Transmission Benefit Quantification, Cost Allocation and Cost Recovery

This project was commissioned to perform a scoping study to understand transmission benefit quantification, cost allocation, cost recovery, and project approval processes with a particular focus on recommending new methods for improved benefit quantification and cost allocation that better fits the new electric industry structure and planning environment. Research goals and objectives included:

1. Review methodologies currently being used for transmission project quantification.
2. Review and summarize benefit analysis that have been carried out for some recent transmission projects in California.
3. Present and summarize research results to improve benefit quantification methods for new transmission projects.
4. Outline approaches to apply improved benefit quantification method to: evaluate project cost effectiveness, allocate project costs among participants, and develop framework for cost recovery.

Key conclusions and research recommendations are:

• Use a social rate of discount to calculate the present worth of benefits of a new major regional transmission projects rather than utility cost of capital to recognize the public good and long life attributes of transmission.
• Calculate explicitly the fuel diversity benefit from integration of large renewable resources.
• Utilize a stakeholder consensus approach, such as Delphi method, to assign value to some of the strategic benefits such as risk mitigation against extreme reliability and market volatility events.
• Initiate research into (a) dynamic analysis to evaluate the impact on generation expansion in exporting regions (b) resource portfolios analysis to assess performance of different combination of demand response, renewables and fuel based generation, transmission and energy conservation programs, and (c) quantification of extreme event benefits (Insurance Value) in terms of reliability and reduced market volatility to estimate the benefits from the low probability/high impact events.