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15-2500-19025-2 E-001/PA-07-540 |
STATE OF
OFFICE OF ADMINISTRATIVE HEARINGS
FOR THE PUBLIC UTILITIES COMMISSION
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FINDINGS OF FACT,
CONCLUSIONS AND RECOMMENDATION |
TABLE OF CONTENTS
Terms
of the Transmission Transaction
Alternative
Transaction Adjustment (ATA)
Loss
of Jurisdiction Over the Transmission Assets
Increased
Cost to Ratepayers and Possible Benefits of FERC Jurisdiction
FERC’s
Future Authority Over Retail Transmission Rates
Summary
– Loss of Jurisdiction
Application
of the Criteria in Minn. Stat. § 216B.16, subd. 7c (a).
Development
of Infrastructure to Ensure Reliability
Development
of Renewable Energy
Energy
Transfer Within and Between States
Summary
of the Effect of the Transaction on the Development of Infrastructure
“Impacts Minnesota retail rates”
Analysis
of the Transaction with the TA
Analysis
of the Transaction with the ATA
Higher
ROE on Existing Transmission
Effect
on Transmission-Only Customers
Summary
of Cost-Benefit Analyses
Proper
Treatment of the Acquisition Premium
Iowa
Utility Board’s Approval of Transaction
An
evidentiary hearing was held before Beverly Jones Heydinger, Administrative Law
Judge, on September 24, 25 and 26, 2007, at the Public Utilities Commission,
Kent M. Ragsdale and Jennifer S.
Moore, Alliant Energy Corporate Services, Inc.,
Lesley J. Lehr, Kathryn
Bergstrom and Gregory R. Merz, Gray, Plant, Mooty, Mooty & Bennett, P.A.,
500 IDS Center,
Julia Anderson, Assistant
Attorney General,
Ronald M. Giteck, Assistant
Attorney General, Steve Alpert, Assistant Attorney General, and Clark Kaml,
Financial Analyst,
Benjamin L. Porath, Director,
System Operations,
Chris Duffrin,
Dan L. Sanford, American
Transmission Company LLC, N19
B. Andrew Brown and Sarah J.
Kerbeshian, Dorsey & Whitney, LLP,
Priti R. Patel, Assistant
General Counsel, Xcel Energy,
William J. Black, Minnesota
Municipal Utilities Association,
Donna Stephenson, Attorney at
Law,
Commission staff members Louis
Sickmann and Chris Fittipaldi, Financial Analysts were present for the
evidentiary hearing.
Is the sale of IPL’s
transmission service assets to ITC Midwest consistent with the public interest,
based on the criteria set forth in Minn. Stat. § 216B.16, subd. 7c, and
The Administrative Law Judge recommends that
the Commission disapprove the Transaction because it is not consistent with the
public interest.
Based on the evidence in the
hearing record, the Administrative Law Judge makes the following:
1.
On
January 18, 2007, IPL and ITC Midwest executed an Asset Sale Agreement (ASA)[2]
that among other things would transfer IPL’s ownership interest in its
transmission assets to ITC Midwest.
Pursuant to the ASA, IPL will sell, and ITC Midwest will purchase,
essentially all of IPL’s electric transmission-related assets in
2.
On
April 27, 2007, IPL and ITC Midwest (collectively, Joint Petitioners) filed a
joint petition seeking the approval of the Public Utilities Commission
(Commission) for IPL to sell all of its
3.
On June
19, 2007, the Commission issued a Notice and Order for Hearing referring the
matter to the Office of Administrative Hearings to conduct a contested case
proceeding. At that time, the parties to
the proceeding were IPL, ITC Midwest, the Department and the OAG/RUD. The Joint Petitioners notified the Commission
that closing the proposed sale of the transmission assets on or before December
31, 2007, would result in tax benefits that might not be available thereafter. The Notice and Order for Hearing requested
that the Administrative Law Judge conduct the proceeding in light of the time
constraints.
4.
A
prehearing conference was held before the Administrative Law Judge on July 2,
2007. On July 5, 2007, the First
Prehearing Order was issued granting the Petitions to Intervene filed by
Dairyland, SMMPA, ATC and Xcel Energy. The
petition filed by Minnesota Power was withdrawn. An expedited schedule for prefiling the
testimony and the hearing was agreed upon, subject to revision as necessary to
assure a complete record.
5.
The
hearing was set to commence on August 27, 2007.
Also on July 5, 2007, a Protective Agreement and Order was issued.
6.
On July
16, 2007, the petitions to intervene filed by the Municipal Coalition, Great
River Energy and Energy Cents were granted.
Otter Tail Power Company filed a Petition to Intervene on July 18, 2007,
but withdrew its petition on July 24, 2007.
The International Brotherhood of Electrical Workers, Local Union 949
(IBEW), filed a petition to intervene on August 3, 2007, which was granted on
August 10, 2007, but IBEW withdrew as intervenor on August 22, 2007.
7.
On
August 3, 2007, the OAG/RUD filed a Motion to Order Additional Testimony and to
Suspend the Proceedings because the Joint Petitioners had filed an “Alternative
Transaction Adjustment” (ATA) to the record in the parallel proceedings before
the Iowa Utilities Board (IUB), and the OAG/RUD was concerned that the parties
to this proceeding did not have opportunity to consider the effect of the ATA
on these proceedings. The ATA was
offered as an alternative to the Transaction Adjustment (TA) included in the
ASA. By Order dated August 15, 2007, the
Motion by OAG-RUD to Order Additional Testimony and to Suspend the Proceedings
was denied since at that time the ATA had not been included in the Joint
Petitioners’ prefiled testimony in this proceeding.[5]
8.
On
August 22, 2007, the Department filed a Motion to Strike the Joint Petitioners’
Rebuttal Testimony, or in the alternative, to continue the hearing set to commence
on August 27, 2007. This motion was a
response to the Joint Petitioners’ Rebuttal Testimony which included the ATA
and extensive supporting work papers.[6] On the same day, the OAG/RUD filed a Motion
to Continue the Hearing or to Certify the Question to the Public Utilities
Commission, requesting that the hearing be postponed. The OAG/RUD Motion was supported by Energy
Cents. Joint Petitioners opposed the
motions. On August 24, 2007, the
Municipal Coalition filed a request to supplement the record regarding the
ATA.
9.
A
hearing on the Department’s and OAG/RUD’s motions and the Municipal Coalition’s
request was held on August 27, 2007, the date set for the commencement of the
evidentiary hearing. At that time, all
parties agreed to postpone the start of the hearing in order to allow the
parties additional time to review the Joint Petitioners’ Rebuttal
Testimony. Based on the agreement of the
parties, the hearing was reset to commence on September 24, 2007, to continue
as necessary, and the post-hearing briefing schedule was adjusted accordingly.
10.
On
September 20, 2007, the Iowa Utilities Board (IUB) issued its Order approving
the Transaction.[7]
11.
The
hearing was held on September 24, 25 and 26, 2007, as rescheduled.
12.
The
Joint Petitioners filed their Initial Brief on October 10, 2007. The Department, OAG/RUD, Energy Cents,
Dairyland and the Municipal Coalition filed their initial briefs on October 24,
2007. Simultaneous reply briefs were filed on October 31, 2007. Additional submissions were received from the
Department and the Joint Petitioners on November 9, 2007, and the hearing
record closed on that date.
13.
IPL is
an
14.
At the
time of its application, IPL owned 6,791 total miles of transmission lines,
approximately 170 substations and 160 interconnections in
15.
Based
on the information contained in Exhibit C, Schedule 1.1-J of the Application,[10]
the OAG/RUD calculated that
16.
ITC
Holdings Corporation (ITC Holdings), headquartered in
17.
ITC
Midwest is a wholly-owned subsidiary of ITC Holdings, incorporated in
18.
ITC
Holding and its subsidiaries have no ownership or financial interest in
electric generation or distribution assets and focus exclusively on the
transmission of electricity and investment in transmission infrastructure.[14]
19.
At the
present time, the Midwest Independent Transmission System Operator, Inc.
(Midwest ISO or MISO), has functional supervision and control of the Transmission
Assets. Under the terms of the ASA, ITC
Midwest agrees that it will not remove the assets from MISO for five years from
the closing date.[15]
20.
The
Department represents the interests of
21.
The
OAG/RUD represents the interests of residential and small business ratepayers. It opposes the Transaction because it is not
in the public interest. It contends that
the Joint Petitioners have misrepresented the portion of its assets that are
within the
22.
Dairyland
is a not-for-profit generation and transmission cooperative headquartered in
23.
Dairyland
is directly interconnected with transmission facilities owned by IPL that are
proposed to be sold to ITC Midwest. While
Dairyland and IPL each operate its own North American Electric Reliability
Corporation (NERC) certified control
area (CA), Dairyland’s and IPL’s transmission systems overlap or are highly
integrated in many areas. In addition to
having loads in the other party’s CA, both Dairyland and IPL also own
transmission facilities that are physically embedded in each other’s CA. Also, even where a party’s load is located in
its own CA, the transmission system of the other party may be supporting or
serving the first party’s load.[18]
24.
Dairyland
and IPL have entered into several agreements to enable each utility to serve
customers on a least cost basis, to jointly plan and construct transmission
facilities, and use each other’s transmission systems to deliver generation to
their respective loads located in each other’s CA. Copies of two agreements have been entered
into the record,[19]
and are grandfathered agreements under the MISO Transmission and Energy Markets
Tariff (TEMT). Dairyland is concerned
that the Transaction may adversely affect Dairyland’s rights under the
agreements. To address that concern,
Dairyland and the Joint Petitioners have commenced negotiations regarding how
the Transaction may affect the Dairyland-IPL agreements. The Joint Petitioners have committed to
respect and preserve the agreements and to negotiate an outcome satisfactory to
the Joint Petitioners and Dairyland.[20]
25.
Dairyland’s
sole interest in this proceeding is to assure that Joint Petitioners’
commitment to honor the Dairyland-IPL agreements is an express condition of the
Commission’s approval of the Transaction.[21] Dairyland takes no position on any other
issue raised in this proceeding.[22]
26.
SMMPA
is a joint action agency composed of eighteen member municipalities in
27.
ATC is
a stand-alone electric transmission company that owns and operates transmission
facilities in four states, including
28.
ATC is
negotiating an Operating Agreement with ITC Midwest to provide service for
approximately 18 months following the closing of the Transaction, if it is
approved, and cooperate to transfer control to ITC Midwest. ATC has taken no position in this proceeding.[25]
29.
Xcel
Energy owns and operates electric transmission lines in
30.
The
Municipal Coalition intervened in order to address the Transaction’s impact on
its members’ future rates, and the effect on the development of transmission
infrastructure to ensure reliability, encourage development of renewable
resources and to accommodate energy transfers within and between states. One of its members, the Minnesota Municipal
Utilities Association, has fourteen Minnesota municipal members located in the
area served by IPL transmission and would be affected by the quality, nature,
quantity and price of service over those facilities.[27]
31.
The
Municipal Coalition opposes the Transaction because of its concerns about the
increased cost of transmission service, the speculative future energy benefits,
and reduced local influence over the transmission system. Although its members are not investor-owned
“public utilities,” they provide services to retail customers who may be
adversely affected by the Transaction.[28]
32.
Energy
Cents is a non-profit organization “dedicated to promoting affordable utility
service of low and fixed income people.”
It intervened in this proceeding to address the impact of the Joint
Petitioners’ proposed sale on retail prices for this demographic group.[29]
33.
Energy
Cents’ position is that the Joint Petitioners have not met the burden of proof:
the transaction is not in the public
interest because its cost-benefit analysis is based on unreasonable assumptions,
and the projected benefits are speculative and no greater than the benefits
that IPL could obtain through its own investment. Furthermore, it objects to the Commission’s
loss of jurisdiction over the transmission rates.
34.
35.
Review
of the transfer is governed by Minn. Stat. § 216B.50, which requires that the
Commission approve the sale of the assets if the proposed transaction is
“consistent with the public interest.”[31]
36.
In
2005, the Legislature required the Commission’s approval of a public utility’s
transfer of operational control or ownership of transmission assets and
included specific criteria to apply to its evaluation of the public
interest.
Transmission assets transfer. (a) Public utility owners of transmission facilities
may, subject to Public Utilities Commission approval, transfer operational
control or ownership of those transmission assets to a transmission company
subject to Federal Energy Regulatory Commission jurisdiction.… The Public
Utilities Commission may limit, in whole or in part, the transfer of
transmission assets or the timing of those transfers by a public utility if it
finds the limitation in the public interest. The commission may only approve a
transfer if it finds that the transfer is consistent with the public interest.
In assessing the public interest, the commission shall evaluate, among other
things, whether the transfer:
(1) facilitates the development of
transmission infrastructure necessary to ensure reliability, encourages the
development of renewable resources, and accommodates energy transfers within and
between states;
(2) protects
(3) ensures, in the case of operational
control of transmission assets, that the state retains jurisdiction over the
transferring utility for all aspects of service under this chapter;
(4) impacts
(5) protects
(b)
A transfer of operational control or ownership of transmission assets by a
public utility under this subdivision is subject to section 216B.50…. If a
public utility transfers ownership of its transmission assets to a transmission
provider subject to the jurisdiction of the Federal Energy Regulatory
Commission, the Public Utilities Commission may permit the utility to file a
rate schedule providing for the automatic adjustment of charges to recover the
cost of transmission services purchased under tariff rates approved by the
Federal Energy Regulatory Commission.[32]
37.
No one
factor is determinative; the overall benefits of the sale should exceed the
overall detriments. The public utility
seeking approval of the transaction bears the burden of proof.[33]
38.
In reaching
a decision to sell its Transmission Assets, IPL considered the opportunity
offered by the Federal Energy Policy Act tax incentives. By selling, IPL could monetize the value of
its Transmission Assets, use the sale premium for major capital expenditures
for generation, and promote regional transmission expansion through sale to a
company with a single focus on transmission.
