Commissioner Richard Glick Dissent Regarding Midcontinent Independent System Operator, Inc.

Commissioner Richard Glick Statement

December 19, 2019

Docket No. EL15-68-003

Dissent Regarding Midcontinent Independent System Operator, Inc.

In today’s order denying rehearing, the Commission doubles down on its decision, on remand from the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit or court) in Ameren Services Co. v. FERC,1 to allow transmission owners and affected system operators in the Midcontinent Independent System Operator, Inc. (MISO) the discretion to unilaterally elect whether to self-fund network upgrades constructed on behalf of generator interconnection customers.2 By simply reversing the vacated orders with nothing more than conclusory statements, the Commission is now in the untenable position of neither addressing the reasons for the court’s remand nor grappling with the Commission’s underlying concerns of undue discrimination. The order also permits the reopening of numerous previously-negotiated interconnection agreements, exposing

parties to those agreements to substantial cost increases, which will, in turn, cause cascading impacts on multiple fronts and could lead to project terminations.3 Today’s order not only impacts all yet-to-be executed interconnection agreements in MISO, but it also unwinds executed agreements dating back to 2015. The Commission’s decision to reverse course without addressing the Commission’s original concerns about undue discrimination is particularly egregious here where the consequences are so extensive. Because I believe the Court is likely to remand the Commission’s orders once again, I dissent.

In 2015, the Commission, acting on its own motion under section 206 of the Federal Power Act and partly in response to a complaint,4 found that it is unjust, unreasonable, unduly discriminatory, and preferential to allow transmission owners the unilateral right to decide whether to fund network upgrades.5 The Commission explained that giving a transmission owner the discretion to choose whether to fund a required network upgrade or whether to permit the interconnecting generator to finance the upgrade costs may result in discrimination by the transmission owner among interconnection customers. Moreover, the Commission found unilateral transmission owner funding may deprive interconnection customers of the opportunity to finance network upgrades with more favorable terms and rates, including avoiding a more onerous security requirement. As a result, the Commission concluded that certain interconnection customers could face increased costs compared to other similarly situated customers but with no increase in service.6 For these reasons, the Commission concluded that MISO’s pro forma interconnection agreements may not give transmission owners the unilateral discretion to choose whether to fund network upgrades.7

In Ameren, the D.C. Circuit vacated and remanded the Commission’s orders, explaining that it was unpersuaded by the Commission’s justifications for its action.8 While the court acknowledged that vertically-integrated transmission owners that still own integrated generation facilities would have an economic incentive to discriminate, it noted that only one of the petitioning transmission owners fell into that category.9 The court was likewise unconvinced by the Commission’s argument that transmission owner funding imposes increased costs on interconnection customers with no corresponding increase in service.10 Yet, despite voicing concern with the Commission’s failure to respond to the transmission owners’ arguments,11 the D.C. Circuit declined to reach the merits of the central question before it.12 “Indeed,” the court explained, “we should not do so until the Commission has developed a record by considering that question itself.”13

On remand, instead of further developing the record, the Commission merely withdrew its determination in the vacated orders. The Commission directed MISO to restore the transmission owners’ right to unilaterally elect self-funding, which the pro forma Generator Interconnection Agreement (GIA) included prior to the Commission’s action in the vacated orders.14 However, the Commission also went a step further and directed MISO to include that same right in MISO’s other pro forma interconnection agreements, the pro forma Facilities Construction Agreement (FCA) and pro forma Multi-Party Facilities Construction Agreement (MPFCA). Relying solely on its conclusion that interconnection customers of an affected system operator under MISO’s pro forma FCA or pro forma MPFCA are similarly situated to those of a directly-connected transmission owner under the pro forma GIA, the Commission found that the comparability principle requires the same funding options should apply in all three agreements.15 In other words, because the Commission reinstated transmission owner funding in the pro forma GIA, the Commission required MISO—for the first time and without additional analysis—to give that same funding right to affected system operators in the pro forma FCA and pro forma MPFCA.16

While I supported the Remand Order, I am persuaded by an argument made in the request for rehearing that the record is not sufficient to support the Commission’s determinations and that the Commission erred in not soliciting briefing in response to the remand. In particular, the Commission failed to meaningfully respond to arguments that it is unduly discriminatory to give affected system operators the unilateral discretion to choose self-funding for network upgrades under the pro forma FCA and pro forma MPFCA.17 Instead, the Commission continues to rely solely on the comparability principle to extend the self-funding option from the pro forma GIA to affected system operators under the pro forma FCA and pro forma MPFCA. In doing so, the Commission sidesteps the most significant issue presented in this proceeding: transmission owners in MISO have the incentive to favor their own generation over others seeking to interconnect to the transmission system,18 and giving transmission owners the discretion to pick and choose when to self-fund network upgrades vests them with the opportunity to do so.

