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Federal Energy Regulatory Commission

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Commissioner John R. Norris Statement
October 20, 2011
Docket Nos. ER10-1791-001, ER10-1791-002 and ER10-1069-001
Item No. E-11

MISO & SPP Cost Allocation Rehearing Orders

“As I have said on numerous occasions, disputes over cost allocation, in my view, have been the primary impediment to building needed new transmission infrastructure in many areas of the country. Today, we take action on rehearing in two important dockets concerning the allocation of costs for new transmission projects. Today’s orders affirm two decisions the Commission issued last year on cost allocation proposals submitted by the Midwest Independent Transmission System Operator, Inc. (MISO) and the Southwest Power Pool, Inc. (SPP).

It is essential to emphasize how these cost allocation proposals arrived at the Commission. In each case, stakeholders came together through open, transparent, and inclusive stakeholder processes to develop the proposals that MISO and SPP ultimately filed with us under section 205 of the Federal Power Act. These parties, together with MISO and SPP, all recognized how crucial a fair cost allocation framework is to getting needed new transmission infrastructure built, and engaged in contentious and difficult stakeholder processes that led to the proposals we approved last year.

As today’s rehearing orders emphasize, the Commission’s task in these proceedings is to determine whether the cost allocation proposals put before us by MISO and SPP under section 205 are just and reasonable. To do that, we consider whether they satisfy the long-standing “cost-causation” principle. That principle requires that cost allocations reflect both the costs actually caused by customers who are assigned a share of them, and the benefits that customers who share in the costs receive from the facilities they support. As Judge Posner from the Seventh Circuit Court of Appeals most recently noted, quoting earlier precedent, “we evaluate compliance with this unremarkable principle by comparing the costs assessed against a party to the burdens imposed or benefits drawn by that party.” 1

In these proceedings, the Commission has faithfully adhered to this principle, and carefully considered record evidence regarding the costs that customers in the Midwest ISO and SPP regions will be assessed under the cost allocation proposals, and compared them against the benefits those customers stand to gain from new transmission facilities. New transmission facilities can provide a multitude of benefits to customers, including improved reliability, reduced congestion, reduced line losses, and enhanced competition and access to economical supply resources. The evidence in these proceedings recognizes these benefits, and the proposals we approve in these dockets assign costs accordingly.

Each of these regions – MISO and SPP – collaboratively developed transmission planning processes that would identify needed transmission based on an analysis of the benefits of such transmission, and then assigned cost allocation methodologies that were in proportion to those benefits to ensure that the transmission would be paid for in an equitable manner. Matching the transmission planning process with the cost allocation methodology is essential.

I recognize that although these cost allocation proposals were borne of thorough stakeholder proceedings where many difficult compromises were no doubt reached, not all parties will be satisfied. Some parties, including those seeking rehearing here, seem to suggest that cost allocation must be a precise science, where every dollar they pay will line up to a dollar in quantified benefits. But as our rehearing orders and the long-standing judicial precedents appropriately recognize, cost allocation “is not a matter for the slide-rule;” while the Commission must carefully weigh the costs that customers are asked to pay against the burdens they impose on the system or the benefits they will receive, “exacting precision” is not required. Requiring exacting precision would not only bog down cost allocation in endless litigation, it would also result in cost allocation formulas that fail to recognize that certain benefits of a strong integrated transmission grid cannot be easily quantified on a dollar-for-dollar basis.

As I noted last year when we first approved MISO’s cost allocation proposal, finalizing these proceedings represents an important beginning to the work that needs to be done, not necessarily the end. The Commission, MISO, SPP, and their stakeholders will work within their approved planning and cost allocation framework for the foreseeable future to ensure that need transmission infrastructure is built.”

[1] Ill. Commerce Comm’n v. FERC, 576 F.3d 470, 476 (7th Cir. 2009) (citations omitted).