It anticipated that transmission expansion within the region would lower
IPL’s energy costs by facilitating efficient and economic dispatch of
generation through MISO and decreasing transmission constraints on the system and
would improve reliability on the transmission system.[34]
39.
Section
909 of the American Jobs Creation Act of 2004 created tax incentives for
taxpayers that realize qualified gains from sale of transmission assets to an
independent transmission company. Those
tax incentives, which motivated IPL’s decision to sell, apply to qualified
sales that close prior to January 1, 2008, and also require that, within four
years from closing, the taxpayer reinvest the amount realized from the sale in
property used for the generation, transmission, distribution or sale of
electricity.[35]
40.
IPL has
entered into the ASA to sell to ITC Midwest all of IPL’s electric Transmission
Assets that are used exclusively to provide electric transmission service in
41.
The
Transaction is estimated to result in net book proceeds of approximately $166
million, the “Acquisition Premium,” and is estimated to generate net cash
proceeds, after taxes and transaction-related costs, of $575.4 million.[39] IPL intends to use the net cash proceeds to
reduce its short-term debt by $181.8 million and distribute $393.6 million to
its parent, Alliant Energy, for reinvestment, including investment in a
coal-fired base-load power plant located in Iowa and additional wind power in
Minnesota and Iowa.[40]
42.
The sale
price is predicated on the transfer of rate base equal to $418.8[41]
million and construction work in progress (CWIP) equal to $19.1 million at the
close of the transaction.[42] The difference in the $750 million
Transaction price, minus the estimated transfer of rate base, CWIP, taxes and
transaction costs, is the “Acquisition Premium” associated with the
Transaction, approximately $165.7 million.[43]
43.
IPL’s
plan for use of the net proceeds was guided by the following principles:
a. The Transaction should not
negatively impact IPL’s assigned credit ratings;
b. As a result of the
Transaction, IPL will have a higher weighted average cost of capital. The ratepayers should not be adversely
affected by the reflection of that higher weighted average in retail rates; and
c. Shareholder value should
not diminish as a result of the Transaction.[44]
44.
The
Joint Petitioners explained the rationale for reducing short-term debt and
equity in proportions that did not have an adverse affect on perceived
creditworthiness and ability to attract capital, and maintaining IPL’s weighted
average cost of capital.[45]
45.
ITC
Midwest intends to finance the Transaction through proceeds from the sale of
common stock of ITC Holdings, and the issuance of debt by ITC Holdings and ITC
Midwest.[46] It is willing to purchase the Transmission
Assets for a price that exceeds the book value of the Transmission Assets
because, as an independent transmission company subject to FERC jurisdiction,
it is entitled to charge rates for transmission service based on a
significantly higher return on equity (ROE) than IPL receives through its
bundled rates. ITC Midwest’s transmission rate is based on FERC Form 1, using
Attachment O to the MISO TEMT.[47] The amount that the purchase price exceeds the
net book value, with adjustments, is the Acquisition Premium.
46.
As a
condition of the ASA and as reaffirmed by ITC Midwest in this proceeding, ITC
Midwest will not attempt to recover the Acquisition Premium through its rates. [48]
47.
The ASA
includes a Transition Services Agreement (TSA).
Under the TSA, IPL will provide assistance to ITC Midwest to operate the
Transmission Assets for approximately one year so that ITC Midwest has adequate
time to plan for and assume control. IPL
will be compensated by ITC Midwest for this assistance.[49]
48.
The
Transaction preserves the jobs of all transmission-related IPL employees.[50]
49.
The ASA
provides that ITC Midwest will not voluntarily withdraw the Transmission Assets
from the functional supervision and control of MISO for five years after the
closing date.[51]
50.
The ASA
provides that either party may terminate the ASA if the Transaction has not
received the necessary regulatory approvals, including FERC approval of ITC
Midwest’s proposed rate structure, and closed by December 31, 2007.[52]
51.
The
Transaction is also contingent upon approval from FERC under sections 203, 204
and 205 of the Federal Power Act.[53]
52.
The ASA
spells out a number of other obligations and liabilities assumed by ITC Midwest
and those that are retained by IPL.[54]
53.
As part
of the Transaction, the Joint Petitioners proposed a “Transaction Adjustment”
(TA) to assure that ratepayers benefited from the Transaction. IPL will place $60 million from net sale
proceeds into a regulatory liability account to offset Allowance for Funds Used
During Construction (AFUDC) for: new
generation, environmental upgrades needed on IPL’s existing generating plants,
and IPL’s potential investment in Automated Metering Infrastructure (AMI). AFUDC is a component of construction costs
that utilities incur when building large infrastructure such as generation or
transmission facilities. It includes the
net cost of debt funds and a reasonable rate on equity funds used during the
period of construction. AFUDC is
capitalized until the project is placed in operation and is recovered in the
form of depreciation from ratepayers over the service life of the plant to
which it applies.
54.
The
funds placed in the account would accrue interest, and, when IPL files its next
rate case, the money in the liability account would be available to reduce the
amount of AFUDC, thus reducing the amount of the new investment included in
IPL’s future rate base. If IPL builds
one or more large facilities that require enough lead time to warrant AFUDC,
IPL would use up to $60 million from this regulatory liability account to offset
AFUDC in the rate case filed at the time that the new plant goes into service.[55]
55.
IPL
arrived at $60 million as the appropriate amount to place in the regulatory
liability account by determining IPL’s Base Line Revenue Requirement (BLRR)
associated with its transmission operations for five years, 2008 through 2012,
using traditional ratemaking principles and assuming that the transmission
assets were not sold, and recalculating IPL’s revenue requirement expected
after the sale, the Post-Transaction Revenue Requirement (PTRR).[56] IPL’s analysis shows that the PTRR is
approximately $90.1 million higher than the BLRR.[57] This difference between the BLRR and the PTRR
is the net cost to IPL’s customers of the Transaction. These figures were incorporated into the Joint
Petitioners’ cost benefit analysis, more fully discussed below. The $60 million TA, coupled with IPL’s
estimated reduction to its Cost of Capital, is the amount IPL calculated would
be needed to ensure that IPL’s customers benefit from the Transaction. The net present value of the TA is $18
million, calculated over a five-year period.[58]
56.
There
are four primary reasons why the PTRR exceeds the BLRR. First, ITC Midwest will earn a higher ROE
(13.88%) than does IPL (blended ROE of 10.80%).
Second, ITC Midwest’s capital structure will have a higher proportion of
common equity (approximately 60%) than does IPL’s capital structure
(approximately 51%). Third, at the time
that the Transaction closes, IPL will eliminate its accumulated deferred income
tax (ADIT) liability associated with its transmission assets and ITC Midwest
will not have a corresponding ADIT at that time. Fourth, ITC Midwest will have more Cash
Working Capital (CWC) under the FERC rate methodology than IPL has under the
57.
Absent
any adjustment, the Transaction would result in an increase to
58.
In
order to earn the tax benefits of the Transaction and strengthen its business,
IPL plans to make significant new investment. The Joint Petitioners believe
that the TA will mitigate the rate increase that can occur from large capital
investments as they are brought into the utility’s rate base. A reduction in AFUDC will reduce the rate
base used for rate setting.
59.
The TA will
not be an immediate benefit to ratepayers. It is offered as an offset to any future
AFUDC, and thus available only when the capital investments are made.[62] The TA will not benefit transmission-only
customers.
60.
During
the parallel proceedings in Iowa, and then as part of its Rebuttal Testimony in
this case, the Joint Petitioners offered an “Alternative Transaction Adjustment”
(ATA),[63] using
an eight-year cost-benefit analysis, in order to address concerns raised by the
Department, OAG/RUD, Energy Cents and the Municipal Coalition, that ratepayers
would not be adequately protected by the TA.
The ATA is offered in lieu of the TA.[64] Under the ATA, the Joint Petitioners agreed:
a. IPL will refund $13,040,00
per year to its “full-requirement” customers (retail and wholesale customers,
not transmission-only customers) in each of eight years, beginning in the year
customers experience an increase in rates related to transmission charges
assessed by ITC Midwest;
b. ITC Midwest will provide a
rate discount of $4,125,000 to its customers in each of eight years, beginning
in the year customers are affected by ITC Midwest’s transmission rates. For this purpose, ITC Midwest’s customers are
those customers (including IPL) that will take service under the MISO TEMT,
including transmission-only customers. ITC
Midwest would not attempt to recover this rate discount from customers through
its FERC formula rates. IPL estimates
that, in the first year that the rate discount is given, approximately 92% of
the discount would be reflected in the rates of IPL’s full-requirements
customers;[65]
c. IPL will file for no
greater than a 50% common equity capital structure in its first electric retail
rate proceeding in
d. ITC Midwest will not seek
authority from FERC to recover through rates the first $15 million of
transaction costs.[67]
61.
Under
the ATA, Joint Petitioners estimate that IPL’s full requirements customers
should benefit from approximately $13.040 million in refunds and $3.795 million[68]
in rate discounts, approximately $16.835 million per year.[69] The Joint Petitioners projected a net present
value of $15.3 million benefit to ratepayers based on an eight-year
cost-benefit analysis, and a net present value of $6.2 million using a twenty-year
cost benefit analysis.[70]
62.
As with
the TA, the Joint Petitioners’ commitment to the ATA is contingent on the
Transaction closing by the end of calendar year 2007 and Commission approval of
the Transaction in its entirety including:
a. specific approval of a
regulatory liability account of approximately $89 million for the sole purpose
of paying IPL’s refund obligation and not to reduce the rate base in any
general rate proceeding;
b. approval that the interest
accrued on the regulatory liability account should not be used for any purpose
other than the payment of the refund; and
c. tax savings from the
annual refund obligation under the ATA would be explicitly excluded from IPL’s
revenue requirement in future rate proceedings because the tax savings have
been figured into the refund figure.[71]
63.
The
Joint Petitioners offered the ATA to address concerns raised by other parties
that IPL’s cost-benefit analysis provided either minimal or no benefits to
customers over the first five years of the Transaction because of the likely
delay in the use of the AFUDC. The ATA
extended the cost-benefit analysis from five years to eight years, with $15
million in customer benefit over an eight-year period in present value terms, and
with a portion of the rate discount shared with transmission-only customers. As
part of the ATA, IPL agreed that it would not file for a common equity ratio
higher than 50% in its first electric rate proceeding reflecting the
Transmission Transaction.[72]
64.
To
summarize, IPL compared its revenue requirement without the Transaction (its
baseline) with its revenue requirement after the transaction. To offset ITC Midwest’s higher rates, Joint
Petitioners developed the TA and the ATA to assure a net benefit to ratepayers of
approximately $18 million with the TA, and $15 million with the ATA. Both analyses took into account that the
accumulated deferred tax balance would no longer be available to reduce IPL’s
rate base after the Transaction.[73] Neither the TA nor the ATA returned the full
Acquisition Premium to ratepayers.
65.
Joint
Petitioners claim that the Transaction will benefit IPL’s customers because the
net proceeds from the sale will be shared with them, and because increased
investment in transmission will eliminate transmission constraints and lower
the cost of energy. The Transaction will
provide funds for IPL to invest in new generation, environmental compliance and
AMI. The TA will mitigate the rate
impact of bringing new generation on-line and other substantial capital
investments. The ATA will offset the
increased costs of ITC Midwest’s higher rates through refunds and offsets. In addition, the Joint Petitioners believe
that the Transaction will place the Transmission Assets in the hands of an
experienced, independent transmission operator with a proven track record, a
regional perspective, and access to capital to invest in transmission
infrastructure.[74]
66.
The
Department, OAG/RUD, Energy Cents and Municipal Coalition all assert that the
Transaction, with either the TA or the ATA, is not in the public interest.
67.
The effect
of the Commission’s loss of jurisdiction will be examined first. Then the specific criteria set forth in
section 216B.16, subd. 7c (a) will be examined.
68.
The
statutory provision addressing Commission approval of the sale or transfer of
transmission assets states:
Public
utility owners of transmission facilities may, subject to Public Utilities
Commission approval, transfer operational control or ownership of those
transmission assets to a transmission company subject to Federal Energy
Regulatory Commission jurisdiction.[75]
69.
Although
the transfer of Transmission Assets beyond the reach of the Commission’s
jurisdiction is permissible, the Department, OAG/RUD, Energy Cents and the
Municipal Coalition claim that the loss of jurisdiction over IPL’s Transmission
Assets is not in the public interest because of the terms of this Transaction. Although a relatively small portion of the
Transmission Assets is located in
70.
The
Joint Petitioners have three responses to the concerns expressed about the loss
of the Commission’s jurisdiction. First,
they contend that the Commission will continue to have jurisdiction over IPL,
and as a public utility, IPL will be required to provide efficient, reliable
transmission service.[77] Second, the Joint Petitioners are confident
that the Transaction will benefit ratepayers because a transmission-only
company such as ITC Midwest does not have any incentive to discriminate among
generators and loads for transmission service, and FERC’s policies will
stimulate greater investment in transmission.
Third, the Joint Petitioners assert that FERC will assume jurisdiction
over the transmission component of bundled retail rates in the near
future. Thus, they believe that the
Commission will soon lose jurisdiction over an integrated utility’s bundled transmission
rates, regardless of whether IPL sells or holds the transmission assets.
71.
The
Commission will continue to have jurisdiction over IPL as a “public utility” following
the Transaction, but its authority over ITC Midwest will be limited.
72.
The
parties agree that ITC Midwest will not be a “public utility,” as defined under
73.
Some of
the Commission’s jurisdiction extends to transmission owners, regardless of
whether the owner meets the definition of a “public utility.”
74.
