RECBWG: Granular Cost Allocation (20230425)

ENVIRONMENTAL SECTOR’S WRITTEN COMMENTS ON MISO’S GRANULAR CA PROPOSAL PRESENTED ON APRIL 25, 2023 

“MISO is requesting feedback on the Tranche 3 cost allocation methodology concept where the costs are allocated 50% to the Subregion & 50% to the Cost Allocation Zone:”

The Environmental Sector appreciates MISO’s confirmation that its draft proposal would apply to Tranche 3 (and not Tranche 2).  We also appreciate MISO putting forward a straw proposal to initiate the negotiations over a potentially new cost allocation.  

“Question #1:  Are the percentage splits between Subregion and Cost Allocation Zone reasonable? If not, please provide insight on how the percentages should be allocated.”

No.  MISO admitted that the 50-50 split had no evidentiary basis and could therefore be considered arbitrary and capricious.  Ultimately, MISO will bear the burden to explain why a 50-50 split for a regional backbone project reflects FERC’s “roughly commensurate” standard for benefits and costs.  

As explained at the RECBWG meeting, our sector interviewed numerous consultants about defining one or more benefit metrics that could quantify the broadly spread benefits over time of large regional lines. The consensus was that, given the current tools, such a quantification is impossible, in part, because there are no industry-standard metrics for regional or interregional reliability.  

Based on both MISO’s prior comments and our own investigation, the Environmental Sector firmly believes that regional-reliability backbone transmission lines designed as part of the LRTP process have broad regional benefits, some of which cannot be quantified and none of which can be quantified accurately over time. Therefore, the most accurate distribution of costs is: 

• 100% postage stamp to the subregion or region; and

•  0% granularly.  

If MISO wants to divide the cost distribution between granular and postage stamp, it will need to decide what portion of the granular benefits can be roughly calculated over the life of the asset based on evidence that does not result in load either more-than-roughly overpaying or more-than-roughly underpaying.  As noted during the meeting, we request an opportunity to present a visual demonstration of the difficulty of achieving a more accurate cost allocation over time using a more granular approach given the current modeling tools.

“Question #2:  What additional considerations need to be made in seeking a cost approach for Tranche 3 and the South Subregion?”

Keep MVP Regional and Subregional Tariff:  the wording of this question implies that the proposed cost allocation would only apply to Tranche 3 and MISO South. However, FERC prohibits more than one cost allocation for the same project type. (“if the public utilities choose to have a different cost allocation method for each type of transmission facility, there can be only one cost allocation method for each type.” FERC Order 1000 ¶ 686.) Therefore, if MISO submits any granular proposal for subregional MVP project types, we suspect that FERC would mandate that the subregional postage stamp tariff be withdrawn for MVPs, i.e., MISO could not have a different subregional MVP tariff for MISO South than it does for MISO North.  Given that FERC has already found the subregional MVP tariff to be just and reasonable and that the regulators in MISO North seem relatively supportive of the existing tariff, we question the wisdom of an approach that would result in the demise of the approved and successful subregional MVP tariff.  (Note none of the current negotiations should impact the validity of the full-footprint postage-stamp tariff that could remain in place for MVPs.)   

The following are three different cost allocation proposals that could address the concerns expressed by MISO South stakeholders: 

Create New Project Type for MISO South:   MISO could create a new project type that would be applicable only to large regional reliability backbone projects in MISO South, i.e. the project qualification would require the project to be physically located in MISO South to qualify for that cost allocation.  MISO would also need to specify in its project hierarchy that if a project qualified for both this new MISO South tariff and the MVP Subregional Tariff, that the MISO South tariff would be applied.  This approach would empower the MISO South regulators to develop their own tariff for projects designed through the LRTP process and located in MISO South while allowing MISO North to continue using the approved subregional MVP tariff. 

