February 8, 2021
Docket No. ER21-615-000
I concur with today’s order because the Facilities Service Agreement MISO filed in this proceeding conforms to the pro forma version of that agreement in MISO’s tariff. However, I write separately to express my concern that MISO’s underlying rules on network upgrade funding may not be just and reasonable and may be unduly discriminatory or preferential. The Commission’s August 2018[1] and December 2019[2] orders adopting the current rules do not adequately address the justifiable concern that those rules create an opportunity for generation-owning transmission owners to unduly discriminate between assets in which they have an ownership interest, and assets for which they do not have such an interest. While this topic has been the subject of litigation before this Commission and the courts for several years, I believe we have more work to do.
A foundational principle of the Commission’s work to open up access to the nation’s transmission grid over the past 25 years has been that when monopoly utilities are permitted to discriminate among affiliated and non-affiliated customers, competition suffers and customers pay.[3] Driven by this concern, in Order No. 2003 the Commission held that transmission providers must have a uniformly applicable set of procedures and agreements to govern the process of interconnecting large generators to their transmission systems.[4] This uniformity is intended to limit opportunities for transmission providers to favor their own generation over that of unaffiliated entities.[5]
Under MISO’s rules, most or all network upgrade costs are borne by the interconnection customer whose interconnection created the need for the upgrades. The mechanics by which those costs fall to the interconnection customer differ depending on which of two options are used to initially fund the network upgrades. When the interconnection customer initially funds the upgrades, it may seek competitive financing to lower the relative cost it incurs. When instead the transmission owner initially funds the upgrades, the interconnection customer must reimburse the transmission owner for the cost of construction plus a predetermined rate of return. In recent years, there have been disputes before the Commission and the U.S. Court of Appeals for the D.C. Circuit concerning which party, the transmission owner or the interconnection customer, should have control over the funding selection for any given set of network upgrades.
In 2015 the Commission found that granting transmission owners unilateral discretion over initial funding created an opportunity for them to unduly discriminate among their own generation and unaffiliated generation seeking to interconnect.[6]
In Ameren Services Co. v. FERC, the D.C. Circuit vacated the Commission’s orders and remanded them,[7] finding that the Commission had not adequately justified this conclusion.[8] Acknowledging that “[t]o be sure, if the transmission owners still owned integrated generation facilities, that would present a competitive motive [to discriminate],” the court found that eight of the nine transmission owners that petitioned the court for review did not own generation.[9] The court found the Commission’s reasoning lacking because it had not presented actual evidence of discrimination, confined its determination to generation-owning transmission owners, and had not explained, based “on economic theory and logic” why a policy needed to extend to transmission owners that did not own generation.[10] Further, the court concluded that in eliminating unilateral transmission owner discretion over initial funding, the Commission had, without adequate justification in the record, compelled transmission owners to operate infrastructure for which they had no ability to earn a return on equity.[11] The court invited the Commission to develop a more robust record to examine these questions.[12]
The Commission did not engage, as the court suggested, in a more searching inquiry. Instead, the Commission simply held on remand that there was not adequate evidence in the (pre-existing) record to support its determination of discrimination.[13] The Commission thereby failed to address its own underlying discrimination concerns, given the reality that transmission owners in MISO do typically own generation. The Commission also failed to consider potential paths forward on interconnection policy that would eliminate the potential for undue discrimination while either (1) allowing transmission owners an opportunity to earn a return on equity, or (2) justifying with evidence and economic logic why no such opportunity is necessary in this case. Instead, the Commission concluded that “there is not enough evidence in the [existing] record to overcome the transmission owners’ arguments (1) that they have at least some uncompensated risks . . . , and (2) that transmission owners should not be required to accept the potential increased reliability and litigation risk that Generator Up-Front Funded network upgrades may pose on their systems with no return.”[14] Rather than developing a more robust record or evaluating other alternatives, the Commission reversed course and reinstated transmission owners’ unilateral discretion to elect initial funding of network upgrades.[15] The Commission also went a step further and extended that discretion to interconnection agreements governing network upgrades on adjacent transmission systems that may also be affected by the interconnection of a new generator.[16]
I disagree with the Commission’s action post-Ameren and am concerned that the status quo in MISO risks discrimination by transmission owners who can selectively choose between transmission owner initial funding and interconnection customer initial funding. I acknowledge that the Ameren court expressed skepticism of the Commission’s reasoning in the underlying orders, but it also explicitly invited the Commission to further develop a record. Had it done so, the Commission could have explained that the vast majority of transmission owners do in fact still own generation, and justified the application of a uniform rule to all transmission owners based on the need to treat all transmission owners consistently.
