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MISO: Building The Perfect Beast

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

the grandfathered agreements are not consistent or well understood by MISO or anyone else, and thus they don't lend themselves to a one-size-fits-all replacement contract. "The agreements are all over the board," Meloy says. "The agreements were entered into before the Midwest ISO assumed operational control over transmission in its footprint, and there are disputes over what the agreements actually require. Some don't even have an apparent termination date."

The fuzzy nature of these agreements cannot stand if MISO is to manage transmission rights across its territory in an effective and reliable way. With that in mind-and with an eye toward the goal of settling as many grandfathered agreements as possible-FERC ordered utilities under its jurisdiction to detail the terms of their agreements with non-MISO entities. FERC also asked non-jurisdictional utilities to voluntarily provide the same information.

"We note that there is very little transparency regarding transactions that take place under the terms of GFAs," FERC states in its May 26 order. 4 "The Midwest ISO is unsure how many megawatts of capacity the GFAs represent, or where the source and sink points of the GFA transactions will be. In terms of economic and reliability impact, the lack of information makes it difficult to forecast which parts of the Midwest ISO region will be adversely affected."

The whole situation bears the markings of an irresolvable conflict, but regulators nevertheless are trying. Although FERC doesn't have jurisdictional authority over most of the co-ops and municipal utilities that hold grandfathered agreements, it is attempting to reach a solution that will work for both MISO and the grandfathered utilities. Whether the non-jurisdictional utilities will accede to this plan depends largely on how successful FERC's administrative law judge will be in crafting a satisfactory solution.

"There's so much uncertainty," says Dave Sparby, vice president of government and regulatory affairs for Xcel Energy in Minneapolis. "When you look at all the unresolved elements on 300 contracts and the short time frame for the FERC hearings, there is a lot of uncertainty and potential for regulatory risk in this proceeding. You can't conclude that anybody will be happy with the outcome."

Market Structure

If MISO can settle 300 grandfathered agreements, then its other structural challenges may be relatively easy to overcome. However, these issues must be addressed before the market can launch in earnest.

First, MISO needs to reach seams agreements with neighboring utilities and systems to ensure that power can flow smoothly across control areas. Already MISO has reached a joint operating agreement with PJM and a draft agreement with the Southwest Power Pool. Negotiations are proceeding with the Tennessee Valley Authority and the Mid-Continent Area Power Pool (MAPP), but additional seams with utility systems to the west of MISO's territory remain largely unaddressed.

Additionally, MISO must resolve the details of its FTR and day-ahead market mechanisms, many of which have been sketchy so far. MISO has argued that these details will be resolved during the market's dry-run phase, beginning Dec. 1. Between that date and March 1, MISO plans to operate a simulated market for the