The Commission will continue to have authority
to grant a certificate of need and route permit for any new transmission lines that
ITC Midwest would plan to build in
75.
ITC
Midwest will participate in the Biennial Transmission Process, which is
required of transmission companies that own and operate transmission in
76.
The
Commission will retain the authority to order ITC Midwest to make
infrastructure investments and perform preventative maintenance on its transmission
facilities in the state.[81]
77.
Despite
this limited jurisdiction over ITC Midwest, the Department is concerned that the
Commission will have less authority to assure that ITC Midwest provides “safe,
adequate, efficient, and reasonable service …” to persons requesting service. [82]
78.
During
the course of this proceeding, ITC Midwest agreed to comply with an order from
the Commission to invest in a project that the Commission has determined is
necessary to ensure safe, adequate, efficient and reliable service.[83] ITC Midwest also agreed to build or take the
steps necessary to resolve the system constraints in the IPL service territory
as reported by MISO.[84]
79.
The
Department is concerned that the Commission will not have access over ITC
Midwest’s books and records to review the appropriate allocation of costs and
revenues between retail and wholesale transactions necessary to determine the
appropriateness of the rates charged.
80.
At the
hearing, Joseph Welch, Chairman and CEO of ITC Holdings, stated that the books and
records of ITC Midwest will be open to the Commission and that ITC Midwest will
file annual financial information with the Commission.[85]
81.
The
Department lists other benefits of Commission jurisdiction over IPL’s
transmission assets. The Commission
presents a convenient forum for
82.
The
Department remains concerned that the Commission will lose its authority to
ensure appropriate allocation of costs and revenues between retail and
wholesale transaction, particularly pertaining to the reasonableness of retail
transmission rates.[87] However, the documentation that IPL files in
its subsequent rate cases must appropriately allocate its costs and
revenues. If IPL fails to support the
proper allocation, the Commission is not obligated to approve its rates.
83.
Despite
the assurances of ITC Midwest that it will comply with the Commission’s
directives, the Department remains concerned that the Commission may have
insufficient authority to enforce the commitments ITC Midwest made in the
course of this proceeding.[88] Also, the Commission’s authority to regulate
a FERC-regulated transmission company has not been tested.
84.
If the
Transaction is approved, the Commission will have authority over many aspects
of ITC Midwest’s operations in
85.
The
Department is concerned that the Commission will lose authority to set retail
rates and transmission costs as part of a general rate case, as it currently
does for IPL,[89]
or to assure that the rates ITC Midwest charges for transmission service are
“just and reasonable.”[90] Following the sale, the rates that ITC
Midwest will charge to IPL for transmission service will be based on the FERC
formula which includes a significantly higher ROE than IPL is currently
authorized to receive, and those FERC-approved charges would be passed through
to IPL’s retail customers.[91]
86.
Although
the Department may have standing to participate in FERC proceedings to advance
87.
FERC-approved
rates for ITC Midwest’s transmission will be higher than those currently
approved for IPL. Thus, the Department
believes that the ratepayers will pay more with no corresponding benefit. The Joint Petitioners contend that FERC’s
policies, including its higher ROE, provide an incentive to independent
transmission operators to invest in transmission infrastructure, which will
provide significant benefits to ratepayers by improving the reliability and
economic operation of the transmission system.
IPL agrees that ITC Midwest’s increased investment in transmission will
reduce its energy costs by assuring that the most cost-effective generation has
access to transmission, and by reducing electrical losses. Whether ITC Midwest’s opportunity to earn a
higher ROE will stimulate investment and benefit
88.
The
Joint Petitioners also assert that the Transaction will benefit ratepayers
because a transmission-only company such as ITC Midwest does not have any
incentive to discriminate among generators and loads for transmission service.
89.
IPL is
a member of MISO and is currently prohibited from discriminating in access to
transmission. In addition, the record demonstrates that IPL does not, in fact,
discriminate.[93] Although ITC Midwest is not prohibited from
withdrawing from MISO at the end of 5 years, it would still be subject to the
FERC policies against discrimination.
90.
The
shift to FERC jurisdiction is not likely to have an impact on discrimination
among generators and loads.
91.
The
Joint Petitioners contend that it is reasonable to assume that FERC will take
over jurisdiction of IPL’s rates for bundled transmission service within five
years and the Commission will lose its jurisdiction.[94] The Department, the OAG/RUD, Energy Cents and
the Municipal Coalition dispute that contention.[95]
92.
On
February 15, 2007, FERC issued a final rule adopting reforms to the open-access
transmission regulation. Its Order 890 amends
the regulations and open access tariff adopted in Orders 888 and 889. Order 890 specifically retained elements of
Order 888, including states’ jurisdiction over bundled retail load. Order 890 stated: “The Commission will retain the existing
jurisdictional divide that was established in Order No. 888, which has been
affirmed by the U.S. Supreme Court and accepted by the industry and state
regulatory authorities.”[96]
93.
Although
Joint Petitioners acknowledge Order 890, they claim that a change in FERC’s
role is foreshadowed in the Supreme Court’s decision in New York v. FERC,[97] a
review of issues raised by FERC Order 888.
In that case, the Supreme Court reviewed two FERC jurisdictional
rulings: that unbundled retail transmission of electric energy was within the
scope of the open-access requirements; and that FERC would not include bundled
retail transmission within its scope.
Enron Power Marketing (Enron) challenged FERC’s interpretation of the
Federal Power Act, claiming that FERC had a duty to extend its authority to
bundled retail transmission of electricity.
The Supreme Court rejected Enron’s arguments on the basis that FERC had
made a statutorily permissible choice not to exercise jurisdiction over bundled
retail rates, based in part on the “numerous difficult jurisdictional issues”
presented.[98] The Supreme Court further opined:
The
issues raised by
94.
Joint Petitioners point out that three
justices questioned FERC’s policy decision to abstain from regulating the
transmission component of bundled retail sales.[100] From this it argues that FERC’s choice may
not be consistent with the law.
Assuming that this true, Joint Petitioners present three possible
scenarios that could lead FERC to re-examine its policy not to exercise
jurisdiction over the transmission component of bundled retail service and
concludes that “eventually, the FERC will need to exercise its jurisdiction
under the Federal Power Act, as recognized by the United States Supreme Court
in New York v. FERC, and set the
rates for all transmission services (regardless of whether the cost of
transmission is bundled in state jurisdictional rates).”[101]
95.
Each of
the three scenarios outlined by the Joint Petitioners assumes that either MISO
or FERC will change its practices in the future. Only one is tied to a future date
certain: the revenue distribution
methodology under MISO will change in 2008, and all customers, including
vertically integrated utilities taking MISO service, will be charged under the
MISO tariff. However, the Joint
Petitioners do not claim that state jurisdiction over bundled transmission
services will thereby pass to FERC. Both
of the other scenarios would require FERC to reconsider and change its existing
policies. Although FERC may choose to do
so, there is no evidence that proposed changes are under consideration, and the
language in Order 890 “retaining the existing jurisdictional divide,” is
compelling evidence that no change is imminent.
96.
The
Joint Petitioners have failed to offer persuasive evidence that FERC will
assume jurisdiction over the cost of transmission in bundled state-set rates
within the next five years and that, therefore, the Commission’s loss of
jurisdiction over the Transmission Assets is imminent, regardless of whether
the Transaction is approved.
97.
Although
several parties expressed concern about the Commission’s decreased authority over
rates, quality, terms and conditions of transmission service, decreased focus
on retail customers, and FERC’s focus on national issues rather than on
Minnesota issues, transfer of transmission assets to FERC jurisdiction was
contemplated by the Legislature when section 216B.16, subdivision 7c, was
amended in 2005. Although the Commission
will have less authority over ITC Midwest than it will have over IPL, its loss
of jurisdiction is not per se to the
detriment of the public interest.
98.
The
Joint Petitioners have failed to show that FERC jurisdiction over ITC Midwest will
benefit
99.
Joint Petitioners
have failed to show that FERC will take jurisdiction over bundled retail
transmission rates in the near future.
100. The loss of jurisdiction must be balanced
against the Joint Petitioners’ claim that the Transaction will facilitate the
development of transmission infrastructure, and that
101. The IUB conducted a similar analysis
concerning its loss of jurisdiction.[102] It concluded that the issue should be
examined in the context of the cost-benefit analysis, that is, “whether the
benefits of the transaction outweigh any increased costs and loss of Board
jurisdiction.”[103] It concluded that ITC Midwest had greater
incentives to build transmission to fill both economic and reliability
needs. The intangible benefits of a more
robust transmission system and independent transmission system operation are
difficult to quantify, but they must be weighed into the determination of the
benefits of lost jurisdiction.[104] The IUB concluded that the benefits
outweighed the costs and the loss of its jurisdiction.[105]
102. In its evaluation of the public interest,
the Commission shall consider five specific criteria set forth in section
216B.16, subdivision 7c (a). Because
most of the dispute in this proceeding has focused on the development of
transmission infrastructure and the effect of the Transaction on ratepayers,
those two criteria will be addressed first.
103. The Joint Petitioners assert that one of the
benefits of the Transaction is that ITC Midwest has greater ability to develop
transmission infrastructure necessary to ensure reliability, encourage the
development of renewable resources, and accommodate energy transfers within and
between the states. Its business is
devoted exclusively to transmission, unlike IPL, and therefore ITC Midwest has
a greater incentive to plan and build necessary transmission throughout the
service area. In contrast, IPL’s transmission
planning competes for capital with its other service components.
104. Although IPL believes that it is currently
meeting its public utility duty to provide “safe, adequate, efficient and
reasonable service,” it believes that ITC Midwest’s focus on transmission
planning and development will address both economic and reliability constraints
to the transmission system with resulting decreased energy costs to IPL
customers, with greater efficiency within the MISO area and reduction in line
losses.[106]
105. As part of the ASA, the Joint Petitioners
have agreed to a Distribution Transmission Interconnection Agreement
(DTIA). As to IPL, ITC Midwest agrees
that:
Subject
to applicable regulatory approvals, including the principles of least-cost
long-term planning applicable to maintaining the overall reliability of the
transmission and distribution system in the planning horizon, and subject to
the oversight and direction of the [Regional Transmission Organization (RTO)] …
where applicable, [ITC Midwest] shall
have a public utility duty to operate, maintain, plan and construct the
Transmission System so that the system is adequate: (i) to support effective
competition in energy markets without favoring any market participant; (ii) to
deliver on a reliable basis the reasonable, projected needs of all loads on the
electric distribution systems connected to and dependent upon [ITC Midwest’s]
facilities for delivery of reliable, low-cost and competitively priced
electricity to such distribution systems; and (iii) to provide needed support
to the distribution systems interconnected to the Transmission System.[107]
106. ITC Midwest has also agreed with IPL that
ITC Midwest will expand the transmission system to accommodate IPL’s planned
load growth.[108]
107. By giving up its transmission business, IPL
will lose access to
108. In order to evaluate whether the Transaction
is in the public interest, it is necessary to examine whether ITC Midwest will
build transmission that will increase reliability, encourage development of
renewable resources, and accommodate energy transfers to the same or greater
extent than IPL will build.
109. ITC Holding and its subsidiaries, including
ITC Midwest, operate as independent transmission companies, without any
affiliation with companies providing generation. Its single focus is on prudently investing in
transmission infrastructure to meet increasing demand, connect new load,
interconnect generation, including renewable resources, and develop competitive
wholesale energy markets.[111]
110. ITC Holding has a well-developed process to
evaluate existing transmission capacity and its constraints and to foresee the
growth of load and new generation, exports or imports of power out of or into
the region, and the need for reserves to assure system reliability, tested
against the NERC reliability criteria.[112]
111. It is the policy of FERC to increase investment
in transmission. New transmission
investment can improve the reliability of power delivery, lower the costs
associated with congestion on otherwise constrained transmission lines and
encourage capital investment in generation projects by lowering the risk
associated with obtaining adequate transmission capacity. To encourage further investment, in 2005,
Congress directed FERC to establish incentives.[113] In its proposed pricing policy, FERC stated:
[T]he transmission business is ideally suited to bring about:
(1) improved asset management including increased investment;
(2) improved access to capital
markets given a more focused business model than that of vertically integrated
utilities;
(3) development of innovative
services; and
(4) additional independence
from market participants.[114]
112. Since 2003, ITC Holding’s subsidiaries have
made substantial investments to improve transmission.[115]
113. IPL also has a planning process to identify
projects that will meet the future demands of its transmission system based on
projected load growth, new generation and other planned upgrades to comply with
its projected changes and to comply with regulatory requirements. IPL projects that forecasted transmission
expenditures will exceed more recent historical spending.[116]
114. Internal competition for capital within IPL
has prevented IPL from making significant investment to meet the demands for
transmission. It has focused on building
transmission facilities to assure reliable service, but has not focused on
identifying projects that would relieve congestion, nor has it developed a
comprehensive plan to do so.[117] Proceeds from the Transaction will help
finance IPL’s generation projects and help acquire needed external funding at
lower cost.[118]
115. The Department does not dispute that ITC
Midwest will have greater access to capital than IPL, but it does not believe
that IPL has had problems accessing capital.[119] FERC currently allows vertically integrated
public utilities like IPL a higher ROE than its
116. Although ITC Midwest may have greater
opportunity to raise capital, the Joint Petitioners did not offer evidence of
ITC Midwest’s specific plans that would enhance or improve system reliability,
reduce energy costs, or allow its level of investment to be compared with
IPL’s.[120]
117. There is no provision in the ASA or in the
evidence offered that describes what upgrades will be built. In response to a Department data request, ITC
Midwest stated: “Neither the specific
amount of transmission to be built by IPL without the Transaction taking place,
nor the specific amount of transmission to be built by ITC after the
Transaction is approved, is currently known or knowable, and thus no comparison
can be made.”[121]
118. In response to an information request from
the OAG/RUD about future transmission investment, ITC replied: “ITC Midwest
states that (it) has not yet had the opportunity to thoroughly study the IPL
system and has not developed any specific plans or projects for transmission
investment. ITC Midwest further states
that it cannot speculate about what actions IPL may have or may not have taken
in the future without this transaction.”[122]
119. In MISO’s planning process, projects are
characterized as “exploratory,” “proposed,” or “planned.” Proposed projects are not yet verified and
potential alternatives are still being considered. Planned projects have been fully analyzed,
detailed engineering has been completed, and there are accurate cost
estimates. The planned projects are
submitted to MISO for approval, and, if approved, will be constructed and
placed in service. ITC Midwest expects
to continue to study IPL’s proposed projects and construct IPL’s planned
projects as proposed.[123]
120. Most of the generation dispatched to serve
load in the Midwest ISO is scheduled through the Midwest ISO Day-Ahead Market,
requiring the generation owner to supply energy. A transmission constraint limits the flow of
power across the associated transmission facility. It is a binding constraint whenever power
flow across the associated transmission facility is at its maximum. When this occurs, more costly generators must
be dispatched to avoid overloading the transmission facility and the cost of
meeting the demand for electricity increases.
