Grid operator MISO’s transmission plan would split its region in two

The Midcontinent Independent System Operator is the country’s biggest interstate grid operator by land area, with a sprawling footprint that runs from Minnesota to Louisiana and encompasses parts of 15 states. For years, its efforts to plan big regional transmission projects have been stymied by conflicts between its northern and southern territories. Now MISO is closing in on finalizing a plan that could offer a temporary solution to this problem: formally splitting its footprint into two distinct southern and northern units for cost-allocation purposes.

The question now is whether federal regulators will approve it.

MISO’s lengthy endeavor to move ahead with its biggest transmission projects in over a decade is nearing a critical decision point. More than a year ago, the grid operator launched its Long Range Transmission Planning effort, a process to identify transmission investments to meet the future challenges of increased electrification, regional grid reliability and higher levels of renewable energy driven by market trends and the policy goals of states and utilities in its footprint.

Back in 2011, MISO was able to begin a similarly ambitious grid expansion, the $6 billion Multi-Value Project portfolio. But since then, MISO has expanded to include Southern U.S. utility Entergy and its transmission network across parts of Arkansas, Louisiana, Mississippi and Texas. Entergy has consistently employed a piecemeal approach to transmission planning, one that’s diametrically opposed to MISO’s regionwide planning vision, which aims to provide a more competitive energy market and bolster grid reliability in the face of increasingly frequent extreme weather events.

Over the course of 18 months in 2019 and 2020, MISO stakeholders developed three ​“Futures” scenarios projecting how the energy landscape could change over the coming 20 years. They all feature significant increases in the pace of renewable energy growth, with Future 1 showing the lowest uptake of renewables and Future 3 the highest. MISO used these scenarios to assess transmission needs for its market and develop initial maps of proposed transmission lines (see below). It also developed rough cost estimates for building the lines, ranging from $30 billion for Future 1 to $100 billion for Future 3.

Large, regionally focused transmission projects like the Long Range Transmission Planning (LRTP) initiative would provide benefits to consumers across the MISO footprint. But in order to access those benefits, consensus on how costs will be shared must be achieved, and state utility regulators must approve the projects. In the case of the LRTP, stakeholders including Entergy and some state regulators and large industrial customers have balked at a cost-sharing formula that’s based on each entity’s energy needs in the MISO system. Developing a cost-allocation proposal that satisfies all stakeholders — and passes muster with the Federal Energy Regulatory Commission, the agency that oversees MISO and other regional grid entities — has proved to be a challenge.

At the same time, the need for new transmission has only become more urgent in the decade since MISO last undertook a major grid expansion. 

Some MISO stakeholders have long recognized these challenges and the need for regional transmission across the full MISO footprint to solve them.

“For several years now, we’ve seen this accelerating trend from states, utilities and consumers toward decarbonization and a growing reliance on renewable energy to meet demand,” said Sam Gomberg, transmission policy manager at the Union of Concerned Scientists. ​“MISO has failed to be responsive to these trends, and the region is facing reliability risks and excessive costs because of it.”

“The LRTP is intended to fix that and get MISO on track,” he said. ​“But it’s in a race against time to address these issues efficiently and cost-effectively — and to do so in a way that can meet federal approval.”

Who gets to decide who pays for the grid of the future? 

FERC approved MISO South’s integration into the full MISO footprint in 2013. Since that time, there have been no large-scale transmission lines deployed in the region. This has led to an underbuilt and inadequate system, which has left the region more vulnerable to grid strain caused by extreme weather events such as Winter Storm Uri and Hurricane Ida earlier this year.

But before MISO can move forward with necessary projects, it needs stakeholders to agree on how the costs of those investments will be split among them. First, they must agree on how the economic, reliability and other benefits of projects will be identified and calculated. Then they must agree on a process for allocating costs equitably based on where these benefits flow.

After nearly a year of deliberation on various plans offered up by stakeholders, a proposal developed largely by Entergy was introduced into the LRTP cost-allocation debate in July. This proposal was summarily opposed by a majority of stakeholders and MISO, with some expressing concern that its restrictive criteria were designed to keep LRTP lines from getting built anywhere in MISO territory.

Instead, at an October 14 stakeholder meeting, MISO proposed a plan to send to the Federal Energy Regulatory Commission for approval. MISO’s plan rejects a common framework for cost allocation known as the ​“postage-stamp” method. This approach charges beneficiaries of projects the same rate per megawatt-hour everywhere in a regional transmission organization’s territory, similar to the way a ​“forever” postage stamp can be used to send mail everywhere in the U.S. Instead, MISO proposed a modified postage-stamp method, under which MISO North would pay for projects in the north and MISO South would pay for projects in the south.

The reason for splitting costs into two regions is the weak grid connection between the northern and southern parts of MISO. Right now they are connected only by a narrow 1,000-megawatt transmission network along the Mississippi River between Missouri and Arkansas, severely limiting the ability to transfer power between the two territories. In emergencies, that link can be expanded to about 3,000 MW, but only if neighboring transmission systems operated by the Southwest Power Pool and the Tennessee Valley Authority agree to make their power lines available.

