On February 28, 2023, in Docket No. ER18-99, FERC issued an order addressing exceptions to an Initial Decision issued on December 6, 2021. The Initial Decision concerned disputes arising from Southwest Power Pool, Inc.’s (SPP) proposal to revise its Open Access Transmission Tariff (Tariff) to include the annual transmission revenue requirement (ATRR) of transmission facilities associated with the City of Nixa, Missouri (City of Nixa), owned by GridLiance High Plains LLC (GridLiance), in one of SPP’s existing transmission pricing zones, SPP Pricing Zone 10 (Zone 10), for purposes of rate recovery (Nixa Assets). In the Initial Decision, the Presiding Judge concluded that SPP’s proposal to incorporate the Nixa Assets in Zone 10 is consistent with cost causation principles and is otherwise just and reasonable. In its Order on Initial Decision, FERC affirmed the Initial Decision. On March 29, 2023, a joint request for rehearing was filed by two different intervener groups. In its Order on Rehearing issued July 5, 2023, FERC modified the discussion in the Order on Initial Decision and continued to reach the same result.
Background: SPP uses a zonal rate design, pursuant to which its footprint is separated into several transmission pricing zones for purposes of establishing transmission service rates. The Tariff specifies a zonal ATRR for each pricing zone that is based on the sum of the ATRRs for each transmission owner in the zone. The charges for Network Integration Transmission Service (network service) in a pricing zone are calculated by multiplying a customer’s percentage share of total load in the zone (i.e., its load ratio share) by the zonal ATRR. When a new transmission owner is added to an existing pricing zone, the ATRR for its transmission facilities in the zone and any associated load not already included in the zonal load are added to the existing zone’s zonal ATRR and total load. In 2017, SPP instituted a new Transmission Owner Zonal Placement Process (Zonal Placement Process) to review and determine zonal placement for existing transmission facilities that new SPP transmission-owning members propose to include under the SPP Tariff. A group of SPP transmission owners challenged the SPP Zonal Placement Process, arguing that allocating the costs of a new SPP member’s transmission facilities to existing customers of a zone results in an unjust and unreasonable cost shift between new and existing transmission customers. Although FERC denied the complaint, it also stated that parties may challenge the placement of a new transmission owner’s facilities in a transmission pricing zone. The Nixa Assets consist of approximately 10 miles of transmission lines and related facilities interconnected to Southwestern Power Administration (Southwestern) in Zone 10 and to City Utilities of Springfield, Missouri (City Utilities) in SPP Pricing Zone 3 (Zone 3). On October 18, 2017, SPP submitted proposed Tariff revisions to add an ATRR and a formula rate template and implementation protocols for the Nixa Assets. SPP explained that it had used its Zonal Placement Process to place the facilities in Zone 10. On March 15, 2018, FERC set the Tariff revisions for hearing and settlement judge procedures. After a settlement was unsuccessfully put forth to FERC, in late 2021, the Presiding Judge issued the Initial Decision, which addressed three general issues: (1) whether, and to what extent, the placement of the Nixa Assets in Zone 10 involves a cost shift; (2) whether benefits accrue to Zone 10 customers as a result of placing the Nixa Assets in Zone 10; and (3) whether the benefits justify the cost shift. The Presiding Judge determined that SPP’s proposal to incorporate the Nixa Assets in Zone 10 is consistent with cost causation principles and is otherwise just and reasonable. Specifically, the Presiding Judge found that: (1) the placement of the Nixa Assets in Zone 10 will result in a $1.8 million cost shift to Zone 10 customers; (2) the Nixa Assets accrue substantial, specific, but unquantifiable benefits (i.e., integration benefits, reliability enhancements, and support for power transfers) to Zone 10 customers; and (3) those benefits justify the cost shift involved in the placement of the Nixa Assets in Zone 10. In its Order on the Initial Decision, FERC affirmed the findings that SPP’s proposal to include the ATRR for the Nixa Assets in Zone 10 is just and reasonable and consistent with the cost causation principle and, accordingly, accepted SPP’s proposed Tariff revisions. As to the amount of the cost shift, FERC determined that the Presiding Judge properly balanced competing evidence to reach the finding that the cost shift at issue in this proceeding should be calculated as GridLiance’s proposed ATRR for the Nixa Assets, which is $1.8 million. In doing so, FERC rejected arguments that the proper amount of the cost shift should be measured by the amount or percentage of the Gridliance ATRR for the Nixa Assets that will be paid by non-City of Nixa customers rather than the full amount of the GridLiance ATRR. FERC explained that “the City of Nixa is already a Zone 10 customer and the Commission’s evaluation of the cost shift to Zone 10 customers can and should incorporate costs paid by the City of Nixa as well as other customers in that zone.” FERC also affirmed the Presiding Judge’s finding that the Nixa Assets provide benefits that accrue to Zone 10 customers, concluding that the record supports the finding that the Nixa Assets provide integration, reliability, and power transfer benefits to Zone 10 customers. Responding to “the main argument raised on exceptions” that the benefits that the Nixa Assets provide allegedly accrue mostly, if not entirely, to the City of Nixa rather than other Zone 10 customers, FERC found that the Presiding Judge properly evaluated the benefits of the Nixa Assets to all Zone 10 customers—including the City of Nixa—rather than restricting his findings to non-City of Nixa customers. In doing so, FERC explained that “under SPP’s zonal rate design, all customers in a pricing zone pay a rate based on the ATRRs associated with all transmission facilities in that zone, regardless of which facilities may have previously been used to provide service to a specific customer prior to the customer or the Transmission Owner joining the [Regional Transmission Organization (RTO)].” FERC also affirmed the Presiding Judge’s finding that the benefits to Zone 10 customers from the Nixa Assets are roughly commensurate with their costs, and therefore SPP’s proposal to include the Nixa Assets in Zone 10 was just and reasonable. FERC found that arguments that it should treat the “roughly commensurate” standard as requiring that any costs of a facility should be distributed “roughly proportionate” to the usage of that specific facility were “contrary to Commission precedent and inconsistent with how costs are allocated within SPP.” Finally, FERC affirmed the Presiding Judge’s dismissal of the alternative rate proposals made by intervenors since, having affirmed the Presiding Judge’s finding that SPP’s proposal is just and reasonable, it “need not consider whether the proposal is more or less reasonable than other alternatives.”
