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FERC's Response
TO NYRI's Request
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY
COMMISSION
OFFICE OF ENERGY MARKET REGULATION
New York Regional Interconnect, Inc.
Docket No. EL08-39-000
Issued: May 13, 2008
Couch White, LLP
540 Broadway
P.O. Box 22222
Albany, New York 12201
Attention: Mr. Leonard H. Singer
Attorney for New York Regional Interconnect,
Inc.
Reference: Petition for Declaratory Order
Dear Mr. Singer:
On February 12, 2008, in Docket No. EL08-39-
000, New York Regional Interconnect, Inc.
(NYRI) submitted a petition for declaratory
order requesting certain rate incentives
pursuant to the Commission’s Order Nos. 679
and 679-A.1 Please be advised that your
submittal is deficient, and that additional
information and clarifications are required to
process the filing, as described below.
Return on Equity
1. Referencing Exhibit B of the testimony of
NYRI’s witness James H. Drzemiecki, the
discounted cash flow (DCF) analysis submitted
to support NYRI’s request for ROE incentives is
not consistent with Commission precedent
outlined in Commission Opinion No. 4452 and
Opinion No. 489.3 For example, Mr.
Drzemiecki did not include the sustainable
growth rate in his DCF analysis or apply the
correct dividend yield calculations. Please
recalculate that DCF study and provide
supporting workpapers, schedules and
documentation, consistent with the Commission’
s regulations,4 Opinion No. 445 and Opinion
No. 489. Specifically5:
1. Provide the corporate credit ratings for
each of the companies selected.
2. Incorporate the Commission’s sustainable
growth rate (br+sv) 6 for each of the
companies in addition to the existing I/B/E/S
growth rate already provided, as outlined by the
Commission in Opinion No. 445. Include
workpapers and supporting documentation for
all calculations, such as the underlying Value Line
data, and stock price data used in the price to
book ratio component of the “sv” calculation.
3. For each of the proxy companies, please
recalculate the dividend yields in Exhibit B,
consistent with Opinion No. 445 and Opinion
No. 489. Also, for each proxy company’s
dividend yield, apply the adjustment factor
detailed by the Commission7 to account for
each company’s quarterly payment of dividends.
4. To assist the Commission in analyzing the
reasonableness of NYRI’s proposed ROE proxy
group, please provide a DCF analysis which
incorporates only a Northeast RTO regional
proxy group. Provide similar workpapers,
schedules, and support as required above for
the Northeast RTO proxy group.
Allowance for Funds Used During
Construction (AFUDC)
2. NYRI explains that it has begun to expend
substantial funds on initial-stage project
development such as engineering, consulting,
legal, and regulatory fees, and that such costs
qualify for capitalization and AFUDC treatment.
Please explain the nature of these costs.
3. Please explain whether NYRI is recording
the above costs in Account 107, Construction
Work in Progress, or Account 183, Preliminary
Survey and Investigation Charges. If NYRI is
recording these costs in Account 107, please
explain why NYRI does not consider such costs
to be preliminary survey and investigation
charges properly recordable in Account 183.
4. If NYRI recorded costs in Account 183 and
subsequently transferred the amounts to
Account 107, please explain the criteria NYRI
used to determine that construction had
commenced on a planned progressive basis as
required by Accounting Release-5, Capitalization
of Interest During Construction. Please provide
a copy of the journal entry and related support
used to transfer amounts from Account 183 to
Account 107.
5. Please explain whether NYRI is currently
accruing AFUDC on the above and/or any other
costs, and if so, provide the AFUDC rate at
which it is currently accruing. Please explain the
calculation of the rate.
6. Please explain how NYRI’s cost of equity of
13.5 percent as a component of AFUDC, would
be consistent with 18 C.F.R. Part 101, Electric
Plant Instructions, No. 3(17). Provide work
papers showing illustrative calculations.
7. NYRI cites Trans-Elect (ER05-17; ER03-
1672) as support for its request to use 13.5
percent for the equity component of AFUDC.8
Please provide cites to the specific portions of
these proceedings that support NYRI’s request
Please submit a response to the information
requested above within 15 days of the date of
this letter. Submit six copies of your response
to:
Federal Energy Regulatory Commission
Office of the Secretary
888 First Street, N.E.
Washington, DC 20426
Also, please provide two courtesy copies to
Mr. Walter E. McDaniel of my staff at walter.
mcdaniel@ferc.gov. The response to this letter
will constitute an amendment to your filing, and
a notice will be issued upon receipt. Failure to
respond to this deficiency letter within the time
period specified may result in an order rejecting
your filing.
This order is issued pursuant to the authority
delegated to the Director, Division of Tariffs
and Market Development – East, under 18 C.F.R
§ 375.307(k)(2) and is interlocutory. This order
is not subject to rehearing pursuant to 18 C.F.R
§ 385.713.
