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Vintage, Voltage or Votes

AEP rekindles debate over grid pricing, but should the outcome hinge on majority rule?

Fortnightly Magazine - December 2007

that cost shifts from postage-stamp pricing could undermine RTO participation and spark defections. That’s why the smart money will bet on FERC to bow to majority rule and reject the AEP complaint.

Yet, as Ohio’s McNamee asked, “Since when is rate-making a popularity contest?”

Regional Battlegrounds

For little G&T cooperative Buckeye Power Inc., license-plate pricing has proved a disaster, and things are getting worse.

Headquartered in Columbus, Ohio, Buckeye supplies wholesale power (some from its own generating plants) to its 25 member electric distribution retail cooperatives. Those retail co-ops serve some 360,000 residential, commercial and industrial retail electric customers, residing in parts of 77 of Ohio’s 88 counties, with a combined load of about 4.06 MW.

License-plate pricing hurts Buckeye Power for multiple reasons, as consultant J. Bertram Solomon (GDS Associates) points out in testimony filed with FERC in the AEP complaint case (see “Comments of Buckeye Power, Inc.,” FERC Docket No. EL07-101, filed Oct. 29, 2007) .

First, most of Buckeye’s proprietary gen resources are connected directly to AEP’s transmission system within PJM, so Buckeye, just like AEP’s native load, must help fund AEP’s legacy EHV grid system through the payment of license-plate rates.

Second, those license-plate rates have ballooned recently. That’s because AEP lost about $150 million in annual revenue support (its own numbers) when FERC eliminated the regional T&O rates AEP used to charge for transmission service on off-system sales of surplus power. The revenues were gone for good when FERC let the temporary SECA surcharge run out on a sunset date of March 31, 2006.

That forced AEP’s license-plate rates to climb further, by about 50 percent, from about $1.08/kW-month, to the current network zonal service charge of about $1.76/kW-month.

All this has produced a transmission bill for Buckeye and its member co-ops of about $22.5 million per year, or more than 60 percent higher than $13.8 million in license-plate grid rates than Buckeye would have paid otherwise.

Buckeye’s fate stands to worsen, in fact, as it also faces the dreaded “double whammy” that comes from FERC’s approval of postage-stamp pricing in Opinion 494 for lines 500-kV and up in PJM.

Thus, in future years, as PJM utilities “play catch-up” by building more EHV 500-kV and 765-kV lines to facilitate Midwest power exports to the power-starved New Jersey and Baltimore/Washington areas in the East, and assigns those costs across the entire region, some costs will fall on Buckeye. Yet Buckeye still must help fund AEP’s legacy EHV grid network, under license-plate pricing, without any cost support from other regions.

(By the way, of the 68-cent increase in AEP’s grid charge per kilowatt-month, about 13.5 cents came from AEP’s much-touted recent completion of its trouble-plagued and long-delayed $300 million 765-kV Wyoming to Jackson’s Ferry transmission line in Southwest Virginia. With FERC Chairman Joseph Kelliher and U.S. Rep. Joe Barton (Tex.) in attendance at its May 2006 dedication, that line became energized on June 20, 2006. Planned way back in 1990, the line cannot qualify as a “new” facility. Thus, under PJM rules, it remains captive to license-plate pricing.)