Ameren Should LOSE the Latest Battle Over Option 1 Network Upgrade Funding in the Midcontinent ISO Region
Ameren is at it yet again--perpetuating a method for funding generator interconnection network upgrades in MISO that the Federal Energy Regulatory Commission (FERC) found to be unjust, unreasonable, and discriminatory over three years ago. Ameren has already won two cases that allowed it to continue using Option 1 funding for certain interconnection customers. But Ameren should lose this one. Here's why:
A Brief History. Prior to March 22, 2011, the MISO tariff provided three methods for funding interconnection network upgrades. Option 1 required an interconnection customer to upfront fund the cost of network upgrades (post security and pay monthly construction costs); when those upgrades became commercially operational, the transmission owner would reimburse the full amount paid by the customer and then establish a transmission rate to charge the customer for using the upgrade on an ongoing basis. Option 2 funding also required the customer to pay upfront construction costs, but then the customer was reimbursed a portion of those costs following commercial operation. Option 2 did not include an ongoing rate. As a result, over time Option 1 funding could result in multiples of the actual cost that a customer might pay under Option 2. (The third option--"self-fund"--allowed a transmission owner to pay upfront costs itself and then charge a usage rate.)
On March 22, 2011, FERC responded to a complaint about Option 1 funding by independent power producers, determining that the method was "unjust, unreasonable, and discriminatory." FERC ordered MISO to remove Option 1 funding from its tariff. That order is found here: E.ON Climate & Renewables.
However, in the past couple of years, Ameren has successfully won the right to continue using Option 1 funding in interconnection agreements that were signed prior to FERC's decision in E.ON. After FERC issued its decision in E.ON, certain customers attempted to obtain the benefit of that decision by having FERC alter their agreements where they had agreed to Option 1 funding. But FERC denied the attempts, primarily on the basis that those prior agreements expressly provided for Option 1 funding and that it would not be in the public interest to unilaterally modify the contracts. In other words, those customers who sought to benefit from the E.ON decision had express notice that Option 1 funding would apply and they failed to raise a timely dispute; FERC would not reset the contracts they had agreed to. Those decisions are available here: Rail Splitter (agreed to Option 1 funding by signing a Facilities Service Agreement) and Hoopeston (agreed to Option 1 funding in its interconnection agreement).
Now we come to the current dispute over Option 1 funding. This docket focuses on an interconnection agreement that Ameren signed with White Oak Energy in 2007. At that time, Option 1 funding existed under the MISO tariff, but White Oak's interconnection agreement said nothing expressly about Option 1 funding. In addition, Ameren was not required to select the funding method until the network upgrades reached commercial operation. At the time of signing its interconnection agreement, if White Oak had disputed the potential application of Option 1, FERC would have likely dismissed the dispute for being unripe. It wasn't a real issue yet.
Fast forward four years. Ameren completed construction of White Oak's network upgrades in 2011 and notified White Oak at that time that Option 1 would apply. White Oak disagreed repeatedly, leaving Ameren forced to file White Oak's Facilities Service Agreement unexecuted with FERC. Under the proposed funding method, White Oak's network upgrades (actual cost $2,399,128) will cost $8,292,180 over 20 years under the ongoing rate. You can see Ameren's application to FERC here: White Oak FSA Application.
So why should White Oak receive a different result than the customers in Rail Splitter and Hoopeston? White Oak should be treated differently because, until now, it had no prior opportunity to complain to FERC about this method for funding network upgrades that we know to be discriminatory. Unlike the customers in Rail Splitter and Hoopeston, who waived their opportunity to complain and consequently needed FERC to undo contracts they'd agreed to, White Oak has never agreed to Option 1 funding--there is no contract to undo As a result, White Oak should now be afforded the chance to argue against Option 1 funding on the merits (see E.ON), rather than being hung up by procedural technicalities and the Mobile-Sierra doctrine.
