[co-author: Quintessa Davis]
On December 16, 2022, FERC again rejected the Midcontinent Independent System Operator Inc. (“MISO”) proposal for Transmission Owners to self-fund Necessary Upgrades to connect Merchant High Voltage Direct Current (“HVDC”) transmission lines into MISO and addressed arguments on rehearing. Commissioner Danly dissented and Commissioner Christie concurred in separate statements. Chairman Glick did not participate.
FERC previously rejected MISO’s proposal in an April 2022 order, finding that MISO failed to reconcile its claim that Network Upgrades and Necessary Upgrades are functionally identical with its choice to extend to the latter only one of the many funding options available to the former (see May 20, 2022 edition of the WER). On rehearing, petitioners challenged FERC’s prior rejection on three grounds. First, they argued that FERC exceeded its passive role under Section 205 of the Federal Power Act by rejecting MISO’s proposal on the basis that it did not extend the other funding mechanisms to Necessary Upgrades. Second, petitioners argued that FERC ignored, or at least discounted, evidence from MISO’s learned experience with HVDC connections. They suggested that this practice may set rates in stone long after evidence shows the basis for accepting them to be untrue. Finally, petitioners argued that in rejecting MISO’s entire proposal and, thus, failing to allow for Transmission Owner Initial Funding, FERC reversed its position with regard to Transmission Owner funding of standalone network upgrades, violating judicial precedent that Transmission Owners should be able to earn a return on their investment where they must construct upgrades.
FERC found that petitioners’ first argument fails even if it assumes that Network Upgrades and Necessary Upgrades are indistinguishable because MISO’s solution violates the comparability principle. As to the second argument, FERC explained that it was reasonable to find that customers with Network Upgrades and those with Necessary Upgrades pose different risks to the transmission system. Therefore, as an alternative to its undue discrimination finding, FERC continued to find that MISO failed to meet its burden to show its proposal was just and reasonable because it failed to support the assertion that these customers are similarly situated or that customers with Necessary Upgrades are somehow uncompensated for attendant risks and costs. Finally, FERC responded to petitioners’ last argument by reiterating its belief that Network Upgrades and Necessary Upgrades are sufficiently dissimilar that it was not bound to apply the judicial precedent petitioners cited.
Commissioner Danly filed a dissenting statement in which he argued that he would have found MISO’s proposal to be just and reasonable and noting his previous dissenting statement in this proceeding explaining that the Commission’s prior decision impermissibly denies transmission owners’ right to receive a return on capital costs due to its stated preference for a different proposal. Additionally, Commissioner Christie issued a concurring statement in which he argued that generation developers in RTOs should pay the “but for” cost of their interconnection, including network upgrades. But Christie continued, “[a]llowing the transmission owner a profit (i.e., return on equity, or ROE) on someone else’s capital investment would be an unearned windfall.”
A copy of the order can be found here.
