Midwest Independent Transmission System Operator, Inc., 042506 FERC, ER04-691-065

Docket Nº:ER04-691-065
Party Name:Midwest Independent Transmission System Operator, Inc.
Judge Panel:Before Commissioners: Joseph T. Kelliher, Chairman; Nora Mead Brownell, and Suedeen G. Kelly. Magalie R. Salas, Secretary.
Case Date:April 25, 2006
Court:Federal Energy Regulatory Commission

Midwest Independent Transmission System Operator, Inc.

No. ER04-691-065

United States of America, Federal Energy Regulatory Commission

April 25, 2006

Before Commissioners: Joseph T. Kelliher, Chairman; Nora Mead Brownell, and Suedeen G. Kelly.


1. In an order dated August 6, 2004, the Commission approved the Midwest Independent Transmission System Operator, Inc.’s (Midwest ISO) Transmission and Energy Markets Tariff (TEMT or tariff), which has allowed the Midwest ISO to initiate Day 2 operations in its 15-state region.1The Midwest ISO’s Day 2 operations include, among other things, day-ahead and real-time energy markets and a financial transmission rights (FTR) market for transmission capacity.

2. This order requires refunds and conditionally accepts in part, and rejects in part proposed revisions to the TEMT that the Midwest ISO submitted in order to amend and clarify certain provisions of its real-time revenue sufficiency guarantee (RSG).

I. Background

3. On October 27, 2005, the Midwest ISO submitted proposed revisions to the TEMT. It noted that section 40.3.3.a.ii of the TEMT requires RSG payments to generation resources that are available for dispatch in the real-time market.2The payments help to ensure that resources that are made available as a result of the Reliability Assessment Commitment (RAC) process receive compensation at least equal to their start-up offers, no-load offers, and incremental energy costs, even if the resources are not dispatched. This helps ensure that adequate supply is available to meet real-time demand.

4. The Midwest ISO proposes three tariff changes: (1) to remove references to virtual supply from the provisions related to the calculation of RSG charges in section 40.3.3 of the TEMT; (2) to clarify the allocation of RSG charges in section 40.3.3.a.ii; and (3) to make generators that do not follow dispatch instructions eligible to receive RSG payments for the lesser of the energy actually produced, or the instructed megawatts. The proposals are described in further detail below.

5. The Midwest ISO indicates that it considers some of the proposed tariff changes to be clarifications to the existing tariff, not new amendments. To the extent the Commission disagrees, the Midwest ISO requests authority to make the changes pursuant to section 205 of the Federal Power Act (FPA).3

6. The Midwest ISO also requests, if necessary, waiver of the FPA’s notice requirement, so that the tariff revisions can become effective 10 days after the Midwest ISO notifies the Commission that all necessary measures are in place to support them. (The Midwest ISO anticipates that the system improvements will be available in early 2006.) The Midwest ISO states that there is good cause for the waiver because: (1) the Commission’s expedited consideration of the revisions will minimize market uncertainty; and (2) the Commission’s resolution of the proposed changes in a unified way will reduce the costs associated with implementation.

7. On December 27, 2005, the Midwest ISO’s proposed revisions were found to be deficient and additional information was required (Deficiency Letter). The Midwest ISO was directed to provide information relating to the Midwest ISO calculation and allocation of RSG charges as well as the implementation of the Midwest ISO Reliability Assessment Commitment (RAC) procedures.

8. On February 24, 2006, the Midwest ISO filed its response.

II. Notice, Interventions and Protests

9. Notice of the Midwest ISO’s filing was published in the Federal Register, 70 Fed. Reg. 67, 471 (2005), with interventions and protests due no later than November 17, 2005. The parties listed in Appendix A filed timely motions to intervene and/or protests and comments. The Michigan Public Power Agency and the Michigan South Central Power Agency (collectively, Michigan Agencies) and Edison Mission Energy, Edison Mission Marketing & Trading and Midwest Generation EME, LLC (collectively Edison Mission) filed comments and protests out-of-time. Cinergy, DC Energy, Financial Marketers and the Midwest ISO filed answers.

III. Discussion

A. Procedural Matters

10. Pursuant to Rule 214 of the Commission's Rules of Practice and Procedure, 18 C.F.R. § 385.214 (2005), the notices of intervention and timely, unopposed motions to intervene serve to make the entities that filed them parties to this proceeding. Due to the early stage of the proceeding and the lack of prejudice to the other parties, we will accept the Michigan Agencies’, Edison Mission’s, and Dominion’s out-of-time protests and comments.

