Extended Highlights from Illinois Commerce Commission Testimony:
Rock Island “Clean” Line Docket 12-0560
Printable version HERE.
Illinois Commerce Commission Zuraski and Rashid Testimony:
ComEd Neumann and Lapson Testimony:
“The Project is simply not developed enough for final regulatory evaluation. Moreover, RI’s request for an order under Section 8-503 is both premature and inconsistent with RI’s own testimony and the conditionality of RI’s commitment to build the Project. “ ComEd/Naumann, p. 2
“Because the owners assume all financial risk, a merchant project need not demonstrate a public need, operational benefit, or net market efficiency benefit to be approved by PJM and/or MISO. Indeed, it need not even participate in that aspect of the regional planning process.” ComEd/Naumann, p.6
“At the regional level, RI has not claimed or shown that the Project is necessary for reliability, operating efficiency, or market efficiency in the regional planning process conducted by PJM.” ComEd/Naumann, p.6
“Those projects have demonstrated a public benefit in a regional planning process. This Project has not. Yet, at the ICC, the Project is being presented as a project that is entitled to a CPCN, which presumes a public need. ComEd/Naumann, p.6
“As I will explain later, at this stage of the study process, among the upgrades that PJM has identified as required if the Project is built is a substantial 765 kV line from Illinois well into Indiana.” ComEd/Naumann, p.7
“This is an important protection for customers, and the ICC should ensure that the Project is not built as a “merchant” project outside the planning process, but then turned into a rate-based line, paid for by customers, at a later date.” ComEd/Naumann, p.7
“RI has argued that PJM should not model the line as delivering 100% wind energy. RI specifically told PJM that PJM should not assume that RI should be modeled as “a wind-sourced injection.”” ComEd/Naumann, p.8
“At this point, no one can predict if renewable generation will contract with RI to transmit energy over the line or whether other generation will want to do so in order to access the PJM market. The market will make that determination.” ComEd/Naumann, p.9
“A party seeking a CPCN from the ICC should, at a minimum, tell the ICC what must be built, where it will be built, how it will affect reliability, how much it will cost, and how that cost will be recovered. RI, at this time, can establish none of these things with reasonable certainty. The Project simply is not ready for ICC regulatory approval.” ComEd/Naumann, p.9
“The ICC should, therefore, deny the request for a CPCN without prejudice to future resubmission at such a time as (a) the major uncertainties surrounding the Project become resolved, and (b) RI unconditionally commits that the Project will remain a merchant transmission project.” ComEd/Naumann, p.9
“As a merchant facility that has not been demonstrated to have a public need under the applicable regional planning standards – indeed, RI did not even submit the Project to PJM as one that has such public benefits.” ComEd/Naumann, p.11
“(T)his request appears baffling because RI witness Berry acknowledges that the appetite of generators to pay for the costs of the Project is uncertain and that RI will only build the Project if future market developments permit it to be financed.” ComEd/Naumann, p.10
“Moreover, the ICC cannot be certain whether RI will at some point in the future, after this Docket is over, attempt to convert all or part of the Project from a merchant transmission project to a rate base transmission project, thereby imposing costs on Illinois delivery customers.” ComEd/Naumann, p.12
“The ICC cannot be sure what type of generation, if any, will contract with RI to utilize the line.” ComEd/Naumann, p.12
“Finally, there is a basic uncertainty as to whether or not the market will support the cost of the Project as a whole, i.e., whether any customer(s) will contract with RI in sufficient volume to support the required investment, and thus whether the project actually will be built.” ComEd/Naumann, p.13
“The stability analysis that was referenced in the November 2012 System Impact Study found that the system dynamic performance with 3,500 MW of energy delivered by RI failed to meet applicable NERC, PJM and ComEd standards.” ComEd/Naumann, p.25
“RI has not had any discussions with ComEd regarding the availability of space at Collins for RI’s equipment. Nor does it appear that RI has any property under its control where it would locate the transformation facilities.46 Given that RI will have to run 765kV facilities from those transformation facilities into the Collins 765kV yard, it is essential that ComEd know where and how such lines will be located.” ComEd/Naumann, p.35
“Therefore, there is no firm plan as to how RI will interconnect to Collins. “ ComEd/Naumann, p.35
“RI does not have any maintenance or spare equipment plans at this time. Nor does it appear that they have plans for a 24/7 response in case of physical failure.” ComEd/Naumann, p.36
“Can the ICC be certain that the Project will remain a 100% merchant project that will be paid for only by persons who voluntarily agree to use the line?
