On March 4, 2013, FERC accepted the Midwest Independent Transmission System Operator, Inc.’s (“MISO”) first ever use of a cost of service agreement to avoid reliability concerns presented by a generator’s planned retirement.  Called a system support resource (or “SSR”) agreement, MISO tendered the agreement to the City of Escanaba, Michigan (“Escanaba”)* to prevent the City from mothballing two generating units over concerns that system reliability in the upper peninsula of Michigan could be compromised if the units were permitted to shut down.  Under the MISO tariff, MISO must provide SSR agreements to generators who plan to mothball or retire, but who are needed for some interim period to maintain system reliability.

MISO’s decision to implement the SSR agreement follows its recent tariff revisions to revise and clarify provisions of its SSR program due to MISO’s belief that significant usage of its SSR program was imminent due to impending environmental regulations (see September 28, 2012 edition of the WER).

On December 19, 2011, Escanaba submitted a request to MISO seeking to mothball two of its generating units.  After completion of a reliability analysis of the two units, MISO determined that the mothballing of the units before completion of certain transmission upgrades would result in reliability violations.  Therefore, MISO designated the two Escanaba units with SSR status.  Under the MISO tariff, units designated with SSR status are entitled to negotiated, cost-based compensation until the unit is no longer required to operate for reliability purposes.

In approving the use of the SSR agreement, FERC emphasized that these agreements are to be “used only as a limited, last-resort measure,” and that any extension of the agreement beyond the initial term is subject to evaluation by MISO stakeholders and FERC approval, rather than left to the sole discretion of MISO.  FERC also approved the allocation of SSR costs to all load serving entities throughout the American Transmission Company LLC footprint, because “the demand-based methodology is correlated to the reliability issues that underlie the SSR process.”

Commissioner John Norris issued a separate concurring statement that encouraged MISO and its stakeholders to continue to work together and evaluate new and innovative solutions to maintain a reliable grid.  Commissioner Norris “challenge[d] MISO and its stakeholders to think creatively in evaluating how to best respond to the reliability challenges presented by generator retirements in Escanaba, Michigan and elsewhere that will confront the region.”

The SSR agreement is effective June 15, 2012, and terminates June 14, 2013.  Additionally, MISO must make a compliance filing within 60 days of the order.  A copy of the order and Commissioner Norris’ concurrence is available here.

*Disclosure – Troutman Sanders LLP represented the City of Escanaba in this FERC proceeding