• FERC Conditionally Approves Modifications to MISO’s Generator Retirement Procedures Proposed in Light of New Environmental Regulations
  • October 3, 2012 | Authors: Peter S. Glaser; Kevin C. Greene; Daniel L. Larcamp; Clifford S. Sikora; Lara L. Skidmore
  • Law Firms: Troutman Sanders LLP - Washington Office ; Troutman Sanders LLP - Atlanta Office ; Troutman Sanders LLP - Washington Office ; Troutman Sanders LLP - Portland Office
  • On September 21, 2012, FERC conditionally approved the Midwest Independent Transmission System Operator, Inc.’s (“MISO”) revisions to its tariff provisions that designate System Support Resources (“SSRs”) and delay the retirement or suspension of certain generation units within MISO that are needed for reliability.  MISO explained that it believes that significant usage of its SSR program is imminent in light of new environmental regulations and renewable portfolio standards on the horizon, and certain enhancements and clarifications were necessary as a result. 

    While MISO’s tariff currently contains SSR provisions, they have never been implemented.  Under MISO’s current SSR construct, a market participant is required to submit an “Attachment Y” notice if the plant decides to: (1) retire a generation unit; (2) suspend operation of a unit for more than two months; or (3) disconnect the unit from the MISO system for more than two months.  MISO would then conduct an “Attachment Y” study within the next 26 weeks to determine if the unit is needed for reliability and should be granted SSR status.

    MISO proposed to clarify that an Attachment Y notice is only required upon the: (1) the decision to retire a unit; or (2) a decision to suspend generation of a unit.  MISO’s proposed revisions also required MISO to respond to the requesting market participant with the results of the Attachment Y study at the 20 week mark of the 26 week Attachment Y notice period.  In addition, MISO proposed to disclose the results of the Attachment Y study on its Open Access Same-Time Information System, unless the relevant market participant rescinded its Attachment Y notice before the study was completed.

    Finally, MISO proposed that, if a unit is deemed necessary for reliability and designated as an SSR based on the Attachment Y study that unit would only recover the non-capital costs of environmental waivers, allowances, and/or exemptions associated with the SSR’s continued operation.  MISO argued this approach was necessary to prevent a unit from “gaming the market” by receiving extensive funds necessary to comply with environmental regulations, and then deciding not to retire.  In addition, MISO proposed to continue allocating the costs of compensating SSR generators to the load-serving entities that “benefit[] from the operation of the SSR Unit,” but the allocation would not be tied to local balancing authority area boundaries.  Instead, MISO would allocate costs to the load-serving entities that “require[] the operation of the SSR unit for reliability purposes.”  MISO argued that the proposed modifications would ensure that SSR costs are allocated to market participants based upon the reliability benefits received, rather than relying on historical local balancing authority area demarcations that may no longer be relevant to regional reliability issues.
     
    While FERC accepted most of MISO’s proposed revisions, it expressly rejected the proposal to disclose the results of the Attachment Y study, and instead directed MISO to only disclose the results of the study if the unit is needed for reliability.  FERC reasoned that disclosure where a generation unit did not qualify as an SSR might harm its competitive position, and have unintended negative consequences.

    FERC also expressly rejected MISO’s proposal to allow SSR-designated units to only recover non-capital costs, and held that all SSRs “should be fully compensated for any costs incurred because of their extended service.”  FERC explained that “SSRs are required to continue operating to preserve the reliability of MISO’s system and...it is reasonable to allocate the costs resulting from [the SSR’s] continued operations to the load-serving entities that necessitated the SSR designation.”  Furthermore, FERC concluded that SSR designated units would not “game the market” because the SSR designation is designed to be used on a limited, last resort basis, and will be of a short duration.  As such, capital costs for SSR designated units should not be excessive.  With regard to MISO’s cost allocation proposal, the Commission approved the expanded language in light of changes that have occurred in the MISO region since the Commission’s initial acceptance of MISO’s SSR program, including the launch of MISO’s operating reserve market and the consolidation of balancing authority functions in MISO.

    In order to ensure the SSR designation is used only for a short duration and as a back-stop, FERC imposed certain compliance requirements before an SSR agreement is reached.  These requirements are: (1) MISO’s review process must ensure that all alternative methods to SSR designation are explored; (2) MISO will file a report with any SSR agreements as part of a Federal Power Act section 205 filing explaining what alternatives were evaluated; and (3) MISO must demonstrate that the SSR agreement is only limited to the amount of time needed to address the reliability issue.

    On September 27, 2012, Commissioner Philip Moeller issued a separate concurring statement highlighting the need for government to act quickly in matters such as these so the electric industry will have the proper time to comply with the impending environmental regulations.

    MISO must make compliance filings within 90 and 180 days of the FERC order.