MISO: FERC Erred in Requiring Recovery of Administrative Costs for POLR Providers' "Gap" Capacity Purchases

FERC erred in requiring the Midwest ISO to include in its tariff a mechanism allowing the Provider of Last Resort to recover, through the MISO tariff, "administrative" costs of procuring so-called "gap" capacity -- demand that is unserved due to load switching among load serving entities, MISO said in a rehearing request.

As first reported by Matters, FERC, in adopting a MISO proposal to allocate any unserved capacity obligation to the POLR, created a mess by stating that MISO shall, "specify how the provider of last resort can recover the administrative cost of procuring the planning reserve margin requirement for remaining [gap] demand."

"We find that such compensation would ensure that the provider of last resort would be revenue neutral," FERC had said.

As noted by Matters, FERC offered no further direction or definition regarding these administrative costs, which had not been addressed at any point in the proceeding by any party. This raised the possibility, however, that the POLR could assign certain costs associated with its capacity obligation to other wholesale customers through the MISO tariff, including the assignment of costs to retail suppliers competing with the POLR.

MISO noted in its rehearing request that, "No intervention, comment, or protest filed in this proceeding raised POLR alleged administrative costs as an issue. The Commission's Order also did not substantively discuss administrative costs. In fact, the Commission's Order only mentions administrative costs once, for the purpose of directing MISO to determine how a POLR may recover such administrative costs."

"Because there is no record evidence in this proceeding that any POLR administrative costs exist, and no stakeholder, Market Participant, or intervening party ever raised administrative costs as an issue, the November 27 Order creates uncertainty over what type of costs 'administrative costs' might include," MISO said.

"[T]here are no known POLR administrative costs. The POLR obligation carries with it no legal costs, no additional employees or employee time, no additional software or any additional hardware. In fact, the only opportunity for additional costs to arise would ironically be in a contested proceeding over claimed administrative costs," MISO said.

"There are no marginal administrative costs associated with performing the duties of a POLR. The POLR basically is required under the Tariff to perform the same administrative actions as any LSE. The only difference for a POLR is in the amount of Demand for which the POLR must procure capacity," a witness for MISO said in testimony attached to MISO's rehearing request.

Furthermore, "MISO stakeholders have also agreed during committee meetings that no administrative costs are anticipated. During a Supply Adequacy Working Group Meeting on December 6, 2012, stakeholders discussed compliance with the Commission's November Order. One stakeholder, for example, volunteered to personally pay all administrative costs for all POLRs (presumably to demonstrate that no justification existed to access administrative costs)," MISO said.

MISO requested that the portion of FERC's November 27 Order that addresses POLR administrative costs should be reversed, in part, to remove the compliance requirement that MISO include revisions to the tariff that would allow a POLR to recover administrative costs to avoid any dispute over such non-existent costs.

The Retail Energy Supply Association made a similar request. RESA also sought rehearing on treatment of any "negative gap" in capacity obligations (e.g. the sum of all LSEs' loads exceeds the EDC load forecast, or there is "over-served" demand), arguing that the MISO process does not adequately address this issue.

Although MISO requested rehearing of the POLR administrative cost issue, it also proposed language to comply with FERC's directive on POLR administrative costs.

Specifically, in response to the Commission's directive that MISO include tariff language regarding the administrative costs incurred by the POLR, MISO proposes to add a sentence to Section 69A.1.1.1.a to state that: "The POLR may submit to the Transmission Provider documentation of any administrative costs that it incurs related to procuring the PRMR [Planning Reserve Margin Requirement] for remaining demand. The Transmission Provider will review the reasonableness of any such administrative costs and will allocate the costs determined to be reasonably related to PRMR procurement by the POLR to the LSEs that serve Demand in the POLR's service territory that benefitted from the POLR's PRMR procurement."

Docket No. ER12-2706