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 facilities, in significant part, to limit opportunities for transmission providers to favor their own generation.19 As the Commission has held time after time since its landmark open access transmission reforms in Order No. 888, discretion in the provision of transmission service—when coupled with a transmission provider’s incentive to discriminate—creates opportunities for undue discrimination.20 Iterating this essential principle, protestors in the underlying proceeding argued that extending the right to choose self-funding to affected system operators under the pro forma FCA and pro forma MPFCA is unduly discriminatory. They explained that transmission owner self-funding “is more costly” to the interconnection customer, and allowing transmission owners to choose which interconnection customers must pay these higher costs not only gives transmission owners the power to favor their own generation, it also “provides an environment where neighboring and similarly-situated interconnection customers pay differently for network upgrades.”21 This is precisely the type of behavior the Commission sought to eliminate in Order No. 2003, explaining that it would find any policy that creates opportunities for transmission owners to exploit the subjectivity of interconnection pricing to their own advantage to be unacceptable.22

In the Remand Order, the Commission chose not to address these challenges directly and, instead, simply echoed the Court’s concerns that “the Commission did not adequately support its determination of discrimination” in the underlying orders.23 While this approach may suffice for the limited purpose of reinstating the transmission owners’ unilateral right to self-fund in the pro forma GIA, which pre-existed the Commission’s action in this proceeding, it is not enough to extend that right to affected system operators under two separate agreements.24 The Commission relies entirely on the fact that the Court did not overturn its prior finding that customers of an affected system operator are similarly situated to customers of a directly-connected transmission owner.25 But notwithstanding this fact, the Commission must still grapple with protests challenging the transmission owners’ unilateral right to self-fund as unduly discriminatory. Not only is the argument squarely presented for the Commission to address—it also represents a threat that the Commission has repeatedly corrected throughout its open access transmission reforms. I cannot support the Commission’s decision to once again sweep this issue under the table. Instead of taking the easy way out and faulting the challenging parties for having failed to provide “evidence of actual discrimination,”26 the Commission should grant rehearing and seek to develop a record sufficient for it to evaluate the threat of undue discrimination presented here.27 In acting under section 206 of the FPA, the Commission bears the burden to establish a just and reasonable replacement rate. The Commission’s failure to meaningfully address arguments that it is unduly discriminatory to give affected system operators the discretion to unilaterally choose self-funding is arbitrary and capricious and not the product of reasoned decisionmaking.

Based on a more developed record, the Commission could support its determination on remand with substantial evidence, whether that determination be that transmission owners should have the unilateral right to self-fund network upgrades in MISO, that generators should have that right instead, or that there is another just and reasonable and not unduly discriminatory option. Rather than engaging in this essential record development and meaningfully addressing the questions posed by the court, the Commission simply reverses the vacated orders with nothing more than conclusory statements that rely on effectively the same record the court dismissed. I cannot support today’s order because it focuses so much on the court’s vacatur that it is ignores the significance of the remand.

The Commission compounds the errors discussed above by today allowing transmission owners and affected system operators that were parties to any GIAs, FCAs, or MPFCAs that became effective between June 24, 2015, and August 31, 2018, to retroactively elect transmission owner funding for the network upgrades in those agreements.28 I do not dispute that the Commission has significant discretion in remedying legal error pursuant to section 309 of the FPA 29 and that “there is a strong equitable presumption” in favor of putting parties in “the position they would have been in” had the Commission not erred.30 However, I disagree that this principle requires the outcome the Commission orders today. Today’s order suggests that, to give effect to the court’s vacatur, it must permit parties to reopen interconnection agreements previously-negotiated without the transmission owners’ and affected system operators’ unilateral right to elect to self-fund network upgrades.31 While I agree with the Commission that we must, on remand, give effect to the Court’s vacatur, this is far from the only relevant consideration.