RI can change its mind and ask PJM or MISO to evaluate the project under the criteria for their regional plans. This has occurred before in PJM, in cases involving Primary Power and Central Transmission.53 RI could also attempt to transform part of the Project into a rate-based project while maintaining the rest as a merchant charging market-based rates. Of note, RI has expressed interest in potentially challenging PJM’s light load analysis which could shift costs for the network upgrades required by PJM’s reliability analysis to load customers.” ComEd/Naumann, p.38
“RI Witness Skelly has testified that Clean Line and RI “do not currently plan to request cost recovery for the Project through regional cost allocation processes.” (emphasis added) Mr. Skelly further states that RI anticipates recovering its costs from suppliers and buyers who contract to use the Project. However, Mr. Skelly also testifies that while “[t]here is currently no mechanism in place for inter-regional allocation of the costs of a transmission facility such as the Rock Island Project ... [i]f a mechanism for inter-regional cost allocation were to be developed and implemented, and were widely used by transmission developers and their customers, Rock Island could find it necessary to utilize this mechanism as well, for competitive reasons." RI has reiterated that while RI has “no current plans” to request MISO or PJM to study the Project to be cost allocated, RI does not rule out making such a request in the future if cost allocation rules change in the future.” ComEd/Naumann, p.39
“Moreover, RI’s ultimate parent, Clean Line Energy Partners LLC (“Clean Line”), has actively advocated at FERC for new rules that would allow some costs of merchant facilities to be considered for rate base cost allocation. FERC denied the request, not on substance, but because Clean Line’s request was beyond the scope of Order No. 1000. I note that RI claims that the Project provides reliability benefits and therefore could qualify for regional cost allocation rather than a merchant project today if the Project passed PJM and/or MISO planning criteria. Therefore, it is not clear whether or not RI will try to shift the cost of the Project to ComEd’s (and other PJM) customers. This lack of a firm commitment to follow the “merchant transmission” model where subscribers pay for the cost of a project also undercuts RI’s economic analysis where costs incurred by RI turn into benefits to Illinois. Without an unequivocal commitment not to shift costs of the Project to unwilling customers, RI’s entire analysis of least cost is undermined. “ ComEd/Naumann, p.39
“The LOLE analysis does not consider the fact that a severe weather event, such as a tornado, can cause an outage of a DC line, interrupting all the capacity the Project is injecting into PJM.“ ComEd/Naumann, p.44
“My concern is heightened in this regard because this Docket is likely to be the sole opportunity for state review of the Project.” ComEd/Naumann, p.49
“The data simply does not allow critical questions about this Project to now be answered and the ICC should not move forward absent those answers. Finally, RI’s request for an order under Section 8-503 is both premature and inconsistent with RI’s own testimony and the conditionality of RI’s commitment to build the Project.” ComEd/Naumann, p.49
“The information provided by RI in its Petition and direct testimony demonstrates that RI’s financial resources are not currently sufficient to fund the construction of the proposed Project. At best, the information provided regarding access to financing can only be described as “aspirational.” “ ComEd/Lapson, p.5
“In contrast, RI’s balance sheet (ComEd Ex. 2.02) shows that as of Dec. 31, 2012, RI had received members’ equity contributions of ***BEGIN CONF XXXXXXX END CONF*** of which ***BEGIN CONF XXXXX END CONF*** had already been spent as of that date on development activities and fixed assets relating to development.” ComEd/Lapson, p.6
“In addition, the Petition states that the original equity investors are providing capital to fund only the development process, which as I noted Mr. Berry estimates comprise approximately 1-2% of total project costs, or $20 to $40 million. As with Mr. Berry’s testimony itself, the Petition does not state that there is any defined commitment by any person to fund even the full development costs.” ComEd/Lapson, p.7
“Is the Project currently at a stage where a lender, be it a conventional or project finance lender, would be expected to commit to lend the required additional capital to complete the Project?