In extending a unilateral transmission owner funding option to affected systems without examining the clear potential for discrimination based on the prevalence of generation-owning utilities throughout MISO (contrary to the court’s assumed state of the industry in the absence of a factual record on this point), the Commission failed to meet its burden under Section 206 of the Federal Power Act to demonstrate that the new rules it required were not unduly discriminatory. As AWEA points out in its request for rehearing of the December 2019 Order, the Commission’s decision in this regard did not “return the parties to the position they would be in if the Commission had not issued the now-vacated orders,” as it claimed to do.[17] In extending this unilateral right to affected systems, the Commission was obliged to explain why the concern animating its prior orders that transmission owners might preference their own generation did not render the new rules unduly discriminatory.
The Ameren decision was also grounded on a second rationale, that the Commission’s prior orders failed to meaningfully respond to transmission owners’ arguments that requiring a generator funding option forced them to operate infrastructure without adequate opportunity to earn a return on equity. But as Commissioner Glick points out in dissent in the December 2019 Order, the court did not foreclose the potential that the Commission could justify its prior decisions on this ground based on a more fulsome record.[18] And even in concluding that it must offer transmission owners an opportunity to earn a return on equity, the Commission need not have given transmission owners a choice between transmission owner or generation funding. For example, it could have opened the record to consider arguments for ending the practice of generator funding of network upgrades and examined whether to provide that transmission owners would be responsible for all such upgrades, recovering the costs from transmission customers. While I have no view at this time on what particular policy may ultimately be appropriate, this example demonstrates that the Commission could have engaged in an inquiry to examine potential interconnection policies that permit adequate return on equity without affording an opportunity to unduly discriminate.
While the justness and reasonableness of MISO’s interconnection rules are not before us in this proceeding, I think they may well merit additional scrutiny in the near future.
For these reasons, I respectfully concur.
Allison Clements
Commissioner
[1] Midcontinent Indep. Sys. Operator, Inc., 164 FERC ¶ 61,158 (2018) (“Ameren Remand Order”).
[2] Midcontinent Indep. Sys. Operator, Inc., 169 FERC ¶ 61,233 (2019) (“December 2019 Order”).
[3] See Order No. 888, FERC Stats. & Regs. ¶ 31,036, at 31,679 (1996) (cross-referenced at 75 FERC ¶ 61,080), order on reh’g, Order No. 888-A, FERC Stats. & Regs. ¶ 31,048 (cross-referenced at 78 FERC ¶ 61,220), order on reh’g, Order No. 888-B, 81 FERC ¶ 61,248 (1997), order on reh’g, Order No. 888-C, 82 FERC ¶ 61,046 (1998), aff’d in relevant part sub nom. Transmission Access Policy Study Group v. FERC, 225 F.3d 667 (D.C. Cir. 2000), aff’d sub nom. New York v. FERC, 535 U.S. 1 (2002). See also Standardization of Generator Interconnection Agreements and Procedures, Order No. 2003, 104 FERC ¶ 61,103, at P 696 (2003), order on reh’g, Order No. 2003-A, 106 FERC ¶ 61,220, order on reh’g, Order No. 2003-B, 109 FERC ¶ 61,287 (2004), order on reh’g, Order No. 2003-C, 111 FERC ¶ 61,401 (2005), aff'd sub nom. Nat’l Ass’n of Regulatory Util. Comm’rs v. FERC, 475 F.3d 1277 (D.C. Cir. 2007).
[4] Order No. 2003, 104 FERC ¶ 61,103 at PP 1, 4, 7 & 11.
[5] Id. P 12 (“Interconnection is a critical component of open access transmission service, and standard interconnection procedures and a standard agreement applicable to Large Generators will serve several important functions [including] limit[ing] opportunities for Transmission Providers to favor their own generation[.]”).
[6] Midcontinent Indep. Sys. Operator, Inc., 151 FERC ¶ 61,220, at P 48 (2015), order denying reh’g, 156 FERC ¶ 61,352 (2015), order denying reh’g, 156 FERC ¶ 61,099 (2016).
[7] 880 F.3d 571 (D.C. Cir. 2018) (Ameren).
[8] Ameren, at 573.
[9] Id. at 578.
[10] Id. at 578.
[11] Id. at 582.
[12] Id. at 582, 584-85.
[13] Ameren Remand Order, 164 FERC ¶ 61,158, at P 29.
[14] Id. P 31.
[15] Id. P 33.
[16] Id. P 34.
[17] See AWEA Request for Rehearing, Docket No. EL15-68, at 6 (citing December 2019 Order, at P 126) (filed Jan. 21, 2020).
[18] See December 2019 Order, at PP 3-4 (Glick, Comm’r, dissenting).