June 20, 2013
U.S.

7th Circuit upholds regional cost allocation for MISO Transmission projects

6/19/2013 | by Bradley Jackson, Brian Potts, Kurt Rempe | Foley & Lardner LLP | www.jdsupra.com

The U.S. Court of Appeals for the Seventh Circuit recently upheld MISO’s FERC-approved multi-value project (MVP) tariff,1 which spreads the costs of constructing certain new transmission lines across the entire MISO footprint based on members’ total energy consumption rather than peak demand.2 These MVPs are primarily built to move electricity generated by rural wind farms to urban centers, which MISO states will pay for itself through lower costs and increased reliability. The court ruled that MISO’s cost/benefit analysis supporting the MVP concept was sufficient and suggested that states like Michigan cannot constitutionally restrict renewable portfolio compliance to in-state generation.

Writing for a three-judge panel, Judge Posner rejected a number of arguments raised by utilities and regulators in Michigan and Illinois. In particular, petitioners argued that the criteria for determining which projects are eligible MVPs is too loose and that MVP costs are not commensurate with benefits.

To qualify as an MVP, a project must have an expected cost of at least $20 million, must consist of high-voltage transmission lines (at least 100kV), and must help MISO members meet state renewable energy requirements, fix reliability projects, or provide economic benefits in multiple pricing zones. However, the court stated that “none of these eligibility criteria ensures that every utility in MISO’s vast region will benefit from every MVP project,” noting that Illinois power cooperatives are exempt from state renewable energy requirements “and so would not benefit from MVPs that help utilities meet state renewable energy requirements.” But the court went on to say that “FERC expects them to benefit by virtue of the criteria for MVP projects relating to reliability and to the provision of benefits across pricing zones.”

In addition, Judge Posner wrote that future benefits are difficult to quantify and even if MISO and FERC could only provide “crude” cost/benefit comparisons of the MVP program, “it will have to suffice.” He added that “wind power will grow fast and confer substantial benefits on the region served by MISO” and that “there is no reason to think these benefits will be denied to particular subregions of MISO.” He sharply pointed out that MISO membership is voluntary and that those who do not believe they will benefit from the MVP tariff can “vote with their feet.”

However, the court remanded to FERC the issue of whether MISO should remain prohibited from adding the MVP surcharge to electricity exported to PJM. FERC permits this surcharge to other RTOs. The court found that FERC’s reasons for creating an exception for PJM – to avoid “rate pancaking” – may no longer be applicable because of changed circumstances. Moreover, the court dismissed as “premature” – pending final administrative review – challenges to MISO’s assessment of MVP costs to two exiting MISO members.

Of particular interest, Judge Posner observed that Michigan’s Clean, Renewable, and Efficient Energy Act, which excludes renewable power generated out of state from satisfying the renewable energy mandate, “trips over an insurmountable constitutional objection,” and that “Michigan cannot, without violating the commerce clause of Article I of the Constitution, discriminate against out-of-state renewable energy.” Although, this statement is “dictum” and does not overturn the Michigan statute, it may have far-reaching effects by encouraging out-of-state renewable generators to challenge renewable portfolio standards that favor in-state generation.