ATC Cheers Elimination of Participant Funding Language.

WAUKESHA, Wis. -- American Transmission Co. applauds the House Energy and Commerce Committee for adopting an amendment offered by Rep. John Shimkus (R-IL) striking participant funding language from the Energy Policy Act of 2005. Given the various business structures and regional differences that exist across the country, flexibility is critical to efficient and fair allocation of transmission costs.

"What makes sense in Wisconsin - a highly constrained system in need of significant upgrades - probably is not going to make sense in a region that is more robust," said Dale Landgren, vice president and chief strategic officer at ATC. "Regions with organized markets administered by independent regional transmission organizations are going to have a different allocation process than an entity operating outside an RTO."

Participant funding is a cost allocation process under which certain transmission upgrades are paid for by generators that interconnect to the transmission system. However, as most transmission upgrades benefit a large number of customers and meet multiple needs, the result of participant funding is not necessarily to assign costs to those who benefit. Rather, participant funding seeks to force a single or very small group of users to pay for system upgrades regardless of who benefits. This creates the incentive to put off needed upgrades while waiting for someone else to pay and will likely slow much-needed investment in the grid.

The impact of participant funding is to limit the ability of new, independent generators to compete with existing generation, thereby driving up cost of energy.

According to Landgren, "Allocating the cost of transmission upgrades to those who benefit can be accomplished through appropriate rate design without the negative consequences of participant funding." Policymakers need to recognize that everyone benefits from a strong transmission grid, which argues for spreading the costs of most new transmission across a larger group of customers.

FERC has approved the use of participant funding in the Entergy system, PJM and other regions.

"It is simply not factual to say FERC has not sought to make those who benefit from transmission upgrades pay," said Landgren.

The arguments some make for participant funding are reasonable. For example, those states with significant energy resources that export large amounts of power to other regions should have a methodology for sharing the upgrade costs with neighboring states that benefit. However, this does not require an act of Congress. In fact, it is already being done, often without participant funding.

There has been a penchant in the debate for portraying cost allocation issues in black and white terms. Cost allocation is complex, negating the assumption that transmission lines used to export power do not benefit local ratepayers. Because power lines flow in both directions, system reliability is not assigned to certain users.

"Rather than focusing on how to pay for projects that meet the needs of a single market participant, we need to optimize and build projects that meet a variety of needs -especially the needs of local communities directly impacted by a transmission project," said Landgren.

Advocates of participant funding argue that the language simply makes participant funding voluntary. In reality, the language seeks to require the FERC to adopt participant funding plans proposed by transmission owners, even when the allocations are determined by entities with a commercial interest in the outcome.

"It is interesting that the very entities adamantly opposed to standard market design are so intent on enacting standard pricing design," Landgren said.

ATC plans, constructs, operates, maintains and will expand its transmission facilities to provide for adequate and reliable transmission of power. It provides non-discriminatory service to all customers, supporting effective competition in energy markets without favoring any market participant. A member of the Midwest ISO regional transmission organization, ATC owns more than 8,900 miles of transmission lines with a total investment of approximately $1 billion in transmission facilities in portions of Wisconsin, Michigan and Illinois.