By Tom Kleckner

RAPID CITY, S.D. — More than five hours of presentations and stakeholder discussions over two days last week did little to resolve SPP’s albatross of Z2 credits, but they did potentially add more than four years to the crediting project’s timeline and increase the possibility that it will result in litigation.

Faced with an approximate bill of $848.8 million for 158 creditable transmission upgrade projects over the last 10 years (up from last summer’s staff estimate of $750 million), the Markets and Operations Policy Committee voted to give companies five years to pay off their Z2 bills, up from the 10 months approved by the Board of Directors in April. (See “Board Approves Z2 Level Payment Plan,” SPP Board of Directors Briefs.)

The board will take up the recommendation during its quarterly meeting next week. If approved, the change will require a filing at FERC.

The MOPC also rejected all five requests from the so-called Group B members — American Electric Power, the City of Chanute, Kan., Golden Spread Electric Cooperative, Kansas Electric Power Cooperative (KEPCO) and Westar Energy — to have their $42.6 million in charges allocated to the base plan and included in regional and zonal charges under SPP’s Tariff, rather than being directly assigned to the companies.

Still unclear is when the amounts owed and due become final, how to handle sponsoring customers who are no longer customers and what happens when companies go to state regulators to recover their costs.

‘Lawyered Up’

Dogwood Energy’s Rob Janssen suggested members were flying blind and said they should take a “rational” look at their options before going to FERC.

“No one knows the real impact of voting to transfer funds when we don’t know what the funds are. We need more facts on the table,” he said. “I don’t know if everyone is lawyered up enough to understand the implications, but I strongly suggest everyone do so before the next board meeting.”

“I feel like now that the numbers are higher than some people expected, they want to change the rules of the game,” said Greg McAuley of Oklahoma Gas & Electric. “I don’t think that’s the right way to do business.”

“We’re likely headed to a complaint at FERC because of the magnitude of the [Z2] numbers,” SPP CEO Nick Brown told the Regional State Committee on Monday. “The last thing I want to do is spend an inordinate amount of time before an administrative law judge in D.C.”

The Group B waiver requests were deferred by the MOPC, the board and the Cost Allocation Working Group in June. At the same time, those groups approved the Group A waiver requests to allocate their $56.4 million in obligations to the base plan. (See SPP Z2 Project Faces Further Hurdles, Possible Delay.)

Group A members — AEP, Arkansas Electric Cooperative Corp., the Northeast Texas Electric Cooperative and the Oklahoma Municipal Power Authority — are point-to-point transmission customers with Z2 obligations whose waiver requests were endorsed by SPP staff. Group B members are transmission customers that SPP said didn’t qualify for waivers, and Group C are those who didn’t request waivers.

McAuley grew visibly irritated as the discussion over Z2 waivers wore on. The OG&E settlement zone’s base-plan funding obligation of $31.7 million dwarfs every other zone, except AEP’s $29.9 million, and the company is waiting to learn its customers’ point-to-point claw-backs and credits for sponsored projects.

“We have retail customers who have waited patiently to be paid. Now, all of a sudden, we’re being told, ‘No, it’s too much,’” McAuley said. “We voted on how we were going to deal with the issue. People had expectations, and now we’re going to change it again. Everyone’s been impacted by this one way or the other, but now it’s time to settle accounts.”

“I raised the issue before that we were putting the payment plan in before we knew the impacts,” said Bill Grant, whose Southwestern Public Service’s zone faces a $10.4 million obligation. “SPP has some ownership in this, because they said this wasn’t going to be a big amount. Now we have some numbers and they’re not small. I think a lot of the people in this room would vote differently now. It is a pretty substantial number to some zones, and to some zones, that’s a pretty substantial number to recover for our customers.”

‘But For’

Attachment Z2 of SPP’s Tariff details how sponsors that fund network upgrades can receive reimbursements through transmission service requests, generator interconnections or upgrades that could not have been honored “but for” the upgrade. SPP has struggled for years to perform a proper accounting of the bills and credits and who owes what to whom.

AEP’s Richard Ross opened the second day of the MOPC discussion Wednesday by proposing the payment plan’s extension to five years.

Ross also proposed waiving all of Group B and Group C’s directly assigned upgrade costs, but that motion was rejected in a separate roll-call vote.

