The Midwest stand-alone transmission (MSAT) companies, including American Transmission Co. (ATC), ITCTransmission and Michigan Electric Transmission Company, LLC (METC), joined by Wolverine Electric Power Cooperative, filed with the Federal Energy Regulatory Commission a new regional cost allocation proposal for new transmission facilities at or above 345 kV. The proposal will aid in facilitating the construction of the regional backbone transmission infrastructure. A stronger regional grid will better serve the regional energy marketplace and help in getting renewable energy from the west into the Midwest Independent Transmission System Operator (Midwest ISO) market – a key issue at a time when state policy changes are requiring utilities to increase their use of renewables. The proposal does not affect existing facilities or lower-voltage lines as those facilities generally provide benefits that are more localized in nature.
Current policy using a “license plate” rate design – allocating the costs of transmission facilities to customers in the pricing zones in which the transmission facilities are located – operates as a natural disincentive to invest in regional transmission. The MSATs and Wolverine believe increasing the “postage stamp” cost allocation from 20 percent to 100 percent for new 345-kV lines and greater will spur interstate transmission investment.
“This pricing proposal, if approved, will be the enabler of high voltage regional transmission facilities which will bring about greater efficiency in wholesale markets and better integrate renewables and other generation resources,” said Joseph L. Welch, president and CEO of ITCTransmission and METC parent company ITC Holdings Corp. (NYSE: ITC).
Dale Landgren, vice president and chief strategic officer for ATC, said, “The fact is regional facilities have not been built using historical license plate rate design. We agree with FERC Commissioner Suedeen Kelly, who has said that the current cost allocation methodologies have not gone far enough to encourage the development of a regional grid that can deliver the consumer benefits of more regional competitive generation.” Kelly stated in her concurrence with the FERC’s July 23, 2007, Regional Expansion Criteria and Benefits (RECB) Order, “…my feeling has been that a higher level of socialization was probably desirable, primarily because of the public interest in healthy competition in generation. In other words, it is better to spend a little more on transmission if it will spawn even larger savings in generation.”
The MSATs and Wolverine made the filing to fulfill requirements of the Midwest ISO that called for a re-evaluation of the current rate structure at the conclusion of a six-year transition period, which ends on Jan. 31, 2008. The MSATs and Wolverine met with a number of stakeholders including several commissioners in Midwest ISO states, using their feedback to formulate the proposal. The proposal seeks to have a new cost allocation be effective Feb. 1, 2008, for all qualifying transmission facilities approved in the Midwest ISO planning process after Aug. 1, 2007. The MSATs and Wolverine also requested that the date for comments on the proposal be set at Sept. 16 (rather than the normal 21 days) to give state commissions within the Midwest ISO footprint more time to review and consider the proposal.