States question whether power grid operator watches out for consumers

Con­sum­er pro­tec­tion is get­ting short-cir­cuit­ed on the Midwest e­lec­tric grid, ac­cord­ing to reg­u­la­to­ry watch­dogs in Minnesota and oth­er states.

State of­fi­cials, in­clud­ing Minnesota Commerce Com­mis­sion­er Mike Roth­man, whose agen­cy regular­ly chal­len­ges utility rate hikes, say they lack the mon­ey and legal fire­pow­er to en­gage power­ful u­til­i­ty in­ter­ests in com­plex, multistate reg­u­la­to­ry bat­tles over grid and trans­mis­sion costs.

The out­come of these ob­scure, high-stakes reg­u­la­to­ry ac­tions, in­clud­ing one that goes be­fore an administrative judge in Washington, D.C., on Mon­day, can cost e­lec­tric rate­pay­ers hun­dreds of mil­lions of dol­lars.

"It is sig­nifi­cant to the public in­ter­est," Roth­man said in an inter­view about con­sum­er protection con­cerns that Minnesota and four oth­er states raised in July with the Federal Energy Regula­to­ry Commission (FERC), which over­sees the pow­er grid. "It is a significant is­sue."

A lar­ger group of states, including Minnesota and led by I­o­wa's Office of Con­sum­er Ad­vo­cate, has forged a loose coa­li­tion to chal­lenge what it alleges are ex­ces­sive trans­mis­sion-re­lated charges authorized by fed­er­al regu­la­tors on the pow­er grid ser­ving 15 states.

Some states, also including Minnesota, seek a fed­er­al in­ves­ti­ga­tion of al­le­ga­tions that the grid's man­ag­er, the Midcontinent Independent System Operator (MISO), im­prop­er­ly struc­tured a com­pe­ti­tive bid­ding proc­ess and al­lowed an en­er­gy com­pany to ma­nipu­late the e­lec­tric­i­ty mar­ket, re­sul­ting in high­er rates to con­sum­ers in Il­li­nois. MISO, along with its mar­ket mon­i­tor and the en­er­gy com­pany, Dyn­egy, have de­nied any­thing im­prop­er hap­pened in what is known as a "ca­pac­i­ty auction."

Most of the state officials questioning grid costs work in agencies that represent consumers in their states' utility regulation. As the multistate power grid has taken on greater importance, new battles over costs and fairness to consumers are emerging far from home.

Un­like local e­lec­tric monopolies that have long been regu­lated by state u­til­i­ty com­mis­sions, the in­ter­state pow­er grid is over­seen by FERC, based in Washington. The day-to-day man­age­ment of the Midwest pow­er grid, and many policies that af­fect rates, is left to MISO, a Car­mel, Ind.-based nonprofit whose mem­ber­ship by utili­ties and oth­er interests is vol­un­tary.

By join­ing MISO, utili­ties hand over con­trol of their trans­mis­sion lines to the nonprofit, which de­cides when thousands of gen­er­at­ing units across the grid are turned on and off, using mar­ket-based pric­ing. That and oth­er benefits of a shared pow­er grid have saved cus­tom­ers at least $10 bil­lion since 2007, MISO says.

The nonprofit also con­tri­butes $30,000 a year to cov­er trav­el expenses for state con­sum­er of­fi­cials to at­tend its pol­icy meet­ings. But that's a frac­tion of the cost of par­tici­pat­ing in even a sin­gle, com­plex reg­u­la­to­ry case, state of­fi­cials say.

MISO's membership is dominated by energy companies, although state consumer agencies, utility commissions and industrial customers are also members — what MISO calls "stakeholder" participation. After a vote by the membership, MISO in April re­ject­ed state ad­vo­cates' re­quest for $200,000 to re­tain a con­sum­er at­tor­ney to rep­re­sent rate­pay­ers in the bat­tle over in­ter­state transmission prof­its. One pow­er com­pany ex­ec­u­tive who opposed the re­quest de­clared that fund­ing con­sum­er ad­vo­ca­cy would "set a dan­ger­ous precedent," ac­cord­ing to MISO min­utes from the vote.

"We have a fun­da­men­tal con­cern with the way MISO makes its de­ci­sions," said John Liskey, an at­tor­ney for Citizens Against Rate Ex­cess, a Mich­i­gan con­sum­er ad­vo­ca­cy group. "We be­lieve there needs to be more bal­anced representation that in­cludes the voice of the con­sum­er."

"I don't think that the is­sue here is that [con­sum­er ad­vo­cates'] par­tic­i­pa­tion is bad — I don't think that's the case at all," said Boyd, who is based in MISO's of­fice in Eagan.

But state of­fi­cials said in a re­cent fil­ing with FERC that they had "o­ver­arch­ing con­cerns" about their "ex­tra­or­di­nar­i­ly lim­it­ed" a­bil­i­ty to press con­sum­ers' po­si­tions on grid-re­lated is­sues at MISO. State con­sum­er ad­vo­cates are con­sid­er­ing fil­ing a com­plaint ask­ing FERC to in­ves­ti­gate wheth­er MISO is doing en­ough for con­sum­ers, said Jen­ni­fer Easler, an attor­ney in the I­o­wa con­sum­er advocate's of­fice.

Easler, who will argue the case challenging transmission costs Monday, said the near­ly 12.4 percent re­turn al­lowed by FERC for MISO trans­mis­sion line op­era­tors is at least 2 per­cent­age points high­er than state regu­la­tors typ­i­cal­ly author­ize for oth­er u­til­i­ty in­vest­ments. Cus­tom­ers from Minnesota to Lou­i­si­an­a are pay­ing more than $300 mil­lion an­nu­al­ly in ex­cess charges, the state con­sum­er ad­vo­cates say. The ef­fect in Minnesota hasn't been cal­cu­lat­ed.

Den­nis O'Brien, a form­er mem­ber of the Minnesota Public Utili­ties Commission who is not in­volved in the MISO consum­er protection dis­pute, said the grid op­er­a­tor's mar­ket-based ap­proach of­fers many bene­fits, in­clud­ing cost sav­ings. Yet by put­ting con­trol of the grid in the hands of an industry-dominated nonprofit, the risk is that cus­tom­ers lose, he said.

"They don't have to get elect­ed," O'Brien said of MISO's struc­ture. "There is the po­ten­tial for public a­buse. Who are they ac­count­a­ble to?"