FERC granted a MISO Midwest-wide cost allocation for Northern Indiana Public Service Co.’s and CenterPoint Energy’s coal plants kept online by order of the U.S. Department of Energy.
The commission’s pair of orders March 19 provide a path for the utilities to recover costs of the R.M. Schahfer Generating Station and the F.B. Culley Generating Station, both in Indiana and both operating under emergency orders issued by DOE under Section 202(c) of the Federal Power Act. (EL26-36; EL26-38).
The plants are rounding out their first emergency run from the end of 2025 to March 23. If other thermal plants with similarly blocked retirements are any indication, the DOE is unlikely to let those orders expire.
FERC said the “most reasonable reading” of DOE’s orders is that the department’s purported emergency lies in MISO Midwest. Therefore, it said putting all of MISO Midwest on the hook for costs via a load-ratio share is appropriate.
“In applying the cost causation principle here, we find that it is just and reasonable for the cost allocation method to allocate costs in accordance with the scope of the emergency as described by the DOE order. We recognize that the parties offer different interpretations of the DOE order on that issue,” FERC said.
FERC declined to order MISO to institute stakeholder proceedings to let those involved decide on a cost allocation design. It said there was no need since a load ratio share allocation based on actual peak demand would “reasonably” tie usage to costs.
NIPSCO and CenterPoint argued that they didn’t have to demonstrate cost causation nor identify beneficiaries of the plant because the DOE named all of MISO Midwest under the scope of the emergency order. The two also disputed that MISO should open a stakeholder process to design a cost allocation methodology, saying it would delay cost recovery and pointing out that the DOE directed FERC, not MISO to address cost recovery.
The Organization of MISO States pushed for FERC to let the RTO’s stakeholders and regulators decide how to divvy up the costs of sustaining operations at thermal plants whose retirements are delayed by DOE. (See Regulators: MISO Stakeholders Should Decide Cost-sharing for DOE Coal Plant Orders.)
OMS said that “to satisfy the just and reasonable standard required by law, any cost allocation method must demonstrate a clear nexus between the costs incurred and the benefits received, and in evaluating whether such a relationship exists, material differences among states and regions must be considered, including variations in load forecasts, resource mix, retirement schedules, and system conditions.”
FERC said arguments debating the prudence of costs associated with operating the plants are beyond the “limited scope” of the two dockets. It similarly said the limited nature of the proceedings didn’t allow it to consider if refunds would be due should the plants operate beyond the DOE orders.
The Michigan Attorney General and the Illinois Commerce Commission had argued that there’s no evidence of an energy emergency to necessitate the continued operation of Schahfer or Culley.
FERC refused the Michigan Attorney General’s requests to defer a cost allocation decision until rehearing requests on the orders are resolved, or establish a “claw back” mechanism, where upgrade costs for the plant could be refunded if the DOE orders are found unlawful.
Public interest groups, including the Sierra Club and Earthjustice, also requested FERC make clear that refunds are a possibility should the DOE’s orders be invalidated. The same groups are challenging the Indiana emergency orders at the D.C. Circuit Court of Appeals. (See Groups Contest Indiana Coal Plants’ Emergency Extensions at D.C. Circuit; DOE Defends Use of Emergency Orders in Court Filing.)
The organizations also claimed FERC could not approve any compensation for the capacity contributions of the plant because the DOE order itself says the units aren’t considered capacity resources.
They said Schahfer Unit 18 in particular requires extensive repairs that would disqualify it as a capacity resource in MISO. They further maintained that the DOE order “lacks the authority to compel NIPSCO to repair” the two Schahfer units and that, in their current poor condition, they provide no benefit to the footprint.
But FERC had a different interpretation. It said that even though the DOE said that Schahfer and Culley aren’t capacity resources, that “does not mean that the commission cannot approve compensation that arises” from the plants’ “capacity benefits.”
FERC also said OMS’s argument that granting a cost allocation methodology would entice owners of other aging thermal plants to fast-track retirement announcements for the cash is speculative.
FERC allowed Consumer Energy’s J.H. Campbell Plant in Michigan an identical cost allocation methodology. (See FERC Rules Costs of Mich. Coal Plant Extension Can be Split Among 11 States; J.H. Campbell Tab Rises to $80M on DOE’s Stay Open Orders.)
At the commission’s March 19 open meeting, Chair Laura Swett explained that Energy Secretary Chris Wright’s determination to issue a 202(c) emergency order is “one of the zeniths of his power, and that is wholly aside from FERC’s jurisdiction.”
“Congress has deliberately given FERC the small but very important piece of adjudicating what is a fair and reasonable allocation of the costs that arise from the order, and we are very committed to doing so every single time we have a 202(c) order that has rate implications,” Swett said.
Swett said FERC must examine the facts of individual dockets, “including the market and the ratepayer impact, and when we issue an order, it is with confidence that we have adjudicated those costs and allocated them as fairly as possible.”