Commissioner Christie’s Concurrence Concerning MISO Subregional Cost Allocation in ER22-995-000

Docket No. ER22-995-000

I concur with the order, which approves the filing by MISO and certain MISO Transmission Owners proposing, among other features, a cost allocation framework for the next two tranches of what MISO labels its Multi-Value Projects (MVPs).[1]

I strongly support MISO’s proposal to modify its current MVP cost allocation method to allow the costs of new MVP portfolios to be allocated on a subregional basis.  This proposal will enable MISO to allocate the costs of the contemplated Tranche 1 and Tranche 2 MVP Portfolios — which will be physically located only in the MISO Midwest Subregion — to load only within the MISO Midwest Subregion.  No costs of these two tranches will be allocated to the MISO South Subregion.  In a large, geographically sprawling transmission entity — MISO stretches from the Gulf of Mexico to Canada — it simply makes sense to allow for more granular cost allocation arrangements that may be subregional rather than imposing an identical cost allocation framework across the entirety of MISO.

However, I share the concern expressed by parties in this proceeding regarding the allocation of costs within the two subregions based on the postage stamp method for cost allocation.  The postage stamp cost allocation method is a pure socialization method, and as set forth further below, MISO’s case on this record for using postage stamp, even if limited to the MISO Midwest Subregion for the next two tranches of portfolios, is underwhelming.  Ultimately I will concur in the use of the postage stamp cost allocation method herein for three reasons:  (i) the Organization of MISO States, Inc. (OMS) supports this filing; (ii) MISO has promised to seriously consider replacing the postage stamp cost allocation method with a more granular cost allocation method for Tranche 3 and beyond;[2] and (iii) as the order observes, the postage stamp cost allocation method is MISO’s current MVP cost allocation method,[3] and while MISO’s case for postage stamp cost allocation is weak, I do not believe there has been a showing that this method is unjust and unreasonable.[4]

As noted above, an important reason I support this filing despite concerns over postage stamp cost allocation is because of the strong involvement and support of the states in MISO, which expressed overwhelming support for the filing through OMS.[5]  OMS emphasized the central role that it played in developing the proposal, including the fact that an OMS board member acted as the chair of the MISO cost allocation stakeholder forum.[6]  OMS further emphasized that under the MISO tariff, OMS is entitled to propose an alternative cost allocation method and MISO must then file it with this Commission.  Significantly, OMS chose not to exercise that right.[7]

So, while I will support the use of postage stamp cost allocation due largely to the support of OMS and the promise to consider replacing it in the future, I do want to emphasize what I consider the questionable case offered to justify the use of postage stamp cost allocation for the two tranches coming next.  The main justification in the record offered to support the application of the postage stamp cost allocation method to subregional MVPs appears to be MISO’s own computation of benefits that it claims resulted from its 2011 MVP Portfolio, as contained in the pre-filed testimony of Johannes Pfeifenberger of The Brattle Group, offered in support of MISO’s filing.[8] 

Mr. Pfeifenberger’s written testimony states that in predicting the projected costs and benefits of MISO’s proposed postage stamp cost allocation for the next two tranches, he relied largely on MISO’s own analysis of the costs and benefits of MISO’s 2011 MVP Portfolio, an analysis performed in 2017.[9]  Mr. Pfeifenberger uses the data to conclude that insufficient benefits would accrue to the MISO South Subregion for the next two tranches, and that the current postage stamp cost allocation used for the 2011 MVP Portfolio is also appropriate for the next two tranches in the MISO Midwest Subregion, based on the 2017 MISO analysis of purported benefits and costs of the 2011 MVP Portfolio.[10]  Mr. Pfeifenberger goes on to note that the 2017 MISO analysis on which he is relying claims a benefit-to-cost ratio for the 2011 MVP Portfolio across the various zones in the MISO Midwest Subregion of 1.93-to-1 to 3.83-to-1.[11]  On that basis, Mr. Pfeifenberger concludes that postage stamp cost allocation across the MISO Midwest Subregion is appropriate for the next two tranches of the future MVPs, with no allocation to the MISO South Subregion.[12]

Mr. Pfeifenberger’s testimony offered on behalf of MISO depends largely on MISO’s own 2017 analysis of benefits and costs of its 2011 MVP Portfolio.[13]  What is missing from the record is any information indicating exactly what level of independent scrutiny — if any — MISO’s 2017 claims of benefit-cost ratios projects ever received.  In this filing Mr. Pfeifenberger apparently accepts the benefit-cost ratios in MISO’s 2017 report as self-proving.  There is nothing in the record to indicate whether MISO’s 2017 analysis was ever introduced into evidence in a rate case or other formal proceeding; whether discovery by other parties ever took place to glean information about the methods, bases, and benefit calculations of the 2017 analysis; whether it was ever sponsored by a witness who had to take the stand and be cross-examined on the report by lawyers who knew how to conduct cross; or whether other parties had the opportunity to put their own expert witnesses, friendly and hostile, on the stand who could testify about the MISO analysis.  Indeed, ideally, a third-party report without a witness who can authenticate it and be cross-examined on it would not even be admitted as evidence in any serious evidentiary proceeding.[14]   

