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News Digest

Transmission & ISOs
Fortnightly Magazine - June 1 2000

transmission pricing.

By Bruce W. Radford

Is it a bribe offered to public power to join the ISO, or an honest attempt to make transmission prices more reflective of costs?

Either way, the proposal filed by the California Independent System Operator to retreat from license-plate pricing and move toward a grid-wide postage-stamp access charge drew passionate comments from investor-owned utilities, the state PUC, plus various municipal utilities, irrigation districts, and industry associations and coalitions. In short, the ISO proposal is nothing less than a complete restructuring of transmission pricing and power markets in the western United States. (See "L.A. vs. The ISO," , May 15, 2000, p. 4.)

Postage-Stamp Pricing. By a 16-5 vote of its governing board, taken at a meeting held on March 22, the PUC approved its Tariff Amendment No. 27 - a far-reaching proposal to replace its license-plate pricing method and begin a 10-year transition to a uniform "postage-stamp" transmission access charge (TAC) paid by all ISO transmission customers across the grid - at least for service that uses high-voltage lines of 200-kilovolts or above.

According to the proposal filed at the Federal Energy Regulatory Commission, the ISO will retain license-plate pricing for the TAC for lines below 200 kV, whereby the transmission plant revenue requirement (TRR) is based on grid costs specific to the utility service territory from which power originates, and is paid by local energy customers in those areas. However, starting with the moment that a new participating transmission owner (TO) should join the ISO, the ISO would begin to implement its revised TAC for higher-voltage lines, eventually producing a two-tiered access charge.

During a 10-year transition, transmission users first would pay separate interim TACs in each of three or four so-called TAC areas, corresponding to each of the former control areas that were combined to form the single ISO control area. But after 10 years, customers would pay a single, grid-wide postage-stamp access charge.

Fixing "Phantom" Congestion. The new pricing plan is designed to conform with California's initial electric restructuring law (Assembly Bill 1890), which had required the ISO to submit a revised TAC method within two years of its startup.

State law had required the ISO to recommend a new rate method to the FERC, reflecting "an equitable balance of costs and benefits." But in practice, the issued boiled down to the question of how to widen participation in the ISO beyond the three major investor-owned electric utilities that were required to join and hand over control of their transmission facilities when the state created (and the FERC approved) the California ISO and the Power Exchange.

The ISO wanted public power's participation. But it acknowledged "the concerns of entities that own transmission facilities or entitlements [but] that have not yet chosen to place [them] under the ISO's operational control."

The ISO also argued that pricing reform was required to weed out inefficiencies and market distortions. Consider the problem of transmission customers with preexisting contracts at nonconforming rates or conditions. The ISO explained how attempts to preserve the rights under those contracts had skewed