Presumably, MISO South Stakeholders would want to avoid a MISO South project/portfolio from qualifying under the MVP subregional postage-stamp tariff because then the project/portfolio would be postage stamped.  Therefore, it will be critical to ensure that the project qualification for this new MISO-South project type is expansive enough that projects/portfolios designed through LRTP would qualify for this new cost allocation.  One option would be to make the project qualifications for this new project type to be very similar to the MVPs except add a geographic requirement and eliminate the need for a portfolio.  Of course, we have no idea if FERC would accept such a proposal.

Create New Project Type for Non-Portfolio Regional Backbone Projects:  we recognize that there could be a benefit to developing a tariff for another new project type - regional reliability backbone lines with multiple benefits that would apply to something less than a portfolio.  Such a tariff would give MISO more flexibility in approving backbone projects without needing to design projects throughout the subregion or footprint. For example, the SPP Highway-Byway approach recognizes that regional backbone lines can be designed and built sequentially, rather than all at once.  Perhaps MISO and stakeholders could develop a subregional highway-byway with the following cost distributions: 

• > 300-kv and HVDC = 100% postage stamp 

• 100-300-kV = 67% local (CAZ or TPZ) + 33% postage stamp 

• < 100-kV = 100% local (CAZ or TPZ).

The Project qualification for these non-portfolio lines could be similar to the MVP tariff but specify that it only applies to a single project, not a portfolio.  As with MEPs and MVPs, these projects would need to be identified through a long-term scenario planning process.  Lastly, as to the project hierarchy, these projects would be situated above MEPs but below MVPs.  

Revise the MEP Tariff:  the Environmental Sector continues to be frustrated that MISO does not have a functional Market Efficiency Project (MEP) tariff. Two key benefits of MEPs are that they do not require a portfolio and their benefits can be granularly calculated (though not over time).  Historically, the MEP tariff has rarely been used, i.e. hardly any projects have qualified as an MEP.  In 2021, the MISO South stakeholders proposed to apply a revised MEP tariff to the LRTP projects.  Given that LRTP projects are fundamentally regional-reliability backbone lines, we question whether a project type focused on economic savings is appropriate, i.e. whether the MEP tariff should be used with LRTP projects.   

Regardless of whether it would be applicable to LRTP projects, revising the MEP tariff would be helpful.  The following are some suggested revisions to the MEP tariff to make it more functional:

1. Expand Project Qualification:  few projects qualify under the MEP tariff because the project qualification criteria are too narrow.  With financial savings being the focus of this project type, financial benefits are the most appropriate but must be expanded.  Options for expanding MEP qualification: 

1. Add new benefit metrics - the financial benefits discussed at the recent RECBWG meetings are as follows:  

• congestion and fuel savings, 

• operating reserves, 

• avoided transmission and resource investment,

• reduced energy losses, and

• resource adequacy savings.

The existing MEP metric of MISO-SPP Settlement Agreement Cost savings would also be retained.

2. Reduce the B/C ratio from 1.25; and/or

3. Quantify cost-savings over 40 years (instead of 20 years).

2. Distribution of Costs Over CAZ or TPZ

As discussed at the last RECBWG meeting, the financial benefits can be calculated for CAZs or TPZs.  However, for larger lines, whether those calculations will be roughly commensurate over time is questionable.  Changing beneficiaries over time is especially challenging for larger lines.  We do not know a solution other than postage stamping that can address the changing benefits and beneficiaries over time, but welcome suggestions from MISO and others.  

3. MEP modeling requirements: 

The MEP tariff requires that MEP’s be designed through a scenario planning process including investigating “variations in amount, type, location of future generation supplies”.  Att FF § II.B.1.  The LRTP planning process certainly meets those modeling requirements.  Can MISO use the LRTP scenario-planning process to identify economic projects that are distinct from regional-reliability backbone lines?  If yes, then MISO should identify stand-alone projects that meet the expanded MEP qualifications during LRTP and should designate MEPs along with MVPs.  

