MISO and its transmission owners defended their practice of allowing transmission owners to self-fund network upgrades in separate filings Sept. 11 responding to FERC’s Order to Show Cause (EL24-80).

FERC in June said grid operators’ practice of allowing TOs first crack at financing — and therefore earning a return on — the network upgrades necessary to bring generators online could be biased against interconnection customers, who may experience higher interconnection costs as a result.

The commission ordered MISO, PJM, SPP and ISO-NE to explain how their tariff language on the initial funding is fair or, alternatively, propose changes to make their policies impartial. It also suggested that TO self-funding creates barriers to interconnection (EL24-80, et al.). (See FERC Issues Show-cause Order on TO Self-funding in 4 RTOs.)

For more than a decade, MISO’s practice of TO self-funding has been the subject of oscillating rulings between FERC and the D.C. Circuit Court of Appeals. RWE Renewables, NextEra Energy and EDF Renewables recently claimed their costs “double or increase exponentially” when TOs take the lead on funding network upgrades.

In their filing, the TOs argued that eliminating their unilateral ability to self-fund upgrades would decrease, rather than promote, the capital investment needed for transmission projects. They also said FERC has no basis to eradicate TO self-funding after establishing it in Order 2003.

MISO insisted its TO initial funding practice is fair and said it never has “observed any instances of [it] being used as a tool to inflate the costs of network upgrades or create advantages for some generation projects vis-à-vis others.” The RTO said a TO electing to self-fund does not affect the interconnection service, but it did acknowledge it does increase the costs for interconnection customers.

“TO initial funding does increase the cost of interconnection service to the interconnection customer, but only because that cost would not otherwise include a … return on capital,” MISO said. “From the perspective of [a] transmission owner, the actual cost of the operating and maintaining the funded network upgrade is unchanged.” It added that eliminating the self-funding option will not necessarily result in lower costs because interconnection customers also could require a return on capital and shift that cost to ratepayers.

MISO also said its procedure affords interconnection customers the opportunity to suggest alternatives to and investigate the justification for a network upgrade so they’re not on the hook for oversized projects that would pad TOs’ bottom lines. The RTO also said interconnection customers can pursue alternative dispute resolution or choose to file unexecuted facilities service agreements to challenge upgrade costs.

The RTO insisted its three-phase interconnection queue design provides enough oversight so that “any network upgrade and corresponding self-fund election has a transparent, multistep history, with MISO involvement at each step.”

However, MISO added a caveat that it “has only limited insight into its transmission owners’ internal functions, needs and decision-making,” so it could not answer all questions posed by the commission. In those cases, MISO submitted its TOs’ answers.

The TOs adopted a more full-throated defense. They said FERC’s show-cause order “poses questions that make it apparent the commission has made up its mind” to eliminate the self-funding option “without regard to the long-term effect this will have on transmission owners and other customers they serve.”

They argued it is imperative they be able to earn a return on assets they will own, operate and maintain for the duration of their useful lives. They said the show-cause order amounts to “misguided policy goals behind an undue discrimination theory” and argued that no one has been able to produce evidence that TO initial funding causes undue discrimination “in the 13-plus years that TO initial funding has been before the commission.”

The TOs also said that, in an era of supersized transmission expansion, it appears FERC has forgotten to “balance interests and to ensure that native load customers are not negatively affected as a result of third-party generator interconnection.” They said their financial viability should be maintained and FERC should be careful not to “strike a one-sided ‘balance’ in favor of cheaper interconnections for generators.”

“Transmission owners bear substantial risks associated with owning, operating and maintaining said transmission facilities, and stand to lose the right to self-fund network upgrades and, with it, the ability to earn a just return on an entire class of interstate transmission facilities, in a grossly unfair proceeding,” the TOs said.

If they are denied the opportunity to make a return on network upgrades, the TOs argued it would constitute an attack on their business model and is akin to the “taking of private property for public use without just compensation.” It is “overly simplistic” and “reductionist” to think  TOs should not be able to earn a return on network upgrades simply because the money for them comes from generation developers, not themselves, they argued. They also said they never would build unnecessary network upgrades because MISO independently studies interconnection needs.

FERC should terminate the proceeding with prejudice, the TOs concluded.