Transmission Expansion
Cost Recovery:
FERC’s Generator Interconnection
Rule and Other Proposed Policies
Kevin Kelly
Federal Energy Regulatory Commission
Rocky Mountain
Subregional Transmission Planning
Salt Lake City, September 26, 2003
OUTLINE
1. Current FERC policy for transmission cost
recover
2. Transmission cost recovery policies proposed in
White Paper of April 2003
3. Large generator interconnection final rule
4. Small generator interconnection proposed rule
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1. Traditional FERC Cost Recovery
Policies
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Before 1991, all expansion costs were
rolled-in to the transmission average
transmission rate
After 1991, “Or” pricing offered:
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Transmission customer pays the higher of the
average rolled-in cost and the incremental
cost expansion cost, but not both
Average is usually higher: de facto “roll in”
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2. Transmission Cost Recovery
Policies Proposed in White Paper of
April 2003
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Proposes that each region form a regional
state committee (RSC) to develop many
regional policies
Proposes that each region have its own
transmission planning process with criteria
developed with or by the RSC
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Regional Flexibility in Cost Recovery
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The RTO or ISO tariff would state a transmission cost
recovery policy
The RTO/ISO and the RSC would develop the
appropriate approach to file with FERC
The two principal choices are rolled-in pricing and
“participant funding.” Either of these or an innovative
combination may be proposed.
For a 1-year transition period, participant funding may
be used for transmission upgrades for generator
interconnection as soon as an independent entity has
been approved by the Commission and affected states.
Transmission cost recovery outside an RTO or ISO is not
addressed in the White Paper proposal.
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Reliability and Economic Upgrades
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The RTO or ISO would include transmission upgrades in
the regional plan that are necessary:
 to maintain or improve reliability, or
 to reduce congestion and improve access to lower
cost supplies (economic enhancements).
Recovery for these two types of upgrades may differ
The RTO/ISO tariff would have criteria for distinguishing
reliability and economic enhancements.
Each RSC may determine the criteria for economic
enhancements.
If the RSC decides the criteria, the RTO or ISO would file
them with FERC.
If the RSC is unable to reach a decision, the RTO or ISO
would file its own proposal.
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Interregional Transmission
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Regions should try to eliminate export and
import fees from region to region
If there is a notable imbalance between imports
to and exports from a region, the RTO or ISO
may seek to recover some of its transmission
costs through an export fee.
Other measures could be used to prevent cost
shifts among the regions. E.g., adjusting the
transmission revenue requirement for the
importing region to include a portion of the
revenue requirement of the exporting region
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3. Interconnection
Rulemaking Process
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FERC’s 2001 stakeholder negotiations led to
a January 2002 consensus document
NOPR issued April 2002  > 173 filings
Small generators asked for own rule
Small generator ANOPR August 2002
July 24, 2003: large generator final rule and
small generator proposed rule issued
State views reflected in much of both large
and small generator rulemakings
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Large Generator
Interconnection Final Rule
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Requires public utilities to amend their Open
Access Transmission Tariff to include
standard interconnection procedures and a
standard interconnection agreement for
generators larger than 20 MW.
Standardizes the scope of each study,
deposit amount, time of completion of each
study, and access to study data.
Goes into effect on October 20.
