FERC Order Strikes Down ITC Midwest's 100% Network Upgrade Reimbursement

30 August 2013 Renewable Energy Outlook Blog

FERC recently struck down a MISO Tariff provision that reimbursed new generators 100 percent for interconnection-related network upgrades in ITC Midwest, LLC (ITCM) (Click here for a copy of the Order). Now generators in ITCM will only receive reimbursement for 10 percent of the costs of network upgrades rated at or above 345 kV, and no reimbursement for network upgrades rated less than 345 kV. The ITCM pricing zone has significant wind resources, and the 100 percent reimbursement policy was considered a boon to developers in that region. Under the policy, generators paid network upgrades upfront and then were reimbursed upon commercial operation, provided the generator committed to serving any MISO load. The ITCM reimbursement policy stems from Order No. 2003, but subsequent orders allowed independent transmission owners flexibility to depart from providing full reimbursement for interconnection-related network upgrades.

FERC’s order striking down the ITCM interconnection crediting policy stems from a complaint filed by Interstate Power and Light Company (IPL), a utility subsidiary of Alliant Energy Corporation that serves electric retail customers in Iowa and Minnesota. IPL’s complaint focused on the costs versus benefits of the reimbursement policy, arguing that its retail customers shoulder an exorbitant amount of incremental costs over MISO’s generally applicable reimbursement policy. IPL maintained that these costs were unduly discriminatory because it had not experienced material improvements through lower prices or increased reliability directly attributable to the reimbursement policy. ITCM countered that the benefits were tangible and much of the costs were necessary for the transmission system it had purchased from IPL.

Proponents of wind generation supported the reimbursement policy, arguing that it is consistent with other RTOs and that it promotes policy objectives including removing disincentives to investing in new projects, promoting renewable energy, increasing competition, and ensuring all interconnection customers receive equal treatment.

The Commission did not directly address the interveners’ points and IPL’s cost/benefit argument. Instead the Commission found that the 100 percent reimbursement policy, within the context of MISO’s zonal rate structure, results in an improper subsidy because ITCM customers are subsidizing network upgrades for generation that is not serving native ITCM load. The Commission explained that when power is exported out of ITCM, the transmission rate charged is the rate where the power is delivered and not where it is sourced. Accordingly, transmission customers located outside of ITCM do not fully contribute to the embedded costs of the ITCM transmission system, and instead those costs are bore disproportionally by its retail customers.

The Commission’s order directed MISO to change its tariff to conform to the generally applicable MISO reimbursement policy and is effective prospectively from the date of the July 18, 2013 order. It does not modify existing agreements. ITCM has a rehearing request of the order pending before the Commission. The Commission also stated that it may allow, on a case-by-case basis, amendments to existing generator interconnection agreements to add additional network upgrades to receive 100 percent reimbursement for those upgrades. IPL filed with the Commission a request for clarification on this point, arguing that it will lead to protracted litigation and stymie efficient transmission system planning and build-out.

Currently there remain two other pricing zones within MISO, ATC and ITC/METC that still fully reimburse interconnection-related network upgrades. In light of the Commission’s recent decision, future complaints seeking to strike down 100 percent reimbursement in those zones would not come as a surprise.

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