Transmission Expansion Transmission Expansion Cost Recovery:Cost Recovery:

FERC’s Generator FERC’s Generator Interconnection Rule and Other Interconnection Rule and Other

Proposed PoliciesProposed Policies

Kevin KellyKevin KellyFederal Energy Regulatory CommissionFederal Energy Regulatory Commission

Rocky MountainRocky MountainSubregional Transmission PlanningSubregional Transmission Planning

Salt Lake City, September 26, 2003 Salt Lake City, September 26, 2003

22

OUTLINEOUTLINE

1. Current FERC policy for transmission cost 1. Current FERC policy for transmission cost recoverrecover

2. Transmission cost recovery policies proposed 2. Transmission cost recovery policies proposed in White Paper of April 2003in White Paper of April 2003

3. Large generator interconnection final rule3. Large generator interconnection final rule

4. Small generator interconnection proposed 4. Small generator interconnection proposed rulerule

33

1. Traditional FERC Cost 1. Traditional FERC Cost Recovery PoliciesRecovery Policies

Before 1991, all expansion costs were Before 1991, all expansion costs were rolled-in to the transmission average rolled-in to the transmission average transmission ratetransmission rate

After 1991, “Or” pricing offered: After 1991, “Or” pricing offered: Transmission customer pays the higher of the Transmission customer pays the higher of the

average rolled-in cost and the incremental average rolled-in cost and the incremental cost expansion cost, but not bothcost expansion cost, but not both

Average is usually higher: de facto “roll Average is usually higher: de facto “roll in”in”

44

2. Transmission Cost Recovery 2. Transmission Cost Recovery Policies Proposed in White Policies Proposed in White

Paper of April 2003Paper of April 2003

Proposes that each region form a Proposes that each region form a regional state committee (RSC) to regional state committee (RSC) to develop many regional policiesdevelop many regional policies

Proposes that each region have its Proposes that each region have its own transmission planning process own transmission planning process with criteria developed with or by the with criteria developed with or by the RSCRSC

55

Regional Flexibility in Cost Regional Flexibility in Cost RecoveryRecovery

The RTO or ISO tariff would state a transmission The RTO or ISO tariff would state a transmission cost recovery policy cost recovery policy

The RTO/ISO and the RSC would develop the The RTO/ISO and the RSC would develop the appropriate approach to file with FERCappropriate approach to file with FERC

The two principal choices are rolled-in pricing and The two principal choices are rolled-in pricing and “participant funding.” Either of these or an “participant funding.” Either of these or an innovative combination may be proposed.innovative combination may be proposed.

For a 1-year transition period, participant funding For a 1-year transition period, participant funding may be used for transmission upgrades for may be used for transmission upgrades for generator interconnection as soon as an generator interconnection as soon as an independent entity has been approved by the independent entity has been approved by the Commission and affected states.Commission and affected states.

Transmission cost recovery outside an RTO or ISO Transmission cost recovery outside an RTO or ISO is not addressed in the White Paper proposal.is not addressed in the White Paper proposal.

66

Reliability and Economic Reliability and Economic Upgrades Upgrades

The RTO or ISO would include transmission upgrades in the regional plan that are necessary: to maintain or improve reliability, or to reduce congestion and improve access to lower

cost supplies (economic enhancements). Recovery for these two types of upgrades may differ The RTO/ISO tariff would have criteria for

distinguishing reliability and economic enhancements.

Each RSC may determine the criteria for economic enhancements.

If the RSC decides the criteria, the RTO or ISO would file them with FERC.

If the RSC is unable to reach a decision, the RTO or ISO would file its own proposal.

77

Interregional TransmissionInterregional Transmission

Regions should try to eliminate export and import fees from region to region

If there is a notable imbalance between imports to and exports from a region, the RTO or ISO may seek to recover some of its transmission costs through an export fee.

Other measures could be used to prevent cost shifts among the regions. E.g., adjusting the transmission revenue requirement for the importing region to include a portion of the revenue requirement of the exporting region

88

3. Interconnection 3. Interconnection Rulemaking ProcessRulemaking Process

FERC’s 2001 stakeholder negotiations led to a January 2002 consensus FERC’s 2001 stakeholder negotiations led to a January 2002 consensus documentdocument

NOPR issued April 2002 NOPR issued April 2002 > 173 filings > 173 filings Small generators asked for own ruleSmall generators asked for own rule Small generator ANOPR August 2002 Small generator ANOPR August 2002 July 24, 2003: large generator final rule and July 24, 2003: large generator final rule and small generator proposed rule small generator proposed rule

issuedissued State views reflected in much of both large and small generator rulemakingsState views reflected in much of both large and small generator rulemakings

Preserve transmission reliabilityPreserve transmission reliability Clarify transmission expansion cost recovery for a generator interconnectionClarify transmission expansion cost recovery for a generator interconnection Reduce interconnection time and costsReduce interconnection time and costs Prevent discrimination in interconnectionsPrevent discrimination in interconnections Increase energy infrastructureIncrease energy infrastructure

99

Large Generator Large Generator Interconnection Final Interconnection Final

RuleRule Requires public utilities to amend their Requires public utilities to amend their

Open Access Transmission Tariff to Open Access Transmission Tariff to include standard interconnection include standard interconnection procedures and a standard procedures and a standard interconnection agreement for interconnection agreement for generators larger than 20 MW.generators larger than 20 MW.

