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July 18, 2016
Analysis by Brattle Economists Cited in FERC Decision on MISO’s Export Pricing to PJM for MVPs

A recent order issued by the Federal Energy Regulatory Commission (FERC) on export pricing cites an analysis conducted by Brattle Academic Advisor Peter Fox-Penner and Principal Romkaew Broehm on behalf of the Midcontinent Independent Transmission System Operation (MISO) and MISO Transmission Owners.

The July 13, 2016 FERC order responds to a remand by the United States Court of Appeals for the Seventh Circuit to determine, in light of current conditions, what, if any, limitation on export pricing to PJM Interconnection, LLC (PJM) for Multi-Value Projects (MVPs) by MISO is justified. In 2013, the Seventh Circuit granted a petition for review regarding the Commission’s determination in the MVP Order and MVP Rehearing Order that in view of the prohibition of rate pancaking along the seam between MISO and PJM, MISO may not allocate costs of MVPs to export transactions that sink within PJM. The Court found that the MVPs are not local, but rather support all uses of the system, including transmission on the system that is ultimately used to deliver to an external load.

Drs. Fox-Penner and Broehm presented evidence rebutting the argument that the MVP usage rate when applied to export to PJM would create an obstacle for interregional trades between MISO and PJM. They demonstrated that the MVP charge is expected to be small relative to the average interface prices of MISO and PJM for both day-ahead and real-time. On average, the indicative MVP usage rate counts for no more than 5.5 percent of these prices. They explained that even if the rate were to increase by 20 percent to approximately $2 per megawatt hour (MWh), the MVP usage rate would only count for no more than 6.6 percent. The increase in the interface price would be lower than a hurdle rate of between $5/MWh and $15/MWh, where the MISO-PJM coordination study found economic benefits to interregional trades between MISO and PJM.

The FERC concluded that, "[b]ased on this evidence, we agree with MISO that one should still observe beneficial MISO-PJM interregional trade even if the MVP usage charge is applied."

The FERC's Order is available to view here.

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