Rather than merely pointing a finger at the Court’s vacatur and “acknowledg[ing]”32 the significant and extensive costs at stake,33 in fashioning a remedy the Commission must take the time to balance the “specific facts and equities”34 —including the benefits and harms to the parties involved. The Commission claims that its decision reasonably balances “the interests of the parties, the need for regulatory certainty, and ease of administration.”35 But there is no evidence that the Commission engages in any such balancing. Furthermore, I believe that the evidence in the record before us weighs heavily in favor of preserving the existing GIAs, FCAs, and MPFCAs.

Here, the record shows that transmission owners and interconnection customers entered into over 100 contracts during the relevant period, June 24, 2015 through August 31, 2018. The Commission provided both transmission owners and interconnection customers the opportunity to offer evidence of the potential impact of revising (or leaving in place) these existing agreements. Transmission owners failed to produce any evidence of actual harm they have or will experience if the Commission leaves the existing agreements in place. The interconnection customers, on the other hand, demonstrated with empirical evidence the substantial harm that they will incur if the Commission revises the existing agreements. 36 The Commission must weigh these facts and these equities in coming to a decision. The Commission cannot discount that allowing revision of the agreements at issue would “pull the economic rug out from under” interconnection customers that “made operational decisions in reliance” on MISO’s Tariff at the time that they executed their agreement(s) and “would be unable to ‘undo’ those transactions retroactively in light of the new, corrected rates.”37

The sheer number of agreements at issue is also an important consideration and it bears noting that the Commission has no way of knowing whether transmission owners or affected system operators would have elected transmission owner funding had the option been available in the existing agreements at issue. In fact, circumstances may have changed since the execution of these agreements, such that the transmission owner or affected system operator now wants to elect transmission owner funding where it would not have done so in the past.38 It is unfair to impose additional costs on interconnection customers that they may not have even encountered had transmission owner funding been available at the time that they executed their interconnection agreements. And perhaps most importantly, I question how the Commission can effectively enforce its directive that transmission owners may only retroactively elect transmission owner funding in the existing agreements “in a not unduly discriminatory manner”39 when the governing tariff language gives them unfettered discretion to exercise this right unilaterally.40

Today, the Commission denies a request for rehearing that points out the flaws in the Remand Order without meaningfully addressing the arguments presented. I would grant rehearing and order briefing to develop the record that the Court required in Ameren and that is necessary to address the Court’s central question—whether transmission owners in MISO actually face uncompensated risks when interconnection customers provide up-front funding for network upgrades that transmission owners construct, own, and operate. Rather than taking this path, the Commission simply reverses the vacated orders with a few conclusory statements that neither address the Court’s remand nor the Commission’s concerns of undue discrimination raised in the underlying proceeding. Without developing a thorough record, the Commission cannot support a just and reasonable replacement rate. Nor can it fairly balance the equities in fashioning a remedy to deal with the GIAs, FCAs, and MPFCAs that became effective between June 24, 2015, and the date of the Remand Order.

For these reasons, I respectfully dissent.

