The Federal Energy Regulatory Commission (FERC) recently approved an innovative new method to help unlock merchant transmission development in the Western United States.

The new subscriber participating transmission owner model (SPTO Model) from the California Independent System Operator (CAISO) will facilitate the development of new transmission lines to carry energy generated by renewable projects throughout the Western U.S. to load centers in California.

• Consumers will gain access to high-quality renewables that meet California’s renewable portfolio standard and resource adequacy goals.
• Independent transmission developers will be able to secure revenues to fund the project from generators and other customers seeking transmission capacity, avoiding the need for selection in CAISO’s multi-year transmission planning process.
• The grid operator – CAISO – will obtain control over additional transmission facilities to help better match supply and demand and increase renewable penetration in the region.

The SPTO Model, while unique to California, serves as a blueprint for innovative transmission projects throughout the United States.

CAISO proposed the SPTO Model in response to California energy policy and increased demand for carbon-free resources. One prospective SPTO, TransWest Express LLC, has broken ground on a 732-mile interregional high-voltage transmission project that will uniquely link three western planning regions with interconnections in Wyoming, Utah and Nevada. The project will deliver critical power from wind generation resources in Wyoming to load serving entities in California.

The SPTO Model provides a means for transmission project developers to join CAISO without the transmission project being identified and selected as a transmission solution through the CAISO transmission planning process.

What the Model Means for Participating Transmission Owners and Subscribers

Participating Transmission Owners typically recover their transmission revenue requirements for regional transmission facilities through the CAISO Transmission Access Charge. The SPTO Model allows transmission project developers to receive transmission project revenues from subscribers separate from the CAISO Transmission Access Charge, while still allowing the developer to place its subscriber-funded transmission facilities under CAISO operational control. In other words, subscribers to the transmission project contract with the transmission developer for transmission capacity providing revenues to fund the project rather than ratepayers funding the project through the Transmission Access Charge. This model helps to align the cost responsibility for the transmission line with the specific consumers who ultimately benefit from the renewable electricity it will deliver.

In exchange for contracting for the SPTO capacity, subscribers will receive scheduling priority pursuant to subscription agreements administered under the SPTO’s tariff. Because the revenues from subscribers will provide funding for the underlying transmission project, they will be exempt from transmission service charges, bid cost recovery allocation, offsets and integrated forward market congestion allocation.

Any capacity on the SPTO’s transmission facilities that subscribers do not use will be made available for market participants through CAISO’s day-ahead and real-time markets.

Additions, Upgrades and the Application and Approval Process

An SPTO may construct additions and upgrades to its transmission assets pursuant to the transmission planning process, but such additions and upgrades will not provide additional subscriber rights.

The SPTO may seek FERC approval of a transmission revenue requirement for additions and upgrades made to facilitate the interconnection of a new project or pursuant to the transmission planning process, so long as the additions or upgrades are not made for the benefit of subscribers. Requests for interconnection to SPTO additions and upgrades will be made pursuant to the transmission planning process and generator interconnection and deliverability allocation procedures set forth in the CAISO Tariff.

A prospective SPTO must follow the application process set forth in the CAISO Tariff and Transmission Control Agreement and receive approval from the CAISO Board. Following approval, the SPTO must execute the Transmission Control Agreement and place its transmission assets under CAISO’s operational control. Once the SPTO’s facilities become part of the CAISO-controlled grid, the SPTO will be subject to the same obligations as other Participating Transmission Owners under the CAISO Tariff and Transmission Control Agreement.

What This Means for Transmission Developers

The SPTO Model provides an alternative path for developing transmission infrastructure needed to achieve California’s clean energy transition goals. It is expected that, in addition to promoting California’s public policy directives, the SPTO Model will increase interregional resilience, create new opportunities for interconnection and help satisfy CAISO’s resource adequacy requirements. The SPTO Model also aligns with FERC efforts to reform generator interconnection procedures and transmission planning.

FERC adopted the SPTO Model in part because it is consistent with the Commission’s merchant transmission policies. Commissioner Allison Clements encouraged stakeholders pursuing models involving subscribers to explore hybrid cost allocation approaches to develop transmission infrastructure that lowers costs for consumers and provides critical reliability benefits. Accordingly, FERC left the door open for transmission providers to craft alternative solutions, such as the SPTO Model, to facilitate transmission development.