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SPP Staff Proposal on TO Zonal Placement

April 20, 2017

Outline

• I. Background of the Staff’s Proposal – Paul Suskie

• II. Examples of New TO additions – Carl Monroe

• III. SPC Motion & Updated Staff Proposal– Charles Locke

• IV. Staff’s Recommendation to Move Forward – Paul Suskie

• V. Q&A – All

• VI. Next Steps – Mike Wise

2

Background of the Staff’s Proposal Paul Suskie

3

Staff Internal Team

• Carl Monroe, EVP & COO

• Paul Suskie, EVP & GC

• Pat Bourne, Director Transmission Policy

• Mike Riley, Associate General Counsel

• Charles Locke, Lead Regulatory Analyst

4

Zonal Placement Meetings

SPP Org Group Meetings June 2016 – RTWG

October 2016 – SPC

January 2017 – SPC

Individual Stakeholder Outreach by SPP Staff

December 2016 –

2 calls with KCPL & MJMEUC

January 2017 –

4 calls with KCPL; MJMEUC; and Gridliance

February 2017 –

8 calls with: KPP; KCPL; Gridliance; OG+E; AEP; MJMEUC; NPPD; Basin

Ad Hoc Stakeholder Meetings March 1, 2017 – 1st Draft

March 10, 2017- 2nd Draft

SPC Special Meeting

March 21, 2017 – Staff Proposal

Additional Stakeholder Outreach by SPP Staff

April 3-10, 2017 –

Contacts with OG+E; AEP; MJMEUC; Gridliance; NPPD; Basin; KPP; and KCP&L

5

Transmission Owner Changes1. ETEC in AEP (1/1/2007)

2. ITC Great Plains in MKEC (8/18/2009)

3. OMPA in AEP (1/1/2010)

4. OMPA in OGE (1/1/2010)

5. Transcos in AEP (7/1/2010)

6. Prairie Wind (4/1/2011)

7. Prairie Wind (4/1/2011)

8. Kansas Power Pool in Westar (12/20/2011)

9. Tri-County in SPS (4/1/2012)

10. Coffeyville in AEP (7/1/2013)

11. Transource MO (1/1/2014)

12. Lea County in SPS (4/1/2014)

13. CNPPD in NPPD (1/1/2015)

14. City of Independence in KCPL (6/1/2015)

15. Tri-State in NPPD (1/1/2016)

16. AECC in AEP (7/1/2016)

17. AECC in OGE (7/1/2016)

18. Integrated System (10/1/2015) 6

1

2

3

45

7

6

8

12

16

15

14

13

9

11

Transmission Owner Placed in Tariff

10

16

17

Stars do not indicate exact placement of Facilities

18

UMZ Additions

7

19a Western-UGP

19b Basin Electric Power Cooperative

19c Heartland Consumers Power District

19d Missouri River Energy Services - Total

19d (i) Missouri River Energy Services

19d(ii) Moorhead Public Service

19d(iii) Orange City Municipal Utilities

19d(iv) City of Pierre, South Dakota

19d(v) City of Sioux Center, Iowa

19d(vi) Watertown Municipal Utility Department

19d(vii) Denison Municipal Utilities

19d(viii) Vermillion Light & Power

19e East River Electric Power Cooperative, Inc.

19f Corn Belt Power Cooperative

19g NorthWestern Corporation (South Dakota)