There are significant constraints within the IPL area. Transmission projects that alleviate the
associated congestion have potential economic benefits to consumers in
121. MISO has designated three “narrowly
constrained areas” (NCA) within its region.
These are areas with significant transmission constraints, and one of
them includes portions of northern
122. ITC Midwest has not committed to address the
NCA, but it has stated that it “would consider projects to eliminate
significant constraints on the IPL system that make economic sense from a
customer standpoint, even if the projects are not presently needed to satisfy a
reliability criterion.”[126] In contrast, IPL would normally address only
those transmission project required by reliability criteria violations.[127]
123. As part of the ASA, ITC Midwest has agreed
that it will join MISO and will not withdraw the IPL assets from MISO for a
period of five years, unless both IPL and ITC Midwest agree.[128] As part of MISO, ITC Midwest would be
required to expand or upgrade its transmission system to address any identified
problems with the adequacy or reliability of its transmission service.[129]
124. IPL planners have prepared a summary of
additional projects not yet part of the MISO planning process.[130] ITC Midwest’s system planner has concluded
that the projects are prudent and should be constructed, and that ITC Midwest
would expect to proceed to implement the plan after the Transaction is
completed, as well as other projects identified by MISO, including projects to
facilitate transmission of wind and ethanol generation.[131]
125. Throughout the proceeding, ITC Midwest
repeated its general business philosophy to construct transmission that would
eliminate constraints on the transmission system, reduce congestion cost, and
enable more efficient transport of energy, and IPL expressed its confidence
that ITC Midwest would improve service reliability and its energy costs would
decline if the Transaction were approved.[132]
126. During discovery in the
Although common sense along with known historic congestion that has
occurred in eastern Iowa dictates that the construction of new transmission
will lead to more economic dispatch within the MISO footprint and perhaps even
beyond this footprint, the quantification of the savings to customers resulting
from this investment is impossible to quantify in any workable timeframe.[133]
127. In this proceeding, IPL repeated that it did
not quantify the expected energy savings from the Transaction.[134]
128. There is no concrete evidence that ITC
Midwest will build more or better transmission facilities than IPL.[135]
129. Both IPL and ITC Midwest agreed to comply
with Commission orders to build transmission needed to assure reliability of
the transmission system, and both agreed to satisfy their MISO
responsibilities.[136]
130. The Commission has general knowledge about
the relative value of integrated and unbundled electric utility service and
131. The Joint Petitioners contend that approval
of the Transaction will encourage the development of renewable resources.
132. IPL projects that a portion of the proceeds
from the sale will be reinvested in renewable resources, specifically that it
will use the proceeds of the Transaction to invest at least $200 million to
develop a minimum 100 MW of new wind generation.[137] As a public utility, IPL has an obligation to
develop renewable resources regardless of whether the Transaction is approved.[138] The Joint Petitioners did not offer a
comparison of investment to support renewable energy with and without the
Transaction.
133. The Department takes issue with the Joint
Petitioners’ claim that ITC Midwest will do a better job of investing in transmission
facilities that will facilitate renewable resources than IPL would if the
Transaction were not approved. ITC
Midwest has represented that its Tariff Sheets, approved by FERC for
interconnection in Michigan, allow ITC Midwest to pay 100% (instead of 50%) of
all transmission interconnection costs associated with interconnecting any
generator, including renewables, and it will seek the same approval for Iowa,
Minnesota and Illinois. It asserts that
this will encourage development of new generation. The Department is concerned about ITC
Midwest’s commitment to extend the benefits to
134. To counter the Department’s concerns, ITC
Midwest agreed at hearing that it would offer
135. If the MISO proposal takes effect, IPL would
have a greater incentive to invest than it does currently, and its investment
would be at a lower cost to ratepayers than similar investment by ITC Midwest because
of its lower rate structure.[140]
136.
137. The
Joint Petitioners failed to show that the Transaction will facilitate the
development of renewable energy.
138. The Joint Petitioners contend that the
Transaction will improve energy transfer within and between the states. It asserts that the Department’s focus on the
Transaction’s impact on
139. The Joint Petitioners did not offer any
specific plans that would facilitate energy transfer.
140. The Joint Petitioners failed to show that
the Transaction will facilitate energy transfer within and between states.
141. The Joint Petitioners claim that ITC
Midwest’s position as a transmission-only company and its parent company’s
record as an aggressive investor in transmission are evidence that the
Transaction will facilitate the development of transmission infrastructure. Although there is no reason to question the
sincerity of their claim, there was no evidence of concrete plans for
investment that will improve reliability, encourage the development of
renewable energy or facilitate energy transfer in
142. The parties disputed the appropriate way to
determine whether the
143. In order to comply with the requirement of
the Iowa Administrative Code, a five-year cost benefit analysis was included in
the Application. In response to concerns
raised in
144. In constructing both the five-year and
eight-year cost-benefit analyses, the Joint Petitioners applied assumptions
that they assert would understate the quantifiable benefits to ratepayers,
including:
a. That ITC
b. That the ratemaking
principles that currently govern IPL’s transmission rate structure will not
change;
c. That the cost of money
remains constant;
d. That IPL will not
experience any cost savings from new investment in
e. That IPL will file a rate
case in 2008 and each year thereafter reflecting higher transmission costs for
IPL and its customers;[143]
f. That there is no
regulatory lead time between when IPL incurs higher transmission costs and when
those increase are reflected in rates.[144]
145. The analysis followed traditional ratemaking
principles and assumed the same capital budgeting over the first five years of
the transaction.[145]
146. The Department, OAG/RUD, Energy Cents and
the Municipal Coalition challenged the Joint Petitioners’ cost-benefit
methodology. The challenges may be summarized:
a. the time periods selected
for the cost-benefit analysis were too short;
b. the $60 million TA for
AFUDC was not a present value and not matched with the associated costs in the
five-year analysis;
c. the cost-of-capital
reduction was over-stated;
d. the claimed Administrative
and General (A&G) benefit was overstated; and
e. the analysis did not
properly account for ADIT and ADITC;
f. 100% of the gain from the
sale, the Acquisition Premium, should be returned to ratepayers.
147. Also, the Municipal Coalition challenged the
five-year cost-benefit analysis because it did not consider the impact of the
Transaction on transmission-only customers.
148. Since the Joint Petitioners disagreed that
the Acquisition Premium should not benefit the ratepayers, they did not include
it in the cost-benefit analyses. The
treatment of the Acquisition Premium will be addressed separately.
149. The Joint Petitioners initially selected a
five-year timeframe because the electric utility industry, particularly
transmission, is rapidly changing, and it is highly likely that the industry
will operate under different assumptions and rules five years from now. Thus, it was difficult for the Joint
Petitioners to select assumptions that can be expected to apply for a longer
period. Moreover, the rules of the IUB
required a five-year cost-benefit analysis.[146]
150. The Joint Petitioners also selected a
five-year timeframe because they believe that FERC will take over jurisdiction
of bundled transmission within five years.[147] As set forth above, the Joint Petitioners
failed to demonstrate that they had a solid basis for that assumption.
151. Although the benefits of ITC Midwest’s
additional investment and transmission expertise cannot be quantified, the
Joint Petitioners are convinced that, beyond the five-year timeframe, the
additional benefits will more than offset any additional costs associated with
the sale.[148]
152. The Department, OAG/RUD, Energy Cents and
the Municipal Coalition challenge the selection of the five-year period as the
basis for the cost-benefit analysis. It
is their view that a longer period will provide a more complete picture of the
Transaction costs and benefits to ratepayers.
153. In particular, they challenge the use of a
five-year analysis period that includes the TA because the benefits of the
AFUDC offset may extend beyond five years.
They argue that the actual customer benefits that are associated with
the liability account will not begin until IPL has made the qualifying capital
investments that will deplete the value of the liability account and the
projects become part of IPL’s rate base.[149] Since the actual projects are not known, the
AFUDC is not matched against associated costs.
Ratepayers would receive the TA only if IPL builds large energy facilities
within the five-year timeframe, with enough lead time to allow accumulation of
the AFUDC. If the Joint Petitioners’ assumptions
are correct, the net present value to ratepayers of the AFUDC offset is $12.5
million.[150]
154. Because the average service life of new
investment is much longer than five years, a five-year analysis is too
short. The higher costs associated with
the Transaction would affect current customers in the first few years following
the Transaction, but the benefits would not accrue for several years and would
benefit future customers.[151] To rectify this, the Joint Petitioners could
either include $0 benefit over the first five years of the transaction or look
at a longer study period that would capture the full benefit of the $60 million
TA, tied to the useful life of the investments.[152] However, the other parties could not quantify
the present value of the future benefits because the projected future
investments are not known.
155. Based on its five-year cost benefit analysis
without the TA as an offset, the Joint Petitioners estimated that the average
residential customer’s monthly bill would increase by 64 cents in 2008 and
remain stable for about five or six years.[153]
156. If the cost-benefit analysis with the TA is
extended to twenty years, there is a rate impact of negative $79.1 million.[154] The Joint Petitioners estimate that with a
rate impact of negative $79.1 million, a ratepayer would see a monthly increase
of 34 cents on the average residential monthly bill of $86.42.[155]
157. As addressed above, IPL does not have a
specific plan with associated timelines for investment that would qualify for
AFUDC.[156] However, Section 909 of the American Jobs
Creation Act of 2004 allows taxpayers that realize gains from a “qualifying
electric transmission transaction” to elect to recognize all or part of the
gain over an eight-year period beginning with the year of the transaction so
long as the gain is reinvested within four years. The Joint Petitioners expect
the Transaction to qualify for this tax treatment.[157]
158. Although the tax incentive is not a
guarantee that the investment will be made, it is a powerful incentive. IPL’s lead witness in this proceeding
testified that IPL intends to invest the proceeds in a minimum of $600 million
in new generation in Minnesota and Iowa over the next seven years (including at
least $200 million in a minimum of 100 megawatts of new wind generation), make
capital investments to meet environmental compliance with new air emissions
rules, and implement Advanced Metering Infrastructure in the IPL service
territory.[158]
159. Assuming that the investments are made, it
is apparent that it is more appropriate to evaluate the transaction over a
period longer than five years. Based on
the twenty-year analysis with the TA, there is a significant negative effect on
the ratepayers.
160. The Joint Petitioners claim that its
opponents fail to assign any value at all to the benefits associated with
correcting and improving the transmission system, and the certainty of changes
to the transmission industry that will increase costs to the ratepayers,
regardless of whether the Transaction is approved.[159] Although unquantifiable benefits may be
considered, it is difficult to balance them against a specific dollar value and
there is insufficient evidence in the record to do so.
161. The Department, OAG/RUD, and the Municipal
Coalition were also concerned about the cost of capital reduction in the
five-year analysis.
162. In its cost-benefit analysis, the Joint
Petitioners estimated that IPL’s overall cost of capital would be reduced by
$48 million because some of the proceeds from the Transaction would reduce both
IPL’s short-term debt and the equity component of IPL’s capital structure. The Joint Petitioners’ exhibit shows that
IPL’s shift in capital structure would decrease
163. IPL is proposing to pay down most of its
short-term debt, the least costly component of its
164. IPL’s witness acknowledged that the cost-of-capital
reduction used in the five-year cost-benefit analysis resulted from IPL’s
proposed use of net cash proceeds, but it was not a firm commitment to that
capital structure.[162]
165. The Municipal Coalition also objected to the
five-year cost-benefit analysis because transmission-only customers received no
benefit.
166. The Joint Petitioners offered the ATA to
address concerns that IPL’s cost-benefit analysis provided either minimal or no
benefits to customers over the first five years of the Transaction because of
the likely delay in the use of the AFUDC. The Joint Petitioners extended the
cost-benefit analysis to eight years, and offered the ATA in lieu of the TA. A
portion of the ATA rate discount would be shared with IPL’s transmission-only
customers. To address the concern that
the cost-benefit analysis over-stated the cost-of-capital reduction, IPL committed
that, as part of the ATA, IPL would include a common-equity ratio no higher
than 50% in its first electric rate filing following the close of the
Transaction.
167. Based on its assumptions, the Joint Petitioners
estimated a net value of $15.3 million for ratepayers.[163]
168. The opposing parties argue that eight years
is too short a time period for the cost benefit analysis, for the same reasons
that they assert that five years is too short.[164] In addition, the eight years of analysis
covers only the years that the Transaction’s effects would be mitigated by the
refunds and credits offered under the ATA.
Although the refunds and credits will be offered for only eight years,
the higher transmission costs will extend much longer.
