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MISO: Building The Perfect Beast

Seams, holes, and historic precedent challenge the Midwest ISO's evolution.
Fortnightly Magazine - August 2004

but from a reliability standpoint, you're better off with a large area that can be coordinated."

Grandfathered Agreements

A critical challenge for MISO involves some 300 so-called "grandfathered" service agreements (GSAs) between non-MISO utilities and MISO members that have historically provided them with transmission services. Most of these grandfathered agreements involve electric cooperatives and municipal utilities that lie outside the jurisdiction of the Federal Energy Regulatory Commission (FERC). These agreements are important for MISO, because they involve nearly 40 percent of the RTO's transmission capacity.

The utilities holding grandfathered agreements are concerned that they might bear additional costs as a result of MISO's new market tariffs and policies, without realizing commensurate benefits. Additionally, they worry that MISO will attempt to usurp their authority over transmission assets. "A threshold concern … is a possible MISO intent to use the [electricity market tariff] as a bootstrap to assert jurisdiction over facilities that either are jointly owned with MISO members or are owned exclusively by [non-MISO members] but are subject to regulation control by a MISO member," stated a group of Midwestern public power utilities in a June 2004 FERC filing. 3 "Any necessary arrangement … should be the product of mutual agreement achieved through seams negotiations."

The heart of the matter is money; generally speaking, the co-ops and munis have declined to join MISO, and they don't want the costs or terms of their transmission services to change without their consent. For example, James O. Edwards Jr., assistant general manager of operations for East River Electric Power Cooperative Inc., told FERC, "It is NSP [Northern States Power, an operating unit of Xcel Energy], and not East River, that joined MISO and thereby made the [energy markets tariff] applicable to service over NSP's facilities. Therefore, if NSP incurs any costs in connection with service to East River that are not recovered through the charges specified in [East River's contracts with NSP], NSP is responsible for bearing those costs. ... The contracts do not give NSP the right to make any unilateral modification to the rates, terms, or conditions of service."

Indeed, many non-jurisdictional utilities are seeking to carve out their assets and services from the new energy market, in hopes of avoiding the costs and requirements of MISO participation. But at the same time, other market participants don't want to carry more than their share of the freight for the market's development. Given the large scope of transmission assets that are affected by the grandfathered agreements, any degree of inequity could have a large financial impact.

"Although the goal would be to keep the parties financially indifferent, there's a perception that by incorporating the grandfathered agreements into the Midwest energy market platform, different obligations will be imposed on different parties," says Brian Meloy, an attorney with the energy practice at Leonard, Street & Deinard in Minneapolis. "The holders of these agreements feel they must be kept financially whole if they are incorporated into the energy market, while other participants feel there shouldn't be any cost-shifting with respect to the grandfathered agreement."

To make matters worse,