By Amanda Durish Cook

MISO’s exhaustive proposal for overhauling the cost allocations for market efficiency projects (MEPs) came a hair’s breadth from getting FERC approval on Monday — but for one key detail.

FERC rejected the plan — years in the making — after finding MISO’s cost allocation treatment for a new category of local economic transmission projects was at odds with the principle of cost causation (ER19-1124).

MISO filed the cost allocation scheme in February, part of a broader proposal to lower the voltage threshold for MEPs from 345 kV to 230 kV and eliminate a 20% footprint-wide postage-stamp cost allocation method for projects.

The plan also set out to create two new project benefit metrics in addition to the RTO’s existing adjusted production costs metric. One metric would have recognized the value of deferred or avoided reliability transmission projects, while the other would have considered the value of reducing power flows on the contract path on shared transmission from MISO Midwest to South. (See MISO MEP Cost Allocation Plan Goes to FERC.)

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.

‘Inconsistent’

MISO’s proposal also sought to create a new project type — the local economic project — 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. The smaller project type would have replaced the current “economic other” project category, the costs for which were also allocated to the specific pricing zone in which they are located.

But unlike an “economic other” project, a new “local” project would not only have to meet a local benefit-to-cost ratio of 1.25-to-1 or greater within its pricing zone, it would also be required to show the same minimum regional 1.25-to-1 ratio required of MEPs.

And therein lay the rub for FERC, which rejected the notion MISO could require a local project to demonstrate a solid regional benefit while still allocating 100% of its costs to the local pricing zone rather than across all zones standing to benefit.

“In this case, [MISO and its transmission owners] do not contend that they are unable to calculate the distribution of benefits for Local Economic Projects with the same granularity as Market Efficiency Projects,” the commission wrote. “Instead, Filing Parties’ proposal suggests the opposite conclusion — that, if MISO implements the proposed benefits metrics, it will be able to more precisely calculate the distribution of benefits … Thus, every time MISO approves a Local Economic Project in its [transmission expansion plan], it will first identify all benefitting zones in the same manner it does for Market Efficiency Projects.”

The commission went on to say MISO had proposed metrics to identify the regional benefits of local projects but “ignored the results of its regional benefit metrics analysis in order to allocate the costs only to the transmission pricing zone(s) where the project is located. This combination of elements within the proposal therefore is inconsistent with the cost-causation principle.”

Multiple protestors, including MISO Industrial Customers, WEC Utilities and the Michigan Public Service Commission, filed with FERC to criticize the misalignment of benefits and costs. Other protestors dubbed the regional and local 1.25-to-1 benefit-to-cost ratio requirement a “double hurdle.”

Competitive transmission developer LS Power went a step further and said the project type has “no ascertainable regional purpose, directly harms ratepayers and benefits only incumbent transmission owners.” LS Power also filed a separate MEP complaint in early June, asking FERC to compel MISO to lower the threshold for competitively bid transmission projects from 345 kV to 100 kV. (See Complaint Seeks Bigger Role for Smaller MISO Projects.)

But the ruling was not all bad news for MISO. FERC acknowledged the work the RTO and its stakeholders put into developing the cost allocation proposal, which “includes compromises resulting from a three-year discussion among diverse stakeholders with myriad competing interests.” The commission said most of the plan appeared to be reasonable and it urged MISO “to consider whether the proposal could be modified to address the cost causation issue … while retaining the benefits of other aspects of the proposal.”

MISO was counting on the new cost allocation for projects in the 2019 MISO Transmission Expansion Plan.

Interregional Filings Also Rejected

FERC on Monday also rejected two interregional cost allocation filings MISO made for PJM and SPP because they contained a cost allocation method like the one MISO proposed for local economic projects. (ER19-1156-000 and ER16-1959-005). MISO had 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.

With the rejections, a piece of MISO’s allocation compliance over the longstanding complaint by Northern Indiana Public Service Co. remains unresolved. (See FERC Signals Bulk of NIPSCO Order Work Complete.) FERC said MISO now has 90 days to let the commission know if it plans to use the existing MEP cost allocation method for MISO-PJM interregional economic transmission projects above 100 kV but below 345 kV or propose revisions for a separate cost allocation process. FERC’s 2013 NIPSCO order lowered the minimum voltage threshold for MISO-PJM interregional market efficiency projects from 345 kV to 100 kV.