• 11 880 F.3d 571 (D.C. Cir. 2018) (Ameren). In Ameren, the D.C. Circuit vacated the following orders: Midcontinent Indep. Sys. Operator, Inc., 151 FERC ¶ 61,220 (June 2015 Order), order denying reh’g, 153 FERC ¶ 61,352 (2015) (December 2015 Rehearing Order), order denying reh’g, 156 FERC ¶ 61,099 (2016) (August 2016 Rehearing Order); Midcontinent Indep. Sys. Operator, Inc., 156 FERC ¶ 61,098 (August 2016 Compliance Order), order denying reh’g, 157 FERC ¶ 61,013 (2016) (October 2016 Rehearing Order).
• 22 See Midcontinent Indep. Sys. Operator, Inc., 164 FERC ¶ 61,158 (2018) (Remand Order), order on briefing, compliance & reh’g, 169 FERC ¶ 61,233 (2019) (Remand Rehearing Order).
• 33 See American Wind Energy Association (AWEA) Initial Brief at 9.
• 44 Otter Tail Complaint and Request for Fast-Track Processing, Docket No. EL15-36-000, at 1 (filed Jan. 12, 2015).
• 55 June 2015 Order, 151 FERC ¶ 61,220 at P 48.
• 66 Id. PP 48-49, 52. The Commission relied in part on the fact that MISO’s interconnection pricing policy was unique and differed from the pricing policy the Commission established in Order No. 2003 in that a transmission owner electing to initially fund network upgrades in MISO would assign the non-reimbursable portion of the costs of the network upgrades directly to the interconnection customer through a network upgrade charge rather than recovering the costs of the network upgrades through transmission rates charged to all transmission customers. December 2015 Rehearing Order, 153 FERC ¶ 61,352 at P 30.
• 77 June 2015 Order, 151 FERC ¶ 61,220 at P 54; December 2015 Rehearing Order, 153 FERC ¶ 61,352 at P 29.
• 88 Ameren, 880 F.3d at 585.
• 99 Id. However, as the Commission notes today, the great majority of investor-owned transmission owners in MISO also own generation. See Remand Rehearing Order, 169 FERC ¶ 61,233 at P 38 (recognizing that “a majority of transmission owners in MISO also own generation . . . .”).
• 1010 Ameren, 880 F.3d at 579-80.
• 1111 In particular, the Court stated that the Commission inadequately considered the argument that “all costs, and risks, are not baked in [to the existing compensation structure]—that, in fact, shareholders are forced to accept incremental exposure to loss with no corresponding benefit” as a result of generator up-front funding of network upgrades. Id. at 580-81. The Court similarly stated that the Commission did not adequately consider the argument that eliminating transmission owner funding absent the interconnection customer’s consent modified the transmission owners’ entire enterprise and required them to act in part as a non-profit business. Id. at 581
• 1212 Id. at 582 (“At present . . . we have no need to reach the merits of those questions. Because the Commission failed even to response to these concerns . . . it is sufficient not to require that it do so.”).
• 1313 Id. at 584.
• 1414 Remand Order, 164 FERC ¶ 61,158 at PP 1, 33.
• 1515 Id. P 34.
• 1616 Id.
• 1717 See AWEA Protest, Docket No. EL15-36-000, at 6, 8 (arguing that factual support addressing the costs, benefits, and impacts of permitting affected system operators the right to unilaterally chose self-funding is necessary, as self-funding is more costly to the interconnection customers) (filed Feb. 2, 2015); see also AWEA Reply Comments, Docket No. EL15-68, at 6 (filed July 29, 2015) (“[A] self-funding option that resides solely with the interconnection transmission owner’s election discretion is unduly discriminatory.”).
• 1818 After all, as noted above, the majority of investor-owned transmission owners in MISO—in fact—also own generation. See Remand Rehearing Order, 169 FERC ¶ 61,233 at P 38.
• 1919 Standardization of Generator Interconnection Agreements and Procedures, Order No. 2003, FERC Stats. & Regs. ¶ 31,146, at PP 11-13 (2003) (concluding that “[t]he delays and lack of standardization inherent in the current system undermine the ability of generators to compete in the market and provide an unfair advantage to utilities that own both transmission and generation facilities”), order on reh’g, Order No. 2003-A, FERC Stats. & Regs. ¶ 31,160, at P 2, order on reh’g, Order No. 2003-B, FERC Stats. & Regs. ¶ 31,171 (2004), order on reh’g, Order No. 2003-C, FERC Stats. & Regs. ¶ 31,190 (2005), aff'd sub nom. Nat’l Ass’n of Regulatory Util. Comm’rs v. FERC, 475 F.3d 1277 (D.C. Cir. 2007), cert. denied, 552 U.S. 1230 (2008).
