FERC rejects SPP's request to eliminate transmission revenue credits

Houston — The Federal Energy Regulatory Commission rejected a Southwest Power Pool request for revisions to its Open Access Transmission Tariff that would eliminate transmission revenue credits, a move than came out of the grid operator's Holistic Integrated Tariff Team.

More than a year's worth of HITT meetings and research concluded that the revenue crediting approach increased transmission service rates by roughly 2% on average and created additional directly assigned upgrade costs, so it recommended eliminating revenue crediting as an option for compensating upgrade sponsors, according to SPP.

After the SPP board's approval, the grid operator November 22 submitted a filing to FERC (ER20-453) to eliminate the transmission revenue credits.

"We find that SPP has not shown its proposal to modify the existing term of compensation ... to be just and reasonable," FERC stated.

"In the instant proceeding, SPP has provided no justification to depart from that prior finding, and in fact, in its answer, SPP expresses its willingness to remove the proposed cap if the Commission finds that the proposed cap runs afoul of previous Commission orders," it added.

SPP is reviewing the Commission's order, SPP Spokesman Derek Wingfield said. "Our initial review is that the reasoning for FERC's rejection is a simple fix that can be refiled rather quickly," Wingfield added.

BACKGROUND

The Revenue Crediting for Upgrades tariff attachment provides that entities that fund a sponsored upgrade may receive revenue credits to reimburse them for the cost of network upgrades, with interest, that have been directly assigned to them, according to SPP.

Revenue credits provided to an upgrade sponsor that has been directly assigned network upgrade costs are funded by, and recoverable from, transmission customers taking new transmission service that could not have been provided "but for" the Creditable Upgrade, in the form of credit payment obligations.

When SPP implemented its Integrated Marketplace in 2014, it was required to comply with FERC Order 681, which required regional transmission organizations and independent system operators with organized electricity markets to make available long-term firm transmission rights and to award transmission rights to entities that fund transmission upgrades and expansions through direct cost assignment.

SPP implemented long-term congestion rights in 2015 to comply with the order and also proposed the revenue crediting process.

The Commission conditionally accepted SPP's initial compliance filing finding that SPP's reliance on its transmission revenue crediting process was insufficient because it did not grant LTCRs to "any party" that funds upgrades. SPP then proposed to provide upgrade sponsors the option to receive Incremental LTCRs upon request as an alternative, which the Commission accepted.

TARIFF

Under the tariff, ILTCRs have a term of at least 10 years and not more than 20 years. SPP determines the minimum increase in available transfer capability on each of the requested paths over a 10-year period and provides the MW amounts to the upgrade sponsor.

The upgrade sponsor may then select one of the requested paths on which candidate ILTCRs are desired and the candidate ILTCRs on that path will be equal to the minimum increase in available transfer capability on that selected path. If the upgrade sponsor does not confirm the selection of ILTCRs, then the upgrade sponsor is eligible for revenue credits.

HITT

The SPP board and members committee created HITT in March 2018 to comprehensively review SPP's processes and make high-level recommendations aimed at continued reliable and cost-effective delivery of electricity. The HITT met 17 times before drafting recommendations to eliminate revenue crediting as an option for compensating upgrade sponsors.

SPP proposed to eliminate the option for upgrade sponsors to receive revenue crediting and also proposed to modify the compensation term for ILTCRs to not exceed 20 years or until the upgrade sponsor recovers the costs of the upgrade, including interest, that were directly assigned to it, whichever occurs earlier, according to the November filing.

The Commission did not mandate the revenue crediting process, but SPP and its stakeholders developed it as part of the aggregate transmission service study process, which they now believe "should no longer be retained for new upgrades due to the substantial complexity and uncertainty the process has created," SPP said.

However, the ILTCR option will remain in the tariff, which SPP states is a viable, Commission-required compensation option.

SPP contends that because it has now established a congestion hedging market, revenue crediting is no longer required for it to comply with any Commission policy.

SPP requested February 1, 2020, as the effective date for its tariff revisions.