By Robert Mullin

A new CAISO proposal seeks to shield smaller participating transmission owners from outsized network upgrade costs for interconnecting generation built to serve load outside that TO’s service area.

“The issue is — to what extent should a local area incur costs for resources that are clearly not serving that area?” Neil Millar, CAISO executive director of infrastructure development, said during an August 8 call to discuss the proposal.

“Network upgrades on low-voltage facilities for [TOs] with a relatively low rate base can significantly increase costs [for those PTOs],” said Steve Rutty, the ISO’s director of grid assets. “Similar upgrades would not have much of an impact” on larger TOs.

The proposal stems from the situation confronting Valley Electric Association, which serves 45,000 customers located in a 6,800-square-mile region straddling the California-Nevada border. The utility — CAISO’s only out-of-state member — has about 100 MW of load. Two projects awaiting interconnection will bring 100 MW of new generation into Valley’s territory, with more entering the queue, according to Rutty.

“So we’re looking at hundreds of megawatts for an area with just 100 MW of load,” Rutty said.

CAISO’s Tariff requires a TO to reimburse its generator interconnection customers for the costs of local reliability and deliverability network upgrades necessary to connect to the transmission network. With regulators’ approval, the TO can then include those reimbursement costs in its rate base and pass them on to ratepayers through either a high- or low-voltage transmission access charge (TAC). The ISO considers any line under 200 kV to fall into the latter category.

Postage Stamp Rate

Unlike CAISO’s high-voltage TAC, which is allocated to all ISO ratepayers at a “postage stamp” rate based on the aggregated revenue requirements of all TOs owning high-voltage lines, the low-voltage TAC is charged only to customers within the service area of the TO owning the facilities.

That arrangement could impose an unfair financial burden on ratepayers served by small TOs such as Valley.

“[I]f a large generator or a large number of generators with significant low-voltage network upgrade costs interconnect to a [TO] with a relatively small rate base, that [TO’s] rate base may increase significantly and can result in rate shock to its ratepayers,” the ISO said in its straw proposal.

The ISO estimates that $25 million in network upgrade costs would boost Valley’s low-voltage TAC from $6.26/MWh to $12.13/MWh — a 94% increase.

“There’s a considerable amount of interest in Valley for renewables,” said ISO attorney Bill Weaver. “If all the projects come online, $25 million is not unreasonable to expect.”

But those projects will not provide a “commensurate benefit” for the utility’s ratepayers, CAISO said.

The ISO has proposed two options to address the issue, which it expects to occur again if the ISO expands into other areas of the West and takes on additional small TOs.

The first option would allow a TO to roll “generator-triggered” low-voltage network upgrade costs into its high-voltage revenue requirement for recovery through its high-voltage TAC. The rationale: Any new generation will provide energy for the entire ISO market or support policy goals such as resource adequacy, reliability and increased renewables.

Under this scenario, $25 million in upgrades in the Valley area would translate into a 1.5-cent/MWh — 0.14% — increase in high-voltage TAC rates shared by all ISO ratepayers.

“This option would apply to all PTOs, is straightforward and would be fairly simple to implement,” the ISO said.

“This raised the question of whether local upgrades are helping the local area — which brought up the issue of some kind of cost sharing,” Millar said. “Which brought us to option two.”

The second, more complicated, option would split cost recovery for low-voltage upgrades between a TO’s low-voltage and high-voltage TACs. The split would be assessed in such a way as to cap increases to a TO’s low-voltage revenue requirement and TAC. Any amount above the cap would be applied to the TO’s high-voltage revenue requirement and thereby rolled into the ISO’s TAC.

Three Options

The ISO is considering three methods for calculating the split:

• Place a cap on the cost share of interconnection-driven upgrades assigned to a TO based on a percentage — possibly 5% — of the TO’s low-voltage base rate. TO’s with smaller base rates would be capped at significantly lower amounts than the larger investor-owned utilities.
• Limit incremental increases to a TO’s low-voltage revenue requirement based on a percentage of the TO’s annual low-voltage revenue requirement.
• Limit incremental increases in the revenue requirement to a percentage of the high-voltage TAC revenue recovered from the TO’s ratepayer base.

“This last method would make sense because it limits exposure of a local area group of customers to a percentage of their high-voltage TAC payments,” the ISO said. “As such, a utility twice the size of another could reasonably absorb twice the local impact of interconnection-related low-voltage network upgrades compared to a utility with a much smaller customer base.”

“We want to know the justification for the proposal,” said Lanette Kozlowski, director of regulatory relations at Pacific Gas and Electric. “Is it just the rate impact for the customers of [Valley Electric]?”

“That’s overly simplistic,” said Millar. “The cost issue certainly puts a spotlight on it, but it’s more about resources being developed in an area that won’t be serving that area.”

“How is this going to align with the other utilities where you’re connecting to the network and it’s being fully paid for by the project?” asked Don Davie, vice president with Wellhead Electric. “What are you thinking about for cost-causation for the actual project?”

“We’re not really going to propose shifting the costs to interconnection customers,” Millar said.

ISO staff plans to submit a final plan to the Board of Governors in December. Stakeholders must submit comments about the straw proposal by Aug. 19.