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Report on Transmission Cost Allocation 

for RTOs and Others

MARC 2011 Annual 

Conference

Rapid City, S.D.

Lynn Coles, NREL

June 6, 2011

PR-5500-51867

Composite photo created by NREL
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Highlights of Recent Report (1)(2)

• Projected Transmission Investment.

• Issues with Transmission Cost Allocation 

Methods.

• Examples of Innovative Cost Allocation

Methods.

• Conclusions.

Report Title and Where to Find It ─

(1) Fink, S.; Porter, K.; Mudd, C.; Rogers, J. (2011). Survey of Transmission Cost Allocation 

Methodologies for Regional Transmission Organizations. 67 pp.; NREL Report No. SR-5500- 49880. 

(2) www.nrel.gov/wind/.../pdfs/2011/fink_transmission_cost_allocation.pdf.

2
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Transmission Addition Trends

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NERC Expects:

• About $10 billion per year going forward.

• An increase of 31,400 circuit miles or about 

8% by 2018.

The Brattle Group found more than $120 billion 

worth of planned and conceptual transmission 

projects.

Much higher than historic patterns: ~ 2$B in 90s.
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Drivers/Issues

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• Transmission cost allocation: “who pays 

what” can determine whether transmission 

lines are built or not.

• Cost allocation can be contentious across 

multi-state paths.

• Several RTOs and transmission providers 

have experimented with innovative cost 

allocation strategies.
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State Policies

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Cost Allocation Requirements:

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Clear for Interconnection and Reliability Upgrades 

but not for Economic or Policy Upgrades.

• Interconnection: Facilities to tie new generation to 

the network -

• Generators generally pay for direct connection lines, but can be 

reimbursed over time for network upgrades.

• Reliability Upgrades: Facilities to serve load reliably 

and to meet NERC reliability requirements -

• 100% paid for by load;

• Important - transmission congestion is not necessarily alleviated 

through reliability upgrades.
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Cost Allocation Requirements: (cont.) 

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• Economic/Policy Upgrades: To access new 

generating resource areas, enhance competitive 

markets or to meet other policy requirements (RES) -

• Typically has to meet cost-benefit test requirements;

• May have to be included in regional transmission plan. 

Few economic transmission projects have gone 

forward.

As a result, individual RTOs (e.g., CAISO, PJM) either 

have or are considering revamping transmission plans 

to include “public policy requirements.”
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Some Innovative Approaches to Cost 

Allocation

[See NREL Report for greater detail (Fink, S.; Porter, K.; Mudd, C.; 

Rogers, J. (2011). Survey of Transmission Cost Allocation 

Methodologies for Regional Transmission Organizations. 67 pp.; NREL 

Report No. SR-5500-49880)]
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SPP

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Oct 2008 FERC Approval for Balanced Portfolio

provided:

• Benefit-to-cost ratio for 10 years is greater than 1.0;

• The portfolio is balanced – each zone has a positive 

benefit-to-cost ratio.

June 2010 FERC Approval for Highway/Byway

Cost Allocation:

• Facilities above 300 kv , 100% assigned to regional 

postage stamp rate;

• Facilities between 300 kv and 100 kv, 33% regional 67% 

zonal;

• Below 100 kv, 100% zonal.
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BPA-Non RTO

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Bonneville Power Administration (BPA)

Network Open Season

Started in 2008 to reduce overloaded queue issues:

• Annual open season where customers sign an

agreement and provide refundable deposit;

• BPA does cluster study and financial analysis to see

if they can move forwarded on embedded rates; 

• If rates would be greater than embedded costs,

agreement would be considered terminated.
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Proposed FERC Rule on Transmission 

Planning and Cost Allocation 

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• Transmission providers and RTOs must 

incorporate public policy requirements into 

transmission plans (e.g., state RPS policies).

• Every transmission provider must:

• Participate in regional transmission planning; 

• Coordinate with neighboring regional 

transmission planning processes;

• Propose transmission cost allocation criteria that 

may differ by type of transmission project (e.g., 

reliability, economic, or public policy-driven).
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Proposed FERC Rule on Transmission 

Planning and Cost Allocation (Cont.)

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• FERC to impose a transmission cost allocation 

methodology on a case-by-case basis if a region 

cannot reach agreement.

• Strong indication that FERC will propose 

“beneficiary pays” transmission cost allocation.
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Conclusions

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• This has been “highlights only.” See the cited 

report for more topics and greater detail.

• The United States appears to be posed for 

significant transmission expansion after years 

of low growth.

• Cost allocation criteria clear for 

interconnection and reliability-driven 

transmission projects, but not for economic 

transmission projects.

• RTOs and others have proposed innovative 

cost allocation methods.
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Conclusions (Cont.)

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• New proposed FERC transmission rule 

incorporates public policy requirements into 

transmission planning;

• FERC can step in and offer a transmission 

cost allocation method if the region does 

not;

• FERC appears to be leaning towards 

“Beneficiary Pays” approach.
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Questions?

15

Lynn Coles

NREL

303-384-6974

Lynn.coles@nrel.gov