FERC Filings
EPSA Comments and Protest On MISO's Compliance Filing to Revise Schedule 2 of Open Access Transmission Tariff
COMMENTS AND PROTEST
EPSA strongly supports the Commission’s determination that all providers of reactive power , including both utilities and IPPs, must be compensated on terms that are not unduly discriminatory or preferential. As explained in EPSA’s July 15 comments, establishing uniform and consistent requirements for the provision of reactive power, and compensation for it, contributes to system reliability, enhances comparability among all generators, helps eliminate seams, promotes market transparency and protects consumers. Accordingly, EPSA members have actively participated in the MISO stakeholder effort to develop provisions for the fair, equal treatment of all generators vis-à-vis reactive power.
As with other policy initiatives concerning activities related to the wholesale transmission grid, EPSA appreciates the Commission’s close scrutiny of tariff terms and conditions with potentially discriminatory or preferential impacts. As the Commission is aware, the existing circumstances regarding reactive power present a quintessential picture of an unlevel playing field. Approved tariff provisions for some RTO/ISOs, particularly PJM, the New York ISO and ISO New England, are working well.
However, IPPs outside those areas, (including those within the MISO footprint until the proposed new Schedule 2 is implemented), continue to provide a service that, in addition to other benefits, has been widely recognized as critical for reliability and yet are not been paid for it. This issue must be resolved quickly so all generators providing this important service in MISO’s footprint, and elsewhere, can begin receiving payments. Therefore, EPSA urges the Commission to approve a January 1, 2005, effective date so MISO can begin to implement proposed Schedule 2 as soon as possible.
A. Generator Qualifications Review Process
While it is critical to expeditiously move forward EPSA suggests that the Commission direct MISO to establish a timetable for reviewing the qualifications of all generators to provide reactive power. MISO’s proposed new section II. “Qualified Generator” initially exempts existing utility generators providing reactive (and presently receiving compensation for it) from demonstrating that they satisfy the applicable technical specifications. There may be administrative reasons for allowing this. Indeed, if including existing generation resources in the initial review of the qualifications to provide reactive would delay the implementation of the compensation provisions for IPPs, EPSA would not object to a temporary exemption. However, to ensure the non-discriminatory application of proposed new Schedule 2, there should be a more definitive framework to ensure that the qualifications of all generators are reviewed in a fair and equitable manner.
In this connection, EPSA’s central concern is that the provisions for IPP compensation be implemented as soon as possible. Currently, many IPPs are not compensated for the provision of reactive power in MISO, and as it now stands, IPPs will have to wait until January 1, 2005, at the earliest, for the new Schedule 2 to become effective. Thereafter, unless modified, IPPs must wait an additional 60 days after submitting self-certification letters to satisfy the administrative preconditions for reactive compensation under section II. C. While it may be reasonable to subject IPPs to the first round of qualification reviews, EPSA believes that there is good cause to shorten the 60-day review period specified in section II. C.
Importantly, IPPs have equal or superior existing evidence of their qualifications in the context of their interconnection agreements, which in some cases require tighter specifications than those contained in MISO’s tariff. Indeed, all generators currently providing reactive power, both utility and IPP plants, are operating under some formal arrangement which includes specifications and requirements that all are obligated to satisfy. Accordingly, EPSA urges the Commission to direct MISO to shorten from 60 to 15 days the qualification review period specified in section II. C, and further direct that compensation be paid retroactively to cover the entire waiting period.
B. Definition of Qualified Generator
To be eligible to receive compensation for reactive power, a generating resource must satisfy the definition of a “Qualified Generator” under proposed new tariff provision 1.46b. In addition to meeting the technical qualifications set forth in Schedule 2, in order to be eligible for compensation that section requires that such entities be “registered as a Transmission Customer.” To the extent that this language implies a requirement to take and pay for transmission service it is extremely problematic for those IPPs who, while providing reactive power, are not themselves transmission customers. MISO does not provide any reason for this requirement, nor explain how a generator not currently utilizing the transmission system would actually register as a “customer.”
EPSA believes there is no reasonable basis to link a generator’s eligibility for “Qualified Generator” status with being a transmission customer, registered or otherwise. Indeed, a generator may decide to sell its energy and capacity output at the interconnection bus, and rely on the purchaser to arrange for transmission. Under such circumstances, as long as it is complying with grid interconnection requirements, the generating resource is perfectly able to provide reactive power without becoming a transmission customer itself.
