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Wednesday, April 21, 2010

Electricity Transmission Cost Allocation

Stan Mark Kaplan
Specialist in Energy and Environmental Policy

Adam Vann
Legislative Attorney

Perhaps the most contentious electricity transmission financing issue is cost allocation for new interstate transmission lines—that is, deciding which electricity customers pay how much of the cost of building and operating a new transmission line that crosses several states. This report provides background and analysis of current transmission cost allocation policy and issues. 

The report makes several observations concerning current cost allocation policy at the federal and state levels. First, there is no uniformity in cost allocation procedures, and at least to date the Federal Energy Regulatory Commission (FERC) has declined to go beyond establishing general principles. Second is the regional focus of current processes for making cost allocation decisions. This is consistent with FERC's efforts to encourage a regional perspective on transmission planning that incorporates many stakeholders in the planning process. Third, determining a method of allocating the costs of "economic" upgrades to the transmission grid (i.e., projects aimed at reducing the cost of operating the power system) has proved more complex than for reliability upgrades. 

The report also reviews several recent developments in the cost allocation area. These include: 

• The decision of the Seventh Circuit in Illinois Commerce Commission v. FERC, to reject a cost allocation plan approved by FERC which would have permitted "socialization" of the costs for some new transmission projects (i.e., allowing the costs to be spread widely among ratepayers in the PJM Interconnection, even those who do not substantially or clearly benefit from a project). 

• The addition of the "Corker Amendment" to S. 1462, the American Clean Energy Leadership Act. Supporters argue that this amendment would require FERC to ensure that the costs of new transmission projects are allocated commensurate with measurable benefits. Opponents argue that the amendment would establish an impossible-to-meet threshold for quantifying project costs and benefits. 

• FERC's decision to take an in-depth look at cost allocation and other transmission planning issues as part of a new docket. In its request for comments (Docket AD09-8, Transmission Planning Processes under Order No. 890, June 30, 2009) FERC observed that its "best remaining opportunity to eliminate barriers to new transmission construction may therefore be to provide greater certainty in its policies for allocating the cost of new transmission facilities, particularly for facilities that cross multiple transmission systems." 

Recent public comments by FERC commissioners also suggest that the Commission may release a proposed transmission cost allocation policy, perhaps before the end of 2010. 

Date of Report: April 19, 2010
Number of Pages: 19
Order Number: R41193
Price: $29.95

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