California utility regulators are urging the Federal Energy Regulatory Commission to reject Southern California Edison’s request for “construction work in progress,” or CWIP, status for two transmission projects that total about $1.6 billion.
“The CWIP incentive has shown to be harmful to California ratepayers, providing premature and excessive rate recovery,” the California Public Utilities Commission said in a Friday filing at FERC.
FERC’s CWIP incentive allows transmission owners to recover the costs of their projects as they are being built. Normally, utilities must wait for their projects to be brought into service and then recover their expenses in a subsequent rate case, a process that can lead to a years-long gap between expenditures and cost recovery. In part, CWIP allows for smaller rate hikes over time as a project is built instead of a single rate shock for consumers.
However, it can also drive up customer rates when projects take longer than expected to be built and costs increase beyond original forecasts, according to the PUC.
In those cases, “the incentives end up being much costlier to customers, resulting in customers effectively serving as lenders to the utility, with the benefit being one-sided toward the company,” the PUC said, citing concerns raised by FERC Commissioner Mark Christie.
SCE’s current CWIP rate base totals $343 million for 11 projects, according to the PUC. “Granting CWIP here would just add to customers’ burden without being necessary for the projects to be built,” the PUC said.
SCE has a pattern of “long delays and cost overruns” related to CWIP projects, according to the PUC. “These delays and cost overruns magnify the harm to ratepayers,” the PUC said. “At the same time, CWIP in rate base removes SCE’s incentive to complete the projects on time.”
If FERC decides to let SCE recover the projects’ costs through CWIP, the eligibility should be capped at their estimated cost and the incentive should end when their expected in-service dates pass, the PUC said.
The issue centers on the $1.1 billion Del Amo-Mesa-Serrano project in the Los Angeles basin and the $482 million Lugo-Victor-Kramer project in San Bernardino County, according to SCE’s request for transmission incentives at FERC.
The projects’ estimated costs could increase depending on land acquisition needs and licensing requirements, SCE said. They were approved in May by the California Independent System Operator in its most recent transmission plan and are needed to meet California’s renewable energy goals, according to SCE. CAISO expects the Lugo-Victor-Kramer project will be online by 2032 and the Del Amo-Mesa-Serrano project will be operating a year later.
The projects pose “substantial permitting and construction challenges and risks” that would be addressed by the CWIP incentive, plus a requested incentive that would allow SCE to recover its spending if the projects are abandoned before they come into service, the Edison International utility said. The PUC doesn’t oppose the abandonment incentive.
The projects meet FERC’s criteria for transmission incentives, including for CWIP, according to SCE.
“Recovery in transmission rate base of CWIP expenditures during construction of the facilities will improve cash flow and the rate impact of the transmission projects will follow a smoother trajectory during a time when SCE is financing significant wildfire mitigation-related capital expenditures and substantial infrastructure replacement activities needed to support system reliability,” SCE said.
Meanwhile, FERC is considering ending its CWIP incentive under a pending transmission planning and cost allocation proposal that could be issued as soon as this spring.