If FERC were to rule in White Oak's favor, then the decision would help to restrict the application of this discriminatory method of funding network upgrades to a limited group of interconnection customers (i.e., those who expressly agreed to Option 1 in a contract) and to insulate those who are just now receiving notice of Option 1 funding from the absurd results that accompany it. But we'll need to wait and see if those at FERC who call balls and strikes see it the same way.
7th Circuit Affirms FERC's Decision on Multi-Value Projects, Relying Heavily on Policy of Promoting Wind Development
From my colleague, Andrew Moratzka:
On June 7th, 2013, the United States Court of Appeals for the Seventh Circuit issued an opinion in Illinois Commerce Commission, et al., v. Federal Energy Regulatory Commission, affirming the Federal Energy Regulatory Commission’s approval of the Midcontinent Independent System Operator, Inc. (MISO) Multi-Value Project (MVP) tariff for financing new high-voltage power lines that largely serve remote wind farms.
Six issues were before the court: (i) the proportionality of benefits to costs for MVPs; (ii) the procedural adequacy of the previous proceedings; (iii) the propriety of an energy-cost allocator for MVPs; (iv) whether MISO should be allowed to add an MVP fee to utilities belonging to the PJM Interconnection, LLC (“PJM”); (v) whether MISO should be permitted to assess some costs associated with MVPs; and (vi) whether the Commission’s approval of the MVP tariff violates the Tenth Amendment to the Constitution by invading state rights. The fourth and fifth issues were remanded. And the court quickly dismissed the sixth issue at the outset of the opinion, stating that the arguments amounted to an assertion that the MVP tariff “provides a carrot that states won’t be able to resist eating.” This entry therefore focuses on issues (i) – (iii).
The court addressed issues (i) and (ii) together. There are two important takeaways in this section of the opinion. First, MISO’s burden of establishing rough proportionality of costs to benefits under the Federal Power Act arguably changed in the name of policy. The court stated that “The promotion of wind power by the MVP program deserves emphasis” and that wind power will probably “grow fast and confer substantial benefits on the region.” The court determined there was “no reason to think these benefits will be denied to particular subregions of MISO” and found that other benefits (e.g., reliability) were real, even though they couldn’t be calculated in advance. The court then went on to find that MISO’s and FERC’s efforts to match cost and benefits, even if crude, were sufficient. It is not entirely clear how this aspect of the opinion can be reconciled with the court’s previous opinion in Illinois Commerce Commission v. FERC. But it appears the policy of promoting wind power influenced the decision in this case. Moreover, the court rejected requests for an evidentiary hearing on this issue, on the basis that requiring such proceedings after two years of appeal “would create unconscionable regulatory delay.”
The second takeaway is a comment made by the court in response to a criticism raised by the State of Michigan, which claimed it would not benefit from out-of-state MVPs because a provision in Michigan law forbids Michigan utilities from counting renewable energy generated out of the state to satisfy requirements under the state’s Clean, Renewable, and Efficiency Act of 2008. The court stated that Michigan cannot discriminate against out-of-state renewable energy without violating the commerce clause of Article I of the Constitution. This statement could have significant ripple effects on similar laws around the country that give preference to in-state renewable resources or impose limits on imported generation.
The policy of promoting wind development also seemed to influence issue (iii). The court found that the objection to an energy allocator was refuted by the fact that a primary goal of the MVPs is to increase the supply of renewable energy. It acknowledged that wind production is intermittent and not a reliable source of energy to meet peak demand. But the court concluded that MVP lines will enable plants to serve off-peak demand and stated that “MISO and FERC were entitled to conclude that the benefits of more and cheaper wind power predominate over the benefits of greater reliability brought about by improvement in meeting peak demand.”
Two new energy storage studies are getting underway this summer in the Midwest Independent System Operator (MISO) footprint: the Energy Storage Study and the Manitoba Hydro Wind Synergy Study. At MISO’s Energy Storage Workshop held on June 29, 2011, MISO explained that its goals are to explore the potential reliability, market, and planning benefits of energy storage technologies and estimate the price inflection point where energy storage provides benefits to MISO markets.
