FERC last Wednesday said that there is no need to modify scores of transmission agreements in order for the Midwest Independent Transmission System Operator (MISO) to begin reliably operating its energy markets on its present schedule.

After proceedings before two administrative law judges (ALJs), the Commission concluded that just 127 of more than 400 grandfathered transmission agreements (GFAs) need not be integrated into the new market design, meaning less than 10% of MISO’s total energy load will still be governed by GFAs. The Commission concluded that MISO markets can start on schedule March 1, 2005, and reliably operate and provide benefits to customers without modifying these remaining long-term agreements.

Earlier this year, MISO filed a proposed Open Access Transmission and Energy Markets Tariff (TEMT) containing the terms and conditions necessary to implement a market-based congestion management program and energy spot markets. MISO was concerned, however, that it would not be able to reliably operate its energy markets without modifying the GFAs.

MISO initially anticipated that up to 40% of total load was covered by these GFAs and might have to be “carved out” of the energy markets. Carving out GFAs means that the parties to GFAs would be allowed to exercise the scheduling and energy management provisions of the GFAs in the same manner as they did before the Midwest ISO’s energy markets began.

In May, the Commission initiated a three-step proceeding to address the issue and attempt to resolve the prospective treatment of as many of the GFAs as possible. The Commission directed parties to file interpretations of their contracts, established a hearing before two Commission administrative law judges, and encouraged parties to settle the issue of how to treat their GFAs. Wednesday’s action completes the third step of that process.

After overseeing the GFA proceedings, the two Commission ALJs presented their “Findings of Fact” to the Commission on July 28. Last week’s order addresses the judges’ findings and completes the Commission’s initial analysis of MISO’s proposed TEMT.

FERC Commissioner Joseph Kelliher praised FERC Chairman Patrick Wood for the “deliberate approach taken in this order.” Kelliher said that “a few months ago, in the spring, it looked like we had two stark choices — either abrogate 300 contracts or cripple MISO’s energy and transmission markets and they were pretty unpleasant choices.”

Kelliher said that “I think we avoided the two stark choices we were presented with in the spring and it didn’t just happen. It happened because of the hard work of the ALJs, the Commission staff and also the good faith of the settling parties.”

Wood responded by giving credit to FERC Commissioner Sudeen Kelly. “She wandered down several weeks before our last order and just said, ‘There is a third way here’ and it took awhile to craft it…but I’m a big believer…when parties get to an agreement on their own or get close to it, it’s a whole lot more lasting than when we have to kind of force it to happen and I think the Commission’s learned that time and time again and this was a good example of it.”

At a later point, Wood said that he recognizes “that there are a lot of intense feelings from the parties in this docket because this is a huge docket, but it’s time to move on. The Commission has provided opportunities for people to settle — a wonderful amount of people took advantage of that. We’ve implemented the terms of contracts. Those contracts were written in a different time and place, and yet we’ve been able to work them into this current model and lived with the intents of the parties.”

Also, FERC has taken, “as has MISO, very seriously the responsibilities to ensure that customers receive service at least equal to the quality of transmission service they’re getting today, if not better. But it is time for the folks out in the large Midwest ISO footprint to move on. It’s time to rally around to get the FTRs allocated, to get the training done — the necessary training to get comfortable with the new systems and to enable MISO to focus exclusively on that effort, of getting the markets in place and not fighting the brush fires of this or that person trying to jockey for personal or professional interests, but looking after the broader public interest out there.”

The Commission accepted 51 settlements involving the GFAs. Transmission owners and independent transmission company (ITC) participants providing service under GFAs that did not settle and are subject to a just and reasonable standard of review will, under the Commission’s order, participate in the energy markets by choosing between two options and notifying the MISO of their selection by October 1, 2004.

The first option, Option A, allows for the GFA entity to nominate the capacity under the GFA for an allocation of financial transmission rights (FTRs). Participants that select Option C will neither nominate nor receive FTRs. The GFA entity will pay marginal losses and the cost of congestion for all transactions related to the GFA, without receiving reimbursement.

Option B provides that the GFA entity will not nominate or receive FTRs. This option was available for those parties that chose it prior to July 28.

The remaining GFAs would be carved out, the Commission said, noting that they represent a small percentage of total load (less than 10% of total load) and may be accommodated without threatening reliability. The increased scope of the energy market under MISO’s centralized dispatch also will increase the availability of redispatch capability, the Commission further noted. In addition, other security measures and other reliability requirements will enhance the ability of the system operator to anticipate and respond to reliability problems.

However, to ensure that any potential reliability impact of GFAs is addressed, the Commission ordered MISO to file a report with the Commission within 30 days if any reliability problems are identified.

Meanwhile, a FERC staff member noted that “there are certain GFAs that we do not have sufficient information in the record before us to determine whether transmission service under them is provided over Midwest ISO facilities or whether these contracts should be excluded from the proceedings and not be considered GFAs for purposes of the energy markets.”

FERC therefore set these GFAs for further hearing and settlement judge procedures “for the parties to address the threshold issue of whether the service provided under these contracts will impact operation of the energy markets.”

Meanwhile, the South Dakota PUC last week told FERC that Otter Tail Power and Montana-Dakota Utilities Co. “have spent considerable time” explaining why the MISO TEMT “simply cannot be rationally applied, both operationally and economically, to their respective systems as matters now exist.”

“If MISO cannot agree to hold these utilities harmless or grant a waiver of their participation in the market, or if MISO is just simply too overwhelmed to fully address these issues in its haste to achieve full market start up, regardless of the consequences, the best resolution may be withdrawal” of both Otter Tail Power and Montana-Dakota Utilities from the RTO, the PUC said.

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