In a 2-1 ruling (Illinois Commerce Commission, et al. v.FERC, 08-1306, et al.), the appeals court rejected the Federal Energy Regulatory Commissioner’s (FERC) rationale for approving the postage stamp rate by which all utilities would pay equally for the costs of new 500-kV or higher transmission lines in PJM (the Mid Atlantic RTO). Utility regulators in Illinois and Ohio opposed the postage stamp rate design because, they said, big lines being built for the benefit of eastern-PJM regions would not benefit customers in the western part of the RTO. A “license plate” approach is now privileged over the traditional postage-stamp, cost-socialization rate design.

The new burden of proof consists in equating the benefits with the utilities’ share of total electricity sales in PJM (in this case). However, this calculation does not need to be done to the granularity of an exact dollar figure. The fact that Eastern PJM members previously agreed to share the costs of such facilities was not a rationale accepted by the court. The idea is to make planners show that the consumers are not bearing a share of the costs disproportionate to the benefits they will receive.

This new standard will bring RTOs to decide what should be considered a regional project as opposed to a local one. This nuance is at the heart of the new Midwest Independent Transmission System Operator (MISO) and Southwest Power Pool (SPP), new rules for cost allocation and rate designs driven by the integration of significant amounts of wind in their footprints. In SPP and MISO, the system is seen as providing both local and regional benefits by allowing access to local generation and also providing delivery of non-local resources to non-local loads.

Under a license plate rate design, every transmission customer pays a rate that reflects the ratio of the costs and usage in the zone in which they are located.