United States: FERC Rejects CAISO Tariff Amendments Creating New Class Of Participating Transmission Owner

On September 1, 2017, FERC rejected without prejudice the California Independent System Operator Corporation's ("CAISO") April 18, 2017 proposal to revise the CAISO Tariff to create a new class of participating transmission owner ("PTO") called the "Certified Small PTO," whose low-voltage, generator-interconnection-driven network upgrade costs would be allocated regionally, rather than locally.

The CAISO transmission system consists of four load-serving PTOs, each of which assesses "local transmission access" charges on its respective load customers.  These charges recover costs associated with network upgrades to low-voltage transmission facilities (below 200 kV) on the CAISO system.  In contrast, for high-voltage network upgrades, costs are recovered through a "regional transmission access" charge paid by utility distribution companies and metered subsystem operators based on gross load in their service areas.  Three of the four load-serving PTOs are the large investor-owned utilities of California: Pacific Gas and Electric Company ("PG&E"), Southern California Edison Company ("SoCal Edison"), and San Diego Gas & Electric Company ("SDG&E").  The fourth PTO is Valley Electric Association ("Valley Electric"), a rural electric cooperative in Nevada.  Valley Electric has an annual gross load of 545 GWh, which is less than one percent of CAISO's annual gross load.

In its April 18, 2017 filing to FERC, CAISO noted that Valley Electric is based in Pahrump, Nevada, which is adjacent to Death Valley, and that solar generation developers have identified Valley Electric's low-voltage system as an ideal, cost-efficient point of interconnection.  CAISO stated that it had received 25 interconnection requests, comprising 3,952 MW of new generating capacity, to connect to Valley Electric's low-voltage system, and that these figures greatly exceeded Valley Electric's peak demand of 135 MW.  CAISO stated that the local allocation of low-voltage network upgrade costs, combined with Valley Electric's small size and the high demand for generator interconnection in Valley Electric's service territory, would ultimately result in inequitable cost allocation.  In order to remedy this cost allocation issue, CAISO proposed in its April 18, 2017 filing to create a new class of PTO for Valley Electric called the Certified Small PTO, which would allow a transmission owner's new, low-voltage network upgrade costs associated with new renewable generation that is not intended to meet its own load to be folded into the regional (as opposed to the local) transmission access charge and recovered from across the CAISO region.

In its September 1, 2017 order, FERC found that CAISO had not demonstrated that its proposal was just and reasonable and not unduly discriminatory or preferential.  Specifically, FERC found that CAISO's proposal ran afoul of its cost-causation principles by failing to demonstrate that low-voltage network upgrade costs were properly allocated to the customers receiving the benefit under CAISO's proposal.  FERC noted that CAISO had not provided any evidence to support its assertion that low-voltage network upgrades on Valley Electric's system benefit customers throughout the region.  FERC also stated that CAISO had not explained why similar network upgrades to the low-voltage systems of PG&E, SoCal Edison, and SDG&E do not similarly benefit regional transmission system users.  Lastly, FERC identified as an "additional concern" the fact that CAISO's proposal would allow stakeholders to decide whether to grant alternative Certified Small PTO rate treatment, reasoning that "stakeholders are interested parties that may be impacted by the determination that a PTO should become a Certified Small PTO."

In a separate dissent, Commissioner LaFleur disagreed with the majority's decision to reject CAISO's proposal, which she believed "would result in allocating the costs at issue in a manner commensurate with the benefits that accrue to the customers involved."  Commissioner LaFleur pointed to several unique circumstances underlying CAISO's proposal, such as the fact that: (i) CAISO is made up of three large load-serving PTOs in the state of California serving more than 99 percent of CAISO's load, and one very small PTO in the state of Nevada, Valley Electric, serving less than 1 percent of CAISO's load; (ii) the state of California has very ambitious targets for the procurement of renewable energy; and (iii) the location of Valley Electric has led to a volume of interconnection requests to meet California's renewable targets that is grossly disproportionate to its customer base.  Commissioner LaFleur stated that "[i]t is simply unfair to require the 0.27 percent of CAISO's customer base in Nevada to bear the costs of these interconnections, which are not remotely commensurate with the benefits they receive," and that she believed "the customers in California, whose policies are driving the costs, should largely bear the burden of these costs."

A copy of the September 1, 2017 order and Commissioner LaFleur's dissent, may be found here.

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