Therefore, EPSA recommends that the Commission direct MISO to implement the following definition of Qualified Generator:
A Generation Resource(s) that is physically interconnected to the Transmission Provider’s transmission system and has the technical capability of providing reactive supply and voltage control as determined by the Transmission Provider in accordance with the provisions specified in Schedule 2 of this Tariff.
Unless modified, the Transmission Customer registration requirement would create a potential, unnecessary, obstacle to the ultimate objective of Schedule 2.
This additional requirement could also have unnecessary adverse tax consequences for EPSA members. Pursuant to Section 118(a) of the Internal Revenue Code, as amended (the “Code”), payments made by a generator to a utility for interconnection facilities generally constitute a contribution to capital and are not subject to tax. However, such nontaxable contributions to capital do not include payments received from a “customer or potential customer” of the utility.
The existence of a transmission service agreement under the Midwest ISO OATT could lead the IRS to conclude that an EPSA member is a “customer or a potential customer” of the transmission owner and that the amounts paid for the interconnection facilities are subject to tax. This could then require an EPSA member to indemnify the transmission owner for taxes imposed simply because the Midwest ISO required to register as a transmission customer as a condition of obtaining compensation for the reactive power services it provides to the Midwest ISO.
To avoid these obstacles and tax consequences, EPSA urges the Commission to direct MISO to modify the definitional language to reflect the interconnection process, rather than the provision of transmission service. Unless changed, the proposed language in sec.1.46b could deprive some generators of a legitimate opportunity to receive reactive compensation, create the possibility that generators will be forced to incur additional, unwarranted transmission costs and tax consequences with the IRS.
C. MISO’s November 16 “Errata to Transmittal Letter”
Finally, EPSA is compelled to protest an aspect of the letter that MISO filed with the Commission on November 16 to "clarify its statements in the transmittal letter accompanying its November 1, 2004 compliance filing" regarding Schedule 2. While MISO doesn't propose changes to the tariff sheets included in the November 1 filing, it asserts it "inadvertently omitted certain language that the Midwest ISO had previously committed to include in its compliance filing." Among other things, MISO now appears to recommend that FERC impose a needs test on IPPs by stating:
"Entities seeking to include revenue requirements for recovery under Schedule 2 shall be required to submit all appropriate filings with the Commission to justify their revenue requirements, ability to provide and the need for reactive power services."
The apparent proposal for a needs test, particularly in a supplemental filing close to the comment deadline, is extremely problematic. It is especially troubling in light of MISO’s own prior opposition, explained below, to such a requirement. Additionally, IPPs have vehemently objected to the discriminatory and burdensome impacts that would result from a needs test, which should be well-known to MISO. Indeed, the absence of express references to, and support based upon, the stakeholder process, raises serious questions about what, and who, MISO is referring to when it states that the additional language was "previously agreed to."
Also important is MISO failure to provide any explanation for its complete reversal on this topic. In his affidavit to MISO's prior filing of Schedule 21 last spring, Jeffrey Webb, MISO's Director of Planning, explained that a needs test would be "superfluous because the results of such a needs test would always be in the affirmative. That is, all generators
interconnecting to the Transmission System must be capable of providing reactive power to support system voltage in order to ensure reliable operation of the interconnected transmission systems." (Webb affidavit,p. 4). He concluded his written testimony by categorically stating that
"[t]he Midwest ISO strongly opposes this approach [requiring needs
determinations] to the design of the bulk electric power system as it is
unreliable, shortsighted, and contrary to good utility practice." (p. 11).
Perhaps most significant and instructive is the Commission’s recent denial of American Electric Power Service Corporation’s (AEP) request that, as a condition of revenue recovery for reactive power, Rolling Hills Generating, L.L.C (Rolling Hills) be required to satisfy some variant of a needs test. In that order, addressing Rolling Hills’ proposed rate schedule under Schedule 2 of the PJM Open Access Transmission Tariff, the Commission expressly determined that AEP’s request was “contrary to Order No. 2003 and PJM standards, which… do not require a ‘needs’ test for a generator to be an eligible supplier of reactive power.”
EPSA believes that MISO got it right the first time, and that the combination of utilities and IPPs in Schedule 2 does not warrant a different approach than that which the Commission has already established under the relevant provisions of PJM’s tariff. Accordingly, EPSA urges the Commission to reject that portion of the November 16 errata letter that refers to the “need for reactive power services.”