduction of a new joint investment ROE adder to encourage increased joint investment between IOUs/Transcos and public power and cooperatives, MCR provided segment data comparisons covering MISO and SPP over the last five years for five key investment-related metrics. The analysis overwhelmingly showed that in all metrics, the combined IOU/Transco segment invested at a much higher rate than municipals and most generation and transmission cooperatives. The relatively low level of municipal and cooperative investment combined with their older facilities suggests that municipals and many cooperatives are faced with the prospect of declining reliability in the future. In addition to providing analysis of the metrics, MCR provided testimony explaining the reasons why municipal investment has been strikingly low. The testimony supported the introduction of a new ROE adder incentive for IOUs and Transcos to encourage joint investment with public power and cooperatives, leading to enhanced reliability of the grid.
The conclusion from the MCR study of IOU vs. Transco investment was that the Transco ROE adder is working (i.e., encouraging transmission investment) and should be continued. Further, based on the investment comparison metrics in MISO and SPP for the municipal segment vs. the IOU/Transco segment, municipal investment is woefully lacking and FERC needs to incent further investment by public power by introducing a new joint investment ROE adder.
FERC is evaluating the comments from the NOI and will make its decisions regarding which existing incentives should be continued and/or which new incentives should be implemented (or examined further).