11. Rule 213(a)(2) of the Commission’s Rules of Practice and Procedure, 18 C.F.R . § 385.213(a)(2) (2005), prohibits an answer to a protest unless otherwise ordered by the decisional authority. We will accept the answers of Cinergy, DC Energy, Financial Marketers and the Midwest ISO because they have provided information that assisted us in our decision-making process.

B. Virtual Supply Offers In The Currently Effective TEMT

1. The Midwest ISO’s Position

12. The Midwest ISO states that, under section 40.3.3.a.ii of its TEMT, a market participant’s RSG charges are based on the per-unit real-time RSG charge for a given operating day, times the sum of three factors: (1) the market participant’s total load purchased in the real-time energy market during the operating day; (2) the resource uninstructed deviation quantities; and (3) all virtual supply offers for the market participant in the day-ahead market. The Midwest ISO states that, since its energy markets opened, it has not considered virtual supply offers in the RSG charge calculation. It explains that virtual supply offers do not include actual energy deliveries; thus, they are not a generation resource that can be physically committed for reliability purposes in the RAC process. In addition, the Midwest ISO argues that including virtual supply in RSG calculations impedes the development of a virtual transactions market. The Midwest ISO also notes that its Business Practices Manuals and TEMT training materials state that virtual supply offers will not be included in RSG charge calculation.

13. Although the Midwest ISO recognizes that the TEMT has always provided that virtual supply offers are to be included in the calculation of RSG charges, it requests a waiver to permit the exclusion of virtual supply offers from the RSG charge without the need to make refunds. It argues that, if the Commission required it to retroactively adjust all of the RSG charges since the inception of the energy markets to include virtual supply, it would surprise the Midwest ISO’s customers with a new, higher rate, and thereby constitute impermissible retroactive ratemaking. The Midwest ISO adds that the Commission may waive the filed rate doctrine in exceptional circumstances, and that such circumstances exist here because imposing RSG charges on virtual supply offers would impede the efficiency and robustness of the Midwest ISO’s energy markets.

14. The Midwest ISO believes that an amendment to the TEMT to remove reference to virtual supply offers and to clarify that such transactions will not be included in calculating RSG charges should not result in any recalculations and refunds back to the commencement of the energy markets on April 1, 2005 for the following reasons: (1) parties have not relied upon the existing tariff language, but instead followed the Business Practices Manuals; (2) the Midwest ISO’s Independent Market Monitor supports exemption of virtual supply offers from calculation of real-time RSG charges; and (3) approximately five percent of market participants could have significant liability resulting from the imposition of RSG charges.

2. Comments and Protests

15. Several commenters4support the Midwest ISO’s position that virtual supply offers not be included in the calculation of the RSG charge in the currently-effective TEMT that has been in effective since market start on April 1, 2005. These commenters assert that removing references to virtual supply from the provisions relating to the calculation of real-time RSG charges is consistent with the meaning of the TEMT.

16. Cinergy states that since the Midwest ISO has, in fact, calculated RSG charges without any consideration of virtual supply from the start of the Midwest ISO market, to change the practice now would be unfair to Cinergy and others who have relied on the status quo. Cinergy also claims it tailored its actions after it sought clarification from the Midwest ISO as early as April 6, 2005 on the proper calculation of RSG charges; Cinergy claims that the Midwest ISO confirmed that neither virtual bids nor offers had any impact on real time RSG charges.

17. In an opposing view, Madison maintains that the Business Practices Manuals should not take precedence over the tariff. Madison quotes, “The Commission has stated on numerous occasions that a company’s tariff, not its manuals or handbooks, must define the rates, terms, and conditions of jurisdictional services provided by the company.”5

18. With regards to the Midwest ISO’s proposal that it not be required to make refunds back to the commencement of the energy market on April 1, 2005, several commenters disagree with the proposal and demand that refunds be made. For instance, Ameren acknowledges that some customers will experience increased charges, but other customers will receive refunds or credits. Ameren asserts that it has paid almost $2.8 million in RSG charges through the end of October 2005 that it would not have paid if the Midwest ISO had followed its tariff in determining the RSG charge...

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