(CN) – The D.C. Circuit rejected New England utility regulators’ challenge to a rate hike meant to spur regional utilities to finish important energy transmission projects quickly, though the incentives are expected to cost energy consumers nearly $150 million in higher rates.
The three-judge panel upheld the Federal Energy Regulatory Commission’s decision to approve a half-percentage point return on equity to induce utilities to join ISO New England’s proposed regional transmission organization. The agency had also approved a 1 percent return incentive to, as the FERC put it, “give project owners a significant impetus to push hard for their projects.”
The Connecticut Department of Public Utility Control and other regulators objected to the incentives, arguing that they were “arbitrary and capricious” and would be paid for by power consumers.
The transmission owners argued that although the incentives would cost energy consumers $148.2 million in higher rates, the project would eventually yield some $76 million in savings every year “by protecting customers from future reliability cost,” according to the ruling.
FERC said the utilities need not show that the projects would be abandoned absent the incentives. The commission found that the incentives fall within the “zone of reasonable returns,” citing the link between the “incentives being requested and the investment being made.”
The Washington, D.C.-based appeals court agreed.
The commission “made clear that it was concerned not with ensuring that the projects would be completed eventually … but with ensuring that they would be completed promptly,” Judge Stephen Williams wrote (italics in original).
Because the utilities were able to demonstrate the “benefits of accelerating a reduction in congestion and an increase in reliability,” FERC had a “reasonable basis for concluding that the incentive might benefit consumers by accelerating completion of the projects,” Williams concluded.