MISO Cost Allocation Response. RECBWG February 15, 2018

Transcription

1 MISO Cost Allocation Response RECBWG February 15, 2018

2 MISO Cost Allocation Response: February 2018 Context The overall objective of the MISO transmission cost allocation methodology is to align who pays with who benefits over time from a regional transmission expansion perspective. MISO s cost allocation response is an incremental step forward, with some items needing more discussion. MISO will continue to work with stakeholders to achieve the overall objective and finalize the proposal. This response represents several potential changes that address identified cost allocation issues, seeks to improve the alignment of costs and benefits for future regional transmission projects, and considers the diverse positions of stakeholders. MISO is targeting filing any tariff changes by the third quarter of 2018, with an effective date of January 1, This is commensurate with the MISO South transition period expiring at the end of Unchanged Elements Multi-Value Projects (MVP): No changes Market Efficiency Projects (MEP): Benefit based allocation to all zones in MISO Benefit/Cost ratio that is greater than or equal to 1.25 Minimum cost threshold of $5M Recommended Changes to MEP Cost Allocation Lower MEP voltage threshold to 230kV Eliminate 20% postage stamp component from MEP cost allocation Create a tariff structure that allows for the inclusion of additional quantifiable benefit metrics as developed through the stakeholder process Develop new/modify existing provisions of the tariff to ensure reliability is not negatively affected as a result of other cost allocation changes (e.g., such as lowering the voltage threshold) MEP Elements for Further Discussion Develop MISO regional cost allocation for interregional economic projects down to 100kV on the PJM and SPP seams Develop criteria for defining Cost Allocation Zones Develop local allocation methodology for lower voltage economic projects, i.e., economic other : Clarify the process for this category of project Begin with aspects of the Local Efficiency Project concept as presented by Certain TOs

3 Focus of Cost Allocation Reforms

4 The objective of MISO transmission cost allocation methodologies is to align as best as possible who pays with who benefits over time from regional transmission expansion 4

5 Conditions Precedent for Regional Transmission Investment 1. Aligned interests regarding the issue(s) for regional transmission solutions to collectively address (i.e. increased policy consensus), 2. A robust business case for the project(s), 3. Clearly defined cost allocation methods that closely align who pays with who benefits, and 4. Cost recovery mechanisms that reduce financial risk 5

6 Guiding Principles for Transmission Cost Allocation Review Improve alignment of benefits and costs Eliminate cost allocation gaps with neighbors Clearly define cost allocation for all projects that are an outcome of the MISO regional transmission planning process (i.e. the MTEP) Ensure cost allocation is not an impediment to beneficial transmission investment (e.g. subregional MVPs, sub 345kV interregional economic projects) 6

7 Focus of Cost Allocation Review Reflects Desire to Improve Matching of Costs and Benefits Define Cost Allocation of Sub 345kV Economic Projects Improve cost/benefit matching through cost allocation Address confusion regarding current practice (direct assignment to constructing TO pricing zone) Change to cost allocation? Cost allocation gaps with neighboring planning regions can create a barrier to valuable transmission investment Potential 206 complaint if not addressed MISO-PJM interregional planning and cost allocation complaint is illustrative Refine Cost Allocation for Multi Value Projects Transmission has multiple benefits in addition to adjusted production cost Capturing more benefits improves benefit/cost alignment Portfolio requirement makes it impossible to address sub-regional issues with MVPs A change in the portfolio requirement will require a change in cost allocation (i.e. more granular allocation) 7

