(November 2008)Economic uncertainties are raising doubts over utility returns. Will regulators feel the need to consider broader economic effects when engaging in ratemaking? While...
Tilting to Windward
As if carbon control were a fait accompli, gen developers skew the queue toward renewable projects, driving new policy on transmission pricing.
transmission, if you will, or perhaps public-purpose transmission. It may not be strictly cost-justified, but necessary, rather, to carry out political objectives.
To understand MISO’s position, consider how the region currently differentiates between transmission upgrade projects keyed either to reliability or economics under its RECB regime, first proposed in October 2005.
Reliability Upgrades. Whether it be a conventional grid expansion project, or an upgrade made necessary to achieve interconnection with a new generator, the so-called RECB-I protocol (with associated FERC orders) governs cost recovery in MISO according to the voltage capacity of the new project. Costs for facilities rated at between 100 kV and 345 kV are recovered through zone-specific tariffs billed sub-regionally by MISO on behalf of the individual transmission owners for each zone. Costs are allocated among zones according to the proportional impact of the upgrade on each zone, as determined by analysis of line outage distribution factors (LODF). Costs for upgrades rated at 345 kV or higher are allocated 80 percent by zone, and 20 percent under a “postage stamp” applicable across the entire MISO footprint. (See, Docket No. ER06-18, Feb. 3, 2006, 114 FERC ¶61,106, and rehearing orders of Nov. 29, 2006 and March 15, 2007.)
Economic Upgrades. By contrast, MISO’s RECB-II protocol governs cost allocation for high-voltage upgrades (greater than or equal to 345 kV) that qualify as “regionally beneficial projects.” To earn that status, grid upgrades must produce a positive present value for both (a) savings in power production costs, and (b) wholesale prices, as measured by locational marginal prices (LMP) aggregated across all generation and load nodes recognized under MISO’s transmission and energy market tariff (TEMT). Also, the upgrade must achieve a certain ration of benefits to costs. If these criteria are met, the costs of the RECB-II economic project are allocated and recovered 20 percent through a postage-stamp transmission rate across the MISO footprint, and 80 percent through license-plate rates for one of three geographic sub-regions, West, Central, or East. Under this 80-percent allocation, consumers pay the costs of facilities located within their particular zone. (See, Docket No. ER06-18, March 15, 2007, 118 FERC ¶61,209, and rehearing order of July 23, 2007.)
Older Vintages. Existing grid facilities, meanwhile, are billed exclusively under license-plate zonal tariffs associated with individual transmission owners. In MISO, such license-plate rates have remained in force for existing, pre-RECB grid facilities, during a six-year transition period set to end on Jan. 31, 2008. However, MISO has now proposed that license-plate pricing should continue indefinitely, during the so-called post-transition period, for all existing, pre-RECB grid facilities. (See FERC Docket No. ER07-1233, filed Aug. 1, 2007.)
MISO recently had conducted a number of stakeholder sessions on this question, eliciting more than a half-dozen alternative pricing regimes, with facilities eligible for postage-stamp or zonal license-plate according to vintage, strict voltage level, or function (as measured by power flow distribution factors). Ultimately, however, the MISO membership decided that the alternative pricing regimes would produce such enormous cost shifts that, for practical and political reasons, the region would be better off sticking with license-plate pricing. After