169. The IUB concluded that there was no single
correct time frame for the analysis, but the most credible time frame for
analysis of a long-term asset was 10 to 20 years, recognizing that the longer
the analysis, the more speculative it becomes.[165]
170. At the request of the IUB, the Joint
Petitioners provided an additional twenty-year cost-benefit analysis, using the
identical assumptions that were used in the eight-year analysis, and applying
the ATA.[166] Based on those assumptions, there was a
present value cost-benefit to ratepayers of $6.2 million.[167]
171. In its eight-year cost-benefit analysis, the
Joint Petitioners assumed that FERC would take over jurisdiction of the
transmission portion of IPL’s bundled rates by 2013, and IPL would earn the
FERC-allowed 12.38% ROE from that date forward. This had the effect of
increasing the BLRR in the last three years of the analysis. That is, if the Transaction were not approved
and IPL continued to hold the Transmission Assets, IPL assumed that FERC would
take control of transmission rates by 2013, allowing IPL an increase from its
currently-approved 10.4% ROE to 12.38% ROE, thereby increasing the BLRR.[168] By increasing the BLRR, the difference
between the BLRR and the PTRR decreased.
172. The Municipal Coalition’s witness estimated
that the assumption that the ROE would increase to 12.38% raised the BLRR by
about $10 million per year in the last three years of the eight-year cost
benefit analysis, with a cumulative present value of about $17.8 million. Based on his calculation (obtained by subtracting
the $17.8 million from the Joint Petitioners’ calculated net benefit of $15.3
million), the eight-year analysis would yield a net present-value detriment to
ratepayers of $2.5 million.[169]
173. The Joint Petitioners calculate that the ATA
produces a positive benefit of $4.2 million for ratepayers even if the
assumption is removed that IPL will earn a higher ROE by 2013. However, it was not able to produce the
back-up documentation to support that calculation.[170]
174. Like the eight-year analysis, the
twenty-year analysis assumed that IPL’s ROE for its transmission assets would
increase in year six because FERC would assume jurisdiction over transmission
pricing by that date.[171] The Joint Petitioners’ twenty-year analysis,
without the higher ROE beginning in 2013, shows a detriment to ratepayers of
$36.85 million, approximately 16 cents per average monthly residential bill.[172]
175. The Joint Petitioners have failed to demonstrate
that FERC will take over the transmission portion of bundled rates by
2013. Thus the eight-year (and
twenty-year) cost-benefit analyses should be evaluated without the increase to
IPL’s ROE beginning in 2013.[173]
176. In response to criticism of the
cost-of-capital reduction in the five-year analysis, as part of the ATA, the
Joint Petitioners offered an equity cap: IPL will file for no greater than a
50% common equity capital structure in its first electric retail rate
proceeding in
177. The
eight-year cost-benefit analysis assumes, however, that the 50% cap on IPL’s
equity ratio will remain in effect through the eight-year period.[175] Assuming that the dollar amount of the
reduction remains constant, as IPL makes new investments and increases its total
equity, the claimed reduction will have less effect on the common equity
ratio. That is, the savings will be
diluted by the addition of new capital unless the common equity ratio is
maintained. Since IPL’s future
investments that could affect its
178. The
Municipal Coalition’s witness calculated that if the cost-of-capital reduction
was removed from the eight-year and twenty-year analyses, the study would yield
net detriment to ratepayers.[177]
179. The Department is also concerned that, with
the sale of its transmission assets, IPL will be a smaller company, with
reduced regulated assets. Typically, a
decrease in rate base will raise the investment risk and, accordingly, raise
the cost of capital. This in turn may
lead to higher rates for IPL’s ratepayers in future rate cases.[178]
180. The
OAG/RUD contends that IPL will divest assets that earn a 10.8 percent ROE and
redeploy the proceeds in assets with a greater potential for increased return
on equity.[179] Although this may occur, the off-setting benefits
of such future investments are unknown.
181. In each cost-benefit analysis, the Joint
Petitioners calculated the Total Income Tax Expense for the Transaction as $133.0
million. It included current tax expense
of $210.1, reduced by $74.8 million for reversal of Accumulated Deferred Income
Taxes (ADIT) related to the difference in related depreciation, and reduced by reversal
of ADIT Credit (ADITC) of $2.23 million.[180]
182. IPL has collected the taxes from ratepayers
based on the life of the assets. For tax
purposes, IPL was allowed to accelerate the depreciation expense taken on the
assets even though the depreciation expense in IPL’s rates and on its financial
books was amortized over a longer time period.
The ADIT is a result of the timing difference between tax accounting and
accounting for the book value. The ADIT
balance reduces the rate base upon which the utility’s return is applied. In this way, ratepayers are fairly
compensated for taxes paid to the utility, but not yet paid by the utility to
the IRS.[181]
183. The Department, the OAG/RUD and the
Municipal Coalition assert that the ADIT should not be used by IPL to offset
its tax obligation.[182] Instead, they claim that the ADIT reflects a
prepayment of taxes by the ratepayers because of IPL’s accelerated depreciation
schedule and that the prepayment should be returned to the ratepayers.[183]
184. The Joint Petitioners disagree. It is their view that the ADIT is a “loan”
from the government that must be repaid, that the sale is a taxable event, and that
tax law would preclude refunding the ADIT to the ratepayers.[184] They cite several Commission decisions where
the Commission did not require the seller to refund to ratepayers any part of
the ADIT or ADITC.[185]
185. The Department argues that the ADIT offset is
improper because IPL’s tax liability may be offset by other tax losses.[186] It also claims that ITC Midwest’s rate base
will be higher than IPL’s without the ADIT balance as an offset. Since the assets would be in the rate base,
ratepayers will pay the taxes twice.[187] The Joint Petitioners disagree with this
analysis. The Department’s point seems
to be that, under ITC Midwest’s ownership, the assets will be depreciated
again, and the ADIT will accumulate again, and thus, ratepayers will pay the
taxes on the same asset twice. However,
it is not clear that the ratepayers will be disadvantaged by that re-accumulation
so long as there is a corresponding offset to rate base, and so long as the
book value that is transferred reflects the depreciated value.
186. The Joint Petitioners acknowledge that the
status of the ADITC is in flux, but it maintains that the IRS Code does not
allow the ADITC to be returned to customers.[188]
187. It is difficult to determine which party
correctly interprets the IRS code and whether the offsets are proper. If, in fact, IPL must refund the ADIT to the
IRS, and the IRS does not allow the return of the funds to ratepayers, the
offset is proper. If the Transaction is
approved, it should be conditioned on an accounting by IPL of its ultimate tax
obligation, and the effect of the ADIT and ADITC on its obligation. In the
event that the amount owing to the government is less than the Joint
Petitioners’ estimate, the difference should be returned to the ratepayers.
188. The Joint Petitioners’ cost-benefit analysis
includes a reduction to A&G costs of $3.8 million attributed to the
Transaction.[189]
IPL did not anticipate that it would
reduce its A&G costs in each account as shown, but used the calculation as
a method of estimating the magnitude of A&G reductions associated with the
Transaction.[190] IPL stated that it did expect some cost
reductions, but preferred to look at the reductions from the standpoint of
growth potential because IPL is planning to expand its generation, environmental
compliance measures and other investments.
The expansion will result in an increase in overall A&G costs that
will be mitigated by the A&G savings from the Transaction.[191] The Department, the OAG/RUD and Municipal
Coalition challenged the assumed reduction.
189. To the extent employees provide services on
behalf of ITC Midwest in 2008 under the Transition Services Agreement, the
A&G expenses associated with those employees will be paid by ITC Midwest.[192] However, the actual A&G savings from the
Transaction are difficult to quantify.
The Joint Petitioners have used an estimate based on the assumption that
5.23% of its total labor costs are attributable to transmission service.
190. The Department also points out that the
cost-benefit analysis failed to show the corresponding increase to ITC
Midwest’s A&G expenses, although the IPL transmission employees will be
offered the opportunity to transfer.
Those new costs may increase ITC Midwest’s rates, but are not reflected
in the cost-benefit analysis.[193]
191. The IUB concluded that the Transaction might
reduce IPL’s A&G expenses, but the amount was uncertain, and many of the
expenses would be taken over by ITC Midwest and included in its revenue
requirement. Thus, overall savings to
ratepayers were uncertain.[194]
192. The Joint Petitioners have failed to show
that they have a reasonable basis for allocating $3.8 million in savings for
A&G to the cost-benefit analyses.
Decreasing the A&G would increase the negative impact of the TA and
ATA on ratepayers.
193. One of the criticisms of the Transaction was
that ratepayers would pay a higher ROE for the Transmission Assets under ITC
Midwest ownership than it does under IPL ownership. ITC Midwest will earn a higher ROE on the
existing assets than IPL is allowed in its revenue requirement. The Department objected that such an increase
does not benefit the ratepayers in any way.
194. The Joint Petitioners reply that ITC
Midwest’s higher rates are “not relevant” because they are fully accounted for
in the PTRR in each cost-benefit analysis and offset by the TA or ATA.[195] To the extent that all of the assumptions that
the Joint Petitioners have applied to the cost-benefit analyses are correct,
including the benefits to ratepayers from the TA and ATA, the Joint Petitioners
are essentially arguing that the higher rates are neutralized, and thus not
relevant. However, the increases are
certainly relevant. If ITC Midwest could not earn a higher ROE and charge
higher rates than IPL can charge, the results of the cost-benefit analyses
would be dramatically different.
195. In the eight-year analysis,
transmission-only customers benefit from a portion of the rate reduction but do
not benefit from the rate refund. The
cost-benefit analysis does not measure the effect on these customers.[196] The Municipal Coalition’s witness estimated
that, over eight years, the total adverse impact of the Transaction with the
ATA would be $21.1 million.[197] An increase in rates to transmission-only
customers may indirectly affect the retail rates of the wholesale purchasers.
196. The five-year cost-benefit analysis fails to
tie the AFUDC offset to specific capital investment and is too short to fairly
reflect the costs of the TA. The
twenty-year cost-benefit analysis with the TA has a negative effect on
ratepayers of $79 million, an increase of approximately 34 cents per month on
an average residential customer’s bill.
197. The eight-year cost-benefit analysis better aligns
increased costs with specific rate refunds and discounts and extends a portion
of the ATA to transmission-only customers.
The assumption that FERC will assume jurisdiction over retail rates in
2013 is not substantiated. Without that
assumption the Joint Petitioners estimate that the benefit to ratepayers is
$4.2 million but failed to provide documentation to support that calculation.
198. The twenty-year cost-benefit analysis with
the ATA, without the assumption that FERC will assume jurisdiction over retail
rates in 2013, has a negative effect on ratepayers of $36.8 million, an
increase of approximately 16 cents on an average residential customer’s bill.
199. The negative effect of the TA and ATA is
greater if the A&G savings are removed or reduced.
200. The negative effect of the TA or ATA for
201. Although both the TA and the ATA have a
negative effect on
202. As all
parties concede, predicting the future costs of service is difficult. Although the cost-benefit analyses show the
effect of the Transaction on transmission rates, none of them capture any of
the anticipated, unquantifiable, benefits of increased transmission investment,
including increased efficiency and less system congestion which may reduce
energy cost. Based on its experience in
203. Although there may be unquantifiable
benefits, the Joint Petitioners have failed to demonstrate cost savings from
investment to offset the negative effect of the Transaction on ratepayers.
204. The IUB concluded that the benefits provided
by the TA and the ATA were more accurately termed offsets to cost increases from
the Transaction, rather than benefits.
It concluded that, of the two, the ATA will provide the most benefit to
all customers, as well as providing some benefit to wholesale transmission
customers, which the TA did not. It
concluded that under the ATA, ratepayers would be “held harmless” for eight
years, or possibly longer if IPL delayed filing its next rate case.[201]
205. The IUB found that “[h]aving considered all
of the analyses submitted in this record, the Board concludes that the proposed
transaction is most likely to have a negative net present value to ratepayers.”[202] The majority held that the negative net
present value would be outweighed by anticipated, unquantified energy savings. It concluded that ITC Midwest was more likely
to make the necessary transmission investment to support renewable energy,
reduce line losses, provide greater market access, and relieve transmission
constraints. The increased costs to
ratepayers would be mitigated for at least the first eight years following the
close of the Transaction by the ATA, which it concluded was superior to the TA.[203]
206. Although they oppose the Transaction, the
OAG/RUD concludes that the TA has greater benefit to the public than the ATA, and
the Department and the Municipal Coalition conclude that the ATA has greater
benefit to the public than the TA.
207. IPL does not currently recover
transmission-related investment costs through its Fuel Adjustment Clause.[204] At the present time, the capital costs
associated with transmission investment, as reflected in the book value of
IPL’s Transmission Assets, are included in its rate base. At the time that the Transaction closes, the
Transmission Assets will be removed from IPL’s books, but ratepayers will not
see the impact of the decrease in rate base until IPL’s next general rate
case. No decision has been made about
when IPL will file its next rate case. [205]
208. IPL flows market-related costs and credits
for transmission through the Fuel Adjustment Clause, consistent with Commission
practices and rules.[206]
209. ITC Midwest has agreed that it will charge
IPL the same transmission rates that are currently in IPL’s Attachment O
through calendar year 2008. [207]
210. Although the record is not entirely clear,
it appears that after calendar year 2008, ITC Midwest will charge IPL for
transmission service under ITC Midwest’s FERC tariff but IPL’s rates and
charges to its retail customers will be based on its current rates until it
files its next rate case. At that time,
the rate base will be decreased by the book value of the Transmission Assets. IPL
must seek the Commission’s approval to recover the cost of transmission
services under the FERC-approved rates through an automatic adjustment.[208]
211. ITC Midwest’s wholesale transmission rates,
terms, and conditions of services will be regulated by FERC. As a transmission-only company, ITC Midwest
will not engage in purchase or sale of any energy, either for wholesale or
retail use. Thus, there can be no
subsidization of ITC Midwest’s wholesale transactions through retail
rates. The Commission will also retain
jurisdiction over IPL’s retail rates and review the rates to assure that no
subsidization occurs. IPL serves one
small wholesale customer in
212. The Joint Petitioners have demonstrated that
the Transaction will not require
213. This criterion applies to a transfer of
operation control and has no application to a change of ownership to a company
that will be subject to FERC jurisdiction.[210] The effect of the loss of jurisdiction from
change of ownership is fully discussed above.
