MISO Defections "• Do They Signal a Sea Change at FERC on RTO Membership?

FERC has approved the withdrawal from Midwest ISO of two Kentucky utilities that helped establish the FERC-recognized regional transmission organization (RTO).  Both had become disenchanted with what they perceived as the inordinately high cost of membership.  FERC's approval of the withdrawals "• with virtually no strings attached "• suggests a sea change from a FERC insistent on transmitting utilities joining RTOs to a reconstituted FERC that is agnostic on whether utilities participate in RTOs and ISOs, provided they meet other relevant standards imposed by FERC, particularly regarding control over their transmission system. 

Affiliates Louisville Gas and Electric and Kentucky Utilities petitioned FERC in October for permission to withdraw from MISO.  FERC first considered whether the proposal satisfied the contractual requirements of the MISO transmission owners' agreement, which FERC concluded it did since remaining members would continue to receive the same services at the same prices pursuant to a hold-harmless provision in the agreement.  FERC conditioned this conclusion on Louisville and KU proving going forward their continued compliance with this provision.  FERC also accepted the applicants' proposed method of calculating their exit fee, which - in the context of very high RTO costs - had been a controversial issue.

Second, FERC evaluated whether the withdrawal would satisfy the merger conditions that FERC attached to Louisville's and KU's 1998 merger.  FERC found that these conditions would be met through the utilities' use of the Tennessee Valley Authority as their reliability coordinator and the Southwest Power Pool as their Independent Transmission Organization, and the elimination of pancaked rates for certain customers.  Third, FERC considered whether the replacement transmission arrangements would be consistent with or superior to the pro forma OATT.  Again, the utilities' reliance on TVA and SPP to perform reliability and transmission duties helped meet this test, but the utilities were also directed to prove in future submissions their ongoing compliance with nondiscriminatory open access.

The two Kentucky utilities hoped to withdraw from MISO by this summer.  Stay tuned to see if others follow suit.