Conclusion:  The Environmental Sector strongly urges MISO to maintain both of the FERC-approved regional and subregional MVP postage-stamp tariffs. The Environmental Sector supports MISO and stakeholders exploring the following options:

• Investigate whether a new project type (distinct from an MVP) could be designed for regional-reliability backbone projects (either in a portfolio or not) that applied only in MISO South;

• Create a new project type for regional-reliability non-portfolio projects, i.e., a non-portfolio tariff applicable to a single or small group of regional-reliability backbone lines; and 

• Revise the MEP tariff to capture more of the cost-savings provided by MEPs and ensure that the LRTP modeling process can identify MEPs.

Regional Expansion Criteria and Benefits Working Group (RECBWG)

Stakeholder Feedback of the Certain MISO TOs to Stakeholder Feedback Request 20230425

Date:  May 12, 2023

 During the April 25^th, 2023, meeting of the Regional Expansion Criteria and Benefits Working Group (RECBWG), stakeholders were invited to submit feedback on MISO’s LRTP Tranche 3 cost allocation hypothesis. The initial hypothesis to be explored would allocate 50% of Tranche 3 costs to the MISO South subregion and 50% of Tranche 3 costs to Cost Allocation Zones (CAZ) located in MISO South (see RECB April 25, 2023 Granular Cost Allocation Presentation at slides 7-9). The Certain MISO TOs[1] appreciate the opportunity respond to the request for stakeholder feedback.

 The Certain MISO TOs appreciate that MISO stakeholders may be interested in exploring different LRTP cost allocation solutions that may apply to LRTP Tranche 3, and that MISO has created a hypothesis and is exploring it.  The Certain MISO TOs offer the following feedback in support of the current cost allocation method as the preferred cost allocation solution:

• The current MISO tariff cost allocation method is an elegant, effective, time-tested and FERC-approved MVP/LRTP cost allocation (as recently revised/updated and approved by FERC in May 2022).  This is the appropriate solution pursuant to which MISO should continue to allocate costs for LRTP/MVP portfolios in the MISO Midwest subregion;
• The Certain MISO TOs emphasize that MISO should not discard or look past this existing cost allocation solution while searching for other solutions that are not desirable or superior to the existing MVP cost allocation solution. The existing methodology considered many different options and has withstood numerous challenges at both the Federal Energy Regulatory Commission and the courts.  MVP cost allocations to load are balanced with generator obligations where in MISO, generators pay for nearly all Network Upgrade costs through MISO’s Generator Interconnection Procedures;
• Should MISO nonetheless subsequently consider advancing any alternative MVP/LRTP cost allocation solution, such alternative cost allocation should be crafted so as to not interfere with the existing regional and subregional “postage stamp” cost allocation methodology set forth in MISO Tariff Attachment FF today, and particularly with respect to continued application to future MVP/LRTP portfolios in the MISO Midwest subregion (e.g., the alternative could pursue a state-level FERC agreement; or develop/use of non-MVP project classification); and
• Any such alternative cost allocation should be crafted in a manner that ensures that costs associated with subregional LRTP Tranche 3 investment in MISO South should be borne solely by MISO South, just as MISO Midwest stakeholders will bear costs associated with MISO Midwest’s subregional LRTP build-out for LRTP Tranches 1 and 2. 

Illinois Commerce Commission (ICC) staff is supportive of exploring more granular cost allocation approaches, including proposals that combine postage stamping with granular measures. However, any cost allocation approach needs to be able to effectively identify cost causers and beneficiaries. Any proposed cost allocation scheme should also strive to be as transparent as possible. In addition, any changes to cost allocation for Tranches 3 and 4 should exclude MISO North from additional financial responsibility.

In addition, MISO should clarify whether the proposed cost allocation proposal is solely for Tranche 3, or if MISO is suggesting that this 50% postage stamp/50% granular allocation should be the methodology  for all LRTP/MVP projects going forward. MISO should also address the proposed 50/50 split in greater detail. Why did MISO staff settle on this proportion, and is that the best possible divide? What data or evidence supports a 50/50 cost allocation split, versus another ratio?

ICC staff would like a deeper discussion about possible benefit metrics and how they will be quantified. Any future change to the cost allocation method deserves a detailed consideration of what metrics can be quantified, which cannot, and how any measurements will be conducted.

