The Presque Isle Power Plant is located in Marquette, on the Upper Peninsula of Michigan.
A Michigan power plant’s threatened closure may cost Wisconsin ratepayers over $48 million to preserve it’s continuous operation. The proposed cost for Michigan ratepayers is $4 million, or twelve times less than their Great Lakes region neighbor. On April 3rd, the Public Service Commission of Wisconsin (“PSCW”) filed a complaint pursuant to Section 206 of the Federal Power Act (“FPA”) against the Midcontinent Independent System Operator (“MISO”) seeking an order by the Federal Energy Regulatory Commission (“FERC”) that remedies the cost allocation.
FPA Section 206 mandates that whenever the FERC “upon its own motion or upon complaint” finds such a rate “unjust, unreasonable, unduly discriminatory or preferential, the Commission shall determine the just and reasonable rate, charge, classification, rule, regulation, practice, or contract to be thereafter observed and in force, and shall fix the same by order.” 16 U.S.C. Sec. 824e(a).
The Presque Isle Power Plant (“PIPP”), located on the southern shore of Lake Superior in Marquette, Michigan, is the sole electric power generator of any significant size in the Upper Peninsula (“UP”). Michigan is composed of two large peninsulas, which are separated by the Straits of Mackinac, a five mile channel that joins Lake Huron to Lake Michigan. The Lower Peninsula is where much of the state’s population center resides, in cities like Grand Rapids, Lansing, and Detroit. The Upper Peninsula, also commonly referred to as the UP, borders northeastern Wisconsin, and consists of 29% of Michigan’s total land mass, but only 3% of it’s general population.
PIPP is owned by the Wisconsin Electric Power Company (“WEPCO”). The power plant is comprised of five coal-fired power units, with a combined capacity of approximately 344 megawatts (“MW”). It is the only electric power plant for 150 miles. PIPP was constructed to provide power for the Tilden and Empire iron ore mines, which are currently owned by Cliffs Natural Resources Inc. (“Cliffs”). The mines, located just outside of Marquette, remain one of the largest consumers of power in the UP. In mid-summer 2013, Cliffs switched it’s electrical supplier for the mines from WEPCO to Integrys Energy Services, Inc. (“Integrys”). As a result, WEPCO no longer considered PIPP economically viable, and notified MISO of it’s intentions to suspend the power plant’s operations for the next sixteen months.
The Midcontinent Independent System Operator (“MISO”), is an independent, not-for-profit regional transmission organization responsible for maintaining reliable transmission of power in fifteen U.S. states and the Canadian province of Manitoba. Under FERC Order No. 2000, the Commission encouraged the voluntary formation of Regional Transmission Organizations (“RTO”) to administer the transmission grid on a regional basis throughout North America (including Canada). FERC accepted MISO’s organizational plan on September 16, 1998, then approved the MISO as the nation’s first RTO in December 2001.
Relevant to this dispute is Section 38.2.7.k. of MISO’s Open Access Transmission, Energy and Operating Reserves Markets Tariff (“OATT”). FERC created the requirement of “Open Access Transmission” in Order No. 888. FERC requires utilities to allow other utilities to use their transmission and distribution facilities, to move power from one point to another on a nondiscriminatory basis for a cost-based fee. Order No. 888 created what is referred to as the Open Access Transmission Tariff. In other words, OATT is a culmination of charges that an RTO passes on to utilities, and thus ratepayers, for the open access of the transmission system.
Under MISO’s OATT is a System Support Resource (“SSR”) provision. System Support Resources are power plants that MISO determines are necessary to support the electric system’s reliability, or the assurance that power is available even under adverse conditions, such as unplanned outages of generation or transmission lines. If MISO determines that a power plant qualifies as an SSR because continuous operation of the plant would be necessary to ensure system reliability, then the power plant owner is eligible to execute a System Support Resources Agreement with the MISO. The SSR Agreement outlines how the owner will be compensated for the prolonged operation of the plant.
Under the current circumstances, MISO determined that all five units of the PIPP are necessary for electric system reliability. MISO negotiated an SSR Agreement with WEPCO to recover fixed costs of $52.23 million for one year. Under the SSR Agreement, Wisconsin ratepayers are responsible for 92% of the costs, or approximately $48 million. Leaving Michigan ratepayers the smaller balance of 8%, or approximately $4 million. The percentages on their face appear inequitable, and the Public Service Commission of Wisconsin argues that they are. However, they are not random. There is at least a modicum of a reason why they have appeared in the SSR Agreement, even if they are in fact unfair or discriminatory. The cost allocation percentages have an origin in the Wisconsin Legislature.
In 1999, the Wisconsin Legislature included substantial changes in the state regulation of electric utilities as part of the biennial budget bill. It included provisions relating to the electric power transmission, air emissions from electric generating plants, and many other aspects of electric utility regulation. A central provision of the law authorized the creation of a new transmission company. Wis. Stat. Sec. 196.485(1). The law authorized electric utilities to participate in the creation of the new entity by transferring ownership of transmission facilities to the newly organized transmission company, and in return, receiving an equity ownership percentage. Originally, five utilities contributed transmission facilities to form the new company. On December 22, 2000, the Public Service Commission of Wisconsin authorized the organization of the American Transmission Company (“ATC”). ATC’s sole purpose is to plan, construct, operate, maintain, and expand transmission facilities that it owns, to provide an adequate and reliable transmission system that meets the needs of all transmission users and that supports effective competition in energy markets without favoring any market participant. In re Org. of Am. Tranmission Co., LLC, Certificate of Authority and Final Decision, Docket No. 137-NC-100 9Wis. PSC Dec. 22, 2000) (PSC Ref#: 71869).
