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FERC finds costs of MISO MVPs should be allocated to exports sinking in PJM

Citingimprovements made along the seam between the Midcontinent Independent System Operator Inc. and thePJM Interconnection LLCin recent years, FERC scrappeda limitation on export pricing that stems from its 2003 prohibition of ratepancaking between the two regions.

Specifically,the commission ruled that MISO can begin allocating the costs of certainprojects that address reliability and/or economic issues affecting multipletransmission zones, known as multivalue projects, or MVPs, to exporttransactions that sink in PJM.

Indoing so, FERC explained that some of the primary reasons for its eliminationof rate pancaking, such as the irregularity of the seam between MISO and PJM aswell as market and operational inefficiencies between the two regions, have "significantlyimproved" in the past decade or so.

Whenthe commission in December 2010 signedoff on a plan to establish the new MVP designation within MISO andallocate the costs of such projects through a charge applied to both internaland export transactions, the agency specified that export transactions sinkingin PJM would be exempt from the charge. According to FERC, MISO and itstransmission-owning members failed to show that their proposal did notconstitute a resumption of the rate pancaking along the MISO-PJM seam that wasprohibited in 2003.

Butalthough the U.S. Court of Appeals for the 7th Circuit largely upheld FERC'sapproval of the MVP cost allocation plan in June 2013, it that the agency acted arbitrarilyin continuing to prohibit MISO from charging anything for exports of energy toPJM enabled by the MVPs while still charging for exports of energy to otherRTOs.

Notingthat MVPs by definition provide regional benefits, the 7th Circuit recalledthat all of MISO's transmission projects were local in nature at the time FERCprohibited rate pancaking between the two regions. The court accordinglyremanded that aspect of the commission's decision for further proceedings todetermine whether the export pricing limitation is still justified "inlight of current conditions."

FERCin its July 13 order on remand found that it is not.

Thecommission explained that much of its concern over pancaking was eliminatedwhen FirstEnergy Corp.subsidiary American TransmissionSystems Inc.'s movefrom MISO to PJM in 2011 and DukeEnergy Corp. subsidiaries DukeEnergy Kentucky Inc.'s and DukeEnergy Ohio Inc.'s similarshift in 2012 "significantly reduced the geographic complexityof the seam between the RTOs."

Moreover,while portions of Michigan and Wisconsin that are in MISO's footprint are stillislanded from the rest of that RTO, FERC said meaningful improvements inmarket-to-market coordination between MISO and PJM, including changes to theway units are dispatched, have addressed many of the issues arising from thatislanding.

FERCfurther said MVPs provide benefits to "all users of the integratedtransmission system, regardless of whether the ultimate point of delivery is toan internal or external load." Large-scale wind projects capable ofsatisfying both MISO's and its neighboring RTOs' renewable energy needs arebeing built in the remote western portion of MISO, and PJM entities reportedlyhave a need to access those resources, FERC noted.

"Giventhese changes, it is appropriate to allow MISO to assess the MVP usage chargefor transmission service used to export to PJM just as MISO assesses the MVPusage charge for transmission service used to export energy to other regions,"the commission said.

Theagency did not, however, agree to make its decision retroactive to 2010,pointing to its policy of not ordering refunds in cases involving costallocation or rate design. (ER10-1791)