PUR Guide 2012 Fully Updated Version

Available NOW!

This comprehensive self-study certification course is designed to teach the novice or pro everything they need to understand and succeed in every phase of the public utilities business.

Order Now

cost allocation

Bridging the Seams

With no single entity in charge, transmission planning has plagued projects that span multiple regions. A new framework offers a solution.

Figure 1 - Building Blocks for an Effective Interregional Planning and Cost Allocation Framework
Sidebar Title: 
Cost Allocation Principles: An Expanded List
Sidebar Body: 

FERC Order 1000 listed six principles for cost allocation for interregional transmission planning. FERC’s list, however, could be expanded as follows:

1) Commensurate with Benefits: The cost of interregional transmission projects should be allocated to regions such that they are at least roughly commensurate with total benefits identified for each of the regions based on the benefits and metrics specified. Neither region should be allocated a share of the cost of an interregional project in which it receives no benefit.

2) Transparency: The application of cost allocation methodologies and identification of benefits and beneficiaries must be transparent.

3) Different project types: Different cost allocation methods may be applied to different types (e.g., reliability, economic, or public policy requirements) or different portions of transmission facilities.

4) Quantify and Monetize: The identified benefits should be quantified and, if possible, monetized based on all internally used and additionally specified interregional benefit metrics. Non-monetized and non-quantified benefits should also be recognized in the assessment of the overall reasonableness of proposed interregional project cost allocations.

5) Benefits at Least Equal to Avoided Costs: The regions should agree that the monetized reliability, load serving, public policy, or other benefit of an interregional project will be at least equal to the avoided cost of achieving the same benefit solely through cost-effective local or regional transmission upgrades.

6) Hurdle Rate: If benefit-to-cost ratios are used to assess the desirability of an interregional project to a region or the regions as a group, the benefit-to-cost threshold must not exceed 1.25.

7) Regional Net Benefits: Benefits to each region need to be sufficiently large so that each region’s share of benefits exceeds its share of costs consistent with region-internal benefit-cost criteria.

8) Internal Cost Recovery: The costs allocated to each region must be recoverable through the existing internal—local and regional—cost allocation process of each region.–JP, JWC, and DH

Author Bio: 

Johannes Pfeifenberger and Judy Chang are principals of The Brattle Group. Delphine Hou is a former Brattle associate. This article is based on work undertaken for the Southwest Power Pool’s Regional State Committee and the associated report, Seams Cost Allocation: A Flexible Framework to Support Interregional Transmission Planning, April 2012, available at and The authors acknowledge sole responsibility for the content of this article.

Interregional planning under FERC Order 1000

The CAPX2020 Model: Part II

Xcel Energy’s Teresa Mogensen discusses public-private collaboration
One of the most ambitious transmission projects in America today is CAPX2020. In this second of two exclusive interviews, Fortnightly's Spark talks with Teresa Mogensen, Xcel Energy’s vice president of transmission, about how the investor-owned utility collaborated with public-power utilities to develop a complex set of lines and a solid investment for shareholders.

The CAPX2020 Model - Part I

Great River Energy’s Will Kaul discusses collaborative development
One of the most ambitious transmission projects in America today is CAPX2020, a series of lines in Minnesota and surrounding states. In this first of two exclusive interviews, Fortnightly's Spark talks with Will Kaul, Great River Energy’s v.p. of transmission, about how the project managed to succeed where others have failed.