From our colleague Sarah Johnson Phillips:
Much to the relief of wind developers in the Midwest, the Midwest ISO has backed off a plan to charge new and existing generators 20% of the cost of new transmission needed to meet renewable energy development goals.
Yesterday, the Midwest ISO released its final cost allocation proposal, which it will file with the Federal Energy Regulatory Commission on July 15, 2010. In the final proposal, the cost of Multi-Value Projects (MVPs) will be spread evenly to load throughout the MISO footprint on an energy basis. MVPs are transmission projects needed to support renewable energy development, other policy drivers, or have multiple benefits such as reliability and market efficiency. Previous cost allocation proposals would have allocated 20% of the cost of MVPs to new and existing generators. That potential cost burden and resulting cost uncertainty had caused some wind industry observers to speculate that wind projects would abandon the Midwest for other parts of the country where transmission is cheaper.
Although the proposal spreads the cost of MVPs across the Midwest ISO, the new proposal keeps the current cost sharing methodology for generation interconnection projects. All interconnection costs would be allocated to the interconnecting developer, except 10% would be shared by load for large facilities (345 kV and above). The proposal also addresses the generator interconnection cost “free rider” problem by allowing earlier projects to be reimbursed by later projects using the same upgrades. This cost allocation for generator interconnection was imposed by the Midwest ISO in 2009 as an interim measure to address what is known as the “Otter Tail problem” It shifted virtually all interconnection costs to developers and relieved transmission owners and their ratepayers from contributing to upgrades that reinforce the grid to everyone’s benefit. See our blog entry from last year for more history on the Midwest ISO cost allocation controversy.
Wind industry advocates, such as Wind on the Wires, still hope to clarify some additional issues in the cost allocation proposal—such as clearer criteria for what qualifies as an MVP and a plan for how to transition from the current system to the new system. Some of these outstanding issues could yet be addressed between now and the July 15th filing.
At this point it is difficult to know if the MVP proposal will result in most major upgrades being paid for by loads, with generators paying for only modest network upgrades under their generator interconnection agreements. But, for now, removal of the 20% charge to generator for MVPs is a big victory for wind development in the Midwest. If wind developers continue to experience attempts to impose the cost of major transmission projects on them, the victory on the MVPs will be a pyrrhic one.
Affordable new transmission for wind energy is critical for Midwestern states to meet their renewable energy mandates and to achieve the regional goals set by the Midwestern Governors Association of 10% renewable electricity by 2015, 20% by 2020, and 30% by 2030.
A summary of the Midwest ISO Final Cost Allocation proposal, as presented to the Regional Expansion Criteria & Benefits (RECB) Task Force yesterday, is available here.