The Energy Storage Study will focus on battery technology, compressed air, and pumped storage. The first phase of the study will be completed in November 2011 and a second phase by the end of June 2012. MISO’s new Energy Storage Technical Review Group will meet for the first time on August 3, 2011, when it will consider the Draft Energy Storage Study Scope. The Manitoba Hydro Wind Synergy Study will focus on Manitoba Hydro’s capabilities as essentially a “super-sized pumped storage plant.”
These studies are the next steps in MISO’s efforts to incorporate long-term storage into its markets. In February 2008, a FERC Order on Ancillary Market Services directed MISO to evaluate operational and procedural adjustments to remove barriers to the comparable treatment of new technologies (Docket No. ER07-1372). In a December 31, 2009 Order, FERC conditionally accepted MISO tariff provisions for Stored Energy Resources (Docket No. ER09-1126), finding that the operating requirements and compensation for Stored Energy Resources would be comparable to other resources providing regulating reserves. Pursuant to the December 31, 2009 Order, MISO also submitted an informational report to FERC on March 1, 2010 describing its efforts to incorporate long-term storage resources into the market. The two energy storage studies starting this summer move these efforts to a formal study phase.
Yesterday, December 16, 2010, the Federal Energy Regulatory Commission (FERC) conditionally approved a proposal by the Midwest Independent Transmission System Operator (MISO) that significantly changes how large transmission upgrades are funded across the MISO region.
MISO’s proposal creates a new category of transmission projects called Multi-Value Projects (MVPs) for upgrades that are determined to enable reliable and economic delivery of energy in support of public policy mandates or laws that address transmission reliability and congestion across multiple transmission zones.
MISO’s proposal is effective as of July 16, 2010 and thus applies to transmission projects identified in Appendix A of 2010 MISO Transmission Expansion Plan (MTEP).
If you have any questions about the order, how it may affect your generation or transmission project, or wind energy development in the Midwest, please contact one of the following attorneys:
Mark Hanson at (612) 373-8823 or firstname.lastname@example.org
Kevin Johnson at (612) 373-8803 or email@example.com
Kevin Prohaska at (612) 373-8805 or firstname.lastname@example.org
David Quinby at (612) 373-8825 or email@example.com
Joe Thompson at (612) 373-8822 or firstname.lastname@example.org
Sarah Johnson Phillips at (612) 373-8843 or email@example.com
Jennifer Martin at (503) 294-9852 or firstname.lastname@example.org
Marcus Wood at (503) 294-9434 or email@example.com
Sara Bergan at (503) 294-9336 or firstname.lastname@example.org
Jason Johns at (503) 294-9618 or email@example.com
Midwest ISO Final MVP Cost Allocation Proposal Won't Charge Generators for New Transmission Needed for Wind Energy
From our colleague Sarah Johnson Phillips: Although the proposal spreads the cost of MVPs across the Midwest ISO, the new proposal keeps the current cost sharing methodology for generation interconnection projects. All interconnection costs would be allocated to the interconnecting developer, except 10% would be shared by load for large facilities (345 kV and above). The proposal also addresses the generator interconnection cost “free rider” problem by allowing earlier projects to be reimbursed by later projects using the same upgrades. This cost allocation for generator interconnection was imposed by the Midwest ISO in 2009 as an interim measure to address what is known as the “Otter Tail problem” It shifted virtually all interconnection costs to developers and relieved transmission owners and their ratepayers from contributing to upgrades that reinforce the grid to everyone’s benefit. See our blog entry from last year for more history on the Midwest ISO cost allocation controversy.
Much to the relief of wind developers in the Midwest, the Midwest ISO has backed off a plan to charge new and existing generators 20% of the cost of new transmission needed to meet renewable energy development goals.
