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Let the Beneficiaries Pay (So Who Are They?)

Let the Beneficiaries Pay (So Who Are They?). Jeffrey M. Jakubiak, Esq. October 19, 2006. T ROUTMAN S ANDERS LLP A T T O R N E Y S A T L A W. The views expressed herein are solely those of Mr. Jakubiak and do not necessarily represent the views of Troutman Sanders LLP or its clients. .

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Let the Beneficiaries Pay (So Who Are They?)

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  1. Let the Beneficiaries Pay(So Who Are They?) Jeffrey M. Jakubiak, Esq. October 19, 2006 TROUTMAN SANDERS LLP A T T O R N E Y S A T L A W The views expressed herein are solely those of Mr. Jakubiak and do not necessarily represent the views of Troutman Sanders LLP or its clients.

  2. Benefits and Beneficiaries Benefits of Transmission Investment • Reliability / Grid Stability • California, 2000 • Midwest/East Coast, August 2003 • Lower Costs • Congestion Costs • Generation Access to Market

  3. Benefits and Beneficiaries Beneficiaries of Transmission Investment • Everyone equally? • Grid collapse can impact users over a wide geographic area • Only those physically near the new investment? • Reduction of congestion most benefits users previously in the “load pocket”

  4. Benefits and Beneficiaries • Transmission is a (quasi?) “public good” • A public good is a good or service that lacks excludability and depletability • Who should pay for public goods? • Everyone equally? • Everyone benefits from greater police protection • Based on proximity? • Houses closer to the police station benefit more (?)

  5. Regionalization vs. Localization • Regionalization • Costs of new transmission borne by all load in the region • (What is the applicable “region”?) • Based on principle that everyone benefits from new transmission investment • Implemented through “postage stamp” pricing

  6. Regionalization vs. Localization • Localization • Costs of new transmission borne by load… • Interconnected with the new transmission, • In the control area with the new transmission, or • As determined by power flow analyses • Imposes costs on those with, arguably, the greatest benefits gained from the new transmission • Implemented through “license plate” prices

  7. A Blended Approach • The dual local and regional benefits of transmission investment indicates a blended approach to cost-support for such investment • Most costs borne locally, some borne regionally • Both pure localization and pure regionalization results in free riders (a classic problem with public goods)

  8. A Blended Approach • MISO Attachment FF (ER06-18) • Accepted by FERC subject to further proceedings • MISO filing due Nov. 1, 2006 • Blended cost allocation to 345 kV and above • 20 percent regionally • 80 percent locally (“subregionally”) • Subregional allocation to 100 kV to 344 kV • Subregional impact determined by Line Outage Distribution Factor (LODF) analysis

  9. A Blended Approach • Attachment FF is not ideal • 20/80 split for 345 kV+ may not be right • Perhaps more should be allocated regionally • 100 percent locally for 100 kV to 344 kV fails to recognize regional benefits of such lines • Utilities that invested in new transmission over the last decade, while others did not, are left paying twice for grid reliability

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