On May 21, 2020, FERC reversed, on rehearing, an earlier determination from October 2017 that the Commission has the authority to require the Midcontinent Independent System Operator, Inc. (“MISO”) to revise its Transmission, Energy and Operating Reserve Markets Tariff (“Tariff”) to include refund commitments by non-public utility transmission owning members. FERC found that although it has authority to review non-public utility rates included in jurisdictional rates (such as MISO’s), it was neither necessary nor appropriate to impose the refund commitment contemplated on non-public transmission owners in MISO. FERC also dismissed, as moot, MISO’s compliance filing submitted in response to the October 2017 Order, and terminated various related proceedings.

Federal Power Act (“FPA”) Section 201(f) exempts certain non-public utility entities from regulation under FPA Part II unless a provision makes express reference to them. However, FERC explained in its rehearing order that when a non-public utility becomes a transmission-owning member of a regional transmission organization (“RTO”) or independent system operator (“ISO”), and its revenue requirement becomes a component of the RTO’s/ISO’s jurisdictional rate, FERC has jurisdiction to analyze the non-public utility’s rates, to the extent that those rates affect jurisdictional transactions, to ensure the RTO’s/ISO’s rates remain just and reasonable. Because FERC generally lacks refund authority over governmental entities and non-public utilities, FERC has established a policy concerning review of RTO/ISO tariff filings, pursuant to which, as described by the United States Court of Appeals for the District Court of Columbia Circuit (“DC Circuit”), FERC “will accept the RTO’s filing of a tariff revision where the non-jurisdictional entity voluntarily agrees to make refunds in the event the Commission determines the rate as filed is not just and reasonable, or the Commission will delay the effective date of the proposed rate while it conducts a section 205 review, unless there is no material issue.”

In February 2015, certain non-public utilities filed a complaint against various MISO Transmission Owners, claiming that such owners’ return on equity (“ROE”) was unjust and unreasonable. Although the ROE concerns were the subject of multiple actions (see May 27, 2020 edition of the WER), as relevant to this issue, in July 2016 FERC opened a separate proceeding under FPA Section 206 to evaluate whether the lack of a general refund commitment by non-public utility MISO transmission owners rendered MISO’s resulting jurisdictional rates unjust and unreasonable. As FERC explained in its July 2016 order, and in the October 2017 Order on rehearing, although FERC applied its policy on non-public utility refund commitments to apply only to the specific proceeding at issue, it was appropriate to extend such a policy prospectively to “the full range of situations in which [non-public utility transmission owners] may receive revenues associated with service provided due to their status as transmission-owning RTO members.” Accordingly, FERC directed MISO to submit a compliance filing demonstrating the necessary refund commitments.

Several non-public utilities and associated groups sought rehearing, arguing that FERC erred in doing indirectly what it is prohibited from doing directly, i.e., requiring MISO to procure a refund commitment by non-public utility transmission owning members that would be unenforceable. Other parties argued that FERC erred by ordering MISO to make a compliance filing without first finding that MISO’s Tariff and governing documents were unjust, unreasonable, and unduly discriminatory, or preferential.

On review, FERC granted rehearing of the October 2017 Order for four reasons:

  1. the relevant appellate precedent did not compel FERC to require a prospective refund commitment from all non-public utility transmission owners in MISO, as contemplated by the October 2017 Order;
  2. the D.C. Circuit has recognized that FERC generally does not have authority to require FPA section 201(f) entities to make refunds if they do not voluntarily do so;
  3. FERC retains authority to approve voluntary contractual refund commitments when RTOs include a non-public utility’s annual transmission revenue requirements in RTO jurisdictional rates; and
  4. declining to require the refund commitment contemplated in the October 2017 Order is consistent with FERC’s longstanding policy goal of encouraging the participation of non-public utilities in RTOs/ISOs, and appropriately accounts for distinct characteristics of these entities.

Ultimately, FERC also found that the lack of a general prospective refund commitment by non-public utilities did not render MISO’s rates unjust and unreasonable or unduly discriminatory or preferential. Accordingly, FERC granted rehearing, dismissed the relevant proceedings, and dismissed MISO’s compliance filing at moot.

Click here to read the full order.