Ameren Should LOSE the Latest Battle Over Option 1 Network Upgrade Funding in the Midcontinent ISO Region

by Stoel Rives LLP
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Ameren is at it yet again--perpetuating a method for funding generator interconnection network upgrades in MISO that the Federal Energy Regulatory Commission (FERC) found to be unjust, unreasonable, and discriminatory over three years ago.  Ameren has already won two cases that allowed it to continue using Option 1 funding for certain interconnection customers.  But Ameren should lose this one.  Here's why:

A Brief History.  Prior to March 22, 2011, the MISO tariff provided three methods for funding interconnection network upgrades.  Option 1 required an interconnection customer to upfront fund the cost of network upgrades (post security and pay monthly construction costs); when those upgrades became commercially operational, the transmission owner would reimburse the full amount paid by the customer and then establish a transmission rate to charge the customer for using the upgrade on an ongoing basis.  Option 2 funding also required the customer to pay upfront construction costs, but then the customer was reimbursed a portion of those costs following commercial operation.  Option 2 did not include an ongoing rate.  As a result, over time Option 1 funding could result in multiples of the actual cost that a customer might pay under Option 2.  (The third option--"self-fund"--allowed a transmission owner to pay upfront costs itself and then charge a usage rate.)

On March 22, 2011, FERC responded to a complaint about Option 1 funding by independent power producers, determining that the method was "unjust, unreasonable, and discriminatory."  FERC ordered MISO to remove Option 1 funding from its tariff.  That order is found here:  E.ON Climate & Renewables.

However, in the past couple of years, Ameren has successfully won the right to continue using Option 1 funding in interconnection agreements that were signed prior to FERC's decision in E.ON.  After FERC issued its decision in E.ON, certain customers attempted to obtain the benefit of that decision by having FERC alter their agreements where they had agreed to Option 1 funding.  But FERC denied the attempts, primarily on the basis that those prior agreements expressly provided for Option 1 funding and that it would not be in the public interest to unilaterally modify the contracts.  In other words, those customers who sought to benefit from the E.ON decision had express notice that Option 1 funding would apply and they failed to raise a timely dispute; FERC would not reset the contracts they had agreed to.  Those decisions are available here:  Rail Splitter (agreed to Option 1 funding by signing a Facilities Service Agreement) and Hoopeston (agreed to Option 1 funding in its interconnection agreement).

Now we come to the current dispute over Option 1 funding.  This docket focuses on an interconnection agreement that Ameren signed with White Oak Energy in 2007.  At that time, Option 1 funding existed under the MISO tariff, but White Oak's interconnection agreement said nothing expressly about Option 1 funding.  In addition, Ameren was not required to select the funding method until the network upgrades reached commercial operation.  At the time of signing its interconnection agreement, if White Oak had disputed the potential application of Option 1, FERC would have likely dismissed the dispute for being unripe.  It wasn't a real issue yet.  

Fast forward four years.  Ameren completed construction of White Oak's network upgrades in 2011 and notified White Oak at that time that Option 1 would apply.  White Oak disagreed repeatedly, leaving Ameren forced to file White Oak's Facilities Service Agreement unexecuted with FERC.  Under the proposed funding method, White Oak's network upgrades (actual cost $2,399,128) will cost $8,292,180 over 20 years under the ongoing rate.  You can see Ameren's application to FERC here:  White Oak FSA Application.

So why should White Oak receive a different result than the customers in Rail Splitter and Hoopeston?  White Oak should be treated differently because, until now, it had no prior opportunity to complain to FERC about this method for funding network upgrades that we know to be discriminatory.  Unlike the customers in Rail Splitter and Hoopeston, who waived their opportunity to complain and consequently needed FERC to undo contracts they'd agreed to, White Oak has never agreed to Option 1 funding--there is no contract to undo  As a result, White Oak should now be afforded the chance to argue against Option 1 funding on the merits (see E.ON), rather than being hung up by procedural technicalities and the Mobile-Sierra doctrine.

If FERC were to rule in White Oak's favor, then the decision would help to restrict the application of this discriminatory method of funding network upgrades to a limited group of interconnection customers (i.e., those who expressly agreed to Option 1 in a contract) and to insulate those who are just now receiving notice of Option 1 funding from the absurd results that accompany it.  But we'll need to wait and see if those at FERC who call balls and strikes see it the same way. 

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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