On April 27, 2018 (“April 27 Order”), FERC denied a rehearing request of Basin Electric Power Cooperative (“Basin Electric”), Heartland Consumers Power District (“Heartland”), and Missouri River Energy Services (“Missouri River”; collectively, “Rehearing Parties”).  The Rehearing Parties contended that their grandfathered agreement regarding the Missouri Basin Power Project was eligible for carve-out treatment under the Southwest Power Pool, Inc. (“SPP”) Open Access Transmission Tariff (“SPP Tariff”).  In this proceeding, “carve-out treatment” refers to an exemption from congestion charges and marginal losses.  FERC ultimately rejected the rehearing request because it found, among other reasons, that Rehearing Parties are not similarly situated to another party, who had already been given carve-out treatment.

In 1977, Basin Electric, Heartland, and Lincoln Electric System (“Lincoln Electric”) entered into a contract to construct a generation and transmission project, called the Missouri Basin Power Project.  Nebraska Public Power District (“NPPD”) and Lincoln Electric joined SPP as transmission owners in 2008.  SPP accepted the 1977 contract as a grandfathered agreement (“GFA”).  On February 29, 2012, SPP submitted to FERC its Integrated Marketplace proposal to transition from an energy imbalance market to a Day 2 market design.  In that proposal, SPP planned to impose congestion and marginal loss charges on deliveries under GFAs, and NPPD and the Rehearing Parties protested the proposed treatment of their GFA.  On July 31, 2013, SPP filed an offer of settlement on the treatment of GFAs in the Integrated Marketplace, and submitted a filing to implement a Carve-Out Settlement, which FERC conditionally approved.  However, FERC also severed the Rehearing Parties’ GFA from the settlement—thus, not ruling on whether the Rehearing Parties are eligible for carve-out treatment.  SPP’s Integrated Marketplace commenced on March 1, 2014 with Lincoln Electric being the only party among the protesters to receive carve-out treatment.

On September 11, 2014, SPP filed revisions to the SPP Tariff to enable the integration of Basin Electric and Heartland into SPP.  Missouri River protested because it claimed that its transmission service agreement under the 1977 contract should be grandfathered, and argued that the GFA should be exempt from congestion and marginal loss charges.  During settlement procedures in 2016, the parties could not come to an agreement on whether Rehearing Parties should be given carve-out treatment.  In a September 26, 2017 order, FERC determined that the Rehearing Parties did not qualify for carve-out treatment, although FERC also acknowledged that a section of the SPP Tariff dealing with GFAs was “ambiguous.”  In that order, FERC stated that “Lincoln Electric and [the] parties seeking carve-out treatment are in a fundamentally different position regarding the costs of participating in SPP because of when each party chose to join SPP.”  In essence, FERC reasoned that because Lincoln Electric was forced to transition into a Day 2 energy market when SPP adopted the Integrated Marketplace in 2014, while the Rehearing Parties were not forced to do so when they joined SPP after the imposition of the Integrated Marketplace, the Rehearing Parties were not eligible for carve-out treatment, as Lincoln Electric was.

In their rehearing request, the Rehearing Parties argued that the Commission did not appropriately follow its own precedent regarding the ambiguity of the SPP Tariff and whether the Rehearing Parties’ GFA was eligible for carve-out treatment.  They contended that SPP included their GFA on its list of GFAs that would receive carve-out treatment; therefore, because of the context, practice, and usage of their GFA being included on such a list, it “defied logic and common sense” to not give their GFA carve-out treatment as well.  In its April 27 Order, FERC stated that though the list is not “facially” ambiguous, it is “latently” ambiguous as it pertains to Rehearing Parties.  FERC also reasoned, that “there is substantial evidence in the record showing that the parties to the Carve-Out Settlement intended that only Lincoln Electric’s 190 MW reservation…would be eligible for carve-out treatment.”

Rehearing Parties also argued that FERC improperly relied on its own precedent in Dairyland Power Coop. v. Midwest Indep. Transmission Sys. Operator, Inc.  They claimed that FERC rejected MISO’s denial of carve-out GFA status for agreements between existing MISO transmission owners and prospective MISO members on the grounds that a prospective member cannot unilaterally modify an existing agreement with an existing member.  FERC rejected that claim in the April 27 Order because it said that MISO’s proposal “was potentially unduly discriminatory because the prospective new transmission owner could modify agreements with its member affiliates to avoid trapped costs, but it could not modify an agreement with an existing transmission owner.”  FERC further reasoned that “[a]ll of this irrelevant here because the SPP Tariff differs from MISO’s proposal on this point.”

Finally, Rehearing Parties stated in their rehearing request that to be treated differently from Lincoln Electric—who had received carve-out treatment—would constitute undue discrimination because they are similarly situated with Lincoln Electric.  However, FERC rejected this argument because “Rehearing Parties joined SPP after commencement of the Integrated Marketplace, and they therefore are not similarly situated with Lincoln Electric, which joined before commencement.”

FERC’s Order denying the Rehearing Parties’ rehearing request can be found here.