CONNECTING. Energy Infrastructure. Postage Stamp Cost Allocation for MEP projects 345 kv and above

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1 CONNECTING Energy Infrastructure Postage Stamp Cost Allocation for MEP projects 345 kv and above Dave Grover ITC Holdings Corp. September 20,

2 Overview of Presentation Review of Postage Stamp Pricing for Transmission across other regions of the U.S. History of Postage Stamp pricing for transmission facilities in MISO Why a Postage Stamp component is appropriate for MEP Projects at 345 kv and above In-Service, Approved and Planned 345 kv Projects in MISO and their Cost Allocation Case for Postage Stamp Pricing for EHV Networked Transmission Facilities 2

3 Postage Stamp Pricing for New Transmission in the US PJM: 50% postage stamp for 500 kv and 345 kv double circuit SPP: Highway-Byway-100% postage stamp for Highway (300 kv and above); 1/3 postage stamp for Byway ( kv) ISO-NE: Reliability Projects and Market Efficiency Transmission Upgrades 115 kv and above 100% postage stamp; public policy projects 70% postage stamp CAISO: Regional Transmission Facilities >200 kv 100% postage stamp 3

4 History of Postage Stamp Pricing for New 345 kv Facilities in MISO Transmission Owners Agreement filed in 1998 After 6 year transition period (Feb. 1, 2002-January 31, 2008), MISO shall file to implement Midwest ISO system-wide transmission rates (i.e. the same transmission rate shall apply to all customers) (i) if all Owners paying the Midwest ISO for transmission service associated with Bundled Load agree; (ii) if all Owners that are paying the Midwest ISO for transmission service associated with Bundled Load are allowed to recover such payments; or (iii) there are no Owners paying the Midwest ISO for transmission service associated with Bundled Load. Postage stamp would have included all voltages in rates The Transmission Owners and MISO filed in 2007 to retain license plate pricing after the end of the transition period 4

5 History of Postage Stamp Pricing for New 345 kv Facilities in MISO RECB I filing (October 7, 2005) included a 20% postage stamp for 345 kv and above Baseline Reliability Projects Task Force began with a key concept that some portion of Network Upgrade costs should be allocated on a regional or postage stamp basis to capture the system-wide benefits of a Transmission System expansion MISO staff produced various analyses which demonstrated that when loads in a single Control Area are supplied only from Network Resources contained within that Control Area, the total Transmission System usage for such a transaction occurs on average 20% to 30% on systems external to the Control Area Filing included a compromise proposal to include a postage stamp component, provided that the component comprises no greater than 20% of the project costs, and that it is applied to Network Upgrades of 345 kv and higher voltage class 5

6 History of Postage Stamp Pricing for New 345 kv Facilities in MISO RECB II filing (November 1, 2006) included a 20% postage stamp for 345 kv and above Regionally Beneficial Projects (now MEPs) Task Force addressed to what extent should the allocation of costs reflect broad system-wide benefits of grid expansions, via a system-wide rate based on load shares (i.e. on a postage stamp basis ) as opposed to a more targeted allocation to specific transmission customers based on evaluations of long term beneficiaries The region-wide component was set a 20%, consistent with the level of postage stamp applied to Baseline Reliability Projects 345 kv and higher Additional analyses presented showed that when the loads of a single zone were served by all market generators in aggregate, the relative usage of others transmission systems was at least as high as the 20% figure in the RECB I filing 6

7 History of Postage Stamp Pricing for New 345 kv Facilities in MISO RECB III filing-phase I (July 9, 2009) modified cost allocation for generator interconnectionrelated network upgrades, eliminating the majority of the cost sharing for 50% of upgrade costs, but retaining a 10% postage stamp component for projects 345 kv and above 7

8 History of Postage Stamp Pricing for New 345 kv Facilities in MISO RECB III filing-phase II (July 15, 2010) established a 100% postage stamp for Multi- Value Projects (MVPs) Economic studies show that MVP-type projects will provide widespread regional benefits, including; substantial reductions in regional congestion costs; reductions in transmission losses, effecting significant, broadly shared cost savings; reductions in the region s installed capacity requirements, thus measurably reducing capacity costs throughout the region Broad regional cost-sharing for MVPs. avoids the disproportionate impacts that threatened continued access. to prime wind-power development areas MVPs will strengthen and enhance reliability across the integrated transmission system on which all regional load and exports rely 8

9 Is the current 20% Postage Stamp for MEPs 345 kv and above still appropriate? Yes. If there is any change considered, the postage stamp component should probably be a higher percentage of the total Networked facilities 345 kv and above provide regional benefits Reduction of Congestion and Production Costs is just one of many benefits, and the hardest to predict over the long term Examining APC results across model years and across futures shows changes in benefits and beneficiaries identifying beneficiaries is very sensitive to assumptions about many items that are inherently uncertain Over the long term, the usage or function of new networked 345 kv transmission lines that have been justified based on different types of initial drivers (reliability, economics or public policy) may not be very different All networked 345 kv lines are Multi-Value lines 9

10 Transmission 345 kv and above Pre kv Lines Pre kv lines Pre

11 Transmission 345 kv and above Existing, Approved and Planned 345 kv 2010 & after Pre kv Pre

12 Transmission 345 kv and above, by Type Existing, Approved and Planned 345 kv % P.S Baseline Reliability 20% Market Efficiency 20% Multi-Value 100% Zonal 0% Pre % 500 kv Pre % 12

13 The North-South MISO Divide Since MISO South was added to the footprint in December 2013, there has been much discussion about how to allocate costs across the new larger region Is the combined region too large, or the two sub-regions too disconnected for projects to provide region-wide benefits? Entergy Transition Period limits cost sharing for at least 5 years across both North and South MISO has proposed to eliminate postage stamp for MISO- SPP 345 kv Tariff Gap Interregional Projects Allocation of costs in MISO for these 345 kv projects would be 100% based on APC benefits It will be difficult to get consensus on tariff changes to treat the north and south differently Cost allocation is a zero-sum game 13

14 Benefits of a MISO-wide (North and South) Postage Stamp charge Avoids need to change existing tariff provisions Stakeholder consensus on cost allocation changes is often difficult to achieve It is hard to identify today if there would be a cost shift bias (and in which direction) over the long term Better Planning The more that all projects are paid for the same way, the more that the focus becomes the most efficient, least cost solutions to identified needs Unity Region-wide postage stamp best supports the vision of MISO as a single, strong RTO region 14

15 QUESTIONS? 16

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