By Amanda Durish Cook

MISO’s effort to implement a new cost allocation method for large economic transmission projects was dealt a major blow last week when FERC rejected the plan for a second time (ER20-857).

The commission’s March 20 order raised the same cost-causation issues that dogged the RTO’s first cost allocation filing, rejected last June. (See MISO Allocation Plan Fails on Local Project Treatment.)

At the heart of the issue was the same new local economic project category, meant for smaller, economically driven transmission projects between 100 kV and 230 kV, where 100% of costs would be allocated to the local transmission pricing zone containing the line.

MISO altered its original filing so that local economic projects had to pass only a local benefits test, no longer requiring them to demonstrate a regional 1.25:1 benefit-to-cost ratio while only allocating their costs to the local transmission pricing zone where they are located.

But FERC pointed out that MISO’s latest proposal would have still effectively measured the value of a local economic project on a regional basis through use of three benefit metrics used on regionally allocated projects — with the project costs shared at only the local level.

“[T]he proposed cost allocation method inappropriately relies on a benefits metric, the MISO-SPP Settlement Agreement metric, that determines benefits outside of the local transmission pricing zone where the local economic project is located, but then disregards these benefits by allocating costs for the project solely within that transmission pricing zone,” FERC said. ” … [T]he proposed local economic project local benefits analysis will likely require MISO to disregard regional transmission benefits that it will necessarily uncover when applying the MISO-SPP Settlement Agreement costs benefit metric.”

MISO’s proposal would have lowered the voltage threshold for its market efficiency projects from 345 kV to 230 kV, eliminated the current 20% postage stamp allocation and added new benefit metrics for savings from the avoided costs for reliability projects and cost reductions related to the MISO-SPP transmission contract path. The proposal also would have provided limited exceptions to the competitive bidding process if a transmission project were needed immediately for the sake of reliability. As it did with the first rejection, FERC again said it had no problems with the other aspects of the plan.

Some stakeholders had previously argued that MISO’s revised proposal still wrongly presumed that all sub-230 kV projects cannot deliver regional benefits. They said the projects shouldn’t be excluded from a regional allocation when appropriate. (See MISO Makes U-turn on Cost Allocation Policy.)

FERC seemed to agree, saying MISO’s proposal to use the adjusted production cost savings metric would have required RTO staff to be willfully blind to some benefits of the smaller projects for purposes of cost allocation.

“It is incongruous to state that a metric is the most reliable measure of benefits, and then to ignore that measure for purposes of cost allocation for local economic projects,” the commission said.

Interregional Filing Also Rejected

In a separate order, FERC similarly ruled out MISO’s companion filing to update its cost allocation for interregional projects with PJM over the same deviation from the cost-causation principle. (ER20-862).

The commission ordered MISO to instead use a design based on adjusted production costs for economic interregional projects 100 kV and above with PJM, exercising its authority to ensure just and reasonable rates.

FERC said MISO should use its existing adjusted production cost savings metric to allocate its share of the cost of MISO-PJM interregional economic transmission projects.

Using MISO’s own words, FERC said the adjusted production cost savings metric “has been regarded as one of the most reliable measures of the net economic impact of a planning decision on energy cost in MISO.”

A new cost allocation for MISO’s share of interregional projects with PJM was necessary under a six-year-old FERC compliance directive requiring MISO to lower its interregional market efficiency project voltage threshold to 100 kV. MISO and PJM were ordered by FERC in 2013 to lower thresholds after the Northern Indiana Public Service Company complained about shortfalls in the RTOs’ interregional planning process.

“While we recognize the complexity of the issues underlying MISO’s proposal, we also recognize the need for MISO to come into compliance with the NIPSCO compliance order’s directive in a timely manner,” FERC said.

The commission said it rejected the filing without prejudice because the interregional allocation proposal referred to and relied on provisions in MISO’s regional cost allocation filing. The RTO also filed in January to create a cost allocation for its share of some interregional projects with PJM and had also proposed that its share of interregional economic projects with voltages below 230 kV — but at or above 100 kV — be allocated 100% to the transmission pricing zones where the project is located.