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A Candy-Coated Grid

Incentives for transmission investment could boost postage-stamp pricing over license-plate rates.

Fortnightly Magazine - March 2006

much more than LMP differentials in nodal energy prices—a logical component of any FCA charge—as MISO had explained in a petition for rehearing filed with the PUC.

As of early February, the PUC reportedly was reconsidering the matter. Yet, shortly after the December ruling, Minnesota Power notified MISO of its intent to withdraw from RTO membership in a year’s time, and Xcel told MISO its continued participation in the RTO was “under review.” (See NOPR, Comments of TAPS, pp. 39-40, note 94, filed Jan. 11, 2006. See also, Petition of MISO for rehearing, filed Jan. 10, 2006, Minn. PUC Docket No. E-002/M-04-1970.)

Highway and Byway

Last month FERC struck down a proposal by the MISO RTO to adopt a postage-stamp method to allocate 20 percent of the cost of “reliability” grid upgrades at lines 345-kV or greater across a broad region. Moreover, it directed its staff to convene a technical conference to examine the issues raised by the MISO proposal, including questions about regional cost sharing for grid upgrades undertaken for purposes of reliability. (See Docket No. ER06-18, Feb. 3, 2006, 114 FERC ¶61,106.)

Contrast now FERC’s dissatisfaction with the MISO design versus a similar but more lenient plan in the Southwest Power Pool.

Thus, last April, FERC approved a proposal by Southwest Power Pool to adopt a region-wide, postage-stamp cost allocation to apply to a greater portion—33 percent—of the revenue requirement of any grid network upgrades worth more than $100,000. The remaining two-thirds of the cost in the power pool would be allocated locally to zones (typical license-plate pricing), based on each zone’s share of the incremental megawatt-mile benefits accruing to the zone, as determined through a formula to calculate the power flow impacts caused by the upgrade. (See FERC Docket Nos. ER05-652, et al., Apr. 22, 2005, 111 FERC 61,118.)

In a third case, FERC is considering whether to retain the current system of “modified zonal rates” for transmission access service in the PJM RTO (license-plate pricing with zones altered somewhat from strict utility service territory boundaries), or whether to adopt some sort of regional sharing of transmission plant costs to reflect the economic benefits accruing to PJM from the recent addition of American Electric Power and other Midwestern utilities to the RTO footprint.

Two groups—AEP and Allegheny Energy on one hand, and Baltimore Gas & Electric and Old Dominion Electric Co-op on the other (the so-called “Transmission Owner Proponents,” or TOPs)—have offered competing plans, with each plan described as a “highway-byway” model. That is, each would adopt some degree of regional cost sharing for the costs of highways (large-capacity transmission lines), and fold-in the cost of byways (smaller-sized lines) within a typical, license-plate zone. Each plan would divide highways from byways at a different capacity level, but under each plan, loads in all zones would pay a uniform, RTO-wide highway charge to provide RTO-wide recovery of high-voltage transmission service costs. (See AEP Transmittal Letter, filed Sept. 30, 2005, and Summary of Prepared Direct Testimony of Ralph Bourquin, Jr., on Behalf of Transmission Owner Proponents, filed Sept. 30, 2005, FERC