Finally, ICC staff is skeptical of plans to change LRTP cost allocations halfway through the process. It is unclear why the subregions should be treated differently during this process or how the same project type could have two different cost allocation methodologies within the same region.

The Public Utility Commission of Texas (PUCT) appreciates the opportunity to provide feedback to MISO on its initial cost allocation methodology proposal for LRTP Tranche 3, which would allocate 50% of the costs on a postage stamp basis to the subregion and 50% of the costs to the Cost Allocation Zones commensurate with the identified benefits.

The PUCT is still reviewing MISO’s 50/50 cost allocation proposal and therefore, will not be offering specific feedback on MISO’s 50/50 cost allocation proposal at this time. Historically, the PUCT has supported MISO’s efforts to refine transmission cost allocation to assign costs as granularly as practicable to identified beneficiaries. The PUCT requests more information from MISO on which benefit metrics they believe support the need for retaining some component of postage stamp cost allocation.

Additionally, the PUCT and other MISO South regulators are working diligently to develop a set of core principles to apply to the cost allocation methodology that is adopted for LRTP Tranche 3. The PUCT requests that MISO not finalize any decisions on the cost allocation for LRTP Tranche 3 before this process is complete. Having a preliminary transmission plan that would identify the issues that LTRP Tranche 3 aims to address would help in establishing the most appropriate cost allocation methodology.

American Municipal Power (AMP) appreciates the opportunity to provide the following feedback on the LRTP Tranche 3 cost allocation methodology concept.

• Are the percentage splits between Subregion and Cost Allocation Zone reasonable? If not, please provide insight into how the percentages should be allocated.
• AMP is unable to support the proposed percentage splits nor consider them reasonable absent additional discussion and detailed analysis to support a 50/50 cost allocation proposal.
• What additional considerations need to be made in seeking a cost approach for Tranche 3 and the South Subregion?
• MISO's proposal does not include any benefit analysis to allocate costs to the benefiting Cost Allocation Zones within the affected subregion and ignores benefits that accrue primarily to the Transmission Pricing Zones. Additional consideration should be given to the analysis and model accuracy of identifying beneficiaries down to the Transmission Pricing Zone level.

The Entergy Operating Companies appreciate MISO’s continued efforts to evaluate approaches to more granular cost allocation for LRTP projects in Tranche 3 and continue to believe that a more granular approach that matches benefits and costs based on the results of detailed analyses is superior to an approach that allocates costs widely based on an unproved assumption that widespread benefits occur over time.  However, the RECB presentation did not present sufficient detail regarding the basis for the 50% split between Postage Stamp allocation and allocation based on detailed benefits analysis, or how that split would be adjusted or evaluated, to provide substantive feedback on the appropriateness of the split or whether the 50%/50% split between Subregion and Cost Allocation Zone is reasonable. In principle, Entergy opposes allocating any more than 50% of project costs by Postage Stamp and believes that Postage Stamp allocation may not be appropriate for all projects.  Rather, the reasonableness of such an allocation would depend on the types of benefits a project is expected to provide, and specifically, whether that benefit metric is one that is demonstrated to be suitable for postage stamp allocation.

Entergy looks forward to the opportunity to provide input to MISO when details on (1) the analysis that MISO intends to perform to test its hypothesis and (2) the level of granularity of project benefits that can be reasonably predicted and allocated over time, are made available for discussion. 

RECBWG Comments of Great River Energy and Wabash Valley Power Association on Granular Cost Allocation

In the April 25, 2023 meeting of the Regional Expansion Criteria and Benefits Working Group (RECBWG), MISO presented a first take at translating Long Range Transmission Planning (LRTP) Tranche 3 hypothesis work into a conceptual cost allocation method to be refined and tested over the coming months. Feedback was requested on the Tranche 3 cost allocation methodology concept in which the costs are allocated 50% to the Subregion and 50% to the Cost Allocation Zone. Great River Energy and Wabash Valley Power Association provide the following comments on the specific questions posed below.

