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Pricing Electric System Reliability in MISO

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There have recently been two significant Orders from the Federal Energy Regulatory Commission (“FERC”) concerning System Support Resources (“SSRs”) for the Midcontinent Independent System Operator (“MISO”). SSRs are electric generating units scheduled for retirement, but where MISO requests for reliability purposes that the resources remain in service under a special agreement. The first of the two Orders made major changes to the determination of payments to the SSR owner. The second Order requires a major change in how costs of some SSRs are allocated to loads.

The Order changing SSR payment determination was in response to a Section 205 complaint filed by AmerenEnergy Generating Resources (“Ameren”) in FERC Docket No. EL13-76. Prior to that Order, MISO’s tariff limited SSR payments to actual “going forward” variable and operating SSR out-of-pocket costs, with payment for capital additions required for SSR operation also included. Ameren argued MISO’s interpretation of SSR payment provisions was too narrow, and that an SSR owner should be entitled to the full SSR cost of service, including return on investment, depreciation and taxes. Despite significant opposition to Ameren’s position, on July 22, 2014 FERC issued an Order (148 FERC ¶ 61,057) agreeing with Ameren. FERC directed MISO to modify its tariff to allow an SSR owner to make a Section 205 filing of a proposed SSR payment when MISO and the SSR owner failed to agree on the SSR payment.

The FERC Order concerning SSR cost allocation came in response to an April, 2004 complaint by the Public Service Commission of Wisconsin (PSCW) filed under Docket No. EL14-34. MISO previously filed a service schedule under Docket No. ER14-1243 allocating the cost of the Presque Isle SSR (located in Michigan’s Upper Peninsula) on a pro rata basis to all Load Serving Entities (“LSEs”) connected to the American Transmission Company (ATC). That pro rata cost allocation was consistent with historical precedent and the allocation method FERC approved in a previous Presque Isle SSR filing. However, in an Order issued July 29, 2014 (148 FERC ¶ 61,071), FERC agreed with the PSCW that pro rata cost allocation over LSEs on the ATC system was inconsistent with cost causation principles. FERC directed MISO to allocate the Presque Isle SSR costs only to LSEs shown to benefit from the SSR based on a MISO “load-shed study”. Also in departure from standard practice, FERC ordered to make refunds retroactive to the date the PSCW filed its complaint, consistent with the new allocation.

The impact of the two orders is potentially significant. The SSR pricing Order will provide a strong incentive for generator owners to enter into SSR agreements where offered, rather than retiring the generators. This Order can be viewed as FERC again affirming that system reliability outweighs cost considerations. The impact of the Presque Isle SSR cost allocation Order is harder to gauge. The Presque Isle SSR allocation raises issues of how far to go in “targeting” customers with costs, and how to address discriminatory aspects of Presque Isle SSR costs being narrowly allocated while similar “must run” costs in Wisconsin are being allocated across the entire ATC system. These and related questions have been raised on rehearing. So stay tuned for further developments.

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