On June 24, 2019, FERC rejected the Midcontinent Independent System Operator, Inc.’s (“MISO”) and the MISO Transmission Owners’ (collectively, “Filing Parties”) tariff revisions regarding cost allocation for regional and local economic transmission projects, finding that the cost allocation methodology related to the Filing Parties’ newly proposed Local Economic Project category was inconsistent with the cost-causation principle. FERC rejected the Filing Parties’ filing as a whole based on the above finding, however FERC did provide guidance on other portions of the filing, stating that it did not find such other aspects of the filing to be unjust and unreasonable.

In Order No. 1000, FERC established new requirements for regional transmission planning and cost allocation. In complying with these new requirements, MISO submitted a series of compliance filings, relying on two categories of transmission projects with the associated Order No. 1000 regional cost allocation methods – Market Efficiency Projects and Multi-Value Projects. The current Market Efficiency Project cost allocation method assigns twenty percent of the cost of a Market Efficiency Project on a postage stamp basis across the MISO footprint, while eighty percent of the costs are allocated to various zones based on each zone’s proportion of savings due to the project. In order to qualify as a Market Efficiency Project, a transmission project must cost a minimum of $5 million, consist of facilities that have voltages of 345 kV or higher which constitute more than fifty percent of the combined project costs, and have a total regional benefit-to-cost ratio of at least 1.25-to-1. MISO’s compliance filings were ultimately accepted by FERC.

In an April 21, 2016 order related to a later proceeding, FERC found that MISO did not address what regional cost allocation method should apply to MISO’s share of the cost of an interregional economic transmission project operating above 100 kV but below 345 kV. In the order, FERC directed MISO to submit a compliance filing to either clarify such requirements or propose tariff revisions to adjust the regional cost allocation requirements.

On February 25, 2019, the Filing Parties filed revisions to MISO’s tariff aimed at allowing MISO to allocate costs to beneficiaries with greater precision and transparency. In this filing, among other proposed changes, the Filing Parties proposed to adopt a Local Economic Project category of projects, which would consist of economic transmission projects at or above 100 kV and below 230 kV, along with an associated cost allocation method. In order to measure benefits for the new Local Economic Projects, the Filing Parties proposed to use same three benefit metrics that they proposed for Market Efficiency Projects. Further, the Local Economic Projects would need to meet two benefit-to-cost ratios; the first being the same regional 1.25-to-1 benefit-to-cost ratio that Market Efficiency Projects must meet, and the second being a local benefit-to-cost ration of 1.25-to-1 in each zone in which the project is located. However, one hundred percent of the costs of the Local Economic Projects would be allocated to the zone in which the project is located.

In its June 24 order, FERC found that the Filing Parties had not demonstrated that the cost allocation method for the Local Economic Projects was just and reasonable, stating that relying on the two benefit-to-cost ratios was not enough to determine whether costs were allocated correctly and that the method was inconsistent with the cost causation principle. Specifically, FERC found that while the Filing Parties proposed new metrics to identify regional benefits for Local Economic Projects, the Filing Parties ignored that analysis when they allocated the costs to only the specific zone where the project is located. Because the Filing Parties presented their proposed revisions as a package, FERC’s rejection of the revisions related to the Local Economic Projects meant that FERC was required to reject the Filing Parties’ filing as a whole.

Nonetheless, FERC provided guidance on other aspects of the Filing Parties’ proposed revisions to the MISO tariff, stating that it did not find some of the revisions to be unjust and unreasonable. Of note, FERC stated that it did not share certain commenters’ concerns regarding the Filing Parties’ proposal to add two additional benefit metrics to its cost allocation method for Market Efficiency Projects, and FERC further had no objections to the Filing Parties’ removal of the twenty percent postage stamp from its cost allocation for Market Efficiency Projects. FERC also stated that the Filing Parties’ proposal to lower the Market Efficiency Project minimum voltage threshold from 345 kV to 230 kV appeared reasonable, and that the Filing Parties’ proposed Immediate Need Reliability Project exception to the competition process largely conformed to previous criteria applied by FERC. FERC did state concerns regarding the Filing Parties’ proposal to use a 20-year outlook period for measuring benefits of a proposed transmission facility, as FERC disagreed that the period for predicting future benefits of a project must exactly match the lifespan of a project.

A copy of the order is available here.