No, in my experience, absent a full guarantee from a credit-worthy project sponsor, lenders require detailed information about virtually every aspect of a project before providing loan commitments. Investors in project equity also have high requirements for documentation prior to making major capital commitments, although strategic equity investors may make smaller “seed money” commitments in advance of full details, such as the investment by GridAmerica Holdings in a development company that is a parent, one or two levels removed, of RI. “ComEd/Lapson, p.8
“If I may offer an analogy, I can say with great certainty that a person wishing to become a violinist in the Chicago Symphony Orchestra needs to acquire a violin, find a violin instructor, apply him or herself conscientiously to years of lessons and practice, and apply for an audition for an open seat at the orchestra. It would be misleading, however, to say that any individual who follows those steps will with great certainty gain a seat in the violin section of the Chicago Symphony Orchestra.
Listing a number of transmission projects that have successfully achieved financing, as Mr. Berry does (RI Ex. 10.0, 32:676 – 33:686; RI Ex. 10.7), is tantamount to my listing the members of the violin section of the Chicago Symphony Orchestra as evidence that I will certainly become a member of the violin section of the orchestra if I follow the same regimen that they did.” ComEd/Lapson, p.11
“Although RICL argues that the proposed project will improve the electric system reliability in Illinois, RICL has not provided evidence that the reliability of the electric systems in Illinois will be adversely affected if the proposed project is not built. In other words, RICL has not provided evidence that the proposed project is needed to maintain the reliability of the electric systems in Illinois.” ICC Staff/Rashid p.3
“The addition of these converters will increase the interconnection cost significantly, making such an endeavor impractical and economically infeasible. This economic disadvantage will likely hinder Illinois electricity producers’ and electricity users’ ability to access the HVDC transmission line.” ICC Staff/Rashid p.8
“I am skeptical of RICL’s ability to efficiently manage and supervise the proposed project. “ ICC Staff/Rashid p.15
“Q. Do you believe the cost of RICL’s proposed project meets the least-cost criterion that is defined in Section 8-406 of the Act?
A Since RICL does not propose alternatives to the proposed project, it is not clear whether the proposed project, which RICL estimates will cost $2 billion overall, is the least-cost project that would further the cause that RICL identifies for implementing the proposed project.” ICC Staff/Rashid p.9
“However, RICL has provided no evidence that it, as an entity, or its parent company have ever managed or supervised a transmission line project, let alone a transmission line project of this magnitude. Therefore, I am skeptical of RICL’s ability to efficiently manage and supervise the proposed project. I recommend that RICL provide information in its rebuttal testimony on its capability to efficiently manage and supervise the construction of the proposed project.” ICC Staff/Rashid p.15
Michael Skelly Tesitmony (President of "Clean" Line)
“Clean Line and Rock Island do not currently plan to request cost recovery for the Project through regional cost allocation processes. There is currently no mechanism in place for inter-regional allocation of the costs of a transmission facility such as the Rock Island Project. It is possible that such a mechanism or mechanisms will be developed over the next several years. If a mechanism for inter-regional cost allocation were to be developed and implemented, and were widely used by transmission developers and their customers, Rock Island could find it necessary to utilize this mechanism as well, for competitive reasons. Stated differently, if other developers of inter-regional transmission projects were recovering all or part of their costs through a cost allocation mechanism, rather than directly through the charges to the specific transmission customers of their facilities, then transmission customers likely would be unwilling to enter into contracts with Rock Island that obligated the customers, collectively, to pay for the full costs of the line.”
“However, this analysis is subject to considerable uncertainty. Therefore, there is a risk that the project will not be financially viable as a subscription service sold at market-based rates, in which case RICL would be more likely to seek FERC approval to recover its costs through a more general levy on electric market participants, such as an “inter-regional allocation of the costs,” as described by RICL witness Skelly in his direct testimony. “ ICC Staff/Zuraski p.5
“Q. Has RICL demonstrated that the RICL Project’s benefits outweigh its costs so that, on net, it is expected to be beneficial to Illinois consumers?