19h Northwest Iowa Power Cooperative

19i Harlan Municipal Utilities

19j Central Power Electric Cooperative

Upper Missouri Zone – Total

Upper Missouri Zone Information

8

Number from

Zonal

Placement

Changes

Map

Zone

Number

from

Attachment

H

Transmission Owner Effective Date Resolution

16 19 Upper Missouri Zone – Total

16 19a Western-UGP 10/1/2015 As Filed

16 19b Basin Electric Power Cooperative 10/1/2015 Settled

16 19c Heartland Consumers Power District 10/1/2015 Settled

16 19d Missouri River Energy Services - Total 10/1/2015 Settled

16 19d (i) Missouri River Energy Services 10/1/2015 Settled

16 19d(ii) Moorhead Public Service 10/1/2015 Settled

16 19d(iii) Orange City Municipal Utilities 10/1/2015 Settled

16 19d(iv) City of Pierre, South Dakota 10/1/2015 Settled

16 19d(v) City of Sioux Center, Iowa 10/1/2015 Settled

16 19d(vi) Watertown Municipal Utility Department 10/1/2015 Settled

16 19d(vii) Denison Municipal Utilities 2/1/2107 In Settlement

16 19d(viii) Vermillion Light & Power 2/1/2017 In Settlement

16 19e East River Electric Power Cooperative, 10/1/2015 Settled

16 19f Corn Belt Power Cooperative 10/1/2015 In Settlement

16 19g NorthWestern Corporation (South Dakota) 10/1/2015 Settled

16 19h Northwest Iowa Power Cooperative 10/1/2015 Settled

16 19i Harlan Municipal Utilities 10/1/2015 As Filed

16 19j Central Power Electric Cooperative 10/1/2015 In Settlement

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New Transmission Owner Information

New Transmission Owner (TO)

& Docket Number

Existing

Zone

Placement

Effective

Date

Requested

Zonal

ATRR

(Schedule

9)

Existing Zonal

ATRR Before

New

Transmission

Owner

% Increase

of

Requested

Zonal

ATRR to

Zone

FERC

Approved

Zonal ATRR

(Schedule 9)

% Increase

from FREC

Approved

Zonal ATRR

to the Zone

Resolution

1 ETEC ER07-396 AEP 1/1/2007 3,750,884 $88,681,579 0.47% no change no change As Filed

2 ITC Great Plains ER10-45 MKEC 8/18/2009 $673,368 $5,947,002 11.32% no change no change As Filed

3 OMPA ER10-273 AEP 1/1/2010 $748,647 $150,913,384 0.50% no change no change As Filed

4 OMPA ER10-273 OGE 1/1/2010 $106,268 $81,045,221 0.13% no change no change As Filed

5 Transcos ER11-2198 AEP 7/1/2010 $6,400 $133,972,249 0.005% no change no change As Filed

6 Prairie Wind ER11-3455 Regional 4/1/2011 No Sch 9 N/A 0.00% No Sch 9 N/A As Filed

7 Prairie Wind ER11-3455 Regional 4/1/2011 No Sch 9 N/A 0.00% No Sch 9 N/A As Filed

8 Kansas Power Pool ER12-140 Westar 12/20/2011 $528,917 $122,022,353 0.43% $350,243 0.29% Settled

9 Tri-County ER012-959 SPS 4/1/2012 $1,982,840 $110,464,906 1.79% $0 0.00% Hearing

10 Coffeyville ER14-418 AEP 7/1/2013 $391,790 $183,137,376 0.21% no change no change As Filed

11 Transource MO ER14-236 Regional 1/1/2014 No Sch 9 N/A 0.00% No Sch 9 N/A As Filed

12 Lea County ER14-1225 SPS 4/1/2014 $462,556 $109,581,048 0.42% $388,000 0.35% Settled

13 CNPPID ER15-279 NPPD 1/1/2015 $536,767 $47,541,737 1.13% $450,000 0.95% Settled

14 City of Indepedence ER15-1499 KCPL 6/1/2015 $7,237,454 $35,262,529 20.52% $3,000,000 8.51%

Settled-Phase

In

1/1/2017 $38,973,963* $3,750,000 9.62%

Settled-Phase

In

1/1/2018 $38,973,963* $5,000,000 12.83%

Settled-Phase

In

15 Tri-State ER16-204 NPPD 1/1/2016 $8,127,996 $45,213,710 17.98% Pending ??? In Settlement

16 AECC ER16-1546 AEP 7/1/2016 $584,186 $218,568,931 0.27% Pending ??? In Settlement

17 AECC ER16-1546 OGE 7/1/2016 $433,586 $93,307,022 0.46% Pending ??? In Settlement

* The % increase is based on the Schedule 9 ATRR for the Existing Zone’s TO at the time of the Phased-In ATRR for the New TO

FERC Cases on Zonal PlacementSPP Case:

Tri-State/NPPD Case (Docket No. ER16-204):

* FERC Administrative Law Judge’s order -- dated February 23, 2017.

MISO Case:

MISO/City of Rochester, MN/NPS-Xcel Case(Docket Nos. ER15-

277 & ER14-2134):

* FERC order -- dated December 30, 2014; FERC conditionally approve a

request by MISO and the City of Rochester “to make proposed revisions to . . . the MISO [Tariff] … subject to refund” and set the issues/dockets for hearing and settlement judge procedures.