8 MISO Cost Allocation Response

9 MISO Cost Allocation Response* Unchanged Elements Multi-Value Projects (MVP): No changes Market Efficiency Project Benefit based allocation to all zones in MISO Benefit/Cost Ratio that is greater than or equal to 1.25 Minimum cost threshold of $5M Recommended Changes to Market Efficiency Project Cost Allocation Develop new/modify existing provisions of the tariff to ensure reliability is not negatively affected as a result of other cost allocation changes (such as lowering the voltage threshold) Create a tariff structure that allows for the inclusion of additional quantifiable benefit metrics as developed through the stakeholder process Eliminate 20% postage stamp component from MEP Cost Allocation Lower MEP voltage threshold to 230kV Market Efficiency Project Elements for Further Discussion Develop MISO regional cost allocation for interregional economic projects down to 100kV, PJM and SPP seam Develop criteria for defining Cost Allocation Zones Develop local allocation methodology for lower voltage economic projects, i.e., economic other Clarify the process for this category of project Begin with Local Efficiency Project concept as presented by Certain TOs * Reflects post transition period status quo 9

10 Unchanged Elements

11 No change to MVP Cost Allocation Stakeholders generally support a wait and see approach Cost allocation across the MISO footprint align with the portfolio requirement and widespread benefits received Other proposed changes to MEP address MISO concerns regarding the MVP category 11

12 MEP Allocation of costs to benefitting zones MISO will allocate the cost of MEP based on the distribution of applicable quantifiable metrics to all zones in the MISO footprint Criteria and definition of zones to be further evaluated 12

13 MEP Retain existing B/C and Cost thresholds Project must meet a minimum B/C ratio of 1.25 The Benefit/Cost Ratio of 1.25 appropriately captures future uncertainty without being overly conservative The MISO planning and cost allocation process incorporates a series of metrics to account for future uncertainties Project cost must exceed $5M 13

14 Recommended Changes to Market Efficiency Project Cost Allocation

15 Lower MEP voltage threshold to 230kV Aligns with the principle that Market Efficiency Projects provide regional cost allocation for "larger" projects more likely to have benefits across multiple pricing zones Takes an important incremental step of bringing congestion planning into better alignment between MISO South and MISO Midwest Based on system designs, 230 kv is the predominant EHV (regional) voltage class (mileage) in South Similar to 345 kv in MISO Classic, 230 kv in MISO South is closest to the sweet spot for effective mitigation of congestion providing regional (extra-lpz) benefits at lower costs than highest voltages in regions (500 kv/765 kv). Provides separation between regional economic projects from local projects needed for local needs (i.e. sub 230kV projects) 15

16 230kV and Above Transmission 16

17 345kV and Above Transmission 17

18 200kV-300kV Transmission 18

19 Create a tariff structure that allows for the inclusion of additional quantifiable benefit metrics as developed through the stakeholder process Transmission provides economic benefits beyond Adjusted Production Cost Quantifying those benefits will improve the alignment of who benefits with who pays MISO will focus its efforts on the four MVP metrics currently in the tariff plus the benefit resulting from changes to the Midwest-South contract path limit Targeting inclusion of deferred/avoided reliability project benefit and contract path benefits in 2018 Inclusion of other metrics (i.e. capacity based metrics and others) occur over time as they are developed through the stakeholder process 19

20 Example Allocation of costs to benefitting Cost Allocation Zones Example of Cost Allocation Zones Four zone system Project cost $1M Total Benefits $450 M Four calculated benefit metrics Zone Benefit Metrics A B C D Total Benefits % 28% 22% 17% 33% Cost Allocation ($M)

21 Eliminate 20% postage stamp component from MEP cost allocation Postage stamp is a means of recognizing that transmission provides benefits that are not otherwise captured and that who benefits will change over the long life of the investment Capturing additional quantifiable metrics addresses, in part, the purpose of the postage stamp Significant stakeholder support, including the OMS majority position, support elimination of the postage stamp component 21

22 Develop new/modify existing provisions of the tariff to ensure reliability is not negatively affected as a result of other cost allocation changes (e.g., such as lowering the voltage threshold) Lowering the voltage threshold for MEP may result in projects needed for reliability going through the developer selection process Extended timeline may put reliability or compliance at risk Largely mitigated by setting MEP voltage at 230kV Options include but are not limited to in service date/need by thresholds or eliminating BRP->MEP cost allocation hierarchy 22