Many MISO stakeholders want to strengthen the transmission link between the northern and southern halves. The vision behind MISO is to treat its entire region as unified — and this could help meet energy needs with renewables and improve reliability in coming years. The northern half of MISO has major wind power resources, while the southern portion has significant potential for solar energy, and sharing that wind and solar power would benefit the whole territory.

But Entergy and other Southern U.S. stakeholders have shot down a cost-sharing method that would allow these north-to-south projects to be built in a way that’s acceptable to the majority of stakeholders in MISO. In response, MISO came up with its compromise, which it hopes will help move at least some transmission projects along without further delays, particularly in the north.

In its new proposal, MISO argues that the current transmission bottleneck between the northern and southern regions limits the benefits that can be shared between them, and thus the best solution is to insulate members in either territory from being responsible for paying for projects in the other’s region. Effectively, this would treat MISO like two markets, at least until a better connection between the north and south allows it to operate as a more unified single market.

But the current proposal would also make it more difficult to build that better transmission connection between north and south. Any future project straddling the two halves would require a revision to the cost-allocation proposal or the creation of an entirely new project category to be defined along with an accompanying cost-allocation proposal like LRTP.

For now, however, MISO and other stakeholders have decided that it’s necessary to make some tangible progress on transmission buildout rather than to continue to wait in hopes of achieving agreement across its entire region.

Benefits have outweighed costs for MISO’s past regional transmission projects 

The LRTP process has been dogged by skepticism from some state utility commissions, large industrial consumers and utilities in MISO South territory about whether the benefits of building new transmission lines outweigh their costs. But multiple measures indicate that MISO’s last big grid expansion more than paid for itself in benefits.

The cost-allocation rules for that expansion, the Multi-Value Projects, required transmission lines to have a benefit-to-cost ratio of at least 1:1 over a period of 20 years. According to MISO’s review of these projects, the MVPs far exceeded expectations and provided benefits to consumers at an average of 1.5 to 2.6 times their cost. Additionally, they have played a key role in facilitating the deployment of roughly 11 gigawatts of wind power in the Midwest.

It’s clear from the MVP example that regional transmission buildout can provide broad benefits to the MISO footprint. But the larger LRTP effort will require FERC approval of its cost-allocation proposal before projects can be planned and their associated benefits assessed.

Gomberg of the Union of Concerned Scientists said that MISO’s unorthodox proposal to split the market into two halves for cost-allocation purposes could face a challenge at FERC. But the dire need to plan and deploy LRTP projects in the next decade is so great that there isn’t enough time to develop the perfect cost-allocation system, he said.

“There is a real urgency to get projects underway that will alleviate the existing bottlenecks of moving Midwestern wind to meet demand. To some degree, MISO is building the car as it’s pulling out of the driveway,” he said. ​“So even as MISO continues to seek stakeholder agreement on a more holistic cost-allocation methodology that is responsive to the needs of the entire region, it also needs to find a path forward for these most time-sensitive projects primarily located in MISO North because those states and utilities are further along in the drive toward clean energy.”

“But it can’t be half-baked,” Gomberg added. ​“A rejection from FERC would set the whole process back.”

An uncertain path forward

MISO plans to submit its proposal to FERC in January and forge ahead on developing LRTP projects in its northern region to submit to MISO’s board of directors for approval in mid-2022. Submitting projects in the southern region for approval would likely be delayed until at least 2023.

Even under MISO’s new proposal, it might be difficult to build LRTP projects in the Southern U.S. Utilities and some staff at state utility commissions in the region have been skeptical of the entire LRTP process, and MISO can’t even begin to plan transmission projects in a state without support from state regulators, who are ultimately in charge of approving or rejecting the projects. If state commissions decline to support the planning of projects in their respective states, MISO won’t have the opportunity to assess their potential benefits.

FERC acknowledges the mammoth challenge that cost allocation represents across all seven of the country’s wholesale markets. Earlier this year, it launched a process aimed at resolving issues with transmission planning and deployment around the U.S. This announcement attracted an initial round of 170 comments and drew the attention of #energytwitter. But it’s expected to take more than a year for FERC to propose any potential reforms.

MISO, like many other power markets, is not waiting for FERC to resolve all the challenges related to transmission planning. Instead, it is moving ahead on the split-cost allocation, with a commitment to stakeholders to work through a separate solution for a full-footprint set of LRTP projects — and an acknowledgment that waiting could lead to bigger problems.

“FERC is clearly overdue in addressing these issues, and we’re glad to see transmission planning and cost allocation being prioritized,” Gomberg said. ​“But that process will take years to finalize, and MISO simply doesn’t have the luxury of waiting. The deployment of clean energy is well underway and accelerating across the MISO system, so MISO is already in catch-up mode. Waiting for FERC is only going to exacerbate that situation.”

So while FERC deliberates about transmission challenges across the whole country, MISO hopes the commission will approve its proposal, allowing the organization to move forward on projects that will help its market adapt to unprecedented renewable energy growth and maintain reliability.