By Robert Mullin

CAISO has narrowed a proposal to protect smaller transmission owners from high costs for network upgrades to interconnect generation serving load outside the TOs’ service territories.

The revised proposal seeks to more specifically target the situation confronted by Valley Electric Association. Any policy changes would likely also apply to other small TOs added by the ISO through regional expansion. (See CAISO Plans to Protect Small Utilities from High Network Upgrade Costs.)

Valley Electric — CAISO’s only out-of-state member — serves 45,000 customers and about 100 MW of load in a 6,800-square-mile region straddling the California-Nevada border.

The utility’s service area sits within an area considered promising for new renewable development that would serve other parts of the ISO. Two projects with a total capacity of 100 MW await interconnection with the Valley system, with more expected to enter the queue, according to the ISO.

Under CAISO’s Tariff, a TO must reimburse generator interconnection customers for the costs of local reliability and deliverability network upgrades necessary to connect a generating unit to the transmission network.

Upon regulatory approval, the TO can include those reimbursement costs in its rate base — passing them on to ratepayers through either a high-voltage or local low-voltage transmission access charge (TAC). The ISO considers any line under 200 kV to fall into the latter category.

Postage Stamp

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

That arrangement can burden ratepayers in low-population service areas who are forced to bear the low-voltage network upgrade costs for generation intended to serve other, more populous locations attempting to meet renewable mandates.

“So the question — through this initiative — that we ask is, ‘Does this current mechanism for network upgrade cost recovery appropriately allocate costs in accordance with FERC’s allocation principles?’” Bob Emmert, CAISO manager of interconnection resources, said during a Dec. 5 call to discuss the latest version of the proposal.

The revision scales back what the original proposal offered for stakeholder consideration, including eliminating a proposed cost recovery provision that would have enabled all TOs regardless of size to roll “generator-triggered” low-voltage upgrade costs into its high-voltage revenue requirement to be recovered through the high-voltage TAC.

Under the revised proposal, only small TOs would be allowed to fold generator-driven low-voltage costs into their high-voltage revenue requirements.

The exception: when a generator is being built to serve the TO in some manner. Associated costs would then be put into the TO’s low-voltage TAC rates.

“After reading [stakeholder] comments, the ISO came to agree that the current cost allocation rules have resulted in appropriate cost allocation overall — and they continue to work for generator interconnections for the large load-serving entities,” Emmert said.

Based on input from most stakeholders, the updated proposal narrows its focus, only addressing the specific circumstances of utilities such as Valley Electric.

Options

The revised proposal sets out an “Option A” that would require the ISO to determine on a case-by-case basis whether a candidate TO should be allowed to fold low-voltage generator interconnection costs into high-voltage transmission revenue requirements, thereby diffusing the costs among the ISO’s rate base. The ISO would make its determination based on whether the TO is:

• Very small relative to other TOs;
• Located in a renewable resource-rich area gaining “elevated” interest for generator procurements; or
• Not subject to a renewable portfolio standard or has already met its requirements.

Each TO entering the ISO under that option would have to be approved by both the Board of Governors and FERC.

A more “formulaic” Tariff-based “Option B” would retain the second two points from Option A but specify that a TO’s annual gross load be no larger than 5% of the gross load for the ISO’s largest TO. Valley Electric’s load represents 0.6% of the largest TO.

“This is the criteria that was going to be the most consistent,” Emmert said. “We’d considered using a comparison against the ISO’s annual gross load, but the ISO could grow and that might change. We felt that the largest [TO] is going to remain the largest [TO] and that would remain pretty consistent over time.”

Lee Terry of California’s State Water Project expressed concern that some generation interconnected with Valley Electric’s low-voltage system could be built to serve nearby Las Vegas, rather than ISO load.

“My knee-jerk reaction would be that we would consider that to be the same as if it were serving the [participating transmission owner] in some manner,” said Bill Weaver, an ISO attorney. “Maybe we should consider broadening that [provision] to non-CAISO [TOs] rather than the [TO] itself.”

‘Strong Support’

Southern California Edison’s Fernando Cornejo expressed his company’s “strong support” for the latest draft of the proposal.

“SCE commends the CAISO for taking a more surgical approach to a cost allocation issue that we do believe is very exceptional and unique to a Valley Electric Association type of situation,” Cornejo said. “We believe that the existing cost allocation and the bifurcation between high-voltage and low-voltage upgrades has been long-established through the cost structure and pricing paradigm that’s been in place for several decades.”

Not all utilities were as satisfied.

John Newton, a regulatory analyst with Pacific Gas and Electric, said his company opposed the ISO’s decision to scrap the cost-allocation option that would have allowed all utilities to roll low-voltage generator interconnection costs into the high-voltage TAC.

While PG&E was “sympathetic” to Valley Electric’s concerns, the allocation methodologies had been in place since the Nevada utility had joined the ISO, Newton said.

For that reason, PG&E supported the scrapped option, which he called a “non-discriminatory policy change which would fairly treat interconnection costs the same for all transmission owners” participating in the ISO.

“We’re disappointed with these Options A and B and it’s unacceptable to PG&E,” Newton said.