Cost Allocation Proposals associated Cost Allocation Proposals associated with MISO Transmission Expansionwith MISO Transmission Expansion

WIEG Board MeetingWIEG Board MeetingMay 6, 2010May 6, 2010

Presented by:Presented by:Kavita Maini, PrincipalKavita Maini, Principal

KM Energy Consulting, LLCKM Energy Consulting, LLC

Protecting Your Bottom LineProtecting Your Bottom Line

Midwest Independent System Operator (MISO)

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MISO: 2010 Generation Capacity Breakdown

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Designated Capacity:131,284 MW

Demand: 104,288 MW

Reserve Margin:25.9%

2009 MISO Transmission Expansion Plan

Appendix A: Approved Projects ($903 M approved in 2009; $7.2 Billion to date)

Appendix B: Probable Projects, $1.5 Billion

Appendix C: Conceptual Projects, $23 Billion

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Current Cost Allocation Methodology

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Reliability Based Transmission Upgrades – Methodology results in localized allocation of costs with 20% socialization for lines 345 KV and above

Economic Based Transmission Upgrades – Based on economics (production costs and energy prices) with 20% socialization for lines 345 KV and above; benefit/cost threshold to be at least 3:1

Generator Interconnections – 345KV and above used to be 50% to generator, 40% to transmission owner, 10% socialized; Temporary solution (2009) 90% generator, 10% socialized to fix the “Otter Tail Problem”

Revisiting Cost Allocation

MISO needs to make a compliance filing on July 15, 2010 Provide a permanent solution to generation

interconnection related upgrades Resources located remotely from load result Now, even cost allocation methodologies associated

with reliability and economics open for debate and discussion

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Cost Allocation Principles and Methods

Beneficiaries /cost causers pay – License Plate High voltage benefits longer distances and

therefore, region wide benefits – Postage Stamp FERC was remanded on its approval of PJM’s

Postage Stamp method by Circuit Court of Appeals for 500 KV and above

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Current Initiatives Investigating Transmission Planning and Cost Allocation

CARP(Regulatory)

RECB(MISO

Stakeholders)

MISO Transmission Planning

CARP= Cost Allocation & Regional PlanningRECB = Reliability Expansion Costs & Benefits

MTEP/ Proposed Tariff Language for Cost Allocation

Transmission Expansion - Cost Allocation Issues

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What should be cost shared?

How should it be cost shared?

How should it be recovered?

•Reliability •Economic•RPS/other mandates

• Regional/Local• Generators/Load/ Export

• $/KWh• $/KW

How MISO Discussion Started on Cost Allocation – Injection/Withdrawal

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Injection/WithdrawalMethod –Annual RevenueRequirements

Regional ($/MWH)

ENG. ANALYSIS

Local($/MW

Load

Generators

Exports

Load

Generators

Planning/What goes into Appendix A

How MISO Discussion Started on Cost Allocation – Mostly Withdrawal

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Injection/WithdrawalMethod –Annual RevenueRequirements

Regional ($/MWH)

ENG. ANALYSIS

Local($/MW

Load

Generators

Exports

Load

Generators

Planning/What goes into Appendix A

MISO Cost Allocation Proposal

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ISSUE MISO TRANS. OWNERS REGULATORS

Cost Share Eligibility Reliability, Economics, Policy Mandates

Policy Mandates Economics and Policy Mandates

Cost Sharing Split Local and Regional determined by Eng. Analysis

Regional – Overlay and Underbuild

Regional – Overlay and Underbuild

Who Pays? Load and Export – RegionalLoad and Generators - Local

Load and Exports Load (80%) & Generation (20%)

Gen. Interconnection Higher of local access rate or local portion of network upgrade costs

Generators 80%;Load 20%

Higher of local access rate or local portion of network upgrade costs

Rate Design $/MWh - Regional$/MW - Local

$/MW $/MWh

What are the relative cost impacts?

Cost bucket magnitude between proposals not certain RPS related transmission overlay plus underbuild =

$30 Billion for current RPS standards by 2024 MISO projects to date (2003-2009) $7.2 Billion ;

future reliability, economic, etc..???

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Guiding Principles

Cost and benefit threshold at the planning stage and feedback loop for assessing projects that should be eligible for cost sharing

A methodology where the right load pays internal and external to the footprint

Rate design where fixed costs are represented in a demand charge

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