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SPP intrazonal cost shift prompts complaint at FERC

Transmission owners in the Southwest Power Pool are calling for an end to the shifting of legacy transmission costs within zones when new transmission owners join the regional transmission organization.

"Rate designs that foster cost shifts can destabilize RTOs by creating an incentive for low-cost providers (those who would shoulder the burden of cost shifts) to leave the RTO or not join in the first place," the transmission owners said in a complaint filed with the Federal Energy Regulatory Commission on Oct. 13.

Certain legal and policy considerations bar the shifting of legacy transmission costs between SPP zones, but a loophole in the grid operator's tariff fails to extend those rate protections within zones, the complaint said.

SPP uses a "no legacy cost shift" license plate approach between transmission pricing zones that puts new transmission owners in their own zones and bases the network integration transmission service charge for customers in that zone on the annual transmission revenue requirement of that transmission owner.

"That approach is consistent with principles of cost causation, because costs are borne by the customers for whom the facilities were built," the complaint asserted. "And it is consistent with transmission pricing policy, because it aligns payment responsibility with the original decision to invest."

But that "system of protections against cost shifts breaks down, badly, when new [transmission owners] are integrated into existing zones," the complainants said, noting that such integrations are occurring more frequently as new transmission owners joining SPP are relatively small. "When that happens, … all customers within the new combined zone pay a new average rate," with costs for some customers going down while others see rate increases, the complaint said.

"Because of that cost shift, the customers paying the new, higher rate end up paying for facilities that were not planned or built for them, while the customers for whom the facilities were planned and built no longer fully pay for those facilities," the complaint contended. "And unfortunately, all of this occurs under a shroud, because when SPP files [annual transmission revenue requirements] for zonal integration, it does not even mention whether rates to existing SPP customers will increase, or provide the information necessary to make that calculation, much less state what that rate increase will be, or provide a justification for it."

SPP transmission owners want the loophole eliminated and the shifting of costs of legacy facilities within zones barred for the same legal and policy reasons such shifts are prohibited between zones.

The transmission owners said they supported the expansion of SPP and understood the grid operator's desire to limit the proliferation of small zones. While they have no interest in interfering with SPP's authority to make zonal placement decisions, the transmission owners contended that "such decisions should not result in cost shifts."

They offered a solution they assert would mitigate cost shifts through rate design rather than by limiting SPP's zonal placement flexibility.

The complaint asks FERC to "find that the SPP tariff's lack of cost shift mitigation for zonal integration is unjust, unreasonable, and unduly discriminatory" and to direct the grid operator to amend its tariff "to align rate protection against cost shifts at the intrazonal level with the protection already accorded, at the interzonal level, by license plate rates."

"The relief we seek is narrowly tailored to mitigate cost shifts while preserving RTO flexibility to make zonal placement decisions, it is fair because it is prospective and protects both incumbent and new [transmission owners] and their customers from cost shifts, and it is compelled by law and sound public policy," the transmission owners said.

Transmission owners participating in the complaint are American Electric Power Service Corp. affiliates Public Service Co. of Oklahoma and Southwestern Electric Power Co.; City Utilities of Springfield, Missouri; Great Plains Energy Inc. subsidiaries Kansas City Power & Light Co. and KCP&L Greater Missouri Operations Co.; Nebraska Public Power District; Oklahoma Gas and Electric Co.; Omaha Public Power District; Southwestern Public Service Co.; Sunflower Electric Power Corp.; Mid-Kansas Electric Co. LLC; Westar Energy Inc.; and Western Farmers Electric Cooperative Inc. (FERC docket EL18-20)

Jasmin Melvin is a reporter for S&P Global Platts, which, like S&P Global Market Intelligence, is owned by S&P Global Inc.