FERC: Black Hill’s formula rate protocols are unreasonable

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Federal Energy Regulatory Commission on July 17 ordered Black Hills Power to file revisions to the formula rate protocols under the joint open access transmission tariff (OATT) of Black Hills, Basin Electric Power Cooperative and Powder River Energy Corp., or demonstrate why it should not have to follow such instruction, as part of FERC’s general guidance for electric utilities’ annual formula rate updates to address common deficiencies that have hindered the ability to evaluate the updates and confirm that rates are consistent with the formula.

“The Black Hills formula rate protocols are deficient in the three areas of concern ... and thus appear to be unjust and unreasonable,” FERC said.

Other companies that FERC directed to revise their formula rate protocols included Westar Energy, Louisville Gas and Electric Co. (LG&E), Kentucky Utility Co. (KUC), The Empire District Electric Co., Kansas City Power and Light Co., UNS Electric and KCP&L Greater Missouri Operations Co.

The three areas of concern are the same for the other companies, including scope of participation, transparency of information and the ability to challenge the transmission owners’ implementation of the formula rate as a result of the information exchange, according to TransmissionHub.

FERC found that the protocol language restricts the participation of interested parties in the review of the inputs to the formula rate and of the costs that would flow through the formula rates are unjust and unreasonable.

Thus, to provide ample opportunity for participation and access to information, FERC instructed Black Hills to revise its formula rate protocols to provide FERC and all interest parties with access to information in regards to annual updates as provided by the MISO Investigation Order and Compliance Order.

In the MISO investigation order, issued in May 2013, FERC conducted an evaluation, in accordance to the Federal Power Act (FPA), to determine whether the formula rate protocols under the MISO OATT were sure to guarantee just and reasonable rates.

In the MISO compliance order, issued on March 20, FERC instructed the ISO to provide notice of annual updates postings, propose a method for transmission owners with transmission projects that use regional cost sharing means to plan and hold joint meetings and ensure that the protocols apply to the projected revenue requirement.

With regard to information transparency, FERC found that Black Hills’ formula rate protocols do not include information necessary for interested parties to understand and evaluate the implementation of the formula rate for either the correctness of inputs and calculations or the prudence of the costs to be recovered in the formula rate.

Black Hills’ formula rate protocols do not require Black Hills to disclose any change in accounting during the rate period that affects inputs to the formula rate or the resulting charges billed under the formula rate. In addition, formula rate protocols currently do not provide a requirement to make annual informational filings with FERC.

Therefore, in order for FERC to ensure “just and reasonable rates,” data such as the annual updates, and true-up adjustments that are associated with the formula rate protocols should be filed with FERC as an annual informational filing.

With regard to challenge procedures, FERC found that Black Hill’s formula rate protocols appear to be unjust and unreasonable, and the company should revise its protocols to provide specific procedures for challenges to ensure that transmission customers pay just and reasonable rates.

FERC directed Black Hill to file revisions to the formula rate protocols within 60 days of the issuance of the July 17 order or demonstrate why the company should not be required to follow such instruction.

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September 2014
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