FERC Agrees to end reactive power compensation in MISO

On November 30, 2022, in Docket No. ER23-523, the Midcontinent Independent System Operator, Inc. (MISO), on behalf of the MISO Transmission Owners (MISO TO),[1] submitted proposed revisions to Schedule 2, Reactive Supply and Voltage Control from Generation or Other Sources Service of its Open Access Transmission, Energy and Operating Reserve Markets Tariff (Tariff).  The MISO TOs proposed to eliminate all charges under Schedule 2 for the provision of reactive power within the standard power factor range (Reactive Service) from MISO TOs’ own and affiliated generation resources.[2]  Based on the Commission’s “comparability standard,” MISO TOs stated that their proposal also terminates the obligation under Schedule 2 to pay unaffiliated generation resources in MISO for reactive power within the standard power factor range.  FERC accepted MISO TOs’ proposed Schedule 2 revisions, effective December 1, 2022.  This means that the $220 million being paid in MISO to generators for the provision of reactive power ends December 1, 2022.  

Many comments were filed in this docket, particularly from generators opposing the elimination of reactive power compensation.  Notwithstanding, FERC found that the revisions are just and reasonable and not unduly discriminatory or preferential.  As FERC articulated in Order No. 2003, “the Interconnection Customer should not be compensated for reactive power when operating its Generating Facility within the established power factor range, since it is only meeting its obligation.”  In Order No. 2003-A, FERC clarified, however, that “if the Transmission Provider pays its own or its affiliated generators for reactive power within the established range, it must also pay the Interconnection Customer.”  Consistent with Order No. 2003 and 2003-A, where a transmission provider does not separately compensate its own or affiliated generators for reactive power service within the standard power factor range, it is not required to separately compensate non-affiliated generators for reactive power service within the standard power factor range.  Comparability entitles a generator to compensation for providing reactive power within the standard power factor range “if, and only if, the [t]ransmission [p]rovider pays its own or affiliated generators for reactive power within the [standard power factor range].”  FERC found that MISO TOs’ proposed Schedule 2 revisions to eliminate compensation for its own and affiliated generation resources and unaffiliated generation resources and the associated charges to transmission customers is permitted under, and consistent with, Order Nos. 2003 and 2003-A.  Additionally, FERC stated that Order Nos. 2003 and 2003-A do not mandate that once a transmission provider compensates its own or affiliated generators, it may never discontinue such compensation and must, as a result, always compensate unaffiliated generators.  Rather, FERC precedent allows transmission providers to eliminate compensation for reactive power within the standard power factor range for all generators, regardless of whether the generator is owned by or otherwise affiliated with a transmission owner or is independent.  FERC found protests that challenge these well-established policies to be collateral attacks on these earlier determinations.

Commissioner Danly dissented, stating that, notwithstanding the increased rates and the administrative burden of the present compensation approach, FERC cannot simply accept the MISO TOs’ proposal unless they meet their section 205 burden that the proposed rate—in this case, the elimination of reactive power compensation—is just and reasonable based on substantial evidence in the record.  He went on to state that the MISO TOs did not offer any evidence of the effects of eliminating the $220 million annual reactive power revenue requirement from the MISO tariff, and what is clear on the record is that separate reactive power compensation has been available in MISO for several years, and parties have taken this into account in their financings, bilateral contracting, power purchase agreements, and other arrangements.
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Commissioner Clements stated in a concurring statement that she encourages stakeholders in MISO to consider more effective alternatives to cost-based reactive power compensation as services should be appropriately compensated for the benefits they provide, and reactive power plays an important reliability function.  She remains open to the possibilities of other reactive power compensation options, such as market solutions 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.


[1] MISO TOs include:  Ameren Services Company, as agent for Union Electric Company, Ameren Illinois Company, and Ameren Transmission Company of Illinois; Arkansas Electric Cooperative Corporation; City Water, Light & Power (Springfield, IL); Cooperative Energy; Dairyland Power Cooperative; East Texas Electric Cooperative; Entergy Arkansas, LLC; Entergy Louisiana, LLC; Entergy Mississippi, LLC; Entergy Texas, Inc.; Great River Energy; Indianapolis Power & Light Company; Lafayette Utilities System; MidAmerican Energy Company; Minnesota Power (and its subsidiary Superior Water, L&P); Missouri River Energy Services; Montana-Dakota Utilities Co.; Northern States Power Company, a Minnesota corporation, and Northern States Power Company, a Wisconsin corporation, subsidiaries of Xcel Energy Inc.; Northwestern Wisconsin Electric Company; Otter Tail Power Company; Prairie Power, Inc.; Southern Indiana Gas & Electric Company; and Southern Minnesota Municipal Power Agency.

[2] The phrase “standard power factor range” refers to the power factor range required for interconnection and set forth in the interconnecting generator’s generator interconnection agreement (GIA).  MISO’s pro forma GIA prescribes a power factor range of 0.95 leading to 0.95 lagging.  This range is also sometimes referred to as the “deadband.”