The issue
Cost allocation has become one of the most contentious public policy issues in the energy arena.
The debate is a philosophical one: whether consumers who are not direct beneficiaries of a specific transmission project should be required to participate in its financing. While some would argue that they should not, others assert that broad-based cost allocation is more appropriate for significant “backbone” transmission projects because the entire grid benefits from increased reliability, greater fuel diversity, reduced congestion and often reduced costs, when the transmission grid is expanded or reinforced.
Although there are many variations, most stakeholders fall into one of two camps on the cost allocation issue: either they prefer broad cost allocation (spread as widely as practicable), or they prefer beneficiary funding – those consumers who benefit from a project pay for it.
How we got to this point
The nation’s grid was not planned as a single, coast-to-coast entity. It was built piecemeal by various transmission owners – typically local electric utilities attempting to transport energy from their own power plants to their own customers. As such, it is irregular in structure and adequacy; and no longer meets the needs of American society.
When Congress passed the Energy Policy Act of 2005, it called upon the Department of Energy to designate National Interest Electric Transmission Corridors – those areas of the country in which the transmission grid is so wholly inadequate that projects in those areas will receive special treatment – the zones (one in the mid-Atlantic and one in the southern California area) are in such dire condition that their failure could result in drastic economic and security situations nationwide.
Additionally, the nation is seeking to reduce its carbon footprint through broad integration of renewable generation – primarily wind and solar – to offset our baseload fossil fuel power plants. This will require an extensive transmission build-out. But these critical projects are not being built because the nation cannot agree on how they will be financed.
North American Electric Reliability Corp.Transmission Interconnections
Source: http://www.oe.energy.gov/recovery/1262.htm
AEP is the nation’s largest transmission owner, with over 39,000 miles of transmission lines, located in all three interconnections. AEP owns over 2,000 miles of 765-kV extra-high voltage transmission lines – roughly 90% of the highest voltage transmission used in the United States. AEP’s transmission lines are located in PJM, SPP and ERCOT regional transmission organizations.
What the industry says
The industry is quite divided on this issue, as are the states and federal government.
The Southwest Power Pool is in the process of implementing a highway/byway cost allocation methodology in which backbone transmission lines are allocated across the entire RTO, and smaller, more localized lines are beneficiary funded.
Other organizations promote the concept of full beneficiary funding, in which project beneficiaries are identified and assessed a portion of the project cost, with periodic true-ups to ensure that the beneficiaries have not changed.
AEP position
AEP supports broad-based cost allocation for
backbone transmission projects – spread as widely as
practicable.
Our position is based on efficacy – determining which small group of people benefits most directly from any project is not only challenging, but likely to change in the future. Spreading costs (and planning) across as large an area as possible eliminates the need to identify beneficiaries, reduces the cost for everyone, and creates a much larger canvas on which to plan the electric transmission grid that supports interstate commerce and facilitates our national security.
Mid-Atlantic NIETC Zon
Source: http://nietc.anl.gov/documents/index.cfm
Southwestern NIETC Zone
Source: http://nietc.anl.gov/documents/index.cfm
