posted on Friday, December 15, 2006 9:32 AM
by
Tracy Davis
Regional Operators Enjoy Flexibility in Selecting Cost Allocation Methodology
Disputes in the Midwest over allocating transmission costs date back to at least the mid 1980s, when competing interests fought over AEP's transmission equalization agreements and the transmission costs associated with the Rockport plant. Recently FERC resolved for now another of those disputes, by accepting Midwest ISO's proposed allocation of the costs of new transmission infrastructure.
Midwest ISO proposed to allocate the cost of: (1) lower voltage lines subregionally to all transmission customers in the designated pricing zones affected by the transmission project, and (2) Extra High Voltage (EHV) ― 345 kV up to 765 kV ― 80% subregionally (like lower voltage facilities) and 20% systemwide on a load-ratio share basis (i.e., a postage-stamp basis). FERC accepted this allocation on the ground that the EHV lines are the superhighways of the Midwest transmission grid.
Midwest ISO is the third RTO for which FERC has engaged transmission cost allocation issues. The others are New England and Southwest Power Pool. FERC accepted a different approach for each. Given that FERC has been flexible in allowing different approaches, future RTOs will be free to seek their own solutions to these often divisive issues.
FERC also accepted Midwest ISO’s proposal for generation interconnection cost allocation, which makes generators responsible for 50% of the transmission upgrade costs if the generation output is committed to network customers or designated as a network resource. Otherwise, the generator is responsible for 100% of the costs of transmission upgrades required for interconnection. While FERC rejected arguments that this approach would “chill” generation investment, FERC still directed Midwest ISO to file, within 12 months, an informational report on its experience under this cost recovery methodology. More to come on this front, as the issue is reopened with more data next year.