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'T' Party Revolt

Transmission expansion costs are spread unevenly, driving a wedge between utilities and regions.

Fortnightly Magazine - October 2009

that serves the remote consumption zone, where the power “sinks,” to collect payments for the grid upgrades—not the utility that hosts the wind projects. Thus, Otter Tail and MDU would not recoup their grid investments through the transmission portion of retail rates; at least not if they remain members of MISO.

Late last year, Otter Tail and MDU gave notice of their intent to withdraw as members of the MISO regional transmission organization (RTO). That put a fire under MISO management to explore alternative cost-allocation methods, to save the ISO as an institution.

Of course, if Otter Tail and MDU were to follow through on their threats, they would need to comply with FERC Order 2003, governing generator interconnections for non-RTO members, which requires the host transmission owner to reimburse project developers for all (!) net-up costs, but which allows TOs to offer credits against their own utility transmission service rates in manner of payment.

Would wind developers then drop out and decline to build in Otter Tail and MDU territory—solving the current problem because they’d lack access to MISO markets and face transmission rate pancaking? Would FERC impose a de-pancaking condition of withdrawal, to make Otter Tail and MDU think twice? It all comes down to credibility.

This past summer, MISO proposed a new tariff to deal with rising net-up costs and preserve RTO unity. The proposal virtually would absolve the host utility of all responsibility to fund wind-driven net-ups, as well as upgrades for coal, natural gas, and other gen projects, both within the Otter Tail and MDU territories, and all across the entire MISO footprint as well. Instead, it would fall on gen project developers to pay for nearly all grid upgrades. As an exception, 10 percent of upgrade costs would be shared ratably among all MISO TOs, but only for lines with capacities equal or greater than 345 kilovolts. (See, MISO RECB Phase I Interim Tariff Proposal, FERC Docket ER09-1431, filed July 9, 2009.)

The MISO proposal assumes that project developers will recover the upgrade costs from their energy customers, through either the MISO day-ahead energy market, or else private purchased-power agreements. But that could impose a significant carrying charge on the generation sector. Wind project developers say that lenders won’t finance the developers’ share of grid upgrade expenses, as the developers don’t own the grid and so can’t provide a transmission service revenue stream to back loans, nor pledge the upgrades as collateral for the lender’s security.

MISO had adopted its current RECB cost-allocation method because grid planners had assumed most new gen projects simply would replace aging infrastructure or fix reliability problems. Thus, MISO’s RECB tariff had required TO utilities to reimburse developers in most cases for one-half of net-up costs, with the TOs sharing that obligation among themselves, largely according to the way in which the grid upgrades would improve power flows on existing lines, as measured by an engineering formula known as LODF (line outage distribution factor).

This LODF method made perfect sense for reliability upgrades, designed to relieve constraints imposed by new gen