A. No. The direct testimony presented by RICL witnesses focuses only on certain alleged benefits of the project. RICL has not compared the benefits to the project’s expected costs.” ICC Staff/Zuraski p.11
“Which, if any, of the impacts that you just listed would you exclude from an economic analysis of the benefits and costs of the project?
A. I would exclude all of the impacts mentioned in the last bullet point: “The project will increase employment, revenues of manufacturing and service enterprises, landowners’ wealth, and tax revenues at the State and local levels.” These impacts were estimated by RICL witness Dr. Loomis.” ICC Staff/Zuraski p.13
“Q. Why would you exclude an increase in employment, revenues of manufacturing and service enterprises, landowners’ wealth, and tax revenues from an economic analysis of the benefits and costs of the project?
A. First, we would be mixing two types of economic analysis that are inconsistent with each other… ICC Staff/Zuraski p.13
“For instance, if RICL had to double the thickness and the length of its conductors, it would dramatically increase the cost of the project. However, using the methodology presented by RICL’s witness, Dr. Loomis, that same increase in the cost of the project would also directly and indirectly increase employment, increase revenues of manufacturing and service enterprises, and increase tax revenues at the State and local levels, which RICL would count as benefits. Indeed, the more imprudent, inefficient, costly, wasteful RICL is assumed to be, the greater the “benefit” that would be computed by Dr. Loomis’ model.” ICC Staff/Zuraski p.13-16
“I believe it is speculative to make such assumptions when considering the impacts of private investment. While the Commission can influence whether this particular private investment is made, it cannot control whether or not net private investment in general is going to increase, or by how much.” ICC Staff/Zuraski p.13-16
“Third, even assuming that the RICL Project is the only feasible incremental use of otherwise idle resources, the cited increase in tax revenues at the State and local levels merely represent income transfers, at best. They are benefits to the constituents of those units of government receiving the tax revenues, while, at the same time, they are costs born by the ultimate consumers of RICL’s services. They do not represent a net increase in consumer welfare. …Some portion of these tax revenues could even represent a net increase in costs…”
ICC Staff/Zuraski p.15
“Fourth, any increase in landowners’ wealth either represents compensation for other uses of the land, or another set of income transfers. To the extent to which it is the former, the analysis should include the loss of economic value associated with the other uses of the land that would be foreclosed by the project. If eminent domain is exercised, it is also possible that some landowners experience a decrease in wealth (at least from their perspective), while other landowners experience an increase in wealth.” ICC Staff/Zuraski p.13-16
“Fifth, the analysis was applied inconsistently in this particular instance. Dr. Loomis entered into his model the direct construction and operating and maintenance costs of both the RICL Project and the wind farms that RICL expects to sprout up next to the project, but he failed to take into account the projected reductions in the cost of energy that were presented by RICL witnesses Moland and McDermott. There was no logical reason not to do so, assuming one accepts the validity of Dr. Loomis’ model.” ICC Staff/Zuraski p.13-16
“From the above-summarized analysis, I conclude that the RICL Project, along with the addition of wind farms around northwestern Iowa capable of producing around 15 millions MWHs of electricity per year, can be expected to result in net economic benefits relative to the status quo (represented by projections of market prices for electricity). However, considerable uncertainty surrounds this expectation.” ICC Staff/Zuraski p.33
“If there are still insufficient revenues to support the RICL Project, along with the wind farms around northwestern Iowa, then RICL would be more likely to seek to raise revenue through some sort of FERC-approved cost-based cost recovery mechanism, such as an “inter-regional allocation of the costs,” as described by RICL witness Skelly in his direct testimony.” ICC Staff/Zuraski p.35
“I conclude that, if the Commission wishes to take a broader perspective than that of Illinois electric ratepayers, and wants to treat all taxes as income transfers, then the RICL scenario appears much less likely to be cost effective. If the Commission only wants to treat Illinois taxes as income transfers, then there is no impact on the RICL scenario when viewed in isolation and a beneficial impact when viewed relative to the Illinois wind farm scenario.” ICC Staff/Zuraski p.46