OREANDA-NEWS. San Diego Gas & Electric (SDG&E) will be unable to collect additional incentives on a \$129mn transmission project after federal regulators rejected the utility's claim that it faced special risks that would justify a higher rate of return.

California's primary grid operator selected the investor-owned utility to build the 16.7-mile (27km) Sycamore-Penasquitos transmission line as part of a competitive solicitation process. The line needs to enter service by June 2017 to mitigate thermal overloads, an "accelerated timeline" that SDG&E said helped justify raising its return on equity for the project to 11.05pc, up from the typical 10.05pc.

But the Federal Energy Regulatory Commission (FERC) last week said the utility failed to show that the risks and challenges of the project justified higher returns. Despite rejecting the risk incentive, the commission agreed to let SD&GE recover its costs if it has to abandon the project for reasons beyond its control.

FERC in its order said it found "unpersuasive" the utility's arguments that it was exposed to extra risks because the project was awarded under a competitive solicitation. It also rejected the utility's claims that it would face permitting and siting challenges, as it noted the project would be built along existing rights of way and make use of existing transmission facilities.

FERC member Philip Moeller in a concurring statement on the order said while he believes that higher incentives are needed for transmission projects with "unique risks," SDG&E did not adequately explain how those risks were not already accounted for in the normal return on equity.