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If only a transmission line were like a rose bush—a beautiful thing everyone wants in their backyard. Sadly, transmission lines don’t yet have such universal appeal. But, recently, two transmission owners developed a novel approach to siting that promises to be a YIMBY (yes-in-my-backyard) solution with a win-win-win-win outcome for affected landowners, state and federal regulators, transmission customers, and transmission developers. I know you’re thinking this is fanciful; at first, I did too.
The Problem
Siting a new, long transmission line, anywhere, is daunting. Navigating the federal, state, and local permitting processes is complex, time-consuming, risky, and expensive. NEMA (National Electrical Manufacturers Association) fittingly calls it “a real-life game of Chutes and Ladders.” Most big transmission projects fail to make it through the process. And, even if they do, litigation often ensues. We can tick off a long list: the Cardinal-Hickory Creek line through Wisconsin, the Grain Belt Express through Missouri, Central Maine’s NE Clean Energy Connect to the Canadian border, Idaho Power’s B2H line to Boardman, OR, to name a few recently litigated.
A Solution
Despite this dreary landscape, there exists a promising path to siting success, a creative solution developed by San Diego Gas & Electric and Southern California Edison, with the backing of FERC. I call it the “Citizens/Morongo Model,” after the two companies, Citizens Energy and Morongo Transmission (owned by the Morongo Band of Mission Indians), that have ventured with SDG&E and SCE, respectively, to overcome community objections to siting transmission by compensating them for bearing this burden via a novel ratemaking methodology sanctioned by FERC.
Central to the Citizens/Morongo Model is an agreement with the utilities to sell a 30-year leasehold interest in the transfer capacity of their transmission projects to Citizens/Morongo. With that investment, Citizens/Morongo becomes a transmission owner of that capacity, which the utility continues to operate, and distributes the profit it receives from its transmission rates to the impacted communities. In the case of Citizens, a not-for-profit entity, the impacted communities are those local governmental entities (e.g., cities, counties, etc.) impacted by the presence of the transmission line. In the case of Morongo, the impacted community is the Tribe itself, which agreed to site six miles of the line through its reservation. Tribal reservations are lands held in trust for a Tribe, a sovereign entity by virtue of its treaty with the U.S., that cannot be alienated through eminent domain but only with the permission of the Tribe.
How, and Why, It Works
The Citizens/Morongo Model works because FERC has approved a ratemaking methodology for Citizens’ and Morongo’s transmission companies that involves three key elements.
- First is the ability of Citizens/Morongo to raise the capital for the investment with 100% debt rather than a combination of debt and equity. This both lowers the cost of the investment and makes it possible for these entities, which do not have easy access to equity, to participate in the joint venture.
- Second is FERC’s approval of these entities’ investment through an essentially fixed, 30-year transmission rate rather than a stated or formula rate subject to change through a Federal Power Act Section 205 or 206 action. This provides the certainty needed by Citizens/Morongo to procure the long-term debt at the lowest possible rate.
- Third is FERC’s approval of Citizens/Morongo charging the same rate as that charged by SDG&E/SCE for their capacity on the transmission line. Since SDG&E/SCE’s rates recover costs which they incur but Citizens/Morongo do not (e.g., taxes and return on equity), Citizens/Morongo distributes this part of the revenue to the impacted communities to compensate for the intangible costs of transmission siting borne by them.
Why It’s Win-Win-Win-Win
It’s a win for affected landowners because it recognizes the singular burden they bear by hosting a transmission line in their community. By conferring respect on the communities and rewarding them monetarily, it achieves greater community acceptance of the transmission line. For Indian Tribes, it is also an incentive to affirmatively seek transmission siting on tribal lands, particularly for Tribes with large reservations with space to site a transmission line that is not, literally, in anyone’s backyard.
It’s a win for state and federal regulators because it eliminates much contention, particularly localized contention, over siting, making it easier to decide on the merits whether the application is in the public convenience and necessity and environmentally acceptable. Put another way, when the public views the regulator as the bad guy responsible for putting a transmission line in its backyard, it immeasurably complicates the decision-making politics. When this is eliminated, or even lessened, it’s a win for regulators.
It’s a win for transmission customers in several respects. First, they are not harmed by Citizens/Morongo charging the same rate as the utilities because the utility rate is what they would otherwise be charged had this joint venture not happened. Second, by achieving resolution of the NIMBY issue before the fact, transmission customers are spared the additional costs otherwise resulting from public opposition. For example, SCE estimates that if it had had to route its transmission line around the Morongo Reservation, it would have cost $500 million more and taken seven more years. Third, for a transmission customer whose alter ego is a local, impacted community (e.g., a municipally owned utility), it would not receive compensation but for the joint venture.
It’s a win for transmission developers for all the reasons it is a win for landowners, regulators, and transmission customers: speedier, less expensive, less contentious, more likely siting approval; less likely post-approval litigation; and, if litigation happens, defending from a position of having done its best to achieve a just and fair outcome for the public. It also can be declared a victory for environmental and social justice.
The Downside
For some transmission developers, the capital supplied by Citizens/Morongo might be welcomed; for others, perhaps not. For the latter, the cost of the Model is a lost opportunity cost; that is, a developer with equity adequate to fund the entire project gives up the opportunity to earn a return on the equity it would have invested but for the grant of the leasehold interest. This would be the downside of an otherwise desirable solution.
What do you think? Could your transmission line begin to smell like a rose?
Suedeen Kelly represented Morongo Transmission, LLC, in the preparation of the Coordination Agreement with Southern California Edison and the subsequent proceedings at FERC for approval of that agreement, approval of the ratemaking methodology for Morongo Transmission, and approval of Morongo Transmission’s initial transmission rate.
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