Sincerely,
Larry D. Gasteiger, Director
Division of Tariffs and Market
Development – East
cc: All Parties
1 Promoting Transmission Investment
Through Pricing Reform, Order No. 679, FERC
Stats. & Regs. ¶ 31,222 (2006) (Order No. 679),
order on reh’g, Order No. 679-A, FERC Stats.
& Regs. ¶ 31,236 (2006) (Order No. 679-A),
order on reh’g, 119 FERC ¶ 61,062 (2007).
2 Southern California Edison Co., 92 FERC ¶
61,070 (2000) (Opinion No. 445).
3 Bangor Hydro-Electric Company, Opinion
and Order Affirming in Part and Rejecting in
Part Initial Decision, 117 FERC ¶ 61,129
(October 31, 2006) (Opinion No. 489).
4 18 C.F.R. §§ 35.13(d)(5), (h)(22).
5 Where applicable, please provide an
electronic version of the requested information
in Microsoft Excel format.
6 Also referred to as fundamental growth
rate, plow-back growth rate, or retention
growth rate, the formula is G= (b x r) + (s x v),
where
G= sustainable growth rate
b= earnings retention rate, or 1 minus the
payout ratio
r= expected average return on equity as
provided for by Value Line
s = percentage increase in new stock raised
from sale, equal to the share growth times the
price-to-book ratio.
v = fraction of sales of new stock that
accrues to current stockholders, or 1- (1/(P/B)),
where “P” is the average stock price for the
most recent six months, and “B” is the year-end
book value
7 The adjustment factor for computing
dividend yield (1 + .5g), where “g” is the
investors’ expected growth in the company’s
dividends per share, and is explained in more
detail in Generic Determination of Rate of
Return on Common Equity for Public Utilities,
Order No. 420, 50 Fed. Reg. 21802 (May 29,
1985), FERC Stats & Regs ., Reg. Preambles 1982-
85, P 30,644 (1985); Order No. 442-A, 51 Fed.
Reg. 22505 (June 20, 1986) FERC Stats. & Regs.,
Reg. Preambles 1982-1985 P 30,702 (1986);
Order no. 489, 53 Fed. Reg. 3342 (February 5,
1988), FERC Stats. & Regs., Reg Preambles 1986-
90 P 30,795 (1988).
8 NYRI testimony in Exhibit No. 1, page 26.
Posted: 2008.5.15
Source FERC
TO NYRI's Request
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY
COMMISSION
OFFICE OF ENERGY MARKET REGULATION
New York Regional Interconnect, Inc.
Docket No. EL08-39-000
Issued: May 13, 2008
Couch White, LLP
540 Broadway
P.O. Box 22222
Albany, New York 12201
Attention: Mr. Leonard H. Singer
Attorney for New York Regional Interconnect,
Inc.
Reference: Petition for Declaratory Order
Dear Mr. Singer:
On February 12, 2008, in Docket No. EL08-39-
000, New York Regional Interconnect, Inc.
(NYRI) submitted a petition for declaratory
order requesting certain rate incentives
pursuant to the Commission’s Order Nos. 679
and 679-A.1 Please be advised that your
submittal is deficient, and that additional
information and clarifications are required to
process the filing, as described below.
Return on Equity
1. Referencing Exhibit B of the testimony of
NYRI’s witness James H. Drzemiecki, the
discounted cash flow (DCF) analysis submitted
to support NYRI’s request for ROE incentives is
not consistent with Commission precedent
outlined in Commission Opinion No. 4452 and
Opinion No. 489.3 For example, Mr.
Drzemiecki did not include the sustainable
growth rate in his DCF analysis or apply the
correct dividend yield calculations. Please
recalculate that DCF study and provide
supporting workpapers, schedules and
documentation, consistent with the Commission’
s regulations,4 Opinion No. 445 and Opinion
No. 489. Specifically5:
1. Provide the corporate credit ratings for
each of the companies selected.
2. Incorporate the Commission’s sustainable
growth rate (br+sv) 6 for each of the
companies in addition to the existing I/B/E/S
growth rate already provided, as outlined by the
Commission in Opinion No. 445. Include
workpapers and supporting documentation for
all calculations, such as the underlying Value Line
data, and stock price data used in the price to
book ratio component of the “sv” calculation.
3. For each of the proxy companies, please
recalculate the dividend yields in Exhibit B,
consistent with Opinion No. 445 and Opinion
No. 489. Also, for each proxy company’s
dividend yield, apply the adjustment factor
detailed by the Commission7 to account for
each company’s quarterly payment of dividends.
4. To assist the Commission in analyzing the
reasonableness of NYRI’s proposed ROE proxy
group, please provide a DCF analysis which
incorporates only a Northeast RTO regional
proxy group. Provide similar workpapers,
schedules, and support as required above for
the Northeast RTO proxy group.
