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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

move west, across the Indiana line, to Indianapolis Power & Light (IPL), another big loser in the grid-pricing game. Contrary to the Buckeye situation, however, IPL’s beef is with MISO, rather than PJM, and it sees postage-stamp pricing as the enemy. IPL thus calls for a return to license-plate pricing for all grid facilities, both old and new, for its salvation.

IPL argues MISO’s current grid-pricing regime (which includes some postage-stamp area-wide cost sharing for new EHV lines) has cost the state of Indiana millions in excessive transmission charges shifted to it from regions under postage-stamp pricing. To be exact, IPL estimates each year it must pay over $7 million to fund new third-party grid projects located elsewhere within the MISO footprint, just counting those projects approved by the RTO in MISO’s 2006 transmission expansion plan (MTEP 2006). By contrast, however, IPL says it gets exactly zero in cost contributions from third parties for maintaining the IPL system, since IPL is not now expanding its 345-kV legacy grid system that loops the city of Indianapolis, and foresees no need to do so anytime soon. IPL claims its zonal transmission rate of $685/MW-month ($0.68/kW-month, in contrast to AEP’s) stands as the second lowest zonal transmission rate in MISO, less than 35 percent of the average rate within the RTO.

Overall, IPL estimates this “imbalance” in out-of-region cost contributions, with respect to the state of Indiana as a whole, will balloon to $42 million by 2015 or $92 million by 2020, “as other areas of the MISO footprint ‘catch up’ in terms of transmission investment” (see Motion to Intervene and Protest of IPL, FERC Docket No. ER07-1261, filed Sept. 17, 2007).

IPL also cites data prepared by AEP in its complaint showing that postage-stamp pricing for all lines 345-kV and up in both MISO and PJM, as AEP has proposed, would drive up the cost of service for IPL’s transmission-sector by 40 percent or more by 2012.

Thus, as with many other transmission owners, IPL voices a common refrain in its comments opposing the AEP complaint. It asserts that AEP’s real motivation comes not from any noble effort to achieve fairness in transmission pricing regimes. Rather, IPL suggests AEP’s complaint simply attempts to recover the transmission revenue the company lost when it chose to join PJM to secure the benefits of a wholesale power market, and thereby forfeited its right to collect pancaked T&O grid charges on its off-system sales:

“In effect,” writes IPL, “AEP has ‘solved’ its problem of lost third-party transmission revenue credits by finding innocent victims to repay the money.”

Alternative Plans

While AEP’s complaint has made the biggest splash, many other proposals have emerged as well. One in particular deserves a detailed look.

At the same time MISO proposed to retain license-plate pricing indefinitely for legacy grid facilities in its so-called post-transition transmission pricing proposal, known as the “PTTP” (see FERC Docket No. ER07-1233, filed August 1, 2007) , a splinter group made up of stand-alone transmission companies (MSATs) joined with Wolverine Power Supply Co-op. Inc., in floating an alternative