Standardizes the scope of each study, Standardizes the scope of each study, deposit amount, time of completion of deposit amount, time of completion of each study, and access to study data.each study, and access to study data.

Goes into effect on October 20.Goes into effect on October 20.

1010

Purposes of Large Gen Purposes of Large Gen Rule Rule

Reduce the cost of electricity to Reduce the cost of electricity to customers, customers, including the cost of including the cost of renewablesrenewables

Reduce interconnection time and costsReduce interconnection time and costs Prevent discrimination in interconnectionsPrevent discrimination in interconnections Increase energy infrastructureIncrease energy infrastructure Preserve grid reliabilityPreserve grid reliability Clarify transmission expansion cost Clarify transmission expansion cost

recovery for generator interconnectionsrecovery for generator interconnections

1111

Advantages to Advantages to Transmission ProvidersTransmission Providers

Standard procedures streamline the Standard procedures streamline the interconnection process and reduce interconnection process and reduce litigation time and costslitigation time and costs

RTOs and ISOs may design their own RTOs and ISOs may design their own interconnection processesinterconnection processes

Data access allows generators to do Data access allows generators to do their own “what if” studies, reducing their own “what if” studies, reducing the transmission provider’s study the transmission provider’s study loadload

1212

Advantages to GeneratorsAdvantages to Generators

They can interconnect without They can interconnect without requesting transmission servicerequesting transmission service

They have access to study data so they They have access to study data so they can conduct their own interconnection can conduct their own interconnection studiesstudies

They have a standard interconnection They have a standard interconnection procedure and a standard procedure and a standard interconnection agreement interconnection agreement

The agreement clearly lays out the The agreement clearly lays out the legal rights and obligations of the legal rights and obligations of the partiesparties

1313

Another Advantage to Another Advantage to GeneratorsGenerators

The rule offers generators two The rule offers generators two interconnection optionsinterconnection options A low-cost interconnection with grid A low-cost interconnection with grid

expansion only for reliability (Energy expansion only for reliability (Energy Resource Interconnection Service)Resource Interconnection Service)

A higher quality interconnection that A higher quality interconnection that provides expansions to allow a provides expansions to allow a generator to qualify as a network generator to qualify as a network resource (Network Resource resource (Network Resource Interconnection Service)Interconnection Service)

1414

Interconnection Cost Interconnection Cost RecoveryRecovery

Generator pays for all interconnection costs, Generator pays for all interconnection costs, other than network upgrades, such as:other than network upgrades, such as: Application fees and costs of studiesApplication fees and costs of studies Costs of facilities and upgrades on the generator’s Costs of facilities and upgrades on the generator’s

side of the point of interconnection to the side of the point of interconnection to the transmission systemtransmission system

Transmission system enhancements, called Transmission system enhancements, called network upgrades, are treated separatelynetwork upgrades, are treated separately

Generator pays for distribution upgrade costsGenerator pays for distribution upgrade costs For interconnection to a wholesale distribution For interconnection to a wholesale distribution

facility facility

1515

Transmission Expansion Transmission Expansion CostsCosts

Who pays for the costs of transmission Who pays for the costs of transmission network upgrades on the transmission network upgrades on the transmission provider’s side of the point of interconnection?provider’s side of the point of interconnection?

FERC’s new rule: this depends on whether the FERC’s new rule: this depends on whether the transmission provider is a market participant transmission provider is a market participant or independent of market participantsor independent of market participants Not independent: use traditional FERC policy. The Not independent: use traditional FERC policy. The

transmission provider pays and recovers its costs transmission provider pays and recovers its costs through its rolled-in transmission ratesthrough its rolled-in transmission rates

Independent: An RTO or ISO may propose an Independent: An RTO or ISO may propose an alternative policy that states in the region agree onalternative policy that states in the region agree on

1616

Expansion Cost Recovery Expansion Cost Recovery with a Non-Independent with a Non-Independent Transmission ProviderTransmission Provider

The transmission provider eventually pays for The transmission provider eventually pays for upgrading the grid for its interconnecting upgrading the grid for its interconnecting generating customergenerating customer

But the generator initially funds the cost of these But the generator initially funds the cost of these upgrades and gets fully reimbursed over timeupgrades and gets fully reimbursed over time