“You’re going to think I’m up to something, but the most important thing is that top line … spreading things out over five years,” Ross said, pointing to the language on the projector screen. “The second thing is, whatever we do, my customers will pay the same. I fear this will end up in FERC or the courts or somewhere. … I’m not interested in that.”

“If we can agree on this, I’d like to encourage we get behind this and have no further delays,” Grant said. “Let’s get this filed [at FERC], so we can have certainty around the issue. This has gone on way too long. It’s a concern for people who owe money, it’s a concern for people owed money. Our major concern is the impact to customers, and this five-year plan helps us address it.”

Staff assured members that interest on the debts would only apply to the initial balance and not accrue during the five-year payment plan. (Members can still choose to pay everything up front.) The revised payment plan cleared the MOPC with four votes in opposition and five abstentions.

The committee then rejected five individual waiver requests by either voice or roll-call votes. KEPCO argued unsuccessfully to have $6.1 million in revenue credits applied to the base plan, saying four service requests ranging between 7 MW and 25 MW should not have been aggregated together. As a result of the aggregation, KEPCO exceeded the Tariff’s resource-load ratio rule — limiting customers’ transmission service requests to 125% of their projected system-peak responsibility.

“If you apply the Tariff the way we interpret it, we don’t believe we exceeded our 125% limit,” KEPCO COO Les Evans said.

Midwest Energy’s Bill Dowling noted FERC distinguishes between discrimination and undue discrimination. “The Tariff discriminates between parties who are not similarly situated,” he said. “I consistently got the message from SPP [that] you can’t change something after the fact because you didn’t like the way it turned out. If we [grant the request], we’re sort of opening the door to other requests.”

KEPCO’s waiver request failed to come close to the 67% threshold, not even clearing 50% in positive votes. The four requests that followed — from AEP, Chanute, Golden Spread and Westar Energy — all met the same fate.

The rejections did not faze Westar’s John Olsen when his company’s time came up. Asked whether he wanted to proceed with a vote after having seen the previous results, Olsen sighed with resignation, “Oh, hell yes. Why not?”

“I continue to reflect on how can we do business this way based on what’s happened here this morning,” said McAuley, who opposed all five requests.

“We all have FERC attorneys. My suggestion is pay your FERC attorney and go to FERC and solve this,” OG&E’s Jake Langthorn told members. “If we want to come up with a fix to the Tariff, it’s going to take a lot more work than we can do this morning.”

FERC Ruling

The lawyers have already been active.

Ross’ proposal was made possible by FERC’s July 7 approval of an SPP request to waive the one-year limit for adjusting payment obligations and revenue distributions (ER16-1341). SPP’s request drew at least 18 protests or interventions.

FERC’s order also allowed transmission customers to request exemptions on safe-harbor cost limits.

“We note that it has been eight years since the commission accepted SPP’s Tariff provisions to implement revenue crediting. In the intervening years, SPP has experienced multiple delays in implementing the crediting Tariff provisions,” FERC said.

“Upgrade sponsors who have been negatively affected by SPP’s delay will finally, through this order, get the appropriate relief. We remind SPP of the need for transparency and timeliness when implementing commission-accepted Tariff provisions, especially in matters that so directly impact market participants and customers and are completely under the control of SPP.”

Project Progressing

The Z2 crediting project itself is progressing. The software system is partially complete and scheduled to deliver revenue crediting reports in September.

OG&E’s David Kays, chairman of the Regional Tariff Working Group, told the committee that staff has completed the historical calculations for long-term credit obligations for network service. He said base-plan funding adjustments and detailed settlements for historical data are still underway.

The final historical results are scheduled to be available for stakeholder review prior to the quarterly MOPC and board meetings in October, with the Z2 settlement invoices expected in early November.

“Everything seems to be trending along in a manner that is anticipated,” Kays said.

As the two-day conversation devolved into the minutia of the Z2 calculations, transmission-service and point-to-point requests, rate schedules, claw-backs and threshold limits, an exasperated Paul Malone of the Nebraska Public Power District almost threw his hands up in surrender.

“I need a program,” the MOPC vice chairman said. “I feel like I’m in a game of cricket, and I don’t know any of the rules.”

MOPC Chairman Noman Williams, of South Central MCN, was sympathetic.

“I want to thank everyone for wandering through the mud here,” he said as he closed the agenda item. “I guess it could have been done differently, but it had to be done.”