FERC 206 Docket (Docket No. EL17-44):

* In a rehearing Order in MISO/Rochester Docket – dated February 3, 2017, FERC “institute[d] a proceeding pursuant to section 206 of the Federal Power Act (FPA) to examine the Joint Pricing Zone Revenue Allocation Agreement (JPZ Agreement) for Zone 16 of the MISO Tariff.”

* The first round of comments in the FERC investigation were due March 16th.

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Examples of New TO AdditionsCarl Monroe

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3 Scenarios of New TO Additions

(1) New Transmission Owner is already taking Network transmission service – Has Load in SPP.

(2) New Transmission Owner is not taking Network transmission service – Adds New Load to SPP.

(3) New Transmission Owner that will take no transmission service – Adds no load to SPP.

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Scenario 1:New Transmission Owner is already taking Network transmission service

Scenario can include a municipality or cooperative that is a Network transmission customer of SPP and requests to place its transmission assets under SPP tariff.

Cost impacts in the following slide assume that the transmission facilities are placed in an existing zone where the entity is already taking Network Service.

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(1) Example of New T.O. with Current Network Load

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Before Transfer After Transfer Cost Shift

Tariff Revenue Requirement

Existing 100,000,000$ 100,000,000$

Transferring Facilities -$ 4,000,000$

Total 100,000,000$ 104,000,000$

Load Ratio Share

Load of Existing TO 98% 98%

Load of New TO 2% 2%

Sch. 9 Charges

Load of Existing TO 98,000,000$ 101,920,000$

Load of New TO 2,000,000$ 2,080,000$

Total 100,000,000$ 104,000,000$

Total Costs

Load of Existing TO - Sch. 9 98,000,000$ 101,920,000$ 3,920,000$

Load of New TO

Sch. 9 2,000,000$ 2,080,000$

Transferring Facilities 4,000,000$ -$

Total 6,000,000$ 2,080,000$ (3,920,000)$

Scenario 2:New Transmission Owner is not taking Network transmission service - Adds New Load to SPP.

Scenario can include a municipality or cooperative that is not a Network transmission customer of SPP and requests to place its transmission assets under SPP tariff.

Cost impacts in the following slide assume that the transmission facilities are placed in an existing zone and the entity begins taking Network Service at the time of asset transfer.

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(2) Example of New T.O. with New Network Load

16



Existing 100,000,000$ 100,000,000$


Total 100,000,000$ 104,000,000$

Load Ratio Share



Sch. 9 Charges


Load of New TO -$ 2,080,000$

Total 100,000,000$ 104,000,000$

Total Costs


Load of New TO

Sch. 9 -$ 2,080,000$


Total 4,000,000$ 2,080,000$ (1,920,000)$

Scenario 3:New Transmission Owner that will take no transmission service - Adds no new load to SPP.

Scenario can include transmission only company (Transco) that requests to place its transmission assets under SPP tariff. This scenario assumes the facilities were not directed to be built by SPP.

Cost impacts in the following slide assume that the transmission facilities are placed in an existing zone.

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(3) Example of New T.O. withNo Network Load

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Existing 100,000,000$ 100,000,000$


Total 100,000,000$ 104,000,000$

Load Ratio Share



Sch. 9 Charges


Load of New TO -$ -$

Total 100,000,000$ 104,000,000$

Total Costs


New TO

Sch. 9 -$ -$


Total 4,000,000$ -$ (4,000,000)$

SPC Motion & Updated Staff ProposalCharles Locke

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March 21, 2017 SPC Motion

Staff to consider revising the proposal to address:

(1) Planning process review consistent with SPP Tariff Attachment AI;

(2) A symmetrical cost/benefit analysis; and

(3) A phase-in process for regulatory assets that evaluates the time value of money.

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Current Staff Proposal – Minor Changes

• No change to proposed Mitigation Threshold: (1) After several stakeholder calls, Staff found no consensus regarding mitigation. (2) Addition of an arbitrator-set mitigation was not well supported.

• Planning Criteria for Added Facilities: Staff supports a new & separate stakeholder initiative to consider the application of criteria to Schedule 9 facilities added to SPP rates.

• No addition of an Analysis of Benefits: Transfer of facilities does improve reliability of operations & outage coordination but is challenging to quantify.

• Regulatory Asset Phase-In: If needed, this can be initiated by the Applicant Transmission Owner through its revenue requirement filing.