214. The parties dispute the proper
characterization of the acquisition premium and the gain that IPL will receive
from the sale. As more fully discussed
above, the Joint Petitioners have committed that the ratepayers will not pay
any portion of the Acquisition Premium in ITC Midwest’s rates. Going forward, the book value of the
Transmission Assets will be deducted from IPL’s rate base and the same amount added
into ITC Midwest’s rate base. Thus,
ratepayers will not pay capital costs for the Transmission Assets that have
already been recovered from them.
215. The parties disagree about whether the
ratepayers should benefit from IPL’s receipt of the Acquisition Premium. The Department, OAG/RUD, and Energy Cents
contend that the Acquisition Premium should be refunded to ratepayers or used
to buy down their rates and should not benefit the shareholders. Their argument is based on the assumption
that the value of an asset paid for by the ratepayers has increased, and thus, the
ratepayers should benefit.
216. The Joint Petitioners disagree. It is their view that the ratepayers have
paid for the cost of capital used to invest in the Transmission Assets at an
appropriate rate, and that the ratepayers have received the full benefit of the
rate paid. The Acquisition Premium was not
paid because of any increase in the book value of the assets but because the buyer,
ITC Midwest, can earn more from the same book value than the seller, IPL, can earn.
217. In determining the appropriate treatment of
the gain, one must balance two interests.
The investors have an interest in protecting the integrity of their
investment and are entitled to a fair opportunity for a reasonable return on
that investment. The ratepayers are
entitled to government protection against unreasonable charges for the
monopolistic service that they receive.[211]
218. Typically, when there is a gain on a
depreciable asset, that increase is accounted for in a way that benefits the
ratepayers because the investors have received a fair rate on their initial
investment of capital, and to compensate them further would provide a higher
rate of return than had been deemed just and reasonable. Also, typically the risk of loss of the asset
falls on the consumer. Thus, if through
loss, damage or obsolescence, additional investment is required, the investors
are entitled to recoup the full value of their investment and the consumers
must pay more.[212]
219. However, there are instances, and this is
one, where the typical concepts of gain and loss on an asset do not clearly
apply. Here, the book value of the
assets will remain the same in the hands of the buyer as they have in the
seller. The Acquisition Premium will not
be reflected in the cost of the Transaction Assets as that cost carries over to
ITC Midwest’s rate base.
220. ITC Midwest will pay IPL the Acquisition
Premium, not because the fair market value of the asset has increased, but
because the buyer has an opportunity to earn a higher ROE on that same asset. Thus, it is more appropriate to examine how
the economic benefit follows the economic burden. If IPL’s approved ROE rose, as set through
its
221. In this case, IPL is receiving from ITC
Midwest the negotiated value placed on the right to obtain a higher ROE and
more favorable cost of capital. It is
the investor and not the ratepayer who has the opportunity to earn the higher
return on investment.[213]
222. The Department sets forth three factors that
should be considered in determining if the Acquisition Premium should be paid
to the ratepayers.
a. Whether the regulated
asset was in the rate base, earning a return;
b. Whether ratepayers were
paying for the costs of the asset such as depreciation, taxes, operation and
maintenance; and
c. Whether as a result of the
transaction, the ratepayers are made whole.
223. Here, the regulated assets were in the rate
base, earning a return, and the ratepayers were paying the associated
costs. Under the terms of the
Transaction, the book value of the Transmission Assets is being transferred and
its value will not be inflated in the hands of the buyer. The ratepayers did not create the new value
that supports the Acquisition Premium:
the opportunity to earn a higher rate of return and to benefit from a
different capital structure. If IPL had
the opportunity to earn a higher ROE, it would not benefit the ratepayers; it
would result in higher rates charged to them.
224. The Joint Petitioners argue that the
Acquisition Premium should not be treated as a gain because the Transaction
involves the sale of an “entire system.”
That characterization of the Transaction is not determinative. The amount of the assets that are sold is not
critical, it is whether the premium paid is attributable to the increase in the
book value of the assets or to some other factor.
225. The Minnesota Supreme Court addressed a
similar question in deciding that ratepayers should not benefit from the good
will that a utility had created. It
stated that the cost of furnishing utility service typically includes: “labor, materials and supplies, taxes,
insurance, and depreciation,” and may also include the financing cost of money
invested in the utility’s plant and equipment.[214] It concluded that “good will” was not a
“cost” of rendering service and the costs associated with it had not been borne
by ratepayers. The fact that the company
had value that exceeded its book value did not inure to the ratepayers.[215]
226. In her dissent, Justice Gardebring asked, if
the ratepayers had not paid the costs that resulted in the good will, who did? The ratepayers had funded the salaries,
training and other activities that led to establishing favorable name
recognition and that name benefited the associated unregulated businesses that
used the name.[216] Thus, she concluded that the value of the
good will used by the utility’s unregulated businesses should be imputed to the
utility.
227. The facts here present a stronger case that
the Acquisition Premium should not be returned to the ratepayers because there
is no reasonable argument that the costs paid by the ratepayers have led to the
opportunity for a higher rate of return by ITC Midwest. In this case, the opportunity has been
created by the development of federal energy policy that allows greater
incentives to independent transmission companies than
228. The purchase of the right to receive a
higher ROE distinguishes this case from the cases cited by the Department,
Energy Cents and OAG/RUD that awarded the ratepayers the benefit of the gain on
the sale of depreciable assets. In those
cases, the gain was tied to the book value of the assets, the ratepayers had
borne the burden of a decrease in that book value, and it was equitable to
allow them to share in the increased value.[217]
229. Allowing IPL to retain the Acquisition
Premium rather than distribute it to the ratepayers is consistent with the
Commission’s prior decisions that required that the buyer exclude the
Acquisition Premium from its rates, but did not require the seller to return the
Acquisition Premium to the ratepayers.[218]
230. The OAG/RUD argues that in the prior cases
where the Commission has not required the acquisition premium to be returned to
the ratepayers, the Commission either maintained jurisdiction over the company
that purchased the assets, thus assuring that the Commission would continue to
monitor and protect Minnesota ratepayers, or the selling company would no
longer be doing business in Minnesota, thus protecting Minnesota ratepayers
from being affected by the gain.[219] These distinctions are not compelling. In this case, IPL will continue to be under
231. The OAG/RUD also maintains that, in cases
where the Commission allowed the seller to keep the acquisition premium, the
Commission retained jurisdiction over the buyer and could assure that
ratepayers were protected from rate increases tied to the expense. However, in this case, the rates charged by
ITC Midwest will not include the Acquisition Premium.
232. The OAG/RUD’s argument that ratepayers are
unaffected when the seller stops doing business in the state is illogical.[220] In that case, it’s true that the gain has
been entirely removed from any possible detriment to ratepayers, but it is
equally true that the ratepayers did not receive any benefit from it.
233. The OAG/RUD witness testified that the value
of the rate-base-regulated utility asset “cannot change simply because the
ownership changes,” and he correctly notes that the useful life of the assets
has not changed by virtue of the sale.
However, he concludes that the acquisition premium reflects the under depreciated
book value plus the salvage value of the plant.
That is factually incorrect.[221] The book value of the assets will remain the
same following the Transaction and will be transferred to ITC Midwest. The Acquisition Premium will not affect the
book value; instead, it reflects ITC Midwest’s opportunity to benefit from a
higher ROE and different capital structure.
IPL’s sale of its Duane Arnold facility, and the accounting for the gain
in that transaction, is similarly distinguishable.[222]
234. The OAG/RUD acknowledges this: “In this case, the increase in value is
clearly created by a change in the regulation of the assets as the authorized
capital structure and cost of capital components are changed by the
transaction. The fact that IPL is
selling these particular assets does not change their useful life.”[223]
235. It is incorrect to conclude, as the OAG/RUD
does, that the Acquisition Premium reflects the under depreciated book value
plus the salvage value of the plant.
There will be no change in the book value; it is the opportunity to earn
a return on that book value that will change.
For this reason, the Transaction differs from the sale addressed by the District
of Columbia Circuit in Democratic Central
Committee v. Washington Metropolitan Area Transit Commission,[224]
which involved land that had appreciated in value.
236. The cases relied upon by the Department and
Energy Cents that required the gain to be recorded back to ratepayers through a
reduction in net plant, by crediting the depreciation reserve or as an offset
to an outstanding liability, are similarly distinguishable. Ratepayers have not
been charged for the planning, construction or maintenance of the investment
that generated the Acquisition Premium .[225]
237. It may appear that the investors have
obtained more from their initial investment than they were entitled to receive. The investors provided capital that was
invested in infrastructure and they were awarded the opportunity to earn a
certain rate of return on that investment through approved rates. If one looks at the Acquisition Premium as a
return on the investment in that infrastructure, it is clear that the investors
have received a return that significantly exceeds the awarded ROE. If the book value of the assets increased,
that analysis would be correct and the ratepayers, not the investors, should
benefit from the gain. But in this
instance, the Acquisition Premium was paid for the right to earn a higher ROE
in the future.
238. This analysis is consistent with the obvious
point made by the Joint Petitioners. If
the Acquisition Premium is paid to the ratepayers, the Transaction will not go
forward. The benefit to IPL from the
sale is that it will receive funds that can be used for new investment and
allow it to focus on the generation and distribution aspects of its
business. If the investors can not keep
the Acquisition Premium, the opportunity presented by the Transaction will not
be available, and they will not receive the benefit of selling the opportunity
to earn a higher rate of return.
239. If the Acquisition Premium were paid to the
ratepayers because it is considered to be an increase in the book value of the
Transmission Assets, the net book value would rise for ITC Midwest, and it
would be able to include the Acquisition Premium in its rate base. If the ratepayers received the Acquisition
Premium, and ITC Midwest was also prohibited from including the premium in the
rate base, the ratepayers would benefit twice from the Transaction.[226]
240. Although it could be argued that IPL does
not have the opportunity to earn a higher rate of return on the same Transmission
Assets, that fact does not change this analysis. Because ITC Midwest has a greater opportunity
to benefit from the asset it is willing to pay the Acquisition Premium. Because ITC Midwest is willing to pay for
that opportunity, IPL is willing to sell it.
241. The Joint Petitioners have demonstrated that
the Acquisition Premium should not be returned to the ratepayers and that
242. On September 20, 2007, the IUB issued an
order allowing the Transaction to proceed.[227] It determined that, pursuant to Iowa Code §
476.77, the parties’ joint application for reorganization was not disapproved,
with the dissent of the Chair.[228] The IUB selected the ATA over the TA as part
of its approval. The IUB concluded:
There
are costs to this reorganization, but these increased costs to all IPL
transmission system users, both retail and wholesale, will be mitigated for at
least eight years following the transaction’s closing under the ATA. The benefits of the transaction are
substantial. Transmission investment
crucial to the continued development of
243. The IUB stated that one of the most
significant benefits is that the transmission system will be under the control
of an independent operator that will have no motive to discriminate in favor of
or against any transmission user, which should benefit small producers,
renewable energy, and other wholesale users of the transmission system. In its view, “[t]he ratepayer and public
benefits of this transaction far outweigh the upfront costs to
244. The IUB also stated that: “any material change in the proposed
transaction sale” resulting from conditions imposed by another regulatory
authority “may change the basis for the conclusions the IUB has reached and may
require submission of a revised proposal.”[231]
245. Because of this reservation, the Joint
Petitioners have taken the position that if the Commission places any
conditions on the transaction that would benefit
246. The Department did not find the IUB Order
persuasive. First, it argued that MISO
is already an independent operator of IPL’s transmission assets, mitigating the
significance of ITC Midwest’s status as a transmission-only company.[234] The IUB acknowledged that IPL no longer has
any ability to discriminate in favor of its own load. However, the IUB also found that a
transmission-only company had greater incentive to build transmission that
would serve regional needs, beyond IPL’s incentive to serve its own retail
customers. [235]
247. Second, the Department pointed out that,
although
248. Third, the Department contended that the
Transaction does not serve the public interest, and the
249. Fourth, the Department did not believe that
the detrimental loss of the Minnesota Commission’s jurisdiction over the
Transmission Assets was outweighed by the public benefit.[240] The loss of jurisdiction and its likely
impact is fully addressed above.
250.
Fifth,
the Department is concerned that
251. Sixth, the Department contends that the
Joint Petitioners have not adequately addressed the significant effect that the
Transaction will have on transmission service across southern
252. The Joint Petitioners point out that the IUB
determined that the Transaction would benefit the development of renewable
energy in
253. Ultimately, the Department challenges the
Iowa Board’s decision because it is not convinced that the benefits of the
Transaction will outweigh the costs to the ratepayers.
254. The OAG/RUD challenges the impartiality of
the IUB’s decision, claiming conflicts of interest between the decision makers
and their staff with Joint Petitioners or their counsel. Such a collateral challenge goes beyond the
scope of this proceeding.
255. The citations to exhibits in the Findings
are not intended to indicate that all evidentiary support in the record has
been cited.
Based on these Findings of Fact,
the Administrative Law Judge makes the following:
1.
The
Public Utilities Commission and Administrative Law Judge have jurisdiction to
consider the Joint Petitioners’ Petition for Approval of Transfer of
Transmission Assets.[245]
2.
No
public utility shall sell any plant as an operating unit or system in
3.
