By Amanda Durish Cook

NEW ORLEANS — A debate over the fairness of the postage stamp cost allocation method and how to quantify transmission benefits took center stage at the MISO Advisory Committee’s quarterly hot topic discussion.

MISO Vice President of System Planning and Seams Coordination Jennifer Curran noted that the RTO has not changed cost allocation rules since the integration of MISO South.

“Are there benefits that are no longer relevant? Are there benefits that we haven’t even realized yet? These questions are critically important,” Curran said during the March 22 discussion.

As part of a review of its cost allocation procedures, MISO is considering lowering the 345-kV threshold on market efficiency projects and replacing the footprint-wide postage stamp rate with a method that assigns costs to benefiting transmission pricing zones. It is also seeking to identify other economic benefits in addition to production cost savings, including eliminating the need for future fixes by pursuing a long-term project over a short-term project and projects that aid planning reserve margins. (See MISO Changes to Queue, Auction, Cost Allocation to Dominate 2017.)

Curran said she didn’t expect unanimous sector support on any revised cost allocation procedure, but there is some consensus within sectors. “The biggest challenge we face is a common definition given the challenges we face,” Curran said.

For the Love of Money

Discussion facilitator Julia Johnson, president of regulatory advising firm Net Communications, introduced the topic, saying it was “incredibly hot and had incredible significance.” She then cued the O’Jays’ “For the Love of Money,” eliciting applause.

Transmission Owner sector representative Matt Brown of Entergy pointed out that MISO changed aspects of its transmission cost allocation in 2003, 2007, 2009 and 2012. “This is not a static set of rules, and MISO has shown the ability to change and adapt,” Brown said. But he said that “experimental” changes should not be made to MISO’s “mature” cost allocation process.

“There is a lot that works with what we have now, and I caution everyone not to lose sight of that,” Brown said.

Northern Indiana Public Service Co.’s Paul Kelly cautioned MISO against “speculating” on transmission benefits, saying they should be represented with an equation that can be repeated across projects.

WEC Energy Group’s Chris Plante said most in his Transmission Dependent Utilities sector support a postage stamp rate because many benefits of transmission projects are not quantifiable or are realized later.

“Today’s reliability project could be tomorrow’s multi-value project,” Plante said.

Brown said the TO sector is not interested in pursuing a postage stamp allocation, which assesses a uniform rate on all MISO transmission owners, simply for the sake of benefits that may be missed. “If you can’t measure it, it’s not a benefit that should be considered. Benefits need to be demonstrable, repeatable and non-duplicative,” he said.

Thomas: Postage Stamp not Always Best

Arkansas Public Service Commission Chairman Ted Thomas, the delegate for the Regulatory sector, said MISO should conduct extensive analysis before implementing any change.

“The business is changing, but modeling is changing too, and we have more operational history. If there need to be sub-zones — better ways of how a true beneficiary pays — then we need to do that,” Thomas said.

Thomas also said postage stamp allocation is not always the most equitable method. “Let’s not use a postage stamp when we can’t figure [benefits] out. Let’s go back to the lab and figure it out,” he said.

MISO Director Michael Curran said he understood stakeholder frustration if too many benefits are swept into a “common good” category and applied on a postage stamp basis.

Plante said that while MISO’s modeling has improved and can identify a beneficiary “right down to a point of delivery,” the modeling is only as good as the assumptions on which it is based, including forecasting natural gas prices and impacts of future regulations.

Public Consumer sector representative and attorney Kevin Lemley said postage stamp allocation fails to recognize that non-transmission alternatives can solve some problems.

ITC Holdings’ Devin McMackin said MISO’s list of project types is probably too “rigid” and said he supports more flexibility or an expansion of project types.

Allocation by Project Type

MISO’s allocation procedures vary by project type:

• Costs of market efficiency projects 345 kV and above are split 80% to local resource zones based on benefit and 20% to load through postage stamp.
• Generation interconnection projects above 345 kV assign 90% of costs to the interconnection requestor, with 10% allocated to load on a postage stamp basis.
• Multi-value projects are allocated entirely to load via postage stamp.
• Baseline reliability projects are allocated entirely to local pricing zones.
• Projects arising from transmission service requests are paid for by transmission customers, but the transmission owner can elect to roll costs into local pricing zone rates.

Participant-funded projects are left out of cost allocation procedures entirely, and projects not eligible for allocation can be recovered through a zonal transmission rate.

Plante said cost allocation needs to be resilient, able to survive an expanding footprint and shifting resource mix. Stakeholders again brought up MISO’s hourglass-shaped footprint and constrained MISO South interface, which some maintain precludes a benefits ratio from being applied to the footprint uniformly.

Alliant Energy’s Mitchell Myhre, representing the TDU sector, said adjusted production cost benefits should remain the primary metric when deciding allocation. All other benefits should be secondary considerations in cost allocation, Myhre said.

Director Paul Bonavia asked for a future session between the board and MISO staff on a preliminary cost allocation proposal.

‘Rough Justice’

Director Curran urged MISO and stakeholders to create a proposal, citing an adage: “‘Done is better than perfect.’”

Several stakeholders said that any cost allocation revision that MISO files with FERC would be an example of “rough justice,” meaning it would be generally fair but not acceptable to all parties.

MISO stakeholders are discussing possible allocation changes in the Regional Expansion Criteria and Benefits Working Group (RECBWG). Group chair Carolyn Wetterlin said the working group is considering simplifying its name to the Transmission Cost Allocation Working Group.

A day earlier, during a presentation on the 2017 MISO Transmission Expansion Plan (MTEP 17) at the March 21 Markets Committee of the Board of Directors, Director Phyllis Currie asked what MISO’s biggest challenge is when it comes to transmission planning.

“At the end of the day, I think it comes back to who pays,” Jennifer Curran said.

Director Mark Johnson asked for a review of MTEP-approved projects to determine if their projected cost benefits had been realized. Curran said MISO could collect that information.

Director Thomas Rainwater said he liked the idea of cost allocation post mortems, in which MISO staff would examine whether transmission benefits are being distributed as they were estimated.