History of Cost Allocation within MISO RECB TF. January 29, 2015

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1 History of Cost Allocation within MISO RECB TF January 29, 2015

2 Cost Allocation FERC Orders, Filings, and Rulings Cost allocation for MISO began with Order 2003 which instituted a pro forma Generator Interconnection Procedures and Agreement. RECB I established BRP cost allocation for less than 345 kv and GIP cost allocation The RECB I Rehearing & Tech Conference established the 345 kv and above BRP cost allocation. RECB II was designed to address market efficiency. However, RECB II did not adequately address outlet transmission for renewable energy. FERC accepted MISO s proposal on cost allocation for Cross Border projects built for reliability purposes with PJM. These projects reside in one RTO but provide benefits to the other. FERC accepted the change of cost allocation to replace the 50/50 method for Generator Interconnection Projects. Cost allocation for Cross Border Market Efficiency Projects with PJM was implemented in the MISO- PJM JOA. July 2003 Feb 2006 Nov 2006 Mar 2007 Jan 2008 Oct 2009 Nov 2009 The RECB Task Force was established in 2004 to develop criteria for all transmission projects in MTEP and methods for allocation and recovering costs based on measures of benefit. The RECB Task Force reconvened in 2006 to discuss what were called Regionally Beneficial Projects ( economic or MEP ). The RECB Task Force continues cost allocation discussions in 2015 in response to recent FERC rulings. FERC accepted MISO s proposal to establish the MVP category for cost allocation. FERC issues Order MEP changes to 100% APC benefit metric and LRZ cost allocation is accepted by FERC. Acceptance of MEP and MVP methodologies for regional cost allocation and removal of regional cost allocation for BRPs. MISO filed Order 1000 interregional cost allocation compliance filings with PJM, SERTP, and SPP. FERC issued ruling on interregional compliance filing with PJM. FERC issued ruling on interregional compliance filing with SERTP. Dec 2010 July 2011 June 2012 Mar 2013 July 2013 Dec 2014 Jan 2015

3 RECB TF History MISO Order 2003 filing Limited time to develop superior proposal to pro forma pricing by filing deadline MISO filed pro forma in response to Order 2003 stating concern for credit policy in RTO with License Plate pricing There may be no transmission service revenues to offset credits or repayments (point-to-point transmission service revenues go to sink zone, and there are no transaction based revenues for Network Service which is based on peak demand of the load zones) RECBTF created in March 2004 to work on preferred pricing policy 3

4 RECB TF History Contd. October 2004 proposal from MISO was heavily based on cost-causation Zone load is cost causer therefore let zones pay for load growth driven transmission in own zones, regardless of size of external benefits New interconnection requests cause upgrades direct assign costs Stakeholders rejected initial proposal OMS Principles envisioned allocation of cost between both cost causers and beneficiaries for reliability 4

5 RECB TF History Contd. First filing addressed Network Upgrades resulting from Generator Interconnections and load growth (RECB I) Generator Interconnection Projects (GIP) Focuses on Network Upgrades driven by interconnection generators 50/50 cost sharing between customer and pricing zones (as long as one year contractual commitment to MISO network customer) Without contract, direct assigned Zonal 50% piece is shared as per Baseline Reliability (blend of postage stamp and sub-regional) Customer 50% piece is participant funded or charged as a monthly fixed charge at option of TO Baseline Reliability Projects (BRP) Only share larger projects at least $5 million or 5% of Transmission Owners Net Plant Higher voltage projects get wider cost allocation 345 kv and higher : 20% postage stamp allocation/80% sub-regional allocation 100 kv 345 kv: 100% sub-regional allocation Sub regional allocation is based on proximity 5

6 RECB TF History Contd. Continued work in 2006 (RECB II) to discuss projects driven by anything other than reliability Method for Market Efficiency Projects Only share larger projects At least $5 million in cost 345 kv and higher project only 20% postage stamp allocation 80% sub-regional allocation Sub-regional allocation is an evaluation of beneficiaries based on a congestion-based metric A negotiated 70/30 blend of projected reductions in production cost and LMP based load payments, resulting from the project The benefit is divided between 3 sub-regions and then postage stamped within each A benefit to cost threshold of 1.2 to 3 must be met 6

