1. Organization of MISO States Tensions Between State and Federal Regulation Boundaries David Sapper Executive Assistant to Commissioner Bert Garvin Public Service Commission of Wisconsin Wisconsin Public Utility Institute October 13, 2004

2. 2 Traditional State Regulatory Role in Wholesale Electricity Markets State regulators understand the value of robust wholesale power market –Off-system purchases and sales –Merchant power plant and transmission construction applications State regulators seek (net) benefits for their states’ consumers and utilities –Supply adequacy and reliability –Lower rates

3. 3 Historical Perspective of OMS Formation 1998 – MISO formed –State regulators part of MISO’s original stakeholder advisory process 1999 – FERC issues Order 2000 –Established RTO policy

4. 4 Historical Perspective of OMS Formation (Cont’d) 2002-2003 – Different Calls for Multi-State Cooperation –April 2002 – National Governors Association report on electric transmission suggests role for “multi-state entities” –July 2002 – FERC proposed Standard Market Design rules call for “Regional State Advisory Committees” State commissions resist mere advisory role –April 2003 – FERC White Paper on Wholesale Power Market Platform refers to “Regional State Committees” Jurisdictional issues never addressed

5. 5 Available Regional Regulatory Frameworks Interstate Compacts –Provides for joint decisions of state jurisdictional questions Federal-State Joint Boards –Provides for state participation in FERC-jurisdictional decisions –Rarely used by FERC Federal-State Coordination –Especially relevant after USTA v. FCC decision criticizing sub-delegations to state commissions (March 2, 2004, D.C. Cir.)

6. 6 The Midwest Approach: Multi-State Cooperation Coordinated participation in MISO stakeholder process Combined input to FERC when possible Facilitate state regulators’ participation and fund travel Share information and analysis Emphasis on utility regulators and siting agencies –Best skill set to deal with RTO and FERC issues Not joint decisions – not even binding on states Not “another layer of regulation” Earn deference from FERC, MISO and other stakeholders

7. 7 Milestones in OMS Formation November 2002 – planning began May 2003 – incorporated as Indiana non-profit corporation June 2003 – bylaws adopted, officers elected, funding agreement with MISO January 2004 – permanent staff hired –Bill Smith, Executive Director –Headquarters in Des Moines, Iowa December 2004 – officer rotation –Geographical and regulatory regime balance Ongoing – procedural guidelines

8. 8 OMS Membership Full membership is open to state regulatory authorities that: –Regulate retail electricity or distribution rates of transmission-owning MISO members or transmission-dependent MISO members; and –Have primary siting authority Associate membership is open to other state agencies

9. 9 OMS Organization Matches MISO footprint –14 state members and Manitoba Board of Directors has 15 members –One from each member agency Executive Committee is composed of 5 members –Includes the 3 members (2 original states and 1 MAPP state) of the MISO Advisory Committee representing the state regulatory sector

10. 10 OMS Funding Funding agreement signed with MISO Includes statement of independence from MISO OMS budget is included in MISO budget OMS has applied for 501(c)(4) tax exempt status Agreement provides for FERC to resolve OMS-MISO disputes

11. 11 OMS Positions and Communications Process for formulating policy positions similar to National Association of Regulatory Utility Commissions (NARUC) –Board assigns issues to one or more of seven working groups –Working groups formulate suggested positions –Board considers working group suggestions and adopts positions – usually during open conference calls –Majority and minority views expressed (judicial vs. legislative model) Board discusses monthly MISO Advisory Committee agenda and directs/guides representatives’ votes

12. 12 OMS Working Groups Pricing (Randy Rismiller, Illinois) –Developing policy for interconnection pricing –Regional Through and Out Replacement Rate –MISO Regional Expansion Criteria and Benefits Task Force Congestion Management and FTR Allocation (Mike Proctor, Missouri) –Financial Transmission Rights allocations –Grandfathered agreements

13. 13 OMS Working Groups (cont’d) Market Monitoring and Market Power Mitigation (Commissioner David Hadley, Indiana) –Market monitor’s role and independence –Market monitoring tariff provisions –State access to market data Resource Adequacy and Capacity Markets (Jan Karlak, Ohio) –Resource adequacy tariff provisions –Power pool and reliability issues –MