On July 13, 2016, FERC issued an order partially lifting a long-standing pricing limitation for energy exports from the Midcontinent Independent System Operator, Inc. (“MISO”) to the PJM Interconnection, L.L.C. (“PJM”) in relation to Multi-Value Projects (“MVPs”). The order—released in response to a remand from the U.S. Court of Appeals for the Seventh Circuit (“Seventh Circuit Court of Appeals”)—resolves a multi-year-long process and debate over how to allocate costs to PJM for MISO’s MVP transmission projects that benefit customers inside of the PJM region. The central issue decided by FERC was, in light of current system, market, and technological conditions impacting these two Regional Transmission Organizations (“RTOs”), whether it was still necessary to maintain a restriction on export charges for MVP-enabled energy deliveries that originate in MISO and sink in PJM.
Following the issuance of FERC’s Order No. 2000 and as utilities began to join RTOs, FERC identified a “seams” issue between MISO and PJM. Transmission systems that had previously engaged in a substantial amount of trade were split into separate RTOs, causing the same transactions to be subject to a new “rate pancaking”— that is, multiple transmission charges for energy transfers between both systems. FERC, concerned that this rate pancaking would impede the goals of RTOs to support efficient market transactions, instituted an investigatory proceeding to further explore the issue. Ultimately, FERC determined that pancaked rates for service wheeled through or out of one RTO to serve load in the other RTO were unjust and unreasonable and required that the RTOs eliminate them entirely (the “RTO Rate Order”).
In 2010, MISO proposed changes to its tariff to establish a new transmission project planning and cost allocation category for the projects identified by MISO as MVPs – projects that “enable the reliable and economic delivery of energy in support of documented energy policy mandates and address, through the development of a robust transmission system, multiple reliability and/or economic issues affecting multiple transmission zones.” MISO’s new charge would allocate the costs of MVPs to all load in, and exports from, MISO, including exports that would sink in PJM. MISO argued that the added charge for MVPs was justified because MVPs are particularly useful transmission projects, for example, by interconnecting remote wind generation resources in support of energy mandates, such as state renewable portfolio standards. In an order issued that same year, FERC generally approved MISO’s proposed MVP charge for export and wheeled-through transmission, except for exports that sink in PJM. As FERC saw it, applying the MVP charge to these PJM exports would result in the inter-RTO rate pancaking that FERC had already ruled was impermissible.
A group of petitioners including utilities and state public utility commissions challenged FERC’s decision to exempt MVP charges for PJM transmission exports as unjustified and petitioned for review in the Seventh Circuit Court of Appeals. In a 2013 decision, the court agreed that the exception was unjustified. As the court noted, in contrast to the localized benefits of transmission projects built around the time of the RTO Rate Order, MVPs support the entire regional transmission system, and benefit customers inside and outside of the RTO, including those located in PJM. Because (under FERC’s prior decision) PJM utilities do not shoulder the costs for MVPs in proportion to the benefits that they receive from such system improvements, the court remanded the export pricing question to FERC to determine “in light of current conditions what if any limitation on export pricing to PJM by MISO is justified.”
On remand, FERC solicited comments from a variety of parties throughout MISO and PJM. Advocates for extending MISO’s MVP charge to PJM exports pointed to several changed circumstances since FERC broadly prohibited regional rate pancaking in 2002, including: technology and real-time market advancements and a more robust inter-regional transmission planning process following a Joint Operating Agreement between MISO and PJM and the requirements of FERC’s Order No. 1000. Critics of the MVP charge argued that, despite these system improvements, the underlying rationale behind the rate-pancaking prohibition remained valid because imposing additional transmission charges would discourage efficient energy trades along the MISO-PJM seam.
In its final order, FERC agreed with the MVP charge advocates. FERC was particularly persuaded by the recent demand growth for large-scale wind generation, the need for PJM entities to access those renewable resources, and the ability of MVPs to meet those needs. Ultimately, FERC found it appropriate to allow a pancaked transmission rate on MISO exports to PJM through an MVP usage charge and gave MISO thirty days to file a compliance filing to apply the MVP charge to these exports.
The full Commission Order can be viewed here.