The Brattle Group economists have recommended to the Southwest Power Pool a general framework for seams cost allocation that supports interregional transmission planning to address FERC Order 1000 requirements.
The order requires regional transmission planning entities under FERC’s jurisdiction to develop interregional cost allocation methodologies based on FERC-approved principles, the Brattle Group added in its April 24 statement.
According to the report, the framework is based on identified cost allocation principles and a comprehensive set of benefit metrics, while allowing for the flexibility needed to consider a wide range of different projects types and seams entities.
The SPP regional state committee (RSC) engaged the Brattle Group to develop a general approach to seams cost allocation so that SPP could use a consistent set of principles and guidelines to assess the needs, benefits and cost allocation of transmission projects at each of its seams with its diverse set of neighbors, the report added.
Paul Suskie, SPP’s senior vice president, regulatory policy and general counsel, who works with the RSC, said April 24: “This report will be a strong foundation for SPP’s [RSC] to address the inter-regional cost allocation requirements of FERC’s Order 1000. This is an example of the RSC’s foresight and leadership on cost allocations issues, as the RSC hired the Brattle Group for this work before FERC issued Order 1000.”
The Brattle Group said in its statement that the proposed framework, which leverages the existing joint operating agreements (JOAs) between SPP and its seams neighbors, is comprised of seven “building blocks” that are key to supporting interregional planning and cost allocation:
- Regular interregional planning meetings, including direct participation of regulatory commission staff from states affected by the particular seam in the planning and cost allocation discussions under the JOAs.
- Regular exchange of planning data, requiring the development of jointly validated and endorsed load-flow cases and planning models for the combined footprint and planning horizon.
- A process to propose and analyze seams projects, establishing additional options under which seams entities could unilaterally or jointly propose seams projects outside the joint coordinated system plan process.
- Evaluation criteria and benefit metrics, requiring each seams entity to specify the criteria and metrics they will use for seams project evaluation.
- Seams cost allocation principles and guidelines, defining agreed-upon principles and guidelines to serve as the overarching framework for developing transmission cost allocation for seams projects.
- Payment mechanisms and transmission rights, specifying several options for payment mechanisms that can be used to implement the agreed-upon cost allocations consistent with transmission rights.
- Integration with internal planning and cost allocation, addressing who can propose a seams project, who can build and operate it, how planning analyses for seams projects are initiated and how seams projects are integrated with internal planning processes and cost recovery.
The report recommended that an optional building block allow for the inclusion of pre-specified formulaic evaluation and cost allocation methodologies for specific project types. Several seams cost allocation methodologies in other markets include such pre-specified formulaic approaches, such as those for interregional reliability and economic projects between the Midwest ISO and PJM Interconnection.
However, the report added, while such formulaic approaches can streamline the evaluation and cost allocation of seams projects, many seams projects will not “fit” the pre-specified qualifications criteria. “We thus recommend that seams projects that do not fit such pre-specified options still be evaluated under the general cost allocation framework as summarized,” the report said.
“Seams cost allocation has proven to be especially challenging given the number of barriers related to the planning and analysis of interregional transmission projects,” Johannes Pfeifenberger, a Brattle principal and co-author of the report, said in the statement. “Given FERC’s Order 1000, we believe it is imperative that there be significant coordination between SPP and the RSC to develop a robust interregional planning and cost allocation methodology that can be implemented through SPP’s ongoing coordination efforts with its neighbors. Our report aims to guide SPP and the RSC in this process.”
Among other things, the report noted that SPP staff is working towards the FERC Order 1000 compliance deadline, which is April 11, 2013, for interregional planning and cost allocation.