Question 1: Are the percentage splits between Subregion and Cost Allocation Zone reasonable? If not, please provide insight into how the percentages should be allocated.

Great River Energy and Wabash Valley Power Association take no position on the proposed percentage splits between Subregion and Cost Allocation Zone but would like to note that any cost allocation methodology should ensure that all costs associated with LRTP Tranche 3 costs are the responsibility of MISO South ratepayers, just as the costs associated with LRTP Tranche 1 and 2 projects are the full responsibility of MISO Midwest ratepayers. If a more granular cost allocation methodology than postage stamp is proposed for LRTP Tranche 3 projects, it should not result in any costs borne by MISO Midwest ratepayers.

Question 2: What additional considerations need to be made in seeking a cost approach for Tranche 3 and the South Subregion?

MISO’s cost allocation proposal for LRTP Tranche 3 needs to consider that per FERC Order No. 1000, planning regions can develop different cost allocation methodologies for different project types, but the methodology should apply to all transmission facilities of the same type. Thus, a second cost allocation methodology for MVPs cannot be developed unless it replaces the existing sub-regional postage stamp methodology approved by FERC in May 2022, an outcome that Great River Energy and Wabash Valley Power Association would strongly oppose.

Potential alternative cost allocation methodologies for LRTP Tranche 3 projects in MISO South could be developed via voluntary agreements among the affected states pursuant to FERC Policy Statement PL21-2-000 or through creation of a new project classification other than MVP. Going forward, MISO will need to evaluate cost allocation alternatives against this consideration to ensure that the FERC-approved cost allocation methodology for LRTP Tranches 1 and 2 are not negatively impacted by what may be instituted for LRTP Tranche 3.

Consumers Energy in general supports the Tranche 3 cost allocation methodology concept in which the costs are allocated 50% to the Subregion and 50% to the Cost Allocation Zone. CE appreciates that while MISO's hybrid cost allocation proposal does not give any stakeholder exactly what they are looking for, it does allow most all stakeholders across the board to get something. This seems like a very reasonable approach that should become the default position that can be adjusted as we move forward. 

• Are the percentage splits between Subregion and Cost Allocation Zone reasonable? If not, please provide insight into how the percentages should be allocated.  Consumers Energy believes that there should be a minimum of 50% allocated to the Cost Allocation Zone in a granular fashion. CE is not persuaded at all to continue the current postage stamp allocation and as stated earlier the hybrid approach should become the new default. 
• What additional considerations need to be made in seeking a cost approach for Tranche 3 and the South Subregion?  MISO should consider a small number of benefit metrics that are agreed upon amongst most stakeholders and lock them in. After that, MISO and the stakeholders could look to incrementally add benefits which has been a lightening rod for debate. At least by setting aside a group of benefits early the process is not dismantled by an all or none approach on benefit metrics and other issues. We believe an incremental approach may work best so as not to bog down the process with a plethora of options which will come with many accompanying opinions across the group. We look forward to furthering progress on MISO's latest proposal at the next meeting.

Feedback on Behalf of the Lafayette, LA Utilities System:

LUS supports one qualitative metric and two quantitative metrics for Tranche 3 Cost allocation. The qualitative metric is improved planned transmission outage coordination. This could be captured by showing the potential impact of reduced loading on local facilities under multiple contingency conditions in areas where the utilities have had difficulty getting outages for maintenance activities.

 The two quantitative metrics are: congestion reduction and losses reduction. Both of these are loosely linked to production cost benefits but they do not count any change in the marginal energy cost which is a system-wide value. Our thought is that looking at the LMP components separately will show improved dispatch benefits (marginal congestion component) and system topology (marginal loss component) improvements from installation of large-scale EHV projects that have a greater impact on lower voltage facilities.