Allowance for Funds Used During
Construction (AFUDC)
2. NYRI explains that it has begun to expend
substantial funds on initial-stage project
development such as engineering, consulting,
legal, and regulatory fees, and that such costs
qualify for capitalization and AFUDC treatment.
Please explain the nature of these costs.
3. Please explain whether NYRI is recording
the above costs in Account 107, Construction
Work in Progress, or Account 183, Preliminary
Survey and Investigation Charges. If NYRI is
recording these costs in Account 107, please
explain why NYRI does not consider such costs
to be preliminary survey and investigation
charges properly recordable in Account 183.
4. If NYRI recorded costs in Account 183 and
subsequently transferred the amounts to
Account 107, please explain the criteria NYRI
used to determine that construction had
commenced on a planned progressive basis as
required by Accounting Release-5, Capitalization
of Interest During Construction. Please provide
a copy of the journal entry and related support
used to transfer amounts from Account 183 to
Account 107.
5. Please explain whether NYRI is currently
accruing AFUDC on the above and/or any other
costs, and if so, provide the AFUDC rate at
which it is currently accruing. Please explain the
calculation of the rate.
6. Please explain how NYRI’s cost of equity of
13.5 percent as a component of AFUDC, would
be consistent with 18 C.F.R. Part 101, Electric
Plant Instructions, No. 3(17). Provide work
papers showing illustrative calculations.
7. NYRI cites Trans-Elect (ER05-17; ER03-
1672) as support for its request to use 13.5
percent for the equity component of AFUDC.8
Please provide cites to the specific portions of
these proceedings that support NYRI’s request
Please submit a response to the information
requested above within 15 days of the date of
this letter. Submit six copies of your response
to:
Federal Energy Regulatory Commission
Office of the Secretary
888 First Street, N.E.
Washington, DC 20426
Also, please provide two courtesy copies to
Mr. Walter E. McDaniel of my staff at walter.
mcdaniel@ferc.gov. The response to this letter
will constitute an amendment to your filing, and
a notice will be issued upon receipt. Failure to
respond to this deficiency letter within the time
period specified may result in an order rejecting
your filing.
This order is issued pursuant to the authority
delegated to the Director, Division of Tariffs
and Market Development – East, under 18 C.F.R
§ 375.307(k)(2) and is interlocutory. This order
is not subject to rehearing pursuant to 18 C.F.R
§ 385.713.
Sincerely,
Larry D. Gasteiger, Director
Division of Tariffs and Market
Development – East
cc: All Parties
1 Promoting Transmission Investment
Through Pricing Reform, Order No. 679, FERC
Stats. & Regs. ¶ 31,222 (2006) (Order No. 679),
order on reh’g, Order No. 679-A, FERC Stats.
& Regs. ¶ 31,236 (2006) (Order No. 679-A),
order on reh’g, 119 FERC ¶ 61,062 (2007).
2 Southern California Edison Co., 92 FERC ¶
61,070 (2000) (Opinion No. 445).
3 Bangor Hydro-Electric Company, Opinion
and Order Affirming in Part and Rejecting in
Part Initial Decision, 117 FERC ¶ 61,129
(October 31, 2006) (Opinion No. 489).
4 18 C.F.R. §§ 35.13(d)(5), (h)(22).
5 Where applicable, please provide an
electronic version of the requested information
in Microsoft Excel format.
6 Also referred to as fundamental growth
rate, plow-back growth rate, or retention
growth rate, the formula is G= (b x r) + (s x v),
where
G= sustainable growth rate
b= earnings retention rate, or 1 minus the
payout ratio
r= expected average return on equity as
provided for by Value Line
s = percentage increase in new stock raised
from sale, equal to the share growth times the
price-to-book ratio.
v = fraction of sales of new stock that
accrues to current stockholders, or 1- (1/(P/B)),
where “P” is the average stock price for the
most recent six months, and “B” is the year-end
book value
7 The adjustment factor for computing
dividend yield (1 + .5g), where “g” is the
investors’ expected growth in the company’s
dividends per share, and is explained in more
detail in Generic Determination of Rate of
Return on Common Equity for Public Utilities,
Order No. 420, 50 Fed. Reg. 21802 (May 29,
1985), FERC Stats & Regs ., Reg. Preambles 1982-
85, P 30,644 (1985); Order No. 442-A, 51 Fed.
Reg. 22505 (June 20, 1986) FERC Stats. & Regs.,
Reg. Preambles 1982-1985 P 30,702 (1986);
Order no. 489, 53 Fed. Reg. 3342 (February 5,
1988), FERC Stats. & Regs., Reg Preambles 1986-
90 P 30,795 (1988).
8 NYRI testimony in Exhibit No. 1, page 26.
Posted: 2008.5.15
Source FERC
| FERC Says 'No" to NYRI; Opponents Say, "Good!" |