Changes in regulatory requirements, market structures, and operational technologies have introduced complexities that traditional ratemaking approaches can’t address. Poorly designed rates lead to...
Vintage, Voltage or Votes
AEP rekindles debate over grid pricing, but should the outcome hinge on majority rule?
You might have thought the Feds closed the book on any broad, region-wide sharing of sunk transmission costs—especially after FERC ruled last spring in Opinion No. 494 that PJM could stick with license-plate pricing (LPP) for transmission lines already planned and built.
If you thought that, you weren’t alone. Of 25 transmission owners (TOs) in the Midwest ISO (MISO), 24 voted recently to do the same for their market as well.
Starting in late 2006, the Midwest TOs had explored quite a few different pricing alternatives, including postage-stamp pricing to spread grid costs over a wide area, depending upon line voltage or other factors. But once the PJM ruling came down, the Midwest grid owners saw it as a “signal.” They said FERC “likely would look favorably” on license-plate pricing for MISO for the long term.
The LPP model, of course, would see PJM, MISO and their participating TOs billing the costs of prior grid investments only to those customers (ultimately, the retail ratepayers) residing in the zones where the lines were built. For example, New Jersey ratepayers would pay nothing for using an Ohio transmission line to import cheap coal-fired power from Illinois. Factors such as line length, voltage, power flows or manner of use would make no difference, at least for these so-called “existing” facilities.
Consider, however, the resulting dismay of American Electric Power (AEP), the nation’s leading booster and utility investor in extra-high-voltage (EHV) transmission lines (capacities ranging from 345 kV to 765 kV). AEP for years has led a crusade to convince FERC and the industry to rethink its pricing model for grid facilities built long ago—that voltage should matter more than vintage. In AEP’s world, consumers across a broad swath of the Eastern Interconnection would pay at least something for the EHV lines lying within AEP’s service territory—regardless of when they were built. In AEP’s view, those EHV lines enable East Coast consumers to save big on long-haul power imports from the Midwest.
Nevertheless, on at least two prior occasions involving PJM pricing rules (the latest being FERC’s Opinion 494) AEP had proposed its ideas to FERC through various and uncounted motions, affidavits and briefs, only to lose on the merits.
However, while AEP has failed to persuade FERC to adopt a full-scale voltage-based, “highway-byway” pricing regime for existing EHV lines, with region-wide cost-averaging based on load-ratios (known as “postage-stamp” pricing), FERC has agreed to go halfway, by dabbling with postage-stamp pricing for certain newly planned and constructed lines.
In Opinion 494, setting grid pricing policy for PJM, it OK’d 100 percent postage-stamp pricing for new lines 500-kV and up. Lesser new lines in PJM would qualify for a “beneficiary-pays” pricing regime, which assigns costs and rates selectively to various facility users, based on their measured usage and perceived benefits (see Opinion No. 494, Docket No. EL05-121, Apr. 19, 2007, 119 FERC ¶61,063) .
Similarly, for MISO, in a pair