• 2020 See Order No. 888, FERC Stats. & Regs. ¶ 31,036 at 31,679 (“We have identified a fundamental generic problem in the electric industry,” which is that “owners, controllers and operators of monopoly transmission facilities that also own power generation facilities have the incentive to engage, and have engaged, in unduly discriminatory practices in the provision of transmission services by denying to third parties transmission services that are comparable to the transmission services that they are providing, or are capable of providing, for their own power sales and purchases. These practices drive up the price of electricity and hurt consumers. Furthermore, the incentive to engage in such practices is increasing significantly as competitive pressures grow in the industry.”); Order No. 2003, FERC Stats. & Regs. ¶ 31,146 at PP 1, 4, 6, 9 & n.7 (“The Commission’s authority to require the addition of the Final Rule [Large Generator Interconnection Agreement] and Final Rule [Large Generator Interconnection Procedures] to the OATT derives from its findings of undue discrimination in the interstate electric transmission market that formed the basis for Order No. 888.”).
• 2121 AWEA Reply Comments, Docket No. EL15-68, at 6 (filed July 29, 2015).
• 2222 Order No. 2003, FERC Stats. & Regs. ¶ 31,146 at P 696.
• 2323 Remand Order, 164 FERC ¶ 61,158 at P 29.
• 2424 In the Remand Order, when the Commission reinstated transmission owner funding in the pro forma GIA on the basis that it erred by acting without adequate support in the record, it arguably satisfied the FPA’s requirements by undoing a prior action. But when the Commission then took the next step of granting Otter Tail’s complaint in full and directing MISO to include the same transmission owner funding right in the pro forma FCA and pro forma MPFCA, the Commission was obligated to first determine that the existing tariff is unjust and unreasonable and second to establish a just and reasonable replacement rate. See Emera Me. v. FERC, 854 F.3d 9, 25 (D.C. Cir. 2017). Here, the Commission is not only failing to reject a discriminatory policy as unacceptable, it is itself imposing that policy through its section 206 action.
• 2525 See Remand Order, 164 FERC ¶ 61,158 at P 34.
• 2626 Remand Rehearing Order, 169 FERC ¶ 61,233 at PP 37-39.
• 2727 That is, indeed, the purpose of the rehearing process—to permit the Commission to reconsider its decision and correct any errors before judicial review.
• 2828 Remand Rehearing Order, 169 FERC ¶ 61,233 at P 126.
• 29See 16 U.S.C. § 825h (2018) (“The Commission shall have power to perform any and all acts, and to prescribe, issue, make, amend, and rescind such orders, rules, and regulations as it may find necessary or appropriate to carry out the provisions of this chapter.”); see also TNA Merch. Projects, Inc. v. FERC, 857 F.3d 354, 361 (D.C. Cir. 2017) (“FERC enjoys broad authority when its past actions are determined to be wrong.”); Xcel Energy Servs. Inc. v. FERC, 815 F.3d 947, 954-56 (D.C. Cir. 2016) (discussing the Commission’s broad remedial authority under FPA section 309 to remedy its legal error); Pub. Utils. Comm’n of Cal. v. FERC, 988 F.2d 154, 163 (D.C. Cir. 1993) (“[A]gency discretion ‘is often at its ‘zenith’ when the challenged action relates to the fashioning of remedies.’”).
• 3030 See Remand Rehearing Order, 169 FERC ¶ 61,233 at P 126 (citing Exxon Co. U.S.A. v. FERC, 182 F.3d 30, 50 (D.C. Cir. 1999)).
• 3131 Id.
• 3232 See id. P 129.
• 3333 See AWEA Initial Brief at 20-21; Alliant Initial Brief at 9, 20; Xcel Energy Services Inc. Initial Brief at 9, 20.
• 3434 Black Oak Energy, LLC, 167 FERC ¶ 61,250, at P 27 (2019).
• 3535 Remand Rehearing Order, 169 FERC ¶ 61,233 at P 136.
• 3636 See, e.g., AWEA Initial Brief at 8-17 (describing the potential for significant financial disruption to generation developers and owners, buyers and sellers under executed power purchase agreements and asset purchase agreements, financial investors, capital markets, and third-party vendors, including queue delays, increased costs, and cancelled projects); Xcel Energy Services Inc. Initial Brief at 9, 19-21 (citing increased ongoing costs, bankruptcy, withdrawal from the queue, loss of security or cash deposits, and substantial transactional and state regulatory burdens, including impacts on state regulatory resource decisions and retail rates); MISO Initial Brief at 8-9 (describing potential strain on MISO’s interconnection queue).
• 3737 La. Pub. Serv. Comm’n v. FERC, 883 F.3d 929, 933 (D.C. Cir. 2018); see also Black Oak Energy, LLC, 167 FERC ¶ 61,250 at P 30 (applying the same standard).
• 3838 For example, in its initial brief, MISO stated that it was contacted by a small group of transmission owners in July 2018 indicating their interest in electing transmission owner funding, but as recently as September 2018, the group of transmission owners that are interested has changed. Id.
• 3939 Remand Rehearing Order, 169 FERC ¶ 61,233 at PP 125, 131, 136.
• 4040 See E.ON, 142 FERC ¶ 61,048, at P 39 (2013).