By Amanda Durish Cook

FERC last week approved a MISO proposal to once again allow transmission owners to provide initial funding for transmission upgrades needed for generation projects, possibly upending more than 100 interconnection agreements struck over a three-year period.

The commission’s decision means contracts signed between June 24, 2015, and Aug. 31, 2018, can be revised to allow TOs and affected-system operators to “unilaterally elect to provide initial funding for network upgrades, if they so choose,” the commission said (EL15-68-003, et al.). The order applies to pro forma generator interconnection agreements, facilities construction agreements and multiparty facilities construction agreements (GIAs, FCAs and MPFCAs).

FERC’s order is the culmination of four years of back-and-forth rulings between the commission and the judiciary — and is still a point of contention within the commission’s ranks. Commissioner Richard Glick dissented, saying the order lacked reasoning and didn’t address possible preferential treatment of TOs over interconnection customers.

MISO policy previously allowed incoming generators to self-fund new construction regardless of whether TOs wanted to fund the construction themselves. FERC in 2015 directed the RTO to remove the option for a TO to elect to fund the interconnection upgrades.

The D.C. Circuit Court of Appeals vacated FERC’s decisions on the self-funding option in early 2018, saying the commission didn’t consider complaints from Ameren and five other TOs who claimed the policy forced them to accept “risk-bearing additions to their network with zero return” and essentially act as “nonprofit managers” of network “appendages.” The TOs had argued the Federal Power Act and Constitution prohibits FERC from forcing them to construct and operate generator-funded network upgrades. The case was remanded back to FERC.

MISO last year said FERC’s decision could affect GIAs dating back to 2015 and submitted a pre-emptive compliance filing to reflect TOs having the option to self-fund network upgrades. (See MISO Files Revised Upgrade Funding Provisions.)

With the commission’s order, the RTO is now faced with creating a process for amending agreements and determining financial fallout.

FERC directed MISO to file Tariff edits within 60 days to reinstate the TO-funding option, “provided that such election is done in a not unduly discriminatory manner.” The commission also asked for a list of all interconnection agreements over the three-year period in which the TO would like to exercise the initial funding option.

“‘When the commission commits legal error, the proper remedy is one that puts the parties in the position they would have been in had the error not been made,’” FERC said, quoting a 1999 D.C. Circuit decision over rates on the Trans Alaska Pipeline System. “Providing transmission owners and affected-system operators the right to elect the transmission owner initial funding option for any GIA, FCA and MPFCA that became effective during the interim period is an appropriate remedy in this case to give effect to the court’s vacatur, as it seeks to return the parties to the position they would be in if the commission had not issued the now vacated orders.”

‘Not so Burdensome’

The commission acknowledged that MISO and its members face complex issues when reopening existing agreements but said the intricacies didn’t outweigh leaving the unfair treatment in place. Several MISO members, particularly those with projects in the interconnection queue, said the retroactive decision will threaten their ability to meet production tax credit deadlines if power purchase, tax equity, lender and other agreements must be revisited. The American Wind Energy Association argued that FERC’s decision could cause projects in the late stages of the queue to drop out, triggering a ripple effect of restudies.

“We find that these concerns are not so burdensome as to overcome the presumption that the commission should place parties in the position they would have been in absent the commission’s legal error. While we acknowledge that reopening existing GIAs, FCAs [and] MPFCAs may increase costs to certain interconnection customers or result in disruption to schedules … we are not persuaded that these potential impacts are so great that we should deprive transmission owners or affected-system operators of an opportunity to earn a return on the capital costs of the network upgrades built on their system that should have been expressly allowed,” FERC said.

The commission also said it would not establish a process for generation developers, generation owners and interconnection customers to recover losses in light of the change. Some MISO members had asked that FERC shield developers and interconnection customers from circumstances beyond their control, but the commission said the developers and customers had been “on notice that the commission’s orders on review could be remanded or vacated, and that a judicial remand and/or vacatur could require changes to agreements entered into during the pendency of these proceedings.”

“As such, interconnection customers could have taken steps to mitigate these risks,” FERC said.

Glick Dissents

Glick said the decision doesn’t address the commission’s previous concern that giving TOs the unilateral right to decide whether to fund network upgrades could be unfair to MISO’s interconnection customers. He said FERC’s decision may deprive interconnection customers the “opportunity to finance network upgrades with more favorable terms and rates.”

And he criticized his fellow commissioners for how they chose to address the court’s concerns in the order on remand.

“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,” Glick wrote.

He said the commission should have solicited briefing after the remand to make a decision with more substantial evidence.

Instead, Glick contended, the commission sidestepped “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, and giving transmission owners the discretion to pick and choose when to self-fund network upgrades vests them with the opportunity to do so.”

Glick said the commission should have granted a rehearing so it could better evaluate the risk of preferential treatment and discrimination. He also said MISO’s TOs failed to prove any harms they would suffer if FERC left the three years of contracts in place, while interconnection customers will have the “economic rug [pulled] out from under” them.

“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. 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,” he said.