On October 5, 2012, the Midwest Independent Transmission System Operator, Inc. (MISO) and the City of Escanaba, Michigan (Escanaba) filed with the Federal Energy Regulatory Commission (FERC) MISO’s first-ever System Support Resources (SSR) Agreement. The SSR Agreement is MISO’s mechanism to deal with the reliability concerns surrounding the decision to retire a generating unit. FERC’s decision is pending and it will have important implications for other retirement decisions and load-serving entities (LSEs) within MISO’s region as well as the regions of other Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs).
The retirement of generating resources can occur due to several factors, e.g., the age of a generating unit, relatively high capital and operating costs, and market conditions, among others. With coal-fired generation, environmental restrictions and compliance costs often are key drivers in the decision to retire a generating unit. FERC has no authority over the decision to retire a generating resource. However, if the decision to retire a generating unit raises reliability concerns, FERC has the authority under the Federal Power Act (“FPA”) to ensure reliability is maintained before, during and after retirement of a generating unit. Since generating unit owners participating in ISO/RTO markets must comply with the FERC-approved tariffs of the ISOs/RTOs, these tariffs typically have mechanisms to postpone retirement while any reliability concerns (i.e., potential violations of mandatory reliability standards) are addressed.
MISO’s Updated SSR Tariff Provisions
On July 25, 2012 (Docket No. ER12-2302-000), MISO filed proposed changes to the SSR provisions of its Tariff noting that it was likely the SSR provisions will be used in the near future due to (a) changing economic and regulatory conditions, (b) Environmental Protection Agency (“EPA”) regulations, and (c) renewable portfolio standards. The existing SSR provisions in MISO’s tariff had not been used in the eight years since their acceptance by the FERC in 2004. On September 21, 2012, the FERC conditionally accepted the SSR changes but directed that MISO address several issues in two compliance filings (within 90 and 180 days from the date of the Order). See Midwest Independent Transmission System Operator, Inc., 140 FERC ¶ 61,237 (2012) (September 21 Order).
The SSR Agreement between MISO and The City of Escanaba
After FERC issued the September 21 Order (and while MISO’s compliance obligations our outstanding), MISO submitted its first-ever SSR Agreement with FERC on October 5, 2012 in Docket Nos.ER13-38-000 and ER13-37-000 (October 5 Filing). At the end of 2011, Escanaba requested that its generating units 1 and 2 be permitted to shut down for a 36 month period beginning on June 15, 2012. MISO completed its analysis of Escanaba’s request and concluded that the proposed mothballing of the Escanaba units 1 & 2 prior to the completion of transmission upgrades in the area would result in violations of applicable reliability standards. MISO designated Escanaba units 1 & 2 as SSR Units until such time as appropriate alternatives can be implemented to mitigate reliability issues.
The MISO-Escanaba SSR Agreement is for an initial term of twelve months. The SSR Agreement would establish an annual revenue requirement of approximately $3.7 million ($309,190 per month) and a variable generation payment of $71.57 per MWh when the units were dispatched. The proposed variable generation payment has a make-whole and return provision (or true-up) if the MISO’s market-clearing prices either are lower or higher than $71.57 per MWh, respectively. MISO proposes that the costs of the MISO-Escanaba SSR Agreement will be allocated to all LSEs within the footprint of the American Transmission Company (“ATC”) on a pro rata basis.
The MISO-Escanaba filing is pending before FERC. Several Wisconsin LSEs / distribution companies, industrial customers and Public Utility Commission of Wisconsin submitted comments and/or protests. Most of the criticisms center on whether: (i) cost allocation to the ATC footprint was just and reasonable; (ii) the requisite details and support for the rates and rate design were provided; (iii) the proposal should be subject to the outcome of the MISO’s compliance obligations in the September 21 Order; and (iv) the proposed retroactive effective date of June 15, 2012 is reasonable.
FERC’s decision on the MISO-Escanaba SSR Agreement will have important implications for other retirement decisions and LSEs within MISO’s region as well as in the regions of other ISOs/RTOs. The issues discussed above will continue to be important because, as noted by the FERC in Order No. 1000-A, “existing and potential environmental regulation and state renewable portfolio standards are driving significant changes in the generation mix, resulting in early retirements of coal-fired generation, an increasing reliance on natural gas, and large-scale integration of renewable generation.” Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities, Order No. 1000-A at P 50, 139 FERC ¶ 61,132 (2012).
Roger Smith is a partner with Schiff Hardin.