IPL is
a public utility that is seeking to sell its transmission system for
consideration in excess of $100,000. The
sale is subject to the Commission’s approval.
4.
The
Commission shall give its consent and approval by order in writing if the
proposed sale is “consistent with the public interest.”[247] In assessing the public interest, the
commission shall evaluate several statutory criteria.[248]
5.
The
public utility seeking approval of the transaction bears the burden of proof
that the statutory criteria are met.[249]
6.
The
Joint Petitioners have failed to show by a preponderance of the evidence that
the Transaction facilitates the development of transmission infrastructure necessary
to ensure reliability, encourage the development of renewable resources, and
accommodate energy transfers within and between the states.
7.
The
Joint Petitioners have shown by a preponderance of the evidence that the
Transaction protects
8.
The
Joint Petitioners have shown by a preponderance of the evidence that the
Transaction does not involve transfer of operational control of transmission
assets.
9.
The
Joint Petitioners have failed to show by a preponderance of the evidence that
the Transaction will not have a negative impact on
10.
The
Joint Petitioners have shown by a preponderance of the evidence that the
Transaction protects
11.
The
Joint Petitioners have failed to show that the loss of jurisdiction over the
Transmission Assets is outweighed by the benefits of the Transaction.
12.
The
Joint Petitioners have failed to show by a preponderance of the evidence that the
Transaction is in the public interest.
13.
If the
Commission approves the Transaction, it is in the public interest to condition
approval upon the Joint Petitioners’ agreement to meet the commitments made in
the course of the Proceeding, specifically:
a.
That
ITC Midwest will give the Commission access to its books and records;
b.
That
ITC Midwest will file annual financial information with the Commission;
c.
That
ITC Midwest will comply with a directive from the Commission to invest in a
project that the Commission has determined is necessary to ensure safe,
adequate, efficient and reliable service;
d.
That
ITC Midwest will resolve the system constraints in the IPL service territory as
reported by MISO.
e.
That
ITC Midwest will honor IPL’s contractual agreements related to the Transmission
Assets;
f.
That
ITC Midwest forego recovery through rates of its Transaction costs, up to $15
million;
g.
That
ITC Midwest will offer
14.
If the
Commission approves the Transaction with the TA, IPL shall place $60 million in
a regulatory liability account solely to offset AFUDC on new generation built
for the benefit of IPL’s customers.
15.
If the
Commission approves the Transaction with the ATA, approval shall include:
a. specific approval of a
regulatory liability account of approximately $89 million for the sole purpose
of paying IPL’s refund obligation and not to reduce the rate base in any
general rate proceeding;
b. approval that the interest
accrued on the regulatory liability account will not be used for any purpose
other than the payment of the refund; and
c. tax savings from the
annual refund obligation under the ATA will be excluded from IPL’s revenue
requirement in future rate proceedings.
16.
If the
Commission approves the Transaction, IPL shall file with the Commission an
accounting of taxes paid on the Transaction, including the final accounting for
ADIT and ADITC.
17.
Any of
the Findings more properly designated Conclusions are hereby adopted as such.
Based
upon these Conclusions, the Administrative Law Judge makes the following:
1. That
the Commission disapprove the Transaction because it is not consistent with the
public interest;
2. That
access to Exhibit 31a, created by IPL, shall be limited to the Commission and
Commission Staff, the Office of Administrative Hearings, the Department of Commerce,
the Office of the Attorney General-Residential and Small Business Utilities
Division, Energy Cents Coalition and the Municipal Coalition. Specifically, it shall not be released to any
other parties, including ITC Midwest, notwithstanding the terms of the
Protective Agreement dated July 5, 2007. The Protective Order dated July 5, 2007,
shall remain in effect; and
3. That, if the Commission approves the Transaction, it shall
require the Joint Petitioners to meet the commitments made in the course of the
Proceeding.
Dated: November 16, 2007
/s/
Beverly Jones Heydinger
|
Beverly
Jones Heydinger Administrative
Law Judge |
Reported: Shaddix
& Assoc., 3 volumes
By
virtue of its background and experience, the Commission may have information
about the
B.
J. H.
Notice is hereby given that, pursuant to
Minn. Stat. § 14.61, and the Rules of Practice of the Minnesota Public
Utilities Commission and the Office of Administrative Hearings, exceptions to
this Report, if any, by any party adversely affected must be filed by the date
set by the Commission with the Executive Secretary, Minnesota Public Utilities
Commission, 350 Metro Square, 121 - 7th Place East, St. Paul, Minnesota 55101,
or electronically filed.
The Minnesota Public Utilities Commission
will make the final determination of the matter after the expiration of the
period for filing exceptions, or after oral argument, if it is held.
The Commission may accept or reject the
Administrative Law Judge’s recommendation and this recommendation has no legal
effect unless expressly adopted by the Commission as its final order.
[1] The Municipal Coalition includes Midwest Municipal Transmission Group, Missouri River Energy System and Wisconsin Public Power.
[2] Exhibit (Ex.) 2.
[3] Exs. 2, 3, 4a and 4b.
[4] Pursuant to Ex. 2, §7.8, the ASA schedules describing the specific assets may be amended by the Joint Petitioners in accordance with the terms of the ASA up to thirty days prior to closing.
[5] Order Denying Motion to Require Additional Testimony and to Suspend the Proceedings, August 15, 2007.
[6] Introduced at hearing as Ex. 8 (Larsen Rebuttal).
[7]
Ex. 8a (Interstate Power and Light Co.
and ITC
[8] Ex. 1 at 12-13.
[9] Ex. 12 at 7 at Schedule F (Hampsher Direct).
[10] Ex. 4a (Public Version); Ex. 4b (Trade Secret Version).
[11] Initial Brief of the Office of the Attorney General at 26-28.
[12] Ex. 1 at 13.
[13] Ex. 1 at 2; Ex. 24 at 2 (Welch Direct).
[14] Ex. 1 at 14.
[15] Ex. 2, §7.13(b); Ex. 1 at 14, 16.
[16] Department Reply Brief at14-15, 58.
[17] Ex. 26 at 2-3 (Porath Direct).
[18] Ex. 26 at 4-5 (Porath Direct).
[19] Ex. 26 at 4, BLP-1 and BLP-2.
[20] Ex. 26 at 9 (Porath Direct); T. 1 at 94, 96 (Collins).
[21] The Iowa Utilities Board Order stated: “The Board expects Joint Petitioners to follow through on all commitments made and considers those commitments to now be part of the joint application for reorganization before the Board.” Ex. 8A at 74; T. 1 at 95-96 (Collins).
[22] Initial Post-Hearing Brief of Dairyland Power Cooperative at 4.
[23]
Petition to Intervene of the
[24] Petition to Intervene of American Transmission Company LLC and its Corporate Manager, ATC Management, Inc., at 1-2.
[25] Ex. 27 at 1-5 (Chinn Direct).
[26] Petition to Intervene of Northern States Power at 1.
[27] Petition to Intervene of the Municipal Coalition at 1-3.
[28] Initial Post-Hearing Brief of Municipal Coalition at 1-2, 3-7.
[29] Energy Cents’ Motion to Intervene at 1.
[30]
Petition to Intervene of
[31]
[32] Minn. Stat. § 216B.16, subd. 7c (a) and (b).
[33] See
[34] Ex. 6 at 6 (Larsen Direct).
[35] Ex. 1 at 9, citing Pub. L. 108-367, § 909 (2004); 26 U.S.C. § 451 (i) (and includes similar investment in natural gas); Ex. 6 at 8-9 (Larsen Direct)
[36] Exs. 2, 3.
[37] Ex. 1 at 11-12.
[38] Ex. 1 at 14.
[39] Gross proceeds ($750.0) minus transaction costs ($8.2) equals gross net proceeds ($741.8), minus tax on gain ($210.1) equals net after-tax proceeds of $531.8, plus present value of tax benefit ($43.6) with resulting net cash proceeds available of $575.4. Ex. 15 at 5 (Bacalao Direct).
[40] As addressed below, the amount retained by IPL may change if the ATA is approved rather than the TA. Ex. 8 at 17 (Larsen Rebuttal).
[41] The Joint Petition reflects a reduction in the net book value of the transmission assets from $423.2 million to $418.8 million between the date the sale price was set and the date of the Petition because of two errors in the Revenue Requirement Model. Ex. 14 at 36 (Hampsher Rebuttal). This reduces the gain on the sale by about $100,000. Ex. 55 at 12.
[42] Ex. 1 at 16-17, 28; Ex. 6 at 17 (Larsen Direct).
[43] Ex. 13a at Sched. K (Hampsher Direct Exhibits); Ex. 15 at 5 (Bacalao Direct).
[44] Ex. 1 at 16-17; Ex. 15 at 5 (Bacalao Direct).
[45] Ex. 15 at 10 (Bacalao Direct).
[46] Ex. 17 at 5 (Rahill Direct).
[47] Ex. 1 at 27; Ex. 20 at 9-12 (Neff Direct).
[48]
Ex. 1 at subs. 7.6(b); T. 2 at 101, 119-120 (Welch). FERC historically has not permitted rate
recovery of acquisition premiums. 77
FERC ¶ 61,263, Merger
Policy Statement, Order No. 592 at 48, 61
Fed.
[49] Ex. 1 at 18; Ex. 9 at 4 (Collins Direct).
[50] Ex. 1 at 18.
[51] Ex. 1 at subs. 7.139(b); Ex. 6 at 15 (Larsen Direct).
[52] Ex. 2 at 69; Ex. 6 at 15, 18 (Larsen Direct); Ex. 8 at 20 (Larsen Rebuttal); Ex. 20 at 21 (Neff Direct).
[53] Ex. 24 at 6-8 (Welch Direct): Section 203: Joint application by IPL, ITC and ITC Midwest for authorization of the acquisition and disposition of jurisdictional facilities; Section 205: Joint application by IPL, ITC, ITC Midwest and MISO for approval to establish FERC-jurisdictional transmission rates under the MISO TEMT, implementing the TEMT Attachment O formula; Section 504: ITC Midwest anticipates filing an application for authorization for the issuance of debt securities.
[54] Ex. 1 at 15-16.
[55] Ex. 1 at 25; Ex. 12 at 7 (Hampsher Direct); Ex. 40 at 10 (Johnson Direct).
[56]
The
[57] Ex. 13a, Sched. F, line 3 (Hampsher Direct Exhibits).
[58] Ex. 12 at 3-14 (Hampsher Direct); Ex. 13a at Sched. F (Hampsher Direct Exhibits); T. 2 at 194-196 (Hampsher).
[59] Ex. 12 at 8 (Hampsher Direct).
[60] Ex. 12 at 15 (Hampsher Direct). The OAG/RUD asserts that, based on IPL’s 2005 rate case, this represents a 12.24% increase in transmission costs. OAG/RUD Reply Brief at 36.
[61] Ex. 12 at 16 (Hampsher Direct).
[62] Ex. 40 at 9-10 (Johnson Direct). The Department contends that IPL is only offering the offset for five years. Department’s Reply Brief at 27. That is not clear, but the related cost-benefit analysis covers only five years. The Joint Petitioners have stated that they will move ahead with more than $400 million of investment in the next five years. Ex. 1 at 28. See also Ex. 8 at 12 (Larsen Rebuttal)(The TA represents a future benefit).
[63] Ex. 8 at 8 (Larsen Rebuttal); Ex. 25 at 6-7 (Welch Rebuttal).
[64] Ex. 8 at 8, 11-12 (Larsen Rebuttal).
[65]
Because this is a reduction in ITC Midwest’s revenue requirement, under some
circumstances, IPL’s retail customers may receive less than 92% of the
savings. Ex. 29 at 27 (Linxwiler
Rebuttal). Based on Joint Petitioners’
estimate that 6.87% of the benefit should inure to
[66] The cost benefit analysis assumes, however, that the 50% cap on IPL’s equity ratio will remain in effect through the eight-year period. Ex. 14c at Sched. F (Hampsher Rebuttal Exs.).
[67] At the evidentiary hearing ITC Midwest witness Welch agreed that if either the TA or the ATA were selected, ITC Midwest would forego seeking recovery through rates of its transaction costs up to $15 million. T. 2 at 101-102 (Welch); See also Ex. 25 at 7 (Welch Rebuttal); Ex. 58 at 762, 913 (Iowa Hrg. T. Vol. 3).
[68] 92% of $4,125,000.
[69] Ex. 8 at 9 (Larsen Rebuttal).
[70] Ex. 8 at 8, 11-12 (Larsen Rebuttal); Ex. 14 at 8 (Hampsher Rebuttal); T. 1 at 25 (Larsen).
[71] Ex. 8 at 9-11 (Larsen Rebuttal).
[72] Ex. 8 at 12-13 (Larsen Rebuttal).
[73] T. 1 at 25-26 (Larsen).
[74] Ex. 6 at 19-20 (Larsen Direct); Ex. 8 at 3-5 (Larsen Rebuttal).
[75]
[76] Ex. 43 at 36-37 (Campbell Surrebuttal); See also Ex. 42 at 11 (Campbell Direct).
[77] Ex. 6 at 23 (Larsen Direct).
[78] Minn. Stat. § 216B.02, subd. 4 defines “public utility” to include entities providing retail electrical service. ITC Midwest would not provide retail service.
[79]
Ex. 42 at 4-5 (Campbell Direct), quoting Minn. Stat. § 216B.243: “No large energy facility shall be sited or
constructed in
[80]
Ex. 22 at 12-13 (Schultz Direct);
[81] Ex. 42 at 5 (Campbell Direct), quoting Minn. Stat. § 216B.79.
[82] Ex. 42 at 4, 6, 8 (Campbell Direct), quoting Minn. Stat. § 216B.04.
[83] T. 2 at 139-141 (Welch).
[84] T. 2 at 142-143 (Welch).
