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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

from 1.2 to 1, to 3.0 to 1.

The MSAT coalition balks at this hurdle. According to ATC, ITC and METC, these cost-benefit ratios will be largely “unattainable” for the larger, longer-term projects for which postage-stamp pricing was designed:

“The average length of time it takes to site and construct a 345-kV transmission line in Minnesota is seven years. If such a project is not immediately needed for reliability and must qualify as a regionally beneficial project in order to trigger regional cost sharing, it must meet a benefit-to-cost ratio of 2.4 to 1.0. …

“It is difficult to imagine many projects meeting this threshold, particularly considering the only benefits taken into consideration are those related to production costs and LMP reductions.”

In fact, the Michigan Public Service commission concedes that MISO’s cost-benefit test “may be difficult for larger projects to meet,” but it insists on retaining it. Otherwise, ratepayers would be vulnerable to costly, gold-plated grid projects.

And Senior Attorney Bryan Little, commenting on the MSAT proposal on behalf of Consumers Energy, notes that once MISO includes a grid project in its annual transmission-expansion plan, there is no prudence review at FERC.

The MSAT companies counter by quoting FERC Commissioner Suedeen Kelly’s recent comment that “it is better to spend a little more on transmission if it will spawn larger savings in generation.”

Yet Consumers Energy remains wary. The MSATs “aren’t planning to spend just a little more,” writes attorney Little. “In reality they are planning to spend a lot.”

Some Thought-Provoking Ideas

What should we glean from the fact those most unhappy with the status quo are:

• The single utility in the United States with the largest investment in legacy high-voltage transmission assets; and

• A group of stand-alone transmission owners (ATC, ITC and METC) that do not own generation and do not serve customer load, so their entire business plans and revenue opportunities can come only from building and operating transmission lines?

Many of the utility transmission owners that oppose the AEP complaint (the vertically integrated VITOs that have retained both transmission and gen plant assets) argue that a reduction in transmission revenues is the result that AEP asked for and deservedly got when it joined PJM. They see the loss of T&O charges and revenues as the logical quid pro quo for the enhanced opportunities to export and market proprietary generation accompanying participation in a regional RTO market, like PJM’s. FERC should not trouble itself to make AEP whole on the transmission side; that support should come instead from the gen-sector.

Yet, what if AEP had joined the ranks of other traditional utilities and had divested itself of all its generating plants? Where would the revenue then have come from to replace that lost from the elimination of T&O charges and other transmission rates for transactions into, out of, and through RTO seams?

A telling observation comes from IPL, the utility that believes it already has all the grid assets it needs, and which opposes region-wide cost sharing, urging instead a return to license-plate pricing (local cost