FERC Approves Region-Wide Allocation of Transmission Costs under Specific Circumstances

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In two recent rehearing orders, the Federal Energy Regulatory Commission (FERC) addressed the controversial issue of who should pay for new electric transmission capacity that is needed to provide a reliable flow of electricity and to support increased use of renewable generation resources that often must be sited in remote locations. The Midwest Independent Transmission System Operator, Inc. (MISO) and the Southwest Power Pool, Inc. (SPP) each proposed cost allocation methods to FERC for the transmission facilities they operate within their respective multi-state regions. The two plans were quite different from each other, and each received vigorous rehearing requests of the original orders approving them. Nonetheless, FERC reaffirmed its prior approvals and more fully interpreted cost allocation principles.

There is considerable debate about the appropriate method to allocate costs for new transmission lines. Some argue that major transmission lines benefit every electric customer in a region, and hence their costs should be paid by every customer in the region. Others argue that only generators or customers that directly benefit from the addition of a specific transmission facility should pay for it. The debate has been sharpened in the context of new renewable generation resources that must be built to satisfy state-mandated standards, and which often must be sited where there are no existing transmission lines.

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