7 RECB III Phase I July 2009 MISO and certain MISO TOs filed an interim RECB III Phase I proposal to address certain inequities experienced under the then-effective RECB cost allocation rules (50/50 method for GIP) Proposed revisions to the Tariff for GIP Eliminated the Line Outage Distribution Factor (LODF) allocation of GI related network upgrades to load in pricing zones Assigned to the interconnection customers the share of costs then allocated to loads on an LODF basis Eliminated the requirement that the interconnection customers show designation as a MISO network resource or a one year power purchase agreement to be eligible for cost sharing FERC accepted the Phase I proposal 7

8 RECB III Phase II Filings in 2010: Multi-Value Project category creation Fair cost allocation mechanism enabling transmission development to support reliability and economic goals, renewable energy integration, and other public policy goals Increased renewable energy project development Development of projects premised on a broader range of benefits than simply reducing market congestion or increasing reliability Guiding principles Eliminate/minimize free riders Ensure the right loads pay Reflect changing system usage over time Balance attributes of system use (causers vs. beneficiaries) 8

9 MISO changes MEP cost allocation to 100% APC based on distribution of benefits across LRZs (2012)

10 Regional Component of FERC Order No FERC ruled in March 2013 FERC acceptance of MEP and MVP categories for regional cost allocation Designed to create efficient and cost-effective solutions to multiple regional transmission issues MEPs may also include reliability benefits MVPs that can displace numerous BRPs by solving multiple reliability issues and addressing regional transmission needs more efficiently or cost-effectively. FERC acceptance for removal of BRPs from regional cost allocation BRPs were designed to address local transmission reliability issues 10

11 MISO South Integration and Cost Allocation Type and Location of Project Baseline Reliability Project, Generator Interconnection Project, or Market Efficiency Project terminating exclusively in one planning area Baseline Reliability Project, Generator Interconnection Project, or Market Efficiency Project terminating in both planning areas Approved Before Treatment During Within First Planning Area Treatment After Within First Planning Area Approved and/or Identified During Treatment During Within applicable Planning Area Not Applicable Not Applicable Applicable to both Planning Areas Treatment After Within applicable Planning Area Applicable to both Planning Areas Approved after Ends Applicable to both Planning Areas Applicable to both Planning Areas 11

12 MISO South Integration and Cost Allocation, cont. Type and Location of Project Approved before Treatment During Treatment After Approved and/or Identified during Treatment During Treatment After Approved after Ends Multi Value Project terminating in exclusively one planning area Within first planning area at 100% MVP rate 1.First planning area at 100% MVP rate 2.Second planning area at 8-year phase-of MVP rate Within applicable Planning Area at 100% MVP rate 1.MVP s in FPA are allocated: FPA at 100% MVP Rate and SPR at 8-year phase-in of MVP Rate 2.MVP s in SPA are allocated to: FPA at 8-year phase-in of MVP Rate and SPA at 100% MVP Rate Applicable to both Planning Areas, each at 100% MVP rate Multi Value project terminating in both planning areas Not Applicable Not Applicable Applicable to both Planning Areas, each at 100% MVP rate Applicable to both Planning Areas, each at 100% MVP rate Applicable to both Planning Areas, each at 100% MVP rate 12

13 MISO Regional Transmission Project Categories Today 13

14 MISO Interregional Cost Allocation FERC Issues Order 1000 in 2011 MISO submits compliance filings with PJM, SERTP, and SPP in response to Order 1000 in 2013 FERC conditionally accepted and requested additional compliance filings on the MISO-PJM and MISO-SERTP Interregional portion of Order 1000 MISO is reviewing FERC s order and will be working with MISO stakeholders, PJM, and SERTP to respond to the respective rulings 14