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Process Flow Chart – 6 Steps

1. SPP Notified by ATO

2) SPP Requests Data From ATO

3) SPP conducts Analysis

(A) Zonal Placement & (B) Cost Analysis

4) Negotiations – ATO & Zone

5) SPP’s Cost Mitigation Analysis

6) SPP files to revise Tariff

22

If New Zone, Go to Step 6

If Agreement Reached, Step 6

No Agreement File Mitigation

Should SPP adopt a negotiation-only approach without other steps?

No. If Stakeholders do not support a mitigation threshold methodology, SPP Staff proposes to retain Steps 1-4 and 6 of the current Staff Proposal in order to promote information flow and transparency.

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Why maintain minimum zone size?

• Sch. 9 charges that reflect use of the system

• Sch. 11 Zonal charges (30-40% of all Sch. 11) Reflect use of the system and avoid free riders

Protect small loads from disproportionate charges

• Reduce administrative cost Settlements, OASIS, Att. H, Att. M, Att. T, RCAR, RRR File

• Treat transferring facilities with and without load in comparable manner

• Reduce disparity in zonal rates

• Maintain through-and-out service revenues

24

Why not use cost shift in zonal placement decision?

• Creates equity problems in numerous situations, such as when the smaller cost increase applies to the zone with higher rates

• May be difficult to obtain FERC approval of this approach

• Cost shift should not override electrical and operational considerations including degree of interconnectivity and location of load

• Cost shift as a criterion can increase disparity in:

Zonal rates

Size of Zones

25

Why not include Schedule 11 in baseline costs for rate impact?

• The rate effect of transferring existing facilities is the cost shift issue. The issue is not the load’s customer status, which drives Sch. 11 charges

• Application of 30.9 credits in the baseline assumes the ATO’s load is or will be taking Network Service. Therefore, Sch. 11 costs are allocated to all zonal loads in the baseline assumption

• There are benefits to the ATO’s load associated with its share of Sch. 11 charges

• Including Sch. 11 in the baseline blurs the distinction between cost categories that have been separated under the Tariff for allocation purposes

26

Staff’s Recommendation to Move ForwardPaul Suskie

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Process Flow Chart – 6 5 Steps








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If New Zone,

Go to Step 65


File default revenue

requirement

Consider Removing

Staff’s Recommended Options to Move Forward – Decision Points• (1) Retain all other steps of the Current Staff Proposal

Improve transparency

Increase information sharing

Enable the opportunity for a negotiated compromise

NOT INCLUDIING Step 5 (Mitigation)

• (2) Recommend Adding Zonal Placement Criteria to Tariff.

• (3) Consider the removal of the cost shift mitigation threshold from the Current Staff Proposal due to lack of consensus.

If no decision is made by stakeholders, the default is what SPP has done to date.

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(1) Retain all other steps of the Current Staff Proposal – Except 5.

30








If New Zone,

Go to Step 65


File default revenue

requirement

Consider Removing

(2) Recommend Adding Zonal Placement Criteria to Tariff.

31

In evaluating the zonal placement of existing facilities, SPP staff is to review the information

provided by the ATO and apply the following criteria in determining whether to place the facilities

in a new Zone:

1. Whether the ATRR of the Transferring Facilities is less than the minimum zonal ATRR

benchmark, as described in the Zonal Placement Analysis Procedures (Appendix B);

2. The extent to which the Transferring Facilities substantively increase the SPP regional footprint;

and

3. The extent to which the load served through the Transferring Facilities received Network Service

or Long-Term Firm Point-To-Point Transmission Service within existing Zones prior to the

transfer.

If the facilities are not placed in a new Zone, SPP staff is to apply the following criteria in

determining which existing Zone the facilities are to be placed in:

1. The extent to which the Transferring Facilities are embedded within an existing Zone;

2. The extent to which the Transferring Facilities are integrated with an existing Zone; and

3. The extent to which the load served through the Transferring Facilities received Network Service

or Long-Term Firm Point-To-Point Transmission Service within each existing Zone prior to the

transfer.

(3) Removal of the cost shift mitigation threshold from the Current Staff Proposal

• (1) After several stakeholder calls, Staff found no consensus regarding mitigation.

• (2) Addition of an arbitrator-set mitigation was not well supported.

• (3) Possible Stakeholder option(s)?

32

In which governing documents should the policy be placed?

If approved, each element of the policy could be placed as follows:

• In the Tariff:

Scope of the zonal placement policy

Description of the steps in the process

Zonal placement key criteria

• In a business practice:

Informational requirements

Zonal placement analysis details

Transferring facilities review

Cost mitigation process, if approved

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Questions and Next Steps

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