Opinion ID: 3048937
Heading Depth: 4
Heading Rank: 2

Heading: FERC Policy Consistently Favors Rolled-In

Text: Transmission Pricing. [4] FERC precedent clearly demonstrates a consistent policy favoring the rolled-in method of transmission pricing where the system operates as an integrated whole.10 Otter Tail Power Co., 12 F.E.R.C. ¶ 61,169 (1980) (Opinion No. 93), is an oft-cited example of this policy. In Otter Tail, FERC found that a utility properly attributed six high-voltage lines to a transmission function and that the utility should therefore allocate the costs of the lines on a rolled-in basis. Id. at 61,416-17. The owner of the lines, Otter Tail, was subject to an antitrust decree requiring Otter Tail to wheel11 power from any third-party supplier to any municipality within Otter Tail’s service area. Id. at 61,411. During a proceeding to the instant case. As Order No. 466-A noted, the GSUs in Kentucky Utilities were “used solely to increase the voltage of electric energy produced by generators.” 106 F.E.R.C. ¶ 61,144, at 61,481; see 85 F.E.R.C. ¶ 61,274, at 62,111 (citing Northern States Power Co., 64 F.E.R.C. ¶ 61,324, 63,379 (1993), for unbundling requirements). Applying the exclusive use test, such facilities serve no independent transmission function at all and were appropriately separated from transmission pricing. Despite DWR’s reliance on this case, we do not find any substantial support for DWR’s argument in Kentucky Utilities. 10 The parties appear to assume that PG&E’s system is integrated. 11 “Wheeling” refers to the use of transmission facilities of one system to transmit power for another system. CAL DEP’T OF WATER v. FERC 6917 determine the rate Otter Tail could charge for wheeling power, Otter Tail introduced evidence that the six highvoltage lines were used for network transmission. Id. at 61,419-20. Other parties to the proceeding contended that the lines should not be included in Otter Tail’s transmission rate because the lines were of more use to Otter Tail in its production (power generation) function than in a transmission function. One group noted that some lines were built to intertie Otter Tail’s plants with power sources. Id. at 61,417-18. It argued that on these lines, the use for transmitting non-Otter Tail-produced power was de minimis, such that the lines should be excluded from the rate base. Id. at 61,418. Another group introduced evidence that the lines performed production-related functions 26.3 percent of the time, and argued that a corresponding percentage of the lines’ costs should be excluded from the rate base. Id. at 61,418 n.54. FERC rejected these arguments, holding that any facility found to serve a transmission function was properly includable in the rate base. Id. at 61,423. As such, FERC found that the six lines’ costs formed part of the transmission rate base, to be rolled-in to all customers. FERC noted that “Commission precedent strongly favors use of the rolled-in method of transmission allocation.” Id. at 61,420 n.65 (citing Ala. Power Co., 8 F.E.R.C. ¶ 61,083 (1979) (Opinion No. 54); Public Serv. Co. of Ind., 57 F.P.C. 1173 (1977) (Opinion No. 783-A), aff’d in part, rev’d in part, Public Serv. Co. of Ind. v. FERC, 575 F.2d 1204 (7th Cir. 1978); Fla. Power & Light Co., 56 F.P.C. 3581 (1976) (Opinion No. 784); Detroit Edison Co., 54 F.P.C. 3012 (1975) (Opinion No. 748)). FERC explained: The principal reason behind adoption of this methodology is that an integrated system is designed to achieve maximum efficiency and reliability at a minimum cost on a systemwide basis. Implicit in this theory is the assumption that all customers, whether 6918 CAL DEP’T OF WATER v. FERC they be wholesale, retail or wheeling customers, receive the benefits that are inherent in such an integrated system. 12 F.E.R.C. ¶ 61,169, at 61,420 (internal citations omitted). Because Otter Tail’s system was integrated, a rolled-in allocation method was appropriate. Id. [5] Under Otter Tail’s rationale, it is irrelevant whether the loops and transformer banks directly serve the power requirements of a third-party generator such as DWR. As long as the system is integrated, and the facilities are integrated with the system, DWR is assumed to benefit from the transmission these facilities provide.12 Accord Me. Pub. Serv. Co. v. FERC, 964 F.2d 5, 8-9 (D.C. Cir. 1992); cf. Me. Public Serv. Co., 85 F.E.R.C. ¶ 61,412, at 62,566-68 (1998) (Opinion No. 434) (determining that the cost of three low-voltage lines could not be included in transmission rates where the lines were not looped and could form no parallel paths with transmission facilities). Because DWR benefits from the integrated grid, FERC reasonably required it to pay its share of the cost.