Docket No. ER23-523-000
I concur with today’s decision to approve the MISO Transmission Owners’ (MISO TOs) proposed revisions to Schedule 2 to remove reactive power compensation within the standard power factor range. I write separately to explain why I would have preferred we reached a resolution of this issue in a way that could have incorporated more stakeholder input from the start.
The status quo in MISO is not working for many reasons.[1] Today’s Order details the precedential and legal bases for our decision, but there are also policy considerations worth highlighting. The Commission’s current cost-based AEP methodology for reactive power compensation is poorly suited for newer technologies and non-synchronous generation like wind, solar, and storage. Application of this methodology to the region’s generators on a case-by-case basis using the Commission’s hearing and settlement judge procedures is administratively burdensome and has led to numerous black box settlements which, by design, lack transparency into the components of the rate. And, if well-resourced companies can hire experienced lawyers and expert witnesses to negotiate black box rates, the level of reactive power compensation is arguably a question of how effectively an applicant can play the game. Taking these flaws together, it is far from clear that the black box rates that customers are paying have anything to do with the provision of reactive power service needed for system reliability and voltage support. Meanwhile, customer costs continue to increase.[2]
Even though this case reaches the right result based on the filing presented to us, I would have preferred a different procedural approach. Whether or not generators located in MISO were justified in relying on continued reactive power compensation, parties have stated in the record that this decision will cause financial disruption.[3] This filing emphasizes the importance for the Commission to act quickly on the existing generic proceeding, Docket No. RM22-2. On a generic basis, we could consider other reactive power compensation solutions or procedural mechanisms, like phasing out existing rates, to counter the impact of sudden rate elimination. But because we find ourselves in the position of reacting to the filing before us, we cannot entertain other solutions. Likewise, it is a missed opportunity for the MISO TOs to have declined to involve stakeholders earlier in the process—which may have led to a filing or approach that drew fewer protests—even if the MISO TOs were not required to do so under the MISO TO Agreement.
Going forward, I encourage stakeholders in MISO to consider more effective alternatives to cost-based reactive power compensation. Services should be appropriately compensated for the benefits they provide, and reactive power plays an important reliability function. Notwithstanding the result of today’s order, I remain open to the possibilities of other reactive power compensation options. As examples, stakeholders may wish to consider market solutions and/or compensation models that are based on the performance of the generators in providing reactive power when called upon, or that incentivize reactive power generation to be located where additional reactive supply is most needed from a reliability perspective.
For these reasons, I respectfully concur.
[1] MISO is not the only region with a cost-based reactive power compensation regime, but my comments today are limited to MISO.
[2] For example, one party explains that since the fall of 2020, the annual reactive power revenue requirement charges across MISO pricing zones have increased approximately 17% and is expected to continue to increase. Alliant Energy Corporate Services Comments at 10.
[3] See, e.g., EDF Renewables Protest at 5-6, 17-20; Cubico Parties Protest at 11-13; Vistra Corp. Protest at 22-23; AQN Wind Projects Protest at 6-7. Other parties have proposed alternative ways this revenue could be obtained, e.g., through higher energy or capacity market offers or through power purchase agreement negotiations. However, the record is mixed about how realistic those paths are to recapturing lost revenue in the short term.