Tuesday, June 27, 2017

SPP Board Lets Action on Z2 Stand; Litigation Likely

By Tom Kleckner

LITTLE ROCK, Ark. — The SPP Board of Directors and Members Committee decided last week to take no further action on the contentious Z2 crediting issue, leaving unhappy stakeholders likely to seek redress from FERC or the courts.

The board discussed the Markets and Operations Policy Committee’s recommendation to “follow the Tariff” and reject requests that $114.1 million in directly assigned Z2 network upgrades be allocated to SPP’s base plan. However, it took no votes on the matter Oct. 25, which let stand the MOPC’s decision, which was supported by 83% of members voting. (See MOPC Rejects Z2 Waivers; Task Force Seeks Changes.)

The board in July formed a task force to review requests from members who SPP staff had said didn’t qualify for waivers from $36.9 million in directly assigned upgrade costs, while also addressing “equity concerns.” The group also reviewed another $77.2 million in direct costs from members who didn’t request waivers.

Evans proposes solution to Southwest Power Pool Z2 Issue

Evans | ©RTO Insider

Les Evans, COO of Kansas Electric Power Cooperative (KEPCo), one of the companies requesting a waiver, once again expressed his dissatisfaction with the process after being “wrongly assigned” $6.2 million because its resource-to-load ratio exceeded a 125% threshold.

“The 83% that voted to follow the Tariff does indicate that 17% of us feel disenfranchised and that things are not equitable,” Evans said.

Evans argued KEPCo was granted four transmission service requests from a 2012 aggregate study, and that there were no directly assigned costs in the agreements.

Pointing to the directly assigned costs he said KEPCo was assessed four years later, Evans said SPP’s treatment of his company fails the RTO’s “but-for” test, which requires transmission customers to fund transmission improvements that would not be required but for their additional load. The test is triggered by a 3% increase on a line’s directional flow in the same direction as the power flow that caused the upgrade.

“Under the process we’re using right now, a sponsored upgrade can be put back into a model from years ago, and if I have a 3% flow on that facility, I would be responsible for directly assigned upgrade costs under that possibility. I would say that is not fair, it’s not equitable and I don’t think there’s anybody that can stand here with a straight face and say that passes a ‘but-for’ test.”

Evans worked with staff to draft language for two different motions addressing his arguments. One required transmission reservations assigned a payment obligation for an upgrade be included in the original aggregate study model. The other would mandate that service agreements explicitly include directly assigned upgrade costs in order to be directly assigned to a transmission customer.

Evans failed to get a second on either motion, the only two offered up by the board and committee.

“We have an opportunity here, as a group, to solve the problem,” Evans said. “If the problem’s not solved [today], from my perspective and KEPCo’s perspective, we’ll seek other solutions. SPP loses control of how the problem is resolved. This is the place to do it.”

Staff pointed out either motion would cause about a six-week delay to calculate the historic Z2 credits and obligations, which date back to 2008. Invoices settling charges and credits under Attachment Z2 for the March 2008-August 2016 period are to be issued this week.

“Following the Tariff should be clear, but how clear can 5,275 pages be?” Director Phyllis Bernard asked. “Perhaps it’s time for …  alternative dispute-resolution with a possible third party, or to go to FERC.”

“We’ve been waiting eight years to get this done. Let’s get it done,” said The Wind Coalition’s Steve Gaw, noting SPP’s transmission-dispute resolution process could still provide an avenue for members to plead their case. “I would encourage us to move forward.”

“I’d love for consensus to be unanimous, but that’s not what we have,” SPP CEO Nick Brown said. Reversing the MOPC’s endorsement would mean “we’ll be supporting 17% at the expense of 83%.”

“Bottom line, this will go to FERC,” Brown said. “I have no doubt what KEPCo’s response to this will be.”

Evans’ response was terse. “KEPCo is evaluating all possible venues for a remedy to its issues,” he told RTO Insider on Friday.

Staff told members Thursday it is billing almost $110 million in regionwide, aggregate net payable historic amounts. It said $94.8 million will be invoiced as a lump sum, and the remaining $15.1 million will be billed in 20 installments through August 2021 to those members who chose the payment plan approved in April.

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