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Purposes of Large Gen Rule
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Reduce the cost of electricity to customers,
including the cost of renewables
Reduce interconnection time and costs
Prevent discrimination in interconnections
Increase energy infrastructure
Preserve grid reliability
Clarify transmission expansion cost recovery
for generator interconnections
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Advantages to Transmission
Providers
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Standard procedures streamline the
interconnection process and reduce
litigation time and costs
RTOs and ISOs may design their own
interconnection processes
Data access allows generators to do
their own “what if” studies, reducing
the transmission provider’s study load
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Advantages to Generators
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They can interconnect without requesting
transmission service
They have access to study data so they can
conduct their own interconnection studies
They have a standard interconnection
procedure and a standard interconnection
agreement
The agreement clearly lays out the legal
rights and obligations of the parties
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Another Advantage to
Generators
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The rule offers generators two
interconnection options
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A low-cost interconnection with grid
expansion only for reliability (Energy
Resource Interconnection Service)
A higher quality interconnection that
provides expansions to allow a generator
to qualify as a network resource (Network
Resource Interconnection Service)
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Interconnection Cost Recovery
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Generator pays for all interconnection costs,
other than network upgrades, such as:
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Application fees and costs of studies
Costs of facilities and upgrades on the generator’s
side of the point of interconnection to the
transmission system
Transmission system enhancements, called
network upgrades, are treated separately
Generator pays for distribution upgrade costs
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For interconnection to a wholesale distribution facility
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Transmission Expansion Costs
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Who pays for the costs of transmission network
upgrades on the transmission provider’s side of
the point of interconnection?
FERC’s new rule: this depends on whether the
transmission provider is a market participant or
independent of market participants
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Not independent: use traditional FERC policy. The
transmission provider pays and recovers its costs
through its rolled-in transmission rates
Independent: An RTO or ISO may propose an
alternative policy that states in the region agree on
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Expansion Cost Recovery
with a Non-Independent
Transmission Provider
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The transmission provider eventually pays for
upgrading the grid for its interconnecting
generating customer
But the generator initially funds the cost of these
upgrades and gets fully reimbursed over time
Credits against the generator’s transmission bills
over 5 years, with interest, reimburse the
generator
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but Generating Facility must achieve commercial
operation to qualify for credits
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Expansion Cost Recovery
with an Independent
Transmission Provider
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Follows April White Paper proposed policy
The rule allows pricing flexibility for an RTO or
ISO, including use of “participant funding”
In forming an RTO or ISO, an independent
administrator may use participant funding for
Network Upgrades for one year, subject to
approval by the Commission and affected
States
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Variations From Any Part of
the Large Generator Rule
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Regional variations
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Utilities may propose variations that are generally
used throughout a region if consistent with or
superior to the Final Rule
Utilities may propose variations to comply with a
regional reliability rule, subject to Commission
approval
RTO or ISO
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The rule allows greater flexibility for an RTO or ISO,
subject to Commission approval
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Applicability
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The rule does not expand FERC’s jurisdiction.
It does not apply to interconnections to facilities
of a company that is not a jurisdictional “public
utility” or to a public utility’s facilities that are
not regulated by the FERC.
It applies only to interconnections to facilities
already subject to a transmission provider’s
Open Access Transmission Tariff at the time an
interconnection request is made
The new rule goes into effect on October 20.
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4. Small Generator
Interconnection Proposed Rule
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Has the same purposes as the large
generator rule, but also:
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Facilitates the interconnection of small generators
with a rule designed for their special features and
needs
Encourages the development of alternative small
energy sources such as wind, solar and
distributed generation.
Has standard procedures and agreement
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Small Generator Rulemaking
Process
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FERC stakeholder negotiation started August 2002
Coalition documents filed November 2002, calling for two
Agreements and two Procedures – one set for ≤ 2 MW
and another set for 2-20 MW
NARUC proposed a single set of procedures and
agreement
FERC’s NOPR draws significantly from NARUC ideas
It has a single set of procedures and an agreement
applicable to all generators no larger than 20 MW
Proposed rule issued July 24
Comments due October 3
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Small Generator
Interconnection Agreement
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Sets forth the legal rights and obligations of each
party
Addresses cost responsibility for interconnection
facilities and upgrades
Lays out milestones for completing the
interconnection, and
Sets forth the process for dispute resolution.
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Small Generator
Interconnection Procedures
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Accelerated procedures for:
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Generators connecting at high voltage and
Generators >10 MW connecting at low
voltage
Expedited procedures for generators 210 MW connecting at low voltage
Super-Expedited procedures for
generators ≤ 2 MW connecting at low
voltage
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Cost Recovery and Applicability
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Cost recovery policies proposed are the
same as for the large generator rule
Applicability – proposal is the same as
Large Generator Final Rule
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