Commissioner Clements’ Concurrence Regarding Xcel Energy Services Inc.

Docket No. ER24-1719-000

Today’s order grants Xcel Energy Services Inc.’s requested waiver of certain transferability restrictions in Midcontinent Independent System Operator Inc.’s (MISO) fast-track generator replacement process.  The waiver permits Xcel’s subsidiary, Northern States Wisconsin to use the generator replacement process to replace an existing generating facility even though that facility’s interconnection rights belong to a different subsidiary, Northern States Minnesota.  Absent waiver, Northern States Wisconsin could not use the expedited generator replacement process because doing so would violate the transferability restrictions in MISO’s tariff. 

I concur because the effect of granting this waiver is that a brownfield site of existing generation on the transmission system can be expeditiously re-used.  I believe that outcome is consistent with the purpose of MISO’s generator replacement rules, and I acknowledge that fast-tracking the interconnection of new generation at previously-studied sites may yield efficiencies and cost savings.  I write separately, however, because this waiver highlights, yet again, the increasingly strained reasoning underpinning the transferability restrictions in MISO’s (and other transmission providers’) generator replacement rules.  In cases in 2022 and 2023 I called for a more fulsome evaluation of generator replacement rules broadly, in light of their piecemeal proliferation in RTO and non-RTO regions around the country.[1]  No part of those rules is more in need of reconsideration than these transferability restrictions, which, at best, appear to impede beneficial commercial transactions and, at worst, may unduly discriminate against non-incumbent generation owners.[2]

Under MISO’s generator replacement process, the transferability restrictions prevent the owner of a retiring generator from transferring that facility and its interconnection rights to another party during the period from 12 months before it submits a replacement request until the date the replacement generator reaches commercial operation.[3]  As MISO stated in 2019, the purpose of these restrictions is to prevent a generation owner from using the replacement rules to transfer interconnection rights to another interconnection customer outside of the interconnection queue.[4]  In accepting these restrictions in MISO in 2019, the Commission dismissed protests arguing that the restrictions grant an undue preference to owners of existing generators over new market entrants.[5]  The Commission reasoned that owners of existing generators are not similarly situated to developers of new generation for the purpose of obtaining interconnection service because the former have previously gone through the interconnection process and faced cost responsibility for any necessary network upgrades.[6]  The Commission therefore focused on the characteristics of the entities—i.e., an existing generation owner is reasonably entitled to a fast-track interconnection process when building new generation at an existing site, but any other entity seeking to develop generation in MISO is not.

Subsequent experience suggests this focus may have been misplaced.  Consider developments since MISO’s generator replacement rules, including these transferability restrictions, were put in place in 2019.  In May 2021 the Commission granted to Indianapolis Power & Light Company (IP&L) a waiver of the transferability restrictions because they otherwise would have prevented IP&L from using a newly created non-utility subsidiary to replace a retiring generator under the replacement rules.[7]  IP&L’s desired arrangement was designed to allow it to access tax equity financing and ultimately lower the cost of developing the replacement generator.  Because the new subsidiary would be a distinct entity from the retiring generator’s owner, this arrangement would, absent waiver, have run afoul of the transferability restrictions.  In granting the waiver, the Commission reasoned that IP&L’s desired ownership arrangement did not raise “queue jumping concerns” because it did not involve entities outside of the interconnection queue, and no entities in the queue would be affected by the generator replacement.[8]

In August 2021, in response to IP&L’s experience, MISO proposed and the Commission accepted revisions to the transferability restrictions.[9]  The revisions permit the partial transfer of an existing generator and the associated interconnection rights without the transferee becoming ineligible for the fast-track replacement process.  Specifically, the owner must retain at least 25% equity ownership interest in, and the ability to direct the performance of, the retiring generator to allow the transferee to maintain eligibility.[10]  The effect of these revisions was to move away from the rationale for the transferability restrictions in the first place—now the generator to be replaced could be transferred during the restricted period of time to an entity that had not previously gone through the interconnection process, but only 75% of it and only if the incumbent owner retained control over the generator’s performance.[11]

Then in November 2022 the Commission granted to Vistra Corp. a waiver of the transferability restrictions because those restrictions otherwise would have prevented two Vistra companies from transferring their existing generators and associated interconnection rights to new, non-subsidiary affiliated entities and allow those new entities to nonetheless use the fast-track generator replacement process.  This essentially moved the line again—existing owners of generation need not retain any ownership or control over a retiring generator, and that generator’s interconnection rights can still be re-used on a fast-track basis for a replacement generator at that site.

In today’s order we allow Northern States Minnesota to transfer its existing interconnection rights for a retiring generating facility to a non-subsidiary affiliate, Northern States Wisconsin, so the latter can use the expedited generator replacement process.  As in the Vistra case, the entity receiving the transferred interconnection rights did not go through the interconnection process to acquire these interconnection rights and did not face cost responsibility for any necessary network upgrades associated with them.

So where does this leave us?  As best I can tell, the only function of the transferability restrictions now is to require that the owner of the retiring generator and the entity using the generator replacement rules to fast-track its replacement must be affiliated.  The entity using the replacement rules need not be the interconnection customer that previously went through the interconnection process and was subject to cost responsibility for network upgrades, nor must it be owned or controlled by the interconnection customer that did. 

Whatever well-intentioned concern on the part of the Commission and MISO may have originally motivated these transferability restrictions, experience is proving that they need a fresh look.  It is not simply that they may be superfluous.  They are clearly hindering commercial arrangements to develop new generation at existing sites on the transmission system, and may be unduly discriminating against non-incumbent generation owners, even within an RTO like MISO.  If incumbent generation owners can now transfer generators and their interconnection rights to affiliates that did not even exist at the time of the original interconnection process, as Vistra did in the 2022 case, on what basis are we restricting transfer to any unaffiliated entity?  Suppose an unaffiliated entity sees greater value in that location on the transmission system or could develop a replacement generation project more cost-effectively than the current owner.  Why should it be restricted from acquiring the site and the interconnection rights through a transaction agreeable to buyer and seller and using the fast-track interconnection process?  I question whether there remains—or ever was—a basis to hinder such potentially beneficial commercial transactions that could lead to more economic re-use of sites on the transmission system.

I offer a final observation:  It is the fact that an existing generator possesses interconnection rights in a particular location on the transmission system and in a specific type and quantity that is relevant to whether a separate, fast-track interconnection process may be warranted for replacing that generator.  It is not the characteristics of the entity that owns the generator that should dictate eligibility for such a process.  Centering eligibility on the entity has gotten us to where are now—with nonsensical transferability restrictions that we now must contort around to permit rational commercial arrangements.  It appears we could realize any efficiency and cost-saving benefits of fast-track generator replacement processes without this impediment.  If the Commission takes a fresh look at generator replacement rules, as I have suggested, I believe this element of those rules warrants reconsideration.

For these reasons, I respectfully concur.