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.
In the case of alleged electric market manipulation in Illinois, for example, ratepayers outside of that state aren’t directly affected. But state consumer advocates in Minnesota and other states say the case underscores weak consumer protections at MISO. So they have intervened on the side of the Illinois attorney general, Public Citizen and an Illinois electric cooperative in asking for a FERC investigation.
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.”
David Boyd, a former Minnesota utility regulator who now is MISO’s vice president of government and regulatory affairs, said the nonprofit’s tariff-based funding doesn’t allow it to be the conduit for states’ consumer protection efforts. But he said the organization has an open process that encourages participation, and it is working on ways to make it easier.
“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?”