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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

plan that would impose a higher degree of regional cost-sharing.

The ad hoc MSAT coalition includes American Transmission Co. LLC (ATC)—the company set up by Wisconsin state law to take over much of that state’s power grid. It also includes International Transmission Co. (ITC) and Michigan Electric Transmission Co. (METC), which acquired the transmission assets of Detroit Edison and Consumers Power, respectively.

The MSAT proponents would not ask FERC necessarily to abandon license-plate pricing for legacy grid facilities, as AEP wants. However, the MSAT plan would liberalize MISO’s grid pricing regime by boosting the 20-percent share eligible for postage-stamp pricing under the RECB programs to a full 100 percent. Also, the MSAT plan would exempt RECB-II projects from having to satisfy MISO’s special cost-benefit test for projects of 500-kV and up (see “Post-Transition Proposal, Midwest Stand-Alone Trans. Cos.,” FERC Docket No. ER07-1261, filed Aug. 1, 2007).

The 20-percent postage-stamp sharing percentage MISO adopted for major new grid projects of 345-kV was derived largely from a load-flow study completed and reported to FERC two years ago. That study examined what would happen if a typical MISO utility were to decide to serve its native load using network generating resources located only within its own native-load control area. In that case, the study found on average about 20 to 30 percent of the transmission flows required to achieve that hypothetical dispatch would occur on lines external to that utility’s native service territory. From that study came the notion to adopt postage-stamp pricing for remote utility zones to contribute 20 percent of the cost of major new grid projects, whether required for reliability, or desired for import-export benefits.

Now, however, the MSAT companies say that analysis is out of date. As they point out, the cited study was conducted before MISO introduced its “day-two” market with locational marginal pricing (LMP) and a region-wide dispatch. By contrast, the MSAT coalition claims now that when generation is dispatched on a regional basis with MISO, one sees external line flows of 75 percent (not 20 to 30 percent) relative to flows within the load-serving utility’s native load territory. In short, grid sectors appear more closely connected, thereby justifying a higher degree of cost contribution from remote areas for a given new grid project.

Second, consider the cost-benefit test that MISO requires for postage-stamp pricing for new “economic” projects, and how MISO uses that analysis to allocate the 80 percent of costs for new grid projects not subject to postage-stamp pricing, and how the MSAT proposal would revise it.

In MISO, project sponsors seeking to spread costs around to third parties for new grid projects designed to spur generation development and create economic benefits must meet a cost-benefit test. Under the WGNL formula (weighted gain/no loss), project sponsors must calculate the savings in power-production costs and the reductions in LMPs that will occur if the new line goes through. With production savings weighted at 70 percent, and LMP differentials at 30 percent, sponsors must prove prospective benefits will exceed grid project costs according to a sliding ratio that ranges