Joint Comments
of
Association of Businesses Advocating Tariff Equity (ABATE)

Illinois Industrial Energy Consumers (IIEC)

Louisiana Energy Users Group (LEUG)

Texas Industrial Energy Consumers (TIEC)

Coalition of MISO Transmission Customers (CMTC)

Midwest Industrial Customers (MIC)

NIPSCO Large Customer Group (NLCG)[1]

Regarding

RECBWG

Granular Cost Allocation

(RECBWG:  20230425)

May 12, 2023

I.             Background

Through the RECBWG, MISO is exploring cost allocation changes that may replace the sub-regional postage-stamp energy allocation methodology that the Federal Energy Regulatory Commission (“FERC”) approved in Docket No. ER22-995-000 for Tranche 1 and Tranche 2 Long Range Transmission Plan (“LRTP”) projects.  MISO has indicated that it hopes to achieve stakeholder consensus regarding a revised LRTP cost allocation methodology by December 2023.

As part of the stakeholder discussion of cost allocation granularity at the April 25, 2023 RECBWG meeting, MISO presented a conceptual LRTP Tranche 3 cost allocation method for the MISO South sub-region, to be refined and tested over the coming months.  Under MISO’s proposed Tranche 3 cost allocation methodology concept, LRTP Tranche 3 portfolio costs would be allocated 50% to the MISO South sub-region on a postage stamp basis, while the other 50% of the portfolio costs would be allocated on a more granular level to Cost Allocation Zones (CAZs) in MISO South on the basis of the benefit distribution associated with the application of various benefit metrics that will be defined through the stakeholder process.  MISO indicated that the 50% sub-regional postage stamp cost allocation is intended to capture various risk avoidance benefits, such as extreme events, load shed, resilience and transfer capability.  The remaining 50% CAZ-level cost allocation is intended to capture what MISO considers to be more localized benefits, such as congestion and fuel savings, operating reserves, avoided transmission and resource investment, reduced energy losses and resource adequacy savings. 

During the RECBWG meeting, MISO issued two questions regarding its LRTP Tranche 3 cost allocation framework for written stakeholder feedback.  The following are the responses of the End-Use Customer Sector to the questions posed by MISO.

II.           Responses to MISO’s Questions

1.      Are the percentage splits between Subregion and Cost Allocation Zone reasonable? If not, please provide insight into how the percentages should be allocated.

It is not reasonable to spread 50% of LRTP project costs across a MISO sub-region on a postage stamp energy basis.  Such a cost allocation approach fails to track project beneficiaries with reasonable accuracy.  Moreover, a postage stamp energy-based allocation of project costs is inconsistent with the cost drivers for transmission investment and unduly burdens large, high load factor customers with a disproportionate share of project costs.

A sub-regional postage stamp allocation of project costs assumes that project costs are evenly distributed across the sub-region.  It is not valid to make this assumption solely on the basis that it is difficult to objectively quantify a more granular distribution of benefits associated with particular benefit types, such as risk avoidance.  It is our understanding that there is no objective, analytical basis for MISO’s proposal to allocate 50% of LRTP costs on a sub-regional postage stamp basis.  Any proposal to allocate a portion of LRTP costs on a sub-regional basis should be supported by objective analysis demonstrating an even distribution of project benefits across the sub-region, at least for certain benefit categories.  

Given the absence of sound analytical support, we are opposed to the concept of applying an arbitrary percentage allocation or set-aside for a sub-regional allocation of a portion of LRTP costs that are deemed to be associated with difficult to quantify benefits.  To ensure that the allocation of LRTP project costs tracks the distribution of project benefits as accurately as practicable, MISO should calculate the distribution of project benefits and the allocation of project costs more granularly than a sub-regional postage stamp allocation, to the extent that it is practical and feasible to do so.  In allocating LRTP costs, MISO should prioritize and maximize the application of the existing Market Efficiency Project (MEP) benefit metrics and any other objective, quantifiable LRTP benefit metrics that may be developed through the MISO stakeholder process. 

It is our understanding that MISO is currently developing metrics to calculate the risk avoidance benefits of LRTP Tranche 2 projects, including metrics to calculate benefits associated with reducing the risk of load shed and increases in transfer capability.  These metrics, if properly developed, may well lend themselves to a CAZ-level or Transmission Pricing Zone (TPZ)-level calculation of the distribution of project benefits, which could be used to develop a more granular allocation of LRTP projects costs associated with risk avoidance benefits.

