CONTEMPORARY TRANSMISSION ISSUES:
COST ALLOCATION SESSION 1:00 PM
Wisconsin Public Utility Institute May 26, 2010
Panelist:
•Greg Levesque, Manager - Regional Relations & Policy, ATC,
•Don Neumeyer, Engineer, Wisconsin Public Service Commission
•Chris Plante, Wisconsin Public Service
AGENDA
Context
 Principles of cost allocation
 What is the magnitude of this issue
 Report from the RECB 1 (Reliability Projects)
and 2(Economic Projects) Task Forces
 Current MISO Process that creates a backdrop
for proposed process
 Comparison of proposals

CONTEXT

All-In financial costs of transmission have,
historically, been comparatively small,
 Vintage
costs of long-lived assets legacy
assets; existing right-of-way; somewhat overbuilt
except for selected paths.
CURRENT PLANS

Current transmission plans call for a roughly 3fold increase in expansion, compared to the
1990s:
 Ongoing
needs for reliability, accommodation of
expected load growth.
 Economy (least-cost dispatch accounting for
congestion).
 Expanded needs for transport services (e.g.,
Midwest wind power).

ALL IN COSTS

Because of significantly higher all-in costs for
transmission in the future, cost allocation is a
key issue.
PRINCIPLES FOR COST ALLOCATION
Efficiency
 Fairness
 Pricing Continuity

EFFICIENCY
Volumetric prices based on marginal costs
(LMP) obtain least total costs, in the short-term.
 Access charges covering all-in financial costs,
determined through cost allocation, affect
siting locations of participants – generators in
particular but also industrial loads. Hence, the
efficiency properties of cost allocation methods
must be taken into account.

FAIRNESS

That cost allocation method fairly apportions
costs among market participants.
PRICING CONTINUITY
Stability: Market participants need to
assurances that cost allocation methods have
continuity.
 Thus, transmission charges do not vary greatly
in the future as a result of changes in cost
allocation method.
 Practical – i.e., the methodology must be
technically and institutionally workable.

THE MAGNITUDE OF THE PROBLEM
Current MISO Cost Allocation



RECB I (Reliability Projects)
 Qualifying projects are split 80/20 (local/regional)
 Projects must be $5 million and 345 kV or above
 ATC has had the most RECB I projects cost shared
RECB II (Economic Projects)
 Qualifying projects are split 80/20 (local/regional)
 Projects must be $5 million and 100 kV or above
 Only one project has qualified under this approach due to
high cost benefit ratio for qualification
All other projects assigned directly to local pricing zone
MISO RECB TASK FORCE



MISO Regional Expansion Criteria & Benefits Task Force
 Meetings during last 18 months to address various issues
Phase I (Generator Interconnection)
 Sought to address “Otter Tail Power” issue (50/50 cost split
between generators and host zone)
 MISO interim solution
 345kV and above = 90/10 split
 Below 345kV = 100% to generators
 FERC issued “interim” order on October 23, 2009
Phase II
 Integrating renewables on a large scale
 Filing due to FERC by July 15, 2010
Current MISO Cost
Allocation Proposal




RECB I & II would be retained
 Both would be re-examined after July 15th
New category would be created
 Multi-Value Projects (MVPs) need to integrate remote
and/or low carbon generation
 Costs socialized across MISO footprint
 80 percent to load/20 percent to all generation
Generator Interconnection Projects would now use “higher
of” methodology.
Imports and exports would also receive charges.
PROPOSED COST ALLOCATION METHODOLOGIES
WITHIN MIDWEST ISO STAKEHOLDER PROCESS
MISO Proposal
TO Proposal
•
•
•
•
•
•
•
•
•
•
•
Very complex
Injection/withdrawal
Applies to “all” new
transmission
Multiple layers
(regional/local)
Transmission usage
study
Multiple voltage classes
Charges based on
access (MW) and energy
(MWHr)
Charge both load and
generation
Gen interconnections
pay “higher of”
•
•
•
•
•
•
Less complex
Applies to “Unique
Purpose Projects”
Single layer (regional)
No transmission usage
study
Charges based on
access (MW)
Charges for UPP 100%
to load
Gen interconnections
pay 80% - load pays
20%
Maintain existing
allocation for reliability
and economic projects
but revisit after filing
OMS Hybrid
•
•
•
•
•
•
•
•
Blend of MISO and TO
proposals
Injection/withdrawal
Single layer (regional)
Applies to UPP and
economic projects
Transmission usage
study for determination
of generator allocation
Charges based on
access (MW) and energy
(MWHr)
Charge both load and
generation
Gen interconnections
pay “higher of”
Comparison of Cost Allocation Proposals
M ISO
T r a n smissio n O w n er s
OM S CA RP
C h a r g e t o G en er a t o r s
20% of Revenue Requirement for Multi- 0% of Revenue Requirement for
Value Projects (MVPs)
Unique Purpose Projects (UPPs)
20% of Revenue Requirement for
Unique Purpose Projects (UPPs)
Cha r ge t o Lo a d
80% of Revenue Requirement for
MVPs
100% of Revenue Requirement for
UPPs
80% of Revenue Requirement for
UPPs
G en er a t io n In t er c o n n ec t io n
New GIPs charged to generators via
"Higher Of" methodology
<345 kV = 100% direct assign to
generator
≥345 kV = 80% direct assign to
generator and 20% to load
New GIPs charged to generators via
"Higher Of" methodology
Impa c t o n C u r r en t R EC B
M et h o d o l o g ies
RECB I & RECB II will remain in place. RECB I & RECB II will remain in place. RECB I will remain in place
Commitment to reexamine in 2010
Commitment to reexamine in 2010