23 Market Efficiency Project Elements for Further Discussion

24 Develop MISO regional cost allocation for interregional economic projects down to 100kV, PJM and SPP seam PJM and Southwest Power Pool (SPP), respectively, regionally cost share lower voltage economic projects Per FERC directive interregional MEP with PJM is set at 100kV MISO will address the cost allocation gap for interregional MEP with SPP for projects between 100 and 230kV MISO will evaluate with stakeholders alternatives that address this issue 24

25 Develop criteria for Cost Allocation Zone definition Historically, Cost Allocation Zones (CAZ) used for MEP cost allocation aligned with Local Resource Zones used for Resource Adequacy Changes to CAZ definition have been driven by state regulatory agency requests on an ad hoc basis MISO will work with stakeholders to develop a set of criteria and process for future CAZ modifications Stakeholder support for more granular zones (i.e. Transmission Pricing Zones) What is an ideal size for cost allocation zones? 25

26 Local zone allocation for lower voltage economic projects, i.e. economic other The MISO planning process is not limited by the voltage criteria for regional cost allocation. It is important to clarify and define the process and cost allocation treatment for economic projects that do not meet the MEP criteria (i.e. Economic-Other ) Use the concepts proposed in the November 2017 RECBWG meeting as a starting point for further discussions Defined process Business case development Cost allocation certainty 26

27 Schedule and Workplan

28 Schedule Apr Introduced decision for comprehensive review Sept Finalize issue summary paper, lays out a high level work plan Jan RECB prioritizes issues Feb MISO creates work plan for high priority issues through 2016 Dec MISO presents MEP cost allocation strawman Q1-Q Evaluate two key issues: Sub 345kV MEP projects, MVP 100% postage stamp Feb MISO to present cost allocation response Q1-Q Develop and file tariff changes Issues Summary Paper Q Present Strawman Dec 2016 Present MISO Cost Allocation Response Feb 2018 Effective no later than 1/1/2019 Stakeholder Issues Review Q2-Q Issues Evaluation and risk management Q1-Q File reforms at FERC Q

29 Appendix

30 Granularity of Cost Allocation Local Resource Zone Pricing Zone Local Balancing Authority MISO map of: Local Resource Zones (LRZs) Pricing Zones (TPZs) Local Balancing Authorities (LBAs) 30

31 Allocation of costs to benefitting Cost Allocation Zones Local Resource Zone Transmission Pricing Zone(s) 1 DPC, GRE, MDU, MP, NSP, OTP, SMP 2 ATC 3 ITCM, MEC, MPW 4 AMIL, CWLP, SIPC 5 AMMO, CWLD 6 BREC, DEI, HE, IPL, NIPS, VECT 7 METC, ITC 8 EATO 9 CLCE, ELTO, ENTO, LAFA 10 EMTO, SME 11 ETTO 31 * See FERC filing ER18-364, Map of MEP Cost Allocation Pricing Zone Boundaries

32 MISO Regional Cost Allocation Project Type Description Allocation to Beneficiaries Multi-Value Project Market Efficiency Project Baseline Reliability Project Generation Interconnection Project Transmission Delivery Service Project Participant Funded Address energy policy laws and/or provide widespread benefits across footprint Reduce market congestion when benefits are 1.25 in excess of costs NERC Reliability Criteria Interconnection Request Transmission Service Request Projects that are funded by the project requestor, often not the TO. The requestor funds the project (i.e. pays up front through a contribution in aid of construction (CIAC), which excludes the project from a TO s rate base and zonal rates. 100% postage stamp to load 345 kv and above: 80% distributed to Local Resource Zones commensurate with expected benefit, 20% postage stamp to load; 100 kv to 344 kv (IMEPs with PJM only): TBD 100% allocated to local Transmission Pricing Zone Primarily paid for by requestor; 345 kv and above 10% postage stamp to load. Generally paid for by Transmission Customer; Transmission Owner can elect to roll-in into local Transmission Pricing Zone rates The requestor funds the project (i.e. pays up front through a contribution in aid of construction (CIAC), which excludes the project from a TO s rate base and zonal rates. Other Project that does not qualify for other cost allocation mechanisms. Can be driven by reliability, economics, public policy or some combination of the three. The costs of these projects are recovered in zonal rate. 32