A portion of LRTP costs should be allocated on a sub-regional, postage stamp basis only if there are residual portfolio costs that remain to be allocated after all of the objective, quantifiable LRTP benefit metrics have been applied to allocate project costs.  In addition, any residual LRTP costs that are allocated on a sub-regional postage stamp basis should be allocated to customers on the basis of customer coincident peak (CP) demands rather than on customer energy consumption, as a CP demand allocation is more consistent with the cost drivers for the planning and construction of transmission facilities.

If, despite our objections, MISO nevertheless determines that a portion of LRTP costs should be arbitrarily allocated on a sub-regional postage stamp basis, the sub-regional postage stamp allocation percentage should be minimized, and should in no event exceed 10% of total LRTP portfolio costs.  This is appropriate to minimize the mismatch between project beneficiaries and project cost allocation.  As noted above, any postage stamp allocation of costs should be performed on a CP demand basis rather than on an energy basis to ensure consistency with cost causation principles. 

2.      What additional considerations need to be made in seeking a cost approach for Tranche 3 and the South Subregion?

There are a number of additional considerations that should be made in developing a cost allocation approach for LRTP Tranche 3 projects specifically and for future LRTP portfolios generally.

First, MISO’s LRTP cost allocation framework appears to assume that the most granular level of cost allocation is at the CAZ level.  However, MISO should attempt to distribute benefits and to allocate costs at the more granular TPZ level in all cases where this is feasible and reasonably practical, as a TPZ level allocation more accurately matches cost allocation with project beneficiaries compared to a sub-regional or CAZ-level allocation.  MISO currently calculates the distribution of MEP benefits and allocates MEP costs at the TPZ level for certain benefit metrics such as avoided reliability project costs.  There is no reason why this more granular approach cannot be extended to LRTP project costs, where feasible and practical.

Second, once LRTP costs are allocated to TPZs and/or CAZs using objective, quantifiable benefit metrics, these costs should be recovered from customers based on their contribution to CP demands rather than their energy consumption.  A CP demand allocation for transmission costs is consistent with cost causation principles, because a CP allocation reflects the fixed, sunk nature of transmission investment that is planned to ensure system reliability at the most severely tested times, such as peak demands.  A CP demand allocation is also consistent with the fact that transmission plant must be sized to meet the CP demand on the system.   By contrast, customer energy consumption throughout the year does not determine the sizing of transmission lines and related equipment, and therefore cannot properly be utilized as a means of matching costs with beneficiaries in accordance with cost causation principles.

Finally, MISO’s LRTP cost allocation framework allocates all LRTP costs to loads.  However, loads are not the only beneficiaries of LRTP projects.  Interconnecting generators can also benefit from the increased transfer capability provided by LRTP projects.  Therefore, MISO should adopt an LRTP cost allocation method that includes just and reasonable cost assignments to interconnecting generators as well, in order to send appropriate price signals for generation location and transmission build-out.     

Thank you for giving us the opportunity to provide this feedback.  If MISO has any questions or concerns with respect to these comments, please do not hesitate to contact the following:

Jim Dauphinais

Brubaker & Associates, Inc.

(Consultants to ABATE, IIEC, LEUG, NLCG and TIEC)

(636) 898-6725

jdauphinais@consultbai.com

Ali Al-Jabir

Brubaker & Associates, Inc.

(Consultants to ABATE, IIEC, LEUG, NLCG and TIEC)

(361) 994-1767

aaljabir@consultbai.com

Ken Stark

McNees Wallace & Nurick LLC (for CMTC)

(614) 719-2844

kstark@mcneeslaw.com

Kavita Maini

KM Energy Consulting, LLC (Consultants to MIC)

(262) 646-3981

kmaini@wi.rr.com

MDU continues to feel that public policy goals should be a part of the cost allocation for all of the MISO LRTP projects. 

