By Amanda Durish Cook

The D.C. Circuit Court of Appeals on Tuesday upheld a 2016 FERC order that reallocated most costs for the Presque Isle system support resource agreements to consumers in Michigan’s Upper Peninsula.

The court denied in full petitions from a group of Michigan officials and load-serving entities, which included the state’s Public Service Commission and attorney general (15-1098). They argued that FERC’s reallocation of the SSR costs amounted to retroactive ratemaking. (See Michigan Groups Contest Presque Isle Cost Allocation.)

But the court said FERC was within its authority to order refunds to customers “who paid too much, funded by surcharges on customers who paid too little.”

“The reallocation at issue here does not constitute an impermissible retroactive rate increase,” the court said. “FERC reasonably determined that the prior rate methodology was unjust and unreasonable, and its reliance on certain evidence in reaching this conclusion was appropriate. Having … determined that a different methodology would comply with cost-causation principles, FERC had authority to order refunds and corresponding surcharges.”

The court added that while FERC is limited in power over the filed rate doctrine, its “remedial authority is otherwise expansive.”

The decision means Upper Peninsula ratepayers will bear nearly all SSR costs for the coal-fired plant. Under the original 2014 agreement, those costs were allocated across the American Transmission Co. zone on the Michigan-Wisconsin border, with Upper Peninsula ratepayers paying 8% and Wisconsin ratepayers responsible for the rest.

Following a complaint by Wisconsin’s Public Service Commission that the state was paying for most of the SSR but not receiving the majority of the benefits, FERC allowed MISO to shift 98% of the 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 zone, despite historical practice. It said the costs must instead be allocated to LSEs that require the operation of the plant for reliability purposes. The Michigan LSEs and regulators countered that there was no new evidence or change in circumstances to justify changing ATC zone allocations.

The court was not persuaded by the Michigan argument. It pointed out that ATC was the only MISO zone subject to such a pricing zone methodology, with LSEs in other zones paying for reliability resources in proportion to their reliability needs: “For the rest of the MISO area, the Tariff provided only that reliability costs were allocated to the LSEs ‘which require the operation’ of reliability resources. In other words, SSR costs for all non-ATC service areas were allocated to the LSEs that actually benefited from the reliability resources.”

The court was also not swayed by the argument that FERC improperly relied on a preliminary MISO load-shed study in its reallocation decision.

“FERC’s recognition that more accurate data was necessary does not undermine its reliance on the preliminary study at the time of the complaint, or on the final data once the study was complete,” the court said. At any rate, the court said, the Michigan groups did not demonstrate that the old pro rata calculation was superior.

Cloverland Electric Cooperative, one of the Michigan petitioners affected by the surcharges, said through its attorney that it was disappointed with the decision.

“We … believe it expands FERC’s authority to assess retroactive surcharges beyond anything we have seen before. It also undermines the court’s rule about accepting post hoc rationalization of earlier FERC orders,” attorney Christine Ryan said in an email to RTO Insider.