33 MISO-PJM Interregional Cost Allocation Cost Allocation Methodology Project Type Description Project Requirements RTO Project Share MISO Allocation Targeted Market Efficiency Project (TMEP) Alleviates historical M2M congestion in both RTOs $20 million; In Service by 3 rd Summer Peak after approval Ratio of each RTO s Day Ahead and Excess Congestion Fund congestion, offset by historical M2M payments MISO portion allocated to MISO beneficiaries using historical nodal load congestion contribution data aggregated up to the TPZ level Interregional Market Efficiency Project (IMEP) Reduces market congestion in both RTOs Qualifies as MEP or MVP* in MISO and economic transmission enhancement or expansion in PJM; Gen GLDF of 5% or greater in each RTO MISO: 100% APC PJM: Double 345 kv+: 50% APC, 50% NLP; 100 kv Single 345 kv: 100% NLP MISO portion allocated the same as a regional MEP (80% APC to LRZs/20% Postage stamp). Note: For MISO-PJM IMEP only, voltage threshold is 100 kv Interregional Reliability Project (IRP) Displaces reliability projects in both RTOs Qualifies as BRP or MVP** in MISO and BRP in PJM Ratio of avoided project costs in each RTO Costs assigned based on the allocation of the avoided regional project Cross-Border Baseline Reliability Project (CBBRP) Needed to efficiently meet reliability criteria Qualifies as BRP in MISO or PJM DFAX of RTO generation to respective RTO load Wholly MISO: project is allocated like a BRP (100% to local TPZ); Wholly PJM: TBD Interregional Public Policy Project (IPPP) Displaces public policy projects in both RTOs Qualifies as MVP*** in MISO and economic or reliability project in PJM Ratio of avoided project costs in each RTO Costs assigned based on the allocation of the avoided regional project * Meeting Criteria 2 or 3 ** Meeting Criterion 3 *** Meeting Criterion 1 33 Note: Per the MISO-PJM JOA, projects that could qualify as an IRP and CBBRP will be cost allocated as an IRP

34 MISO-SPP Interregional Cost Allocation Cost Allocation Methodology Project Type* Description and Requirements RTO Project Share MISO Cost Allocation Reliability Necessary to meet NERC reliability criteria; Displaces reliability projects in both RTOs APC + Avoided Cost MISO portion allocated to local TPZ(s) Wholly MISO or MISO-SPP Tie: 345 kv+ Allocated as a MISO MEP: 80% APC to LRZs, 20% Postage Stamp Economic Project that alleviates market congestion in both RTOs 100% APC Wholly SPP: 345 kv+ MISO-SPP Tie: <345 kv Allocated 100% APC to benefiting LRZs (No Postage Stamp) Allocated 100% to the local TPZ(s) Wholly MISO: <345 KV Allocated 100% to the local TPZ(s) Wholly SPP: <345 kv No MISO cost allocation mechanism Public Policy Displaces public policy projects in both RTOs Avoided Cost Costs assigned based on the allocation of the avoided regional project *Refers to the primary project driver 34

35 MISO-SERTP Interregional Cost Allocation Cost Allocation Methodology Project Type Description and Requirements RTO Project Share MISO Cost Allocation MISO-SERTP Interregional Project Displaces a reliability, economic or public policy driven project(s) and meets the following requirements: Interconnects to transmission facilities in both SERTP and MISO regions Combined B/C ratio > 1.25* Meets criteria for inclusion in the respective regional plans Ratio of avoided project cost Costs assigned based on the allocation of the avoided regional project *Benefits are quantified by the total avoided cost of projects displaced by the interregional project 35