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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.

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Presentation on theme: "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."— Presentation transcript:

1 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.

2 T ROUTMAN S ANDERS LLP A T T O R N E Y S A T L A W 2 Benefits and Beneficiaries Benefits of Transmission Investment Reliability / Grid Stability Reliability / Grid Stability California, 2000California, 2000 Midwest/East Coast, August 2003Midwest/East Coast, August 2003 Lower Costs Lower Costs Congestion CostsCongestion Costs Generation Access to MarketGeneration Access to Market

3 T ROUTMAN S ANDERS LLP A T T O R N E Y S A T L A W 3 Benefits and Beneficiaries Beneficiaries of Transmission Investment Everyone equally? Everyone equally? Grid collapse can impact users over a wide geographic areaGrid collapse can impact users over a wide geographic area Only those physically near the new investment? Only those physically near the new investment? Reduction of congestion most benefits users previously in the “load pocket”Reduction of congestion most benefits users previously in the “load pocket”

4 T ROUTMAN S ANDERS LLP A T T O R N E Y S A T L A W 4 Benefits and Beneficiaries Transmission is a (quasi?) “public good” Transmission is a (quasi?) “public good” A public good is a good or service that lacks excludability and depletabilityA public good is a good or service that lacks excludability and depletability Who should pay for public goods? Who should pay for public goods? Everyone equally?Everyone equally?  Everyone benefits from greater police protection Based on proximity?Based on proximity?  Houses closer to the police station benefit more (?)

5 T ROUTMAN S ANDERS LLP A T T O R N E Y S A T L A W 5 Regionalization vs. Localization Regionalization Regionalization Costs of new transmission borne by all load in the regionCosts of new transmission borne by all load in the region  (What is the applicable “region”?) Based on principle that everyone benefits from new transmission investmentBased on principle that everyone benefits from new transmission investment Implemented through “postage stamp” pricingImplemented through “postage stamp” pricing

6 T ROUTMAN S ANDERS LLP A T T O R N E Y S A T L A W 6 Regionalization vs. Localization Localization Localization Costs of new transmission borne by load…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 transmissionImposes costs on those with, arguably, the greatest benefits gained from the new transmission Implemented through “license plate” pricesImplemented through “license plate” prices

7 T ROUTMAN S ANDERS LLP A T T O R N E Y S A T L A W 7 A Blended Approach The dual local and regional benefits of transmission investment indicates a blended approach to cost-support for such investment 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 regionallyMost costs borne locally, some borne regionally Both pure localization and pure regionalization results in free riders (a classic problem with public goods)Both pure localization and pure regionalization results in free riders (a classic problem with public goods)

8 T ROUTMAN S ANDERS LLP A T T O R N E Y S A T L A W 8 A Blended Approach MISO Attachment FF (ER06-18) MISO Attachment FF (ER06-18) Accepted by FERC subject to further proceedingsAccepted by FERC subject to further proceedings  MISO filing due Nov. 1, 2006 Blended cost allocation to 345 kV and aboveBlended cost allocation to 345 kV and above  20 percent regionally  80 percent locally (“subregionally”) Subregional allocation to 100 kV to 344 kVSubregional allocation to 100 kV to 344 kV Subregional impact determined by Line Outage Distribution Factor (LODF) analysisSubregional impact determined by Line Outage Distribution Factor (LODF) analysis

9 T ROUTMAN S ANDERS LLP A T T O R N E Y S A T L A W 9 A Blended Approach Attachment FF is not ideal Attachment FF is not ideal 20/80 split for 345 kV+ may not be right20/80 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 lines100 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 reliabilityUtilities that invested in new transmission over the last decade, while others did not, are left paying twice for grid reliability


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