I say all this not because this is a moot court exercise in law school, but because, in my experience as a former state regulator, such procedures are simply routine in evaluating proffered evidence.  Third-party reports offered as evidence should not be just accepted on faith; rather, such evidence needs to be closely scrutinized, especially when, as herein, literally billions of dollars are going to be charged to consumers based on the outcome.[15]  The evidence in support of assigning billions of dollars in new costs to consumers should certainly get the same scrutiny as in a routine rate case involving far lower amounts of costs.  If the primary basis for justifying the cost allocation of billions of dollars to consumers — indeed, if part of the basis even for building these next two tranches of MVPs at costs that may be in the billions of dollars — is a 2017 report by MISO itself that was never authenticated in an evidentiary proceeding and never subjected to discovery, cross-examination, or competing testimony in litigation that followed certain basic rules of evidence, that gives me major pause.  As it should anyone else among MISO states and stakeholders who are concerned about consumer costs.[16]

My own very cursory reading of the 2017 MISO analysis of benefits claimed for its 2011 MVP Portfolio, relied upon by MISO witness Mr. Pfeifenberger to justify continued use of postage stamp cost allocation — and perhaps used as part of the justification for the next two tranches as well — reveals the following that would lead to several obvious questions during a cross-examination: 

Mr. Pfeifenberger notes that, according to MISO’s 2017 report, on average 93 percent of the claimed benefits of the 2011 MVP Portfolio are represented by “Congestion and Fuel Savings.”[17]  But reducing congestion costs are exactly what Market Efficiency Projects do.  Were there lower cost Market Efficiency Projects that could have produced the same congestion savings much more cheaply than the 2011 MVP Portfolio?  

Other claimed benefits were “carbon costs” and “wind enablement.”[18]  Was the computation of “carbon costs” as a benefit due to the use of an artificial “social cost of carbon” or some hypothetical carbon tax?  How does relief from a carbon cost or tax that does not even exist provide consumers with actual cost savings?  How was it computed?  How was “wind enablement” defined as a benefit?  Is that a monetary benefit to consumers or a monetary benefit to wind developers?  If it a monetary benefit to consumers, how was it computed?

The MVP Review claims benefits from deferred generation needed to serve load.[19] How can deferred generation costs and increased wind generation both be benefits?  What assumptions were used to compute these benefits?  Was a value assigned to reliability?  The recent MISO auction results show a serious problem with early retirements of needed resources.[20]  Were these losses of resources defined as benefits to consumers?

The MVP Review claims $300 million in benefits from eliminating baseline reliability needs.[21]  Which raises the obvious question:  If the same reliability benefits could have been delivered to consumers for a $300 million investment in least-cost Baseline Reliability Projects, how much extra did consumers pay for the MVPs for which they received no additional reliability benefits?

There may be good answers to all these questions.  On this record, we cannot know.  I do not imply there are not good answers, but nothing in the record indicates that these, and many other pertinent and searching questions, were ever asked about the 2017 MISO analysis of the claimed benefits of MISO’s 2011 MVP Portfolio.  Yet now that review is being used as the justification for a postage stamp cost allocation for the next two tranches of MVPs, indeed perhaps for even constructing the next two tranches of future MVPs that will cost consumers potentially billions of dollars. 

So my point is simply this:  While the postage stamp cost allocation method is in place for the next two tranches — and the state regulators in OMS did not propose an alternative — I would urge the state regulators and all affected stakeholders throughout MISO, especially those representing both residential and industrial consumers, to scrutinize very closely the planning criteria and cost allocation for future MVP tranches, as well as claims of projected benefits used to justify regional cost allocation proposals, because billions of dollars of consumer costs will be allocated here.[22]  The definition of benefits can be highly elastic when it comes to justifying spending billions of dollars and allocating the costs to others.  And the other side of the same coin from stretching the definition of benefits to justify cost-shifting is the claim that those who are targeted for cost allocation are somehow “free riders” who should be forced to pay their “fair share” of projects some interest groups want to build.  State regulators and consumer advocates need to be paying very close attention to such claims of alleged benefits and alleged “free riders” before agreeing to billions of dollars in new spending and any formula to allocate those costs.  

For these reasons cited above, I concur.