The 50 / 50 split that MISO has proposed for the more granular cost allocation is arbitrary and without basis at this point. Asking stakeholders for feedback does not demonstrate that the appropriate load is paying for the benefits that they are receiving.

Hypothesis Three that assumes policy drives are likely captured in the planning process and do not have direct cost allocation relationships is in error. Public Policy and the generation shift to non-fully dispatchable resources is the major cost causer and driver of the LRTP projects. Public policy assignment should be a direct allocator of costs for LRTP projects. The reference to the FERC Order 1000 decision by stakeholders that public policy should not be considered for cost allocation if an entity is receiving positive benefits needs to be demonstrated on a state or individual transmission pricing zone and not just at an LRZ level. LRZ 1 comprises parts of seven states and not all customers have the same public policies and are not equal costs causers and beneficiaries. If MISO does not want to include public policy or the shift of generation to non-fully dispatchable resources in more granular cost allocation principles, then it should calculate direct cost benefit savings for those states and customers which are not the direct causer of the LRTP projects to demonstrate that loads allocated LRTP costs do receive quantifiable benefits in excess of the costs that they receive.

Mississippi Public Service Commission (MPSC), Louisiana Public Service Commission Staff (LPSC Staff), and Arkansas Public Service Commission (APSC) Feedback Regarding MISO 50/50 Tranche 3 Granular Cost Allocation Proposal (20230425)

MISO Requested Feedback Statement:

In the April 25, 2023, meeting of the Regional Expansion Criteria and Benefits Working Group (RECBWG), MISO presented a first take at translating Long Range Transmission Planning (LRTP) Tranche 3 hypothesis work into a conceptual cost allocation method to be refined and tested over the coming months.  Feedback was requested on the Tranche 3 cost allocation methodology concept in which the costs are allocated 50% to the Subregion and 50% to the Cost Allocation Zone, specifically: 

• Are the percentage splits between Subregion and Cost Allocation Zone reasonable? If not, please provide insight into how the percentages should be allocated. 
• What additional considerations need to be made in seeking a cost approach for Tranche 3 and the South Subregion? 

Comments are due by May 12, 2023. 

Feedback:

The MPSC, LPSC and APSC provide the following feed-back:

1. The 50/50 percentages split is not reasonable because, among other reasons, it is neither granular nor supported. Why 50 % and, e.g., not 40% or 15% or 1%?

The MISO’s Market Efficiency Project (MEP) cost allocation is an example of a granular approach. MEP metrics are based on specific measurable and quantifiable benefits. The principal purpose for an MEP is to reduce congestion/production costs. MISO evaluates a project in terms of the benefits provided (adjusted production cost reductions, avoided reliability projects, and reduced MISO/SPP JOA settlement payments). If the total benefit is greater than or equal to 1.25 times the cost (and the other MEP criteria are met), then the project is approved. And, because MISO can measure which market participants will benefit, costs can be accurately assigned.

MISO’s 50/50 proposal is not granular because it continues to rely on postage stamp pricing for half the costs. Postage stamp pricing spreads the cost of transmission projects to load irrespective of the benefits any single Load Serving Entity (LSE) and its customers might receive. Allocating 50% instead of 100% of these costs does not cure this deficiency.

Postage stamp pricing affords MISO an opportunity to include unmeasurable/unquantifiable benefits as justification for projects. Postage stamp pricing prevents these costs from being accurately attributed to cost causers and beneficiaries in proportion to the benefits received.

Any Tranche 3 cost allocation proposal based on postage stamp is not acceptable.

2. MISO South, in collaboration with CAPCom, is developing and evaluating Tranche 3 cost allocation proposals and metrics and, once an acceptable proposal is developed through that process, it will be presented to RECB and MISO for review and discussion. Therefore, at this time, MISO should defer to MISO South and CAPCom to complete that process.

MISO could aid this process by providing to MISO South and CAPCom a detailed summary of the issues that MISO is looking to resolve in MISO South with any LRTP Tranche 3 transmission projects.