By Robert Mullin

CAISO is nearing completion of a proposal describing how the ISO would allocate the costs of building and operating transmission assets in an expanded balancing authority that could encompass areas of the West outside California.

The ISO considers development of a new transmission access charge (TAC) plan to be “a central policy element” of expanding into a region with dozens of balancing areas subject to multiple state and municipal rules determining compensation for transmission owners.

Most pressing for CAISO: Development of new TAC options is essential for enabling Portland-based PacifiCorp to join an expanded system as early as next year.

‘Postage Stamp’ Rate

CAISO Principal of Market Infrastructure and Policy Lorenzo Kristov summed up the issue during a June 1 conference call to discuss the issue with Western industry participants: “The conversation we’re having here is — when you add new customers [to the ISO] — who would be paying for the service charge.”

CAISO currently uses a regional “postage stamp” rate to recover transmission revenue requirements for all ISO-controlled facilities rated at 200 kV or above. All internal load and exports are subject to per-megawatt-hour usage charges to fund those facilities.

Facilities rated below 200 kV and located inside the service territory of a participating transmission owner are covered by “local” rates paid by load within that territory. CAISO’s primary participating TOs are California’s three investor-owned utilities: Pacific Gas and Electric, Southern California Edison and San Diego Gas and Electric.

CAISO market participants are charged for transmission access based only on the regional or local criteria.

The current TAC makes no distinctions among projects driven by economic, public policy or reliability considerations, nor does it factor in-service dates or other non-voltage criteria.

“We’ve determined that the structure does need to be changed with an expansion,” Kristov said.

New ‘Sub-Regional’ Category

CAISO proposes to retain the category of regional — or ISO-wide — projects eligible for broad-based allocation, albeit in an altered format. At the same time, the ISO would introduce a new sub-regional category to accommodate TOs joining what could become a Western RTO in the future.

Under the latest TAC proposal, revenues for existing transmission facilities would only be eligible for recovery under “license plate” rates specific to each sub-region.

The upside for current CAISO members: They would not be charged for projects already operating in a new member’s service territory.

The downside: The sub-regional identification would also apply to CAISO’s current balancing area, meaning new members would not be assessed charges for California’s existing network.

The only projects eligible for regional cost allocation would be regional facilities approved under a new transmission planning process for an expanded ISO. To be considered for ISO-wide allocation, a proposed facility would be required to meet at least one of three criteria:

• Having a voltage rating above 200 kV;
• Facilitating interconnection — or increasing interconnection capacity — between two sub-regions; or
• Creating, increasing or supporting the increase of intertie capacity between the expanded balancing area and a neighboring area.

Project Types

The TAC proposal would also introduce into the Tariff the practice of differentiating among different project types. For example, the new rules would make explicit that facilities approved to meet a reliability need within a sub-region would be allocated solely to that sub-region.

Economic and policy-driven projects would receive different — and more complex — treatment. Decisions regarding construction and cost allocation for those projects would be left to a new body of state regulators created in concert with the integration of a new TO into the ISO — an idea modeled on similar structures in ISO-NE and MISO.

“We know from precedent that agreement among the parties for cost allocation is important for FERC approval,” Kristov said.

CAISO is also considering additional provisions that would allow the expanded system to charge new TOs for costs of new regional facilities previously approved under the expanded transmission planning process. It would recalculate the sub-regional cost-benefit shares for those facilities at least every five years.

The ISO must also determine a regionwide export rate — or wheeling access charge — and develop FERC-required backstop provisions for approving and allocating costs for economic- and policy-driven projects.

“I just want to acknowledge that a lot in this proposal is not complete,” Kristov said.

Still, a draft final proposal for TAC options is slated to be released June 28. CAISO staff plans to present the plan to the ISO’s Board of Governors on Aug. 31.

Comments on the most recent proposal must be submitted to the ISO by June 10.