CAISO Proposes Payment System for New Transmission

By Published On: July 14, 2006

CAISO Proposes Payment System for New Transmission The California Independent System Operator intends to ask the Federal Energy Regulatory Commission to approve a new category of “transmission facilities” to get beyond the stalemate between utilities and renewables developers over who pays up-front development costs. The grid operator’s federal filing is expected to increase the odds of renewables projects coming to fruition via a proposed tariff framework that would allocate the initial cost of transmission lines built to accommodate alternative energy projects. This intractable issue has blocked renewables developments. “We will ask FERC to change 50 years of history,” said Anjali Sheffrin, the grid operator’s chief economist, at a July 7 CAISO workshop. The proposal seeks to create a third category of transmission facility that qualifies for up-front cost recovery. FERC allows rate recovery for lines that are part of a network service and generator connections, known as gen-ties. Green power projects far away from the grid require “special treatment” because they are site-specific resources – limited to where the wind blows and the sun shines – unlike coal and other fossil fuels, Sheffrin noted. The grid operator is interested in the issue because in addition to ensuring that the renewables portfolio standard’s 20 percent mandate is met, the green projects supply resource diversity and increase reliability. Reaching agreement on the parameters of the proposed tariff will not be easy. Among the most challenging issues will be deciding who should pay the up-front transmission costs – investor-owned utility ratepayers and those of munis covered by CAISO operations, or all Californians. Defining project benefits is also needed, as well as agreeing on the location of new high-voltage lines and specifics on eligibility criteria and developer reimbursements. At this point, the plan is to have developers’ repayment be based on utilization, not capacity, said Don Withrow, CAISO senior market and product economist. Also to be decided is how to deal with fossil-fuel projects that want to tap into a line built for green energy resources. The objective of the order and tariff is to remove barriers to new large transmission lines, ones with far greater capacity than what would be needed by the first round of renewables projects expected to come on line. The larger the line, the greater the costs – costs that would overwhelm the budgets of the first few renewables developers not part of large companies. At the same time, investor-owned utilities have balked at picking up the up-front cost. They object to the risk of being left holding the bag if planned renewables projects don’t come on line and possible denial of rate recovery by FERC. CAISO’s proposal is meant to complement the recently approved California Public Utilities Commission backstop mechanism, which preapproves putting into investor-owned utility rates the costs of the new and upgraded lines denied by FERC (Circuit, June 16, 2006). It also aims to help utilities meet the renewables standard. The effort under way was motivated by the ongoing process among renewables stakeholders to send the potential 4,000-plus MW of wind energy in the Tehachapis to Southern California Edison territory. CAISO is studying that project as well as two others in Southern California – integrating the Sunrise Power Link and Green Path and the Lake Elsinore Advanced Pumped Storage facilities. Municipal agencies that use the grid raised concerns about paying for projects that provide them no direct benefit. “We are hesitant to have our ratepayers pay for renewables we aren’t accessing,” said Jim Shelter, Sacramento Municipal Utility District assistant general manager. SMUD uses CAISO’s grid to import power into its territory and expects to meet the RPS 20 percent standard by 2011. Nancy Rader, California Wind Energy Association executive director, questioned the legitimacy of passing on costs to nonbeneficiaries, saying that it clashed with FERC’s rule. She also does not think that federal regulators’ involvement is needed to fix the state’s transmission problems. “There are mechanisms that we would get behind that don’t change the basics on costs,” added Tony Braun, an attorney representing the California Municipal Utilities Association. “Let’s first agree on the policy” instead of the details, Sheffrin urged. The CAISO staff plans to present to its board on August 3 a petition for a declaratory order from FERC outlining what it seeks before forging ahead on tariff development.

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