Credits against the generator’s transmission bills Credits against the generator’s transmission bills over 5 years, with interest, reimburse the over 5 years, with interest, reimburse the generatorgenerator but Generating Facility must achieve commercial but Generating Facility must achieve commercial

operation to qualify for creditsoperation to qualify for credits

1717

Expansion Cost Recovery Expansion Cost Recovery with an Independent with an Independent

Transmission ProviderTransmission Provider Follows April White Paper proposed policyFollows April White Paper proposed policy The rule allows pricing flexibility for an The rule allows pricing flexibility for an

RTO or ISO, including use of “participant RTO or ISO, including use of “participant funding”funding”

In forming an RTO or ISO, an independent In forming an RTO or ISO, an independent administrator may use participant administrator may use participant funding for Network Upgrades for one funding for Network Upgrades for one year, subject to approval by the year, subject to approval by the Commission and affected StatesCommission and affected States

1818

Variations From Any Part Variations From Any Part of the Large Generator of the Large Generator

RuleRule Regional variationsRegional variations

Utilities may propose variations that are Utilities may propose variations that are generally used throughout a region if generally used throughout a region if consistent with or superior to the Final Ruleconsistent with or superior to the Final Rule

Utilities may propose variations to comply Utilities may propose variations to comply with a regional reliability rule, subject to with a regional reliability rule, subject to Commission approvalCommission approval

RTO or ISO RTO or ISO The rule allows greater flexibility for an RTO The rule allows greater flexibility for an RTO

or ISO, subject to Commission approvalor ISO, subject to Commission approval

1919

ApplicabilityApplicability

The rule does not expand FERC’s jurisdiction.The rule does not expand FERC’s jurisdiction. It does not apply to interconnections to It does not apply to interconnections to

facilities of a company that is not a facilities of a company that is not a jurisdictional “public utility” or to a public jurisdictional “public utility” or to a public utility’s facilities that are not regulated by the utility’s facilities that are not regulated by the FERC.FERC.

It applies only to interconnections to facilities It applies only to interconnections to facilities already subject to a transmission provider’s already subject to a transmission provider’s Open Access Transmission Tariff at the time Open Access Transmission Tariff at the time an interconnection request is madean interconnection request is made

The new rule goes into effect on October 20.The new rule goes into effect on October 20.

2020

4. Small Generator 4. Small Generator Interconnection Proposed Interconnection Proposed

Rule Rule Has the same purposes as the large Has the same purposes as the large

generator rule, but also:generator rule, but also: Facilitates the interconnection of small Facilitates the interconnection of small

generators with a rule designed for their generators with a rule designed for their special features and needsspecial features and needs

Encourages the development of alternative Encourages the development of alternative small energy sources such as wind, solar small energy sources such as wind, solar and distributed generation.and distributed generation.

Has standard procedures and Has standard procedures and agreementagreement

2121

Small Generator Small Generator Rulemaking ProcessRulemaking Process

FERC stakeholder negotiation started August 2002FERC stakeholder negotiation started August 2002 Coalition documents filed November 2002, calling Coalition documents filed November 2002, calling

for two Agreements and two Procedures – one set for two Agreements and two Procedures – one set for for ≤≤ 2 MW and another set for 2-20 MW 2 MW and another set for 2-20 MW

NARUC proposed a single set of procedures and NARUC proposed a single set of procedures and agreementagreement

FERC’s NOPR draws significantly from NARUC ideasFERC’s NOPR draws significantly from NARUC ideas It has a single set of procedures and an agreement It has a single set of procedures and an agreement

applicable to all generators no larger than 20 MWapplicable to all generators no larger than 20 MW Proposed rule issued July 24Proposed rule issued July 24 Comments due October 3Comments due October 3

2222

Small Generator Small Generator Interconnection Interconnection

AgreementAgreement

Sets forth the legal rights and obligations of Sets forth the legal rights and obligations of each partyeach party

Addresses cost responsibility for Addresses cost responsibility for interconnection facilities and upgradesinterconnection facilities and upgrades

Lays out milestones for completing the Lays out milestones for completing the interconnection, andinterconnection, and

Sets forth the process for dispute resolution.Sets forth the process for dispute resolution.

2323

Small Generator Small Generator Interconnection Interconnection

ProceduresProcedures Accelerated procedures for:Accelerated procedures for:

Generators connecting at high voltage and Generators connecting at high voltage and Generators >10 MW connecting at low Generators >10 MW connecting at low

voltagevoltage Expedited procedures for generators 2-10 Expedited procedures for generators 2-10

MW connecting at low voltageMW connecting at low voltage Super-Expedited procedures for Super-Expedited procedures for

generators generators ≤ ≤ 2 MW connecting at low 2 MW connecting at low voltagevoltage

2424

Cost Recovery and Cost Recovery and ApplicabilityApplicability

Cost recovery policies proposed are Cost recovery policies proposed are the same as for the large generator the same as for the large generator rulerule

Applicability – proposal is the same Applicability – proposal is the same as Large Generator Final Ruleas Large Generator Final Rule