Brattle Economists Recommend Framework for Seams Cost Allocation That Supports Interregional Transmission Planning to Address FERC Order 1000 Requirements

CAMBRIDGE, Mass., April 24, 2012 /PRNewswire/ -- Economists at The Brattle Group have prepared a report for the Southwest Power Pool's Regional State Committee (SPP RSC) proposing a general framework for seams cost allocation that provides a consistent set of principles and guidelines to assess the needs, benefits, and cost allocation of transmission projects.  The report was presented yesterday before the SPP RSC.

The recently issued Federal Energy Regulatory Commission (FERC) Order 1000 requires regional transmission planning entities under its jurisdiction to develop interregional cost allocation methodologies based on FERC-approved principles. The Brattle report aims to serve as a foundation for SPP's efforts to meet the FERC mandate.

"Seams cost allocation has proven to be especially challenging given the number of barriers related to the planning and analysis of interregional transmission projects," said Johannes Pfeifenberger, a Brattle principal and co-author of the report. "Given FERC's Order 1000, we believe it is imperative that there be significant coordination between SPP and the RSC to develop a robust interregional planning and cost allocation methodology that can be implemented through SPP's ongoing coordination efforts with its neighbors. Our report aims to guide SPP and the RSC in this process."

The report first reviews seams cost allocation efforts in other markets and case studies of successful and proposed seams projects in order to pinpoint successful practices that could potentially be considered by SPP and its seams neighbors. The authors then develop a general framework for the planning and cost allocation of seams projects, based on clearly identified cost allocation principles and a comprehensive set of benefit metrics, while also allowing for the flexibility needed to consider a wide range of different project types and seams entities.

The proposed framework, which leverages the existing joint operating agreements between SPP and its seams neighbors, is comprised of seven "building blocks" critical to supporting interregional planning and cost allocation:

  1. Regular interregional planning meetings – Includes direct participation of regulatory commission staff from states affected by the particular seam in the planning and cost allocation discussions under the JOAs.
  2. Regular exchange of planning data – Requires development of jointly-validated and endorsed load-flow cases and planning models for the combined footprint and planning horizon.
  3. Process to propose and analyze seams projects – Establishes additional options under which seams entities could unilaterally or jointly propose seams projects outside the Joint Coordinated System Plan (JCSP) process.
  4. Evaluation criteria and benefit metrics – Requires each seams entity to specify the criteria and metrics that they will use for seams project evaluation.
  5. Seams cost allocation principles and guidelines – Defines agreed-upon principles and guidelines to serve as the overarching framework for developing transmission cost allocation for seams projects.
  6. Payment mechanisms and transmission rights – Specifies several options for payment mechanisms that can be used to implement the agreed-upon cost allocations consistent with transmission rights. 
  7. Integration with internal planning and cost allocation – Addresses who can propose a seams project, who can build and operate it, how planning analyses for seams projects are initiated, and how seams projects are integrated with internal planning processes and cost recovery.

The report, "Seams Cost Allocation: A Flexible Framework to Support Interregional Transmission Planning," was authored by Mr. Pfeifenberger and Brattle associate Delphine Hou and is available for download at www.brattle.com.

The Brattle Group provides consulting services and expert testimony in economics and finance to corporations, law firms, and public agencies worldwide.  Areas of expertise include antitrust and competition, valuation and damages, utility regulatory policy and ratemaking, and regulation and planning in network industries.  For more information, please visit www.brattle.com.

SOURCE The Brattle Group



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