The Committee on Regional Electric Power Cooperation’s (CREPC) Transmission Collaborative (TC), in collaboration with Energy Strategies, has issued its first cost allocation study to provide the industry with guidelines on how to tackle the thorny issue. 

CREPC TC released the State Exploration of Western Transmission Cost Allocation Frameworks in conjunction with a policy brief Aug. 7. (See CREPC TC Close to Wrapping Up Cost Allocation Study.) 

“The work conducted by Energy Strategies in consultation with the CREPC Transmission Collaborative to develop the State Exploration of Western Transmission Cost Allocation Frameworks policy brief and technical report is valuable to helping Western states better understand different cost allocation methodologies and implications,” Gabriel Aguilera, chair of the New Mexico Public Regulation Commission and co-chair of CREPC, told RTO Insider in a statement. 

“While nothing in this study is intended to be binding, states can build on the foundational elements of the study as transmission cost allocation discussions develop and evolve in the West,” Aguilera said. 

In an effort to strengthen stakeholders’ understanding of the “challenges associated with regional cost allocation in the West,” the TC members provided six takeaways from the report, according to the policy brief. 

The six takeaways are: 

• • “Transmission cost allocation frameworks must result in the allocation of transmission capacity. Any transmission cost allocation framework that fails to align costs allocated with transmission capacity assignments (MW) is unlikely to be successful.” 
  • Establish “well-defined thresholds, clear standards and independent expert input for ensuring that capacity assignments resulting from a cost allocation process are both meaningful and useful,” the brief stated. “As part of this, cost allocation approaches should include rules to ensure that entities receiving de minimis benefits are not allocated costs.” 
  • Because there is no broadly accepted method for measuring public policy and resource access benefits, the TC suggests that entities should be allowed to voluntarily subscribe to capacity on a line based on their own perceived benefits of certain transmission projects. This can address allocation disputes arising out of projects aimed at, for example, helping public agencies achieve decarbonization goals by transporting wind power from one state to another. 
  • Achieving a fully binding cost allocation process in the West is highly technical and difficult. Instead, stakeholders must agree that voluntary participation mechanisms are crucial for achieving significant transmission buildout, despite the risk of “free ridership.” However, voluntary commitments can be converted into contractual or financial capacity or cost-share commitments as projects advance. 
  • Benefit quantification is a “critical foundation” for cost allocation. It is therefore important that those calculations be done with transparency, coordination and collaboration in mind. 
  • A transparent, well-defined and flexible process can help tackle some of the common issues that can arise during cost allocation discussions, such as preventing the overburden of individual utilities, accommodating different value systems and supporting fairness principles, among other benefits.

To reach these takeaways, the TC and Energy Strategies developed three cost allocation frameworks, based on different combinations of four cost allocation approaches: subscriber pays, beneficiary pays, zonal-cost assignment (costs are assigned on a load-share basis) and opt-in/-out (costs and project capacity are reassigned after initial allocation to entities volunteering to purchase additional capacity). 

The frameworks were tested under three hypothetical interstate transmission projects. Two of the frameworks provided more proportionality, flexibility and optionality than the base case and were also preferred by stakeholders who provided input to the study. 

“Despite a split on which framework is most appropriate, most representatives felt somewhat comfortable with the conclusion that these flexible, nonbinding cost allocation frameworks can help address Western states’ concerns about misalignment between cost assignment and customer benefits,” the brief stated. “Participants also recognized the crucial importance of the potential project participants voluntarily subscribing to capacity for these frameworks to be successful.”