Yesterday, the Midwest ISO released its final cost allocation proposal, which it will file with the Federal Energy Regulatory Commission on July 15, 2010. In the final proposal, the cost of Multi-Value Projects (MVPs) will be spread evenly to load throughout the MISO footprint on an energy basis. MVPs are transmission projects needed to support renewable energy development, other policy drivers, or have multiple benefits such as reliability and market efficiency. Previous cost allocation proposals would have allocated 20% of the cost of MVPs to new and existing generators. That potential cost burden and resulting cost uncertainty had caused some wind industry observers to speculate that wind projects would abandon the Midwest for other parts of the country where transmission is cheaper.
Wind industry advocates, such as Wind on the Wires, still hope to clarify some additional issues in the cost allocation proposal—such as clearer criteria for what qualifies as an MVP and a plan for how to transition from the current system to the new system. Some of these outstanding issues could yet be addressed between now and the July 15th filing.
At this point it is difficult to know if the MVP proposal will result in most major upgrades being paid for by loads, with generators paying for only modest network upgrades under their generator interconnection agreements. But, for now, removal of the 20% charge to generator for MVPs is a big victory for wind development in the Midwest. If wind developers continue to experience attempts to impose the cost of major transmission projects on them, the victory on the MVPs will be a pyrrhic one.
Affordable new transmission for wind energy is critical for Midwestern states to meet their renewable energy mandates and to achieve the regional goals set by the Midwestern Governors Association of 10% renewable electricity by 2015, 20% by 2020, and 30% by 2030.
A summary of the Midwest ISO Final Cost Allocation proposal, as presented to the Regional Expansion Criteria & Benefits (RECB) Task Force yesterday, is available here.
Although the proposal spreads the cost of MVPs across the Midwest ISO, the new proposal keeps the current cost sharing methodology for generation interconnection projects. All interconnection costs would be allocated to the interconnecting developer, except 10% would be shared by load for large facilities (345 kV and above). The proposal also addresses the generator interconnection cost “free rider” problem by allowing earlier projects to be reimbursed by later projects using the same upgrades. This cost allocation for generator interconnection was imposed by the Midwest ISO in 2009 as an interim measure to address what is known as the “Otter Tail problem” It shifted virtually all interconnection costs to developers and relieved transmission owners and their ratepayers from contributing to upgrades that reinforce the grid to everyone’s benefit. See our blog entry from last year for more history on the Midwest ISO cost allocation controversy.
This afternoon, the Federal Energy Regulatory Commission conditionally approved the Midwest Independent Transmission System Operator's (MISO) proposed tariff amendment regarding allocating the cost of network upgrades for generation interconnection projects meeting MISO's regional expansion criteria and benefits (RECB) standards. See my previous blog entry for a more detailed discussion on the history of the tariff amendment, as well as protests to the amendment filed by AWEA and others.
Under the decision rendered today, FERC found that the proposed solution provides an interim solution, and directs MISO to make a compliance filing (1) to fulfill its commitment to file superseding tariff revisions regarding the Phase II cost allocation methodology on or before July 15, 2010, and (2) to reflect certain conforming changes to its tariff. In addition, FERC expects MISO to provide the Commission with status reports on the Phase II process.
To see any of the documents filed in this proceeding, go to FERC's eLibrary website and enter in Docket No. ER09-1431.
On September 2, 2009, the Federal Energy Regulatory Commission issued a letter of deficiency to the Midwest Independent Transmission System Operator in MISO's RECB Phase I generator interconnect cost allocation tariff amendment proceedings (Docket No. ER09-1431). See my previous blog entry on AWEA's protest to the MISO filing for additional background.
The letter instructs MISO to provide certain supplemental information within fifteen days. Specifically, MISO is instructed to provide a list of all of the interconnection projects that will be affected by the tariff amendment, an explanation of MISO's position on the relevant date for determining which cost allocation method methodology will apply, and additional support for certain statements made in its filing regarding attrition rates and elimination of certain requirements of interconnecting generators resulting from the filing. Finally, MISO is instructed to provide a timeline and description of the anticipated RECB Phase II methodology stakeholder process that will be followed to permit MISO to meet its commitment to file a succeeding tariff proposal by July 15, 2010.
