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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

wine in a new bottle.

In other words, for new cross-border projects—those with wide-ranging regional impacts—the IRPD promised no change from the status quo. That meant traditional license-plate pricing still would apply, with native-load ratepayers bearing the brunt, at least up until the time that MISO and PJM stakeholders might get up enough energy to reconvene and reconsider alternative pricing designs. (See IRPD, FERC Docket ER05-6-100, filed Aug. 1, 2007.)

Into this vacuum stepped AEP. Call it nerve, brass, cheek or gall—or an illegal collateral attack on FERC policy, as some have maintained—but AEP claimed this new cross-border case gave it the perfect right to seek a third bite at the apple.

And so in mid September, AEP filed a massive complaint at FERC, alleging license-plate pricing is unjust and unreasonable for high-voltage transmission lines that serve both local and regional needs, regardless of when the facilities are built. AEP proposes instead that FERC must adopt postage-stamp pricing (using region-wide cost allocations) for EHV lines with a capacity of 345 kV or greater. Or, if not, then at least for 500-kV lines, or 765-kV lines (see FERC Docket No. EL07-101, filed Sept. 17, 2007).

Clearly AEP still is bucking the tide. Its proposal still entails massive shifts in cost allocations and rate responsibility among utilities and regions. Loath to face disgruntled consumers (or their proxies on Capital Hill), FERC has warned such cost shifts could leave each RTO facing disgruntled members and threats of defection. AEP’s complaint has attracted few outright allies, if any. Opposition from the major TOs appears nearly unanimous. Most have told FERC it must dismiss the complaint out of hand, under principles of res judicata and collateral estoppel. (Too many bites at the apple.)

Yet, by many principles of utility rate making, which traditionally seeks to align rate responsibility with cost causation and realization of benefits, AEP’s arguments cannot be so easily dismissed.

Consider the Organization of MISO States (OMS), comprised of state utility regulators representing MISO-area ratepayers. While it opposes AEP, it acknowledges that the complaint raises “some thought-provoking issues,” and concedes even that PJM’s current grid-pricing regime, as approved in Opinion 494, “is unfair for AEP and its customers.”

Comments submitted by Ohio Assistant Attorney General Thomas W. McNamee, on behalf of the Ohio Public Utilities Commission, argue that physical and commercial connections between grid users across the Midwest are not strong enough to warrant regional cost-socialization on a simple load-weighted basis. Yet rather than retreat to the past, McNamee urges FERC to conduct a precise cost allocation using RTO-style algorithms:

“The Ohio commission contends this is precisely what the commission [FERC] needs to recognize—that these are real measures, and that region-wide impacts can in fact be determined.”

All the same, the mainline utility industry, now sometimes referred to as VITOs—the “vertically integrated transmission owners”—remain dead set against AEP, or any significant widening of cost-sharing for existing grid facilities already planned and built. As was seen in April, in FERC’s Opinion 494, the VITOs have hit FERC where it is most politically vulnerable—by convincing the commission