FERC Accepts Midwest ISO Cost Allocation Methodology
December 11, 2006 // Published as a news service by IHS
The FERC order reaffirmed a Feb. 3, 2006 order accepting revisions that incorporated transmission expansion planning protocols into the Midwest ISO open-access transmission tariff and accepted a related compliance filing from Midwest ISO.
FERC Chairman Joseph T. Kelliher said "Today's order represents the third time and in the third region that the commission has grappled with the challenging issue of transmission cost allocation.
"In all three regions - New England, the Southwest Power Pool and now the Midwest - the commission accepted a different approach. This illustrates the regulatory flexibility of the commission. But more significantly, we expect today's action will enhance investment in transmission infrastructure in the Midwest."
In February, when the FERC conditionally accepted the Midwest ISO transmission expansion protocols, FERC directed a technical conference to discuss the regional cost-sharing for baseline reliability projects rated at 345 kilovolts and above.
The final order addresses supplemental evidence originating from the technical conference and accepts the Midwest ISO cost allocation methodology for baseline reliability projects.
The Midwest ISO cost allocation methodology is an outgrowth of a July 8, 2004 FERC order that encouraged Midwest ISO stakeholders to develop a permanent transmission pricing policy based on the Organization of MISO States' principle that entities that cause and benefit from transmission upgrades should pay for them.
For baseline reliability projects with a voltage class of 345 kilovolts and above, the Midwest ISO cost-sharing methodology calls for allocating 20% of the costs system wide on a load-ratio share basis while 80% would be allocated sub-regionally to all transmission customers in the designated pricing zones affected by the project.
For baseline reliability projects with a voltage class between 100 kilovolts and 345 kilovolts, all of the costs would be allocated sub-regionally to all transmission customers in the designated pricing zones affected by the project.
The FERC reaffirmed the allocation of 20% of costs for extra-high-voltage projects system wide, or on a "postage stamp" rate basis, denying calls from various stakeholders for greater allocation of costs on a postage-stamp basis.
However, the FERC directed the Midwest ISO and the Midwest ISO transmission owners to study the effectiveness of the 20% postage-stamp cost-sharing methodology in June 2007 when they review the rate design base rates for existing transmission facilities.
The FERC also reaffirmed the Midwest ISO's cost-recovery method for generation interconnection cost allocation, which calls for generators to be responsible for 50% of the transmission upgrade costs if the generation output is committed to network customers or designated as a network resource.
Otherwise, the generator interconnection customer is responsible for 100% of the costs of transmission upgrades required for interconnection.
The FERC denied rehearing, rejecting arguments that this approach would "chill" generation investment in the Midwest. "In most cases, we do not believe that such costs have been the determining parameter in deciding whether or not a particular project is going to be built. For the majority of projects requiring generator interconnection, the network upgrade costs associated with generator interconnection are likely to be only a small percentage of the overall project costs and, thus, not determinative of whether the project will be built," the FERC said.
Nevertheless, the FERC directed the Midwest ISO to file, within 12 months, an informational report on its experience under its innovative cost recovery methodology. The Midwest ISO must include in the report, among other things:
- A listing of interconnection requests for generation projects received during the period.
- The projected cost of network upgrades associated with each project and the projected total generator interconnection costs for each project.
- The projected total cost of each project.
- The planned megawatt size of each project.
- The type of interconnection service requested for each project.
- Whether each project is remotely located from the transmission grid or aggregate load.