Friday, August 18, 2017

Questions Linger over CAISO Small TO Interconnection Proposal

By Robert Mullin

Stakeholders have lingering questions about CAISO’s proposal to protect small transmission owners from bearing the costs of network upgrades needed to interconnect generation serving load outside their service territories.

While the proposal was introduced to accommodate the specific circumstances faced by Valley Electric Association, the most recent draft allows CAISO to apply the plan to other small TOs that may  join the ISO in the future. (See CAISO Issues Final Plan for Small TO Interconnection Costs.)

It was the ISO’s effort to retain that flexibility that prompted most stakeholder concerns.

“If we’re really trying to make this specifically helpful for this particular instance, it makes a lot of sense for us to make this as narrowly applicable as possible,” John Newton, a regulatory analyst at Pacific Gas and Electric, said during a Feb. 13 call to discuss the proposal.

Under the proposal, CAISO would examine case-by-case whether a TO should be allowed to fold low-voltage generator interconnection costs into high-voltage transmission revenue requirements — which would spread those costs across the ISO’s full rate base to avoid burdening ratepayers of small TOs with outsized fees.

Without the change, a $5 million network upgrade would increase Valley Electric’s low-voltage transmission access charge (TAC) by 18.75% to $7.44/MWh, said Steve Rutty, CAISO’s director of grid assets. A $25 million upgrade would nearly double the utility’s low-voltage TAC to $12.15/MWh.

caiso interconnection proposal

The table shows the approximate increase in each TOs low-voltage TAC for network upgrade costs on their respective systems under CAISO’s current cost allocation methodology. | CAISO

By contrast, spreading the $25 million upgrade across the entire ISO would result in a 0.09% increase in the combined high-voltage and low-voltage TACs for Valley Electric and PG&E, while Southern California Edison would see a 0.06% bump.

Proposed Criteria

The ISO will determine eligibility for the relief based on whether the TO is:

  • Very small relative to other TOs, with a gross load of 2 million MWh or less (currently about 2.2% of the load of the ISO’s largest TO);
  • Located in a renewable resource-rich area gaining “elevated” interest for generator procurements; or
  • Not subject to a renewable portfolio standard or does not need the new interconnecting generation to meet that requirement.

Joseph Abhulimen, program and project supervisor at the California Public Utilities Commission’s Office of Ratepayer Advocates (ORA), wondered how the ISO landed on the 2 million MWh threshold, nearly triple Valley Electric’s load.

“Why is that number significant?” Abhulimen asked.

“Originally, in the draft proposal, we had proposed 5% [of the largest TO’s load], which would’ve equated to around 4 million MW,” Rutty said. “It would allow a utility such as [Valley Electric] to really significantly increase their size.”

Some stakeholders thought the 5% figure was too generous, Rutty explained, so the ISO narrowed it down to closer to 2%.

“We also wanted an even number, so we picked 2 million [MWh],” Rutty said. “The reason why we’re sticking at a fixed number is so that it’s not a moving target on them. As you know, loads change over time.”

The ISO was also concerned that a lower gross load threshold could subject relatively small TOs — and their ratepayers — to sharply increased low-voltage TAC rates once they exceeded the cap, Rutty noted.

‘Resource Rich’

Abhulimen also wondered about how the ISO would determine what qualifies as a “resource-rich” area. “What is the primary determinant for that designation?” he asked.

Bill Weaver, CAISO senior counsel, said the term was intended to allow case-by-case, rather than formulaic, determinations.

Stakeholders “can go to our board, they could comment at FERC, and we could really make a case-by-case determination whether we think someone meets this criteria, rather than trying to establish a bright-line test that may prove infeasible for future areas,” Weaver said.

“I’m still very concerned that I would have expected that there would be certain criteria established that would say that this particular [TO] is in a resource-rich area for X and Y reasons,” Abhulimen said. “It’s very hard for someone to comment on this particular principle when you don’t know what criteria were used to make this determination.”

Kallie Wells of Resero Consulting stumped ISO staff with a question about whether the proposal would apply to TOs that don’t serve any load.

“Most likely that would be something we would have to take up on a case-by-case basis with a different set of criteria,” Rutty said. “I don’t know that we would have any low-voltage, transmission-only type [TOs] that would be under 200 kV under those scenarios. But if it did come into play we would have to take a look at it at that time.”

PG&E’s Newton wondered how the new proposal would apply with the potential for the ISO to expand into other parts of the West. “Do you anticipate that is policy will apply broadly?” he asked.

Rutty replied that it — and anything in the Tariff — would be applied to similarly situated customers.

“That said, we’re not hiding anything here,” Rutty said. “We’re not trying to sneak this in. We have no new [TO] with less than 2 million MWh in the pipeline for [TO] participation.”

Gaming Concerns

Charles Mee of the California ORA posed what he called an “extreme” hypothetical situation in which a small TO contracts with external resources to serve all of its local load while all generation within its area is contracted to serve load in other TOs — thereby evading any upgrade costs being rolled into its low-voltage TAC.

“So do you consider all the generators that, contractually, are not serving the local load be qualified for this treatment?” Mee asked.

“I think so,” Rutty responded. “We see what you’re getting to — that we don’t want to create a system that can be gamed. But at the same time, we want to ensure that each [TO] can find the lowest-cost capacity for its load-serving needs, which is why we started this” proposal.

Rutty added he couldn’t imagine Mee’s hypothetical being cost-efficient for a transmission-owning utility and that any hint of manipulating the system could result in a “very easy” Section 206 complaint at FERC.

“I think we need to think about that, so include it in your comments,” he added.

Comments on the proposal must be submitted to CAISO by Feb. 22. The ISO expects to seek approval for the plan at next month’s Board of Governors meeting March 15-16.

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