posted on Friday, December 22, 2006 2:05 PM by Gunnar Birgisson

FERC To Take Closer Look at ISO-NE's Proposed 2007 Budget

The cost of running regional transmission organizations continues to be a point of contention.  FERC has agreed with New England officials representing Massachusetts, Connecticut, Maine and New Hampshire that part of ISO-New England's proposed budget for 2007 deserves more scrutiny, and has established a paper hearing to evaluate the proposal. 

In October, the ISO-NE submitted tariff sheets for recovery of an expected $114.9 million revenue requirement for 2007.  For the third year in a row, challenges were levied against ISO-NE's proposed budget.  The New England officials asked FERC to hold a trial-type evidentiary hearing to determine whether the costs that ISO-NE plans to pass through to customers, were just and reasonable.  In arguing that ISO-NE failed to support its  budget, the regional officials pointed to FERC's statement last year in its Final Rule on Accounting and Financial Reporting for Public Utilities and RTOs  that the changes in financial reporting implemented by that rule should improve cost recovery practices by providing greater detail concerning RTO costs.  In particular, the officials challenged  ISO-NE's proposed senior staff incentive payments, depreciation and amortization expenses, non-project capital expenses, consultant and other professional service fee costs, and costs related to projected staffing increases.

The only issue set for hearing is ISO-NE's proposed depreciation and amortization expenses.  In particular, FERC ― like the New England officials ― questioned whether the "relatively short average service lives and zero net salvage values used by ISO-NE may result in excessive amounts of depreciation and amortization" for the coming year.  FERC found all of the other complaints to be unfounded or not properly at issue.

Other recent challenges to ISO-NE budgets have not succeeded.  Last year, FERC rejected challenges to rate recovery of certain lobbying costs, and in 2005 FERC justified the increase in ISO-NE's administrative costs based on additional duties taken on by the RTO.  As seen again here, FERC's concern for accurate RTO budgeting does not necessarily translate into reduced rates for RTO services.