Transmission Ratemaking In The PJM Interconnection

Trends in transmission rate base among utilities in the Pennsylvania-New Jersey-Maryland Interconnection, or PJM, regional transmission organization, or RTO were decidedly mixed from 2016 to 2017 based on newly available data, including 11 companies reporting a year-on-year increase in rate base and 14 companies reporting a year-on-year decrease in rate base.

PJM rate base CAGR 2011-2017

Exelon Corp.'s Baltimore Gas & Electric reported the largest percentage increase in transmission rate base from 2016 to 2017, from $705.2 million to $887.3 million, or 25.83%. Three other companies reported a year-on-year increase in transmission rate base of more than 10%: PPL Corp.'s PPL Electric Utilities, 16.91%; FirstEnergy Corp.'s, or FE's, American Transmission Systems Inc., or ATSI, 16.49%; and Exelon's Atlantic City Electric, 15.52%.

The 14 companies reporting a year-on-year decrease in transmission rate base ranged from Exelon's Delmarva Power & Light, -0.14%, to American Electric Power Co.'s, or AEP's, Potomac-Appalachian Transmission Highline, or PATH, -44.10%. PATH was cancelled in 2012 and the decreasing rate base represents amortization of the project's capital investment.

Among companies with formula rates for transmission in place for both 2016 and 2017 in PJM, the aggregate transmission rate base grew to $33.2 billion in 2017 from $30.6 billion in 2016, representing an increase of 8.55%. Two companies, FE's Jersey Central Power and Light, or JCP&L, and Mid-Atlantic Interstate Transmission, or MAIT, transitioned from stated transmission rates to formula transmission rates in 2017 and are not included in the totals.

This post is an excerpt from a report by Regulatory Research Associates, a group within Global Market Intelligence.
Among PJM utilities with formula rates in place between 2011 and 2017, the reported transmission rate base for Public Service Enterprise Group's Public Service Electric and Gas, or PSE&G, grew the fastest of all companies, from $1.36 billion in 2011 to $6.98 billion in 2017, resulting in a compound

annual growth rate, or CAGR, of 31.28%. PSE&G was followed by AEP's Wheeling Power, with a 2011 to 2017 CAGR of 29.94%, ATSI, with a CAGR of 25.13%, and PPL, with a CAGR of 24.41%.

The average authorized return on equity for PJM RTO companies in 2017 with formula rates for transmission was 11.23%, including a 50 basis point ROE incentive adder for membership in an RTO. FERC has also authorized additional ROE incentive adders on a company by company or project specific basis. Authorized ROEs range from a low of 10.38% for ATSI to 13%, including incentive adders, for specific projects developed by Exelon's Commonwealth Edison.

Ten of the PJM companies followed by RRA are accorded additional ROE incentive adders for at least a portion of their rate base.

Formula transmission rates can be based on actual historical costs or forward looking projected costs, subject to a true up the following year. FERC requires that utilities employing formula rates share annual updates to their transmission rates, including appropriate supporting documentation, with all interested parties and file such annual updates with the commission on an informational basis. The annual updates include information on transmission rate incentives, such as the inclusion of construction work in progress, or CWIP, recovery of deferred assets, and recovery of the cost of abandoned plant.

FERC requires companies seeking incentives to demonstrate a connection between the incentive(s) requested and the proposed investment, known as the "nexus" test, and that the incentive(s) requested address the risks and challenges that a project faces.

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Jun 26, 2017
Jun 08, 2017