[85] T. 2 at 95, 126, 146 (Welch).
[86] Department’s Reply Brief at 38-39.
[87] Department’s Reply Brief at 54.
[88] Department’s Reply Brief at 40, 53-54.
[89]
Ex. 42 at 4 (
[90] Ex. 42 at 6 (Campbell Direct), quoting Minn. Stat. § 216B.03.
[91] Ex. 42 at 7, 12 (
[92]
Ex. 42 at 13-14 (
[93] T. 1 at 40 (Larsen).
[94] Ex. 11 at 4-5 (Collins Rebuttal).
[95]
Ex. 43 at 13-14 (
[96] Order 890, FERC’s Final Rule on Preventing Undue discrimination and Preference in Transmission Service, 118 FERC ¶ 61,119, Feb. 16, 2007, Feb. 16., 2007, at 94, citation to New York v. FERC omitted; Ex. 43 at 13-14 (Campbell Surrebuttal) and NAC-6, second page.
[97]
535
[98]
535
[99]
555
[100]
Joint Petitioners’ Brief at 53-54, citing 535
[101] Joint Petitioners’ Brief at 56.
[102] Ex. 8a at 58-64.
[103] Ex. 8a at 62.
[104] Ex. 8a at 62.
[105] Ex. 8a at 81-82.
[106] Ex. 8 at 25-26 (Larsen Rebuttal).
[107] Ex. 3, 1.1-A, at 20
[108] Ex. 9 at 15 (Collins Direct).
[109] Initial Brief of the Energy Cents Coalition at 11-13, citing Minn. Stat. §§ 216B.16, subd. 7b, 216B.1545, subd. 2a, and 216B.1636.
[110] Joint Petitioners’ Reply Brief at 22-23, citing Attachment O rate request filed with FERC.
[111] Ex. 24 at 12-13 (Welch Direct).
[112] Ex. 22 at 8-10 (Schultz Direct).
[113] Ex. 24 at 10-11 (Welch Direct) (citations omitted).
[114] Ex. 24 at 11 (Welch Direct) (citations omitted).
[115] Ex. 24 at 17-18, JLW-1, Scheds. A and B (Welch Direct).
[116] Ex. 9 at 20-22 (Collins Direct).
[117] Ex. 11 at 29 (Collins Direct).
[118] Ex. 16 at 16 (Bacalao Rebuttal).
[119] Ex. 38 at 6, 12 (Ham Direct) (IPL should be able to fund future projects without the proceeds from the sale). Joint Petitioners respond that the proceeds will help finance IPL’s generation projects and help acquire needed external funding at lower cost. Ex. 16 at 16 (Bacalao Rebuttal).
[120] T. 2 at 245-246 (Linxwiler).
[121] Ex. 39 at HKH-09 (Ham Surrebuttal); Ex.29 at JNL-19 (ITC Midwest’s Responses to Municipal Coalition’s Third Set of Data Requests, July 17, 2007, Iowa Proceeding) (Linxwiler Supplemental).
[122] Ex. 30 at 13-14 and CDK -1(Kaml Direct).
[123] Ex. 22 at 10-11 (Schultz Direct)
[124] Ex. 22 at 13-19, RAS-1, Sched. A (Schultz Direct).
[125] Ex. 9 at 26 (Collins Direct).
[126] Ex. 22 at 22 (Schultz Direct).
[127] Ex. 9 at 29 (Collins Direct); Ex. 22 at 22 (Schultz Direct).
[128] Ex. 9 at 15-16 (Collins Direct), citing Ex. 2 at § 7.13(b).
[129] Ex. 9 at 15 (Collins Direct), citing MISO Open Access Transmission and Energy Market Tariff (TEMT), §§ 13.5 and 15.4.
[130] Ex. 9 at 30, DCC-1, Sched. H (Collins Direct).
[131] Ex. 22 at 23-24 (Schultz Direct); Ex. 9 at 32 (Collins Direct).
[132] See e.g., Ex. 6 at 6 (Larsen Direct); Ex.29 at JNL-19 (Linxwiler Supplement).
[133] Ex. 30 at CDK-2 (Kaml Direct).
[134] T. 1 at 189 (Hampsher).
[135] Ex.29 at JNL-19 (ITC Midwest’s Responses to Municipal Coalition’s Third Set of Data Requests, July 17, 2007, Iowa Proceeding) (Linxwiler Supplemental).
[136] T. 1 at 121 (Collins): T. 2 at 139-140 (Welch).
[137] Ex. 6 at 9, 19 (Larsen Direct).
[138]
[139] T. 2 at 102-103 (Welch).
[140]
Ex. 43 at 16, NAC-8 (
[141] Minn. Stat. § 216B.2425, subd. 7.
[142] Ex. 6 at 6 (Larsen Direct); Ex. 14 at 2-4 (Hampsher Rebuttal).
[143] Because new investment is reflected at a higher cost than what is depreciated, it increases the rate base. When rate base is increasing, the differential between the BLRR and PTRR increases. The TA was set at a level that intended to offset this increasing differential. Ex. 14 at 26 (Hampsher Rebuttal).
[144] Ex. 14 at 26 (Hampsher Rebuttal).
[145] Ex. 12 at 7 (Hampsher Direct); Ex. 13a, Sched. F (Hampsher Direct Exhibits).
[146] Ex. 14 at 4 (Hampsher Rebuttal).
[147] Joint Petitioners’ Brief at 50-56.
[148] Ex. 11 at 2-3 (Collins Rebuttal).
[149] Ex. 40 at 10 (Johnson Direct); Ex. 28 at 17 (Linxwiler Direct);
[150] T, 2 at 196 (Hampsher).
[151] See Ex. 28 at 21 (Linxwiler Direct).
[152] Ex. 28 at 18 (Linxwiler Direct);
[153] T. 1 at 205 (Hampsher); Ex. 14c, Sched. D (Hampsher Rebuttal Exhibits).
[154] Ex. 14 at 6 (Hampsher Rebuttal); Ex. 40 at 6 (Johnson Direct).
[155] Ex. 14 at 6-7 (Hampsher Rebuttal).
[156] See also Ex. 15 at 12 (Bacalao Direct) (Because IPL does not have an alternative short-term use for the proceeds, it is prudent to distribute the special dividend payment to Alliant so that it can be more productively deployed.)
[157] Ex. 1 at 9, citing Pub. L. 108-367, § 909 (2004); 26 U.S.C. § 451 (i).
[158] Ex. 6 at 9, 13, 18-19 (Larsen Direct).
[159] Ex. 14 at 6 (Hampsher Rebuttal).
[160] Ex. 13a, Sched. J (Hampsher Direct Exhibits).
[161]
[162] Ex. 8 at 17 (Larsen Rebuttal).
[163] Ex. 14c, Sched. E at 1 (Hampsher Rebuttal Exhibits).
[164] Ex. 29 at 6-9 (Linxwiler Supplement); Ex. 41 at 4 (Johnson Surrebuttal); Ex. 31 at 14 (Kaml Surrebuttal).
[165] Ex. 8a at 42.
[166] Ex. 55 at 15-16 (Hampsher Responsive Test.)
[167] Ex. 8 at 15 (Larsen Rebuttal); Ex. 14 at 8 (Hampsher Rebuttal); T. 1 at 25 (Larsen); Ex. 14a, CAH-2, Sched. A (Hampsher Rebuttal Exhibits).
[168] Ex. 14 at 7-8 (Hampsher Rebuttal); Ex. 55 at 15-16 (Hampsher Responsive Testimony)
[169] Ex. 29 at 11 (Linxwiler Supplemental).
[170]
T. 2 at 199 (Hampsher); Ex. 55 at 4
(Hampsher Supp. Test.)
[171] Ex. 14a, CAH-2, Sched. A and Ex. 14c, CAH-2, Sched. E (Hampsher Rebuttal Exhibits).
[172] Ex. 14 at 7 (Hampsher Rebuttal); Ex. 29 at 19 (Linxwiler Supp.).
[173] IPL conducted its own decision-making analysis that did not incorporate the assumption that FERC would take jurisdiction by 2013. Confidential Exh. 31 (TRADE SECRET).
[174] Ex. 14 at 17 (Hampsher Rebuttal);
[175] Ex. 14c at Sched. F at 2 (Hampsher Rebuttal Exs.).
[176]
[177] Ex. 29 at 21 (Linxwiler Supp.).
[178] Ex. 38 at 14 (Amit Direct).
[179] Initial Brief of the Attorney General at 16.
[180] Ex. 13a at Sched. K (Hampsher Direct Exhibits).
[181]
Ex. 43 at 24-27 (
[182]
See Ex. 42 at 25-26 (
[183]
Ex. 28 at 708 (Linxwiler Direct; Ex. 42 at 22-23 (
[184] Ex. 14 at 28-30, 32 (Hampsher Rebuttal); Ex. 55 at 14 (Hampsher Supp.).
[185] Brief of Joint Petitioners at f.n. 231, citations omitted.
[186]
Ex. 42 at 23 (
[187]
Ex. 42 at 36 (
[188] Ex. 14 at 30-32 (Hampsher Rebuttal); Ex. 55 at 14.
[189] Ex. 13a at Sched. F-1(a) (Hampsher Direct Exhibits);
[190] Ex. 12 at 13 (Hampsher Direct); Ex. 14 at 22-23 (Hampsher Rebuttal).
[191] Ex. 9 at 24 (Collins Direct).
[192] Ex. 9 at 24 (Collins Direct); Ex. 11 at 3-4 (Collins Rebuttal).
[193] Ex. 41 at 9 (Johnson Surrebuttal).
[194] Ex. 8a at 46.
[195] Ex. 8 at 20-21 (Larsen Rebuttal).
[196] Ex. 29 at 21 (Linxwiler Supp.)
[197] Ex. 29 at 17 (Linxwiler Supp.), derived from Ex. 14c, Sched. E (Hampsher Rebuttal Exhibits).
[198] Ex. 25 at 3, JLW-2, Sched. B and C (Welch Rebuttal); T. 2 at 99-100 (Welch).
[199] Ex. 8 at 15 (Larsen Rebuttal).
[200] Ex. 14 at 5 (Hampsher Rebuttal).
[201] Ex. 8a at 44-45.
[202] Ex. 8a at 47.
[203] Ex. 8a at 48.
[204] Ex. 6 at 23 (Larsen Direct).
[205] T. 1 at 210-211 (Hampsher); Ex. 6 at 23 (Larsen Direct); T.1 at 39 (Larsen).
[206] Ex. 1 at 27.
[207] T. 1 at 210 (Hampsher).
[208]
See
[209] Ex. 12 at 16 (Hampsher Direct).
[210] Joint Petitioners’ Initial Brief at 41; OAG/RUD Reply Brief at 43.
[211]
Democratic Central Committee v.
[212]
[213]
Accord,
[214] Minnegasco v. Public Utilities Comm’n, 549 N.W.2d 904, 909 (1996)(citations omitted).
[215]
[216]
[217] See Ex. 42 at 25 (Campbell Direct) citations omitted.
[218] See e.g. Order Approving Sale Subject to Conditions, In the Matter of the Sale of Aquila, Inc.’s Minnesota Assets to Minnesota Energy Resources Corp., Docket No. G-007,011/M-05-1676 (June 1, 2006).
[219] Initial Brief of the Attorney General at 43, and cases cited therein.
[220] Initial Brief of the Attorney General at 43.
[221] Ex. 31 at 9 (Kaml Surrebuttal).
[222] Initial Brief of the Attorney General at 48, citing In the Matter of the Joint Application for Approval and Consent of Interstate Power and Light Company and FPL Energy Duane Arnold LLC, Docket No. E001/PA-05-1272, IPL reply comments, December 1, 2005.
[223] Initial Brief of Attorney General at 51.
[224] 485 F.2d 786 (D.C. Cir. 1973).
[225] Ex. 42 at 25 (Campbell Direct); Initial Brief of Energy Cents at 22; In the Matter of Minnesota Power’s Petition for Review of an Agreement Between Minnesota Power and American Transmission Co., Docket No. E-015/PA-04-2020 (Dec. 2, 2005) at 5.
[226] The Joint Petitioners claim that this would be two bites of the apple. However, that analogy is incorrect. The ratepayers would be getting a bite from two different apples: through receipt of the Acquisition Premium, a benefit taken from IPL shareholders, and through reduced rates, a benefit taken from ITC Midwest’s shareholders.
[227]
Ex. 8a (Interstate Power and Light Co.
and ITC
[228]
The applicable statute states: “[a]
reorganization shall not take place if the board disapproves.”
[229] Ex. 8a at 82.
[230] Ex. 8a at 82.
[231] Ex. 8a at 83.
[232] T. 1 at 31 (Larsen).
[233] T. 1 at 195-196 (Hampsher). See also Joint Petitioners’ Reply Brief at 34.
[234] Department’s Reply Brief at 10.
[235]
Ex. 8a at 62.
[236] Department’s Reply Brief at 10, citations omitted.
[237]
Ex. 38, HKH-02 (Ham Direct).
[238] Department’s Reply Brief at 11; Minn. Stat. § 216B.03.
[239] See also Ex. 8a at 39 (citations omitted), stating that its required analysis must consider the effect on the public interest, defined to mean the public at large, distinct from the ratepayers.
[240] Department’s Reply Brief at 11-12.
[241] Department’s Reply Brief at 12-13.
[242] Department’s Reply Brief at 13-14; T. 3 at 124-126 (Ham), citing enactment of Minn. Stat. § 216C.05, setting the State’s energy policy goals.
[243] Department’s Reply Brief at 14.
[244] Joint Petitioners’ Reply brief at 30-31, citing Ex. 8a at 48 and 81.
[245]
[246]
[247]
[248]
[249]
See
[250]
Reserve Mining
Co.,
256 N.W.2d 808, 824.