With active support and encouragement from the CPUC, the CAISO created the Location Constrained Resource Interconnection (LCRI) policy in order to encourage the growth and use of renewable sources of energy. The FERC approved this initiative in December 2007. A critical and indispensible step in meeting California’s renewable energy goals is the development of transmission to access and deliver high quality renewable resources to electricity consumers.
The LCRI is the strategy for planning and recovering the costs of transmission serving multiple generators that are “location-constrained”, or distant from California energy consumers, due to the nature of their fuel (e.g., wind, solar).
The timely and efficient development of such transmission has previously been hindered by the “chicken and egg” dilemma: major transmission additions and their cost recovery could not be approved until sufficient generator commitments had been obtained, while generator commitments were inhibited by uncertain availability and timing of costly transmission.
Initial generation projects in remote areas could also be held financially responsible for a major transmission upgrade that would ultimately benefit future generators. This problem was exacerbated if the transmission addition extended beyond the integrated transmission network to a particular energy resource area. In such non-network situations, generators are held permanently responsible for the cost of the new transmission facilities, without ultimate reimbursement.
The CPUC partly resolved the chicken-and-egg dilemma by allowing “backstop” recovery for costs of transmission additions needed to meet California’s Renewable Portfolio Standard goals. This recovery, however, was limited to CPUC jurisdictional retail rates. Without FERC approval over FERC jurisdictional transmission rates, backstop cost recovery would be spread across only CPUC-jurisdictional retail customers, not the broader set of wholesale users of the transmission system.
This gap was the impetus behind the development of the LCRI policy. Under the LCRI policy, each location-constrained generator pays for its share of transmission facilities on a simple per-MW basis. The cost of transmission capacity not initially subscribed by generators is recovered in general transmission rates until additional new generators come online and pay for that capacity.
In order for a transmission project to be eligible for LCRI treatment, FERC-approved thresholds of generator commitment must be demonstrated. The CPUC actively participated in the process that developed this policy, and fully supported the CAISO’s proposal at the FERC.