Arguments on Rehearing: Intervener arguments centered around their claim that a cost shift associated with a zonal placement decision under SPP’s Tariff cannot be just and reasonable unless each customer (or group of customers) that will bear some portion of the costs of those assets (or group of assets) is deriving a benefit from those specific assets that is “roughly proportionate” to those costs. The interveners sought to apply an asset-level, beneficiary-pays rough proportionality requirement. FERC disagreed with this view as it does not square with the existing zonal rate construct under the SPP Tariff. Under that construction, a transmission customer taking network service shall pay a monthly demand charge for the SPP Pricing Zone where the load is located (Load Ratio Share). As evident in this formula/calculation, SPP’s zonal rate construct does not attempt to measure each transmission customer’s benefit from each transmission asset included in the zonal ATRR. Nor does it charge each customer transmission costs on an asset-by-asset basis. Instead, under that zonal construct, the costs and benefits associated with network service in a zone are assessed on an aggregate level, with each customer paying for transmission service based on its load ratio share, which reflects its total use of the aggregate assets in the zone. Even if a customer does not benefit from a particular transmission asset in a manner roughly commensurate with its load ratio share, this does not demonstrate that the customer is not overall receiving roughly commensurate benefits from the transmission assets within the zone as compared to the zonal rates it is paying under SPP’s Tariff. The interveners also attempted to align their proposed proportionality requirement with SPP’s zonal rate construct by arguing that RTO zones will be ordinarily configured to allocate the costs of transmission facilities to the customers for whom they were constructed. FERC agreed that, in a typical case, it expects that a transmission asset should be included in the same zone as the customers for whom they were constructed and continue to serve. But this principle does not establish that zones generally, or SPP Pricing Zones in particular, have been or must be constructed to ensure that each customer benefits from each asset in the zone in rough proportion to the costs it pays for that specific asset, or that new assets that may be included in a zone must meet such a requirement.
FERC asserted that the facts of this case are as follows: including the Nixa Assets in Zone 10 will result in a $1.8 million increase in the zonal ATRR, a portion of which will be borne by the City of Nixa based on its load ratio share under SPP’s existing Tariff. Under these circumstances, considering the cost shift in terms of the $1.8 million ATRR of the Nixa Assets ensures that FERC does not take an incomplete view of the impacts of placing the Nixa Assets in Zone 10 by focusing only on how including the assets in Zone 10 impacts the non-City of Nixa customers. Considering the full picture of the costs and benefits of the Nixa Assets to all Zone 10 customers is also consistent with SPP’s zonal rate construct, which does not evaluate the costs and benefits of transmission assets in a zone at the level of how individual customers use each of those assets, as explained above.
 Sw. Power Pool, Inc., 182 FERC ¶ 61,141 (2023) (Order on Initial Decision).
 Sw. Power Pool, Inc., 177 FERC ¶ 63,021 (2021) (Initial Decision).
 GridLiance was formerly known as South Central MCN LLC.
 Indicated SPP Transmission Owners v. Sw. Power Pool, Inc., 162 FERC ¶ 61,213 (ITOs Complaint Order), reh’g denied, 165 FERC ¶ 61,005 (2018) (ITOs Complaint Rehearing Order).
 Order on Initial Decision, 182 FERC ¶ 61,141 at P 4 (summarizing the basis for the Commission’s denial of the complaint in the ITOs Complaint Order and ITOs Complaint Rehearing Order).
 ITOs Complaint Order, 162 FERC ¶ 61,213 at P 74.
 GridLiance acquired the Nixa Assets from the City of Nixa on April 1, 2018. Missouri Joint Municipal Electric Utility Commission then acquired the Nixa Assets from GridLiance on May 19, 2022. See Sw. Power Pool, 179 FERC ¶ 61,134, at P 1, 4 (2022).
 Sw. Power Pool, Inc., 162 FERC ¶ 61,215 (Hearing Order), order on reh’g and clarification, 164 FERC ¶ 61,120 (2018) (Rehearing Order).
 Initial Decision, 177 FERC ¶ 63,021 at PP 2, 188, 206.
Dr. Paul Dumais
CEO of Dumais Consulting with expertise in FERC regulatory matters, including transmission formula rates, reactive power and more.