By Amanda Durish Cook

In a case pending before a federal court early next month, Michigan regulators have joined with load-serving entities to challenge a 2016 FERC order that reallocated most costs for the Presque Isle system support resource (SSR) agreements to consumers in the state’s Upper Peninsula.

Under the suit filed with the D.C. Circuit Court of Appeals late last year, the parties contend that FERC decided to change the longstanding allocation of costs within MISO’s American Transmission Co. pricing zone covering northern Michigan and Wisconsin without substantial supporting evidence. The change saddled Michigan LSEs with surcharges that amount to retroactive rate increases, a practice prohibited by the Federal Power Act, the parties argue (15-1098).

The complainants include the Michigan Public Service Commission, Constellation Energy, Cloverland Electric Cooperative, Tilden Mining Co., the cities of Mackinac Island and Escanaba, Upper Peninsula Power Co., the Sault Ste. Marie Tribe of Chippewa Indians and Verso Corp.

Dueling Presque Isle Proceedings

In a separate but related proceeding, FERC last year ordered Presque Isle owner Wisconsin Electric Power Co. to refund Michigan LSEs $23 million in overcharges stemming from the SSRs over 2014/15. The commission last month accepted MISO’s plan to distribute those refunds. (See FERC Approves Presque Isle Refund Calculation.)

But in their case, the Michigan parties argue that the refunds are only part of the equation, considering that ratepayers now bear nearly all SSR costs for the coal-fired plant, which represents a break from MISO precedent. Under the original 2014 SSR agreement, costs to keep the plant running for reliability were allocated across the ATC zone, with Upper Peninsula ratepayers paying 8% and Wisconsin ratepayers responsible for the rest.

After two years and a complaint by Wisconsin’s Public Service Commission that the state was paying for a majority of the SSR but not receiving a majority of the benefits, FERC allowed MISO to shift 98% of the SSR costs to LSEs in the sparsely populated Upper Peninsula. That change in part stemmed from NERC’s 2014 decision to separate the Upper Peninsula from Wisconsin into its own local balancing authority. FERC at the time said it was unjust to allocate SSR costs on a pro rata basis to all LSEs in the ATC footprint, deciding that costs instead must be allocated to LSEs that require the operation of the plant for reliability purposes.

But the Michigan parties argue that, in reassigning the costs for the SSR, FERC improperly relied upon a preliminary load-shed study that showed Wisconsin receiving only 42% of the reliability benefits from Presque Isle, while a final study showed the state receiving 86% of the benefits.

The reallocation applies retroactively — back to 2014, which means that after receiving $23 million in refunds for the overpayment, Upper Peninsula ratepayers could then owe more than $20 million in retroactive surcharges to implement the change in SSR allocation. The Michigan parties contend that any surcharge is unlawful, but MISO has been cleared by FERC to begin assessing surcharges this month according to the same 10-month schedule for disbursing the refunds.

The D.C. Circuit will hear oral arguments in the case on April 6, with a decision expected by summer. The Michigan PSC and other complainants have filed for a temporary stay of MISO’s assessment of the surcharges while the case is being argued, contending that the “immediate implementation of surcharges to reallocate Presque Isle SSR costs threatens to impose significant irreparable harm on some Michigan LSEs.”

“If MISO begins to invoice surcharges this month, it is anticipated that LSEs paying such surcharges will include the surcharge amounts in their bills to retail ratepayers, assuming that is even feasible,” the PSC said.

‘Middle of the Game’

“This is a reallocation of costs where the surcharges arising from the reallocation will exceed the refunds due to the reduction in permissible SSR costs,” Bill Demarest, an attorney representing Tilden, said in an interview with RTO Insider. “The surcharges are to pay for reallocation of the SSR costs after the substantial reduction in costs ordered by FERC.”

Cloverland attorney Christine Ryan said the reallocation is unfair to Upper Peninsula ratepayers that have for years contributed to grid costs with Wisconsin.

“We can’t just change the rules in the middle of the game. Upper Peninsula customers have shared the costs of this system over the years,” Ryan said.

Demarest agrees, contending that Upper Peninsula ratepayers have subsidized transmission upgrades in the past that have benefited only Wisconsin ratepayers.

Complicating matters is whether Upper Peninsula ratepayers can afford to shoulder all Presque Isle SSR costs over MISO’s 10-month schedule.

“Our client Cloverland is a good example of the problem,” Ryan said. “They are small; they serve a rural population. That part of Michigan is economically depressed. This will be a significant charge that Cloverland will have to pass on to its customers. Administratively, this is a very difficult thing to manage.” If Michigan ratepayers are found to be almost exclusively responsible for the retroactive surcharges, LSEs face the prospect of calculating customer responsibility and tracking down those customers that have relocated during the intervening four years.

The two attorneys also argue that, in changing the historical allocation pattern for the purposes of the Presque Isle SSR, FERC ignored its own finding in Order 1000 to treat generation and transmission-based reliability solutions comparably.

“FERC was going against their own policies here, we pointed that out and they ignored that,” Demarest said.