Now, twenty-nine entities share equity in the American Transmission Company. The ATC owns and operates a transmission system throughout Wisconsin and the UP. It’s service area is known as it’s “footprint”. ATC’s footprint may be viewed here. ATC originally “expressed an intent to become the balancing authority for its region”. Pub. Serv. Comm. of Wis. v. MISO, FERC Dkt No. EL14-34-000., Complaint p. 18. A “balancing authority” is responsible for integrating “resource” plans ahead of time. A “resource” is any source of electric energy that increases the availability of capacity (in megawatts). A “resource plan” is a long-term plan (generally one year and beyond) for the resource adequacy of specific “loads” (the level of electricity consumed at a particular time measured in megawatts) within a designated area. The “balancing authority” maintains “load-interchange” balance within its area. “Interchange” refers to the transfer of electric energy that crosses “balancing authority” boundaries. The area in which “balancing authorities” have “authority” is simply referred to as a “balancing authority area”. An entity must receive FERC approval to be designated as a balancing authority.
All attempts by ATC and MISO to convince FERC to designate ATC as a balancing authority failed. The PSCW argues in the present action that MISO included language in its revised OATT that hinged on whether ATC would receive FERC approval as a balancing area. That language was never struck out, changed, or revised. It exists to this day, in the current SSR provision. The Complaint refers to this language as the “ATC Carve-Out”.
The ATC Carve-out: “For the purposes of this Section, any costs of operating an SSR Unit allocated to the footprint of the American Transmission Company shall be allocated to all LSEs [load-serving entities, entities that secure electric energy, transmission service, and related services to serve the demand of its customers] within the footprint of the American Transmission Company on a pro rata basis.”
The cost allocation percentages advocated in MISO and WEPCO’s SSR Agreement stem from this provision. A provision in which the PSCW terms “a historical accident.” The load-serving entities in the ATC footprint are predominantly Wisconsin based utilities with Wisconsin based rate payers, which is why Wisconsin is seeing a 92% cost allocation under the ATC Carve-Out. The PSCW argues that a more equitable cost allocation would reflect the results of a study performed by MISO referred to as the MISO Load-Shedding Analysis. A “load shedding analysis” determines the overall impact of a power plant closure and to what proportion it affects its service territories. The results of MISO’s load shed analysis demonstrate that the Upper Peninsula of Michigan benefits by 58% if PIPP remains online. Whereas, Wisconsin benefits by 42%. The PSCW requests that the SSR cost allocation reflect the percentages of the MISO Load-Shedding Analysis, rather than those created by the application of the ATC Carve-Out. The PSCW argues that a just and reasonable allocation of SSR Agreement costs would recognize that load in the UP is electrically dependent on the PIPP. Further stating that a just and reasonable rate would apply the prevailing cost methodology used for the rest of MISO, that is, allocation to “LSE(s) which require the operation of the SSR Unit for reliability purposes.” PSCW v. MISO, Complaint, p. 4. PSCW asserts that the new cost allocation would properly shift the larger share of SSR Agreement costs for PIPP operations for reliability to the primary benefiting load in the UP.
In support of its Section 206 FPA claim, the PSCW levies four arguments: (1) the current allocation of costs under the SSR Agreement is unjust, unreasonable, and unduly discriminatory; (2) the allocation of SSR costs do not correspond to well-established cost-causation principles; (3) the ATC Carve-Out is arbitrary and unduly discriminatory; and (4) it would be just and reasonable to adopt MISO’s prevailing cost allocation methodology.
In the alternative, the PSCW requests a waiver in regards to the applicability of Section 38.2.7.k. of the OATT. The PSCW justifies the waiver request in the following manner: (1) the scope will be limited to dealing with one particular power plant located on an electrically-isolated peninsula; (2) the waiver would remedy a concrete problem, which is the proper identification of which entities should pay for the reliability from which they benefit; and (3) no harm will come to third parties because the substantive relief sought here seeks to prevent harm to non-benefiting parties and to avoid jurisdictional cost shifting windfalls.
Primarily the PSCW requests that the FERC declare the ATC Carve-Out provision unjust, unreasonable, and unduly discriminatory. It also requests a FERC Order identifying new tariff language to establish a more just and reasonable rate in the SSR Agreement.
MISO answered PSCW’s Complaint on April 28th. MISO’s Answer does not deny or comment elaborately on the claims that the PSCW has made. The Answer does assert however, that the MISO Load-Shed Analysis results were preliminary, and that the percentages identified in the PSCW Complaint may not be completely accurate. MISO would like to finalize its analysis if FERC is to correlate the SSR cost allocation with the Load-Shed Analysis. Secondly, MISO invites “entities that would bear the additional burden of SSR Unit compensation…[to] be heard by the Commission regarding [any change to the] tariff provisions regarding SSR units in the ATC footprint.” Pub. Serv. Comm. of Wis. v. MISO, FERC Dkt No. EL14-34-000., Answer p. 5.
FERCBlog shall provide important updates on this docket as they become relevant. A copy of the Complaint may be viewed here.