On August 13, 2009, the American Wind Energy Association, Wind on the Wires and certain wind developers filed protests at the Federal Energy Regulatory Commission to the Midwest Independent Transmission System Operator's (MISO) recent filing at FERC. The MISO filing proposes to revise MISO's cost allocation methodology for network upgrades for generator interconnection, and resulted from MISO's Regional Expansion Criteria & Benefits (RECB) Task Force.
The current cost allocation methodology in place provides that the cost of network upgrades for generator interconnection are funded initially by generator interconnection customers, and the customer is entitled to a 50% reimbursement where it is demonstrated that the output will serve MISO’s network customers or the facility has been designated a network resource. For facilities rated 345 kV and higher, 20% of the refund cost is allocated to all MISO pricing zones on a postage-stamp basis, and 80% is allocated among pricing zones using a line outage distribution factor (LODF) method.
Under the MISO proposal, cost allocation would be as follows: (i) for network upgrades below 345 kV, 100% to the interconnection customer, and (ii) for network upgrades 345 kV and above, 90% to the interconnection customer and 10% to all transmission customers through a postage stamp-type charge.
To read any of the documents related to the MISO filing, go to the FERC eLibrary website and enter in Docket No. ER09-1431.
FERC Rejects MISO's Market Coordination Service Proposal, Approves Anchor Tenant Merchant Transmission
From our colleague and FERC guru, Jason Johns:
The Federal Energy Regulatory Commission today rejected the Midwest ISO’s proposed Market Coordination Service that would have given certain transmission owners access to the ISO energy and operating reserve markets without requiring those owners to hand over control of facilities or share in transmission development costs. Although the proposal was an innovative approach to expanding the ISO’s market footprint, FERC worried that the proposal would harm consumers and cause the ISO to unravel as transmission owners opt out of full membership to avoid transmission cost-sharing. FERC also questioned whether the proposal would attract more wind energy into the ISO market because, by leaving pancaked transmission rates intact, wind resources could face higher transmission rates as ISO members withdraw in favor of Market Service. The Midwest ISO must remove all Market Service language from its tariff within the next 30 days.
In other news, FERC accepted a request for waiver of criteria traditionally used to evaluate merchant transmission projects. In their applications, the Zephyr and Chinook merchant transmission projects proposed to presubscribe 50% of the projects’ 3,000 MW capacity to an “anchor tenant” wind developer in order to defray upfront development costs, and then allocate the remaining 50% through a traditional open season process. The proposal was intended to avoid the “chicken-and-egg” scenario often associated with merchant transmission, i.e.,resources will not develop without assurances that transmission is available, and likewise transmission projects will not move forward without assurances from resource developers. FERC’s acceptance of this modified approach to merchant transmission expressly opened the door to similar proposals in the future. “Anchor tenant” merchant transmission is the new standard.
Check out our client alert on FERC's recent conditional approval of MISO's revised large generator interconnection process. It provides highlights of the ruling and identifies next steps that MISO must take in order to flesh out some issues, including certain milestones that generators must meet in order to move towards getting their project interconnected.
Beth Soholt, executive director of Wind on the Wires, believes that the ruling is pretty consistent with what those in the industry expected, and that the intent was to give generators a more clear picture up front of what the actual costs are for carrying a project through to interconnection. She thinks that we'll have to wait and see how MISO interprets the clarification requirements, and how generators respond to the new process, to really understand what the impact will be and whether this will result in a material change in the number of projects entering the queue.
On August 25, FERC issued its ruling on the Midwest Independent Transmission System Operator (MISO) plan to reform the generator interconnection queue process - the method by which transmission requirements for generators wishing to connect new projects to the grid in the Midwest are reviewed and approved. FERC conditionally accepted the proposed tariff revisions, with an effective date of August 25, 2008, and directed MISO to make a compliance filing within 30 days of the Order. Major changes include addition of a Pre-Queue Phase, addition of a Fast Track Process, revisions to the amount and timing of deposits, revisions to the milestones projects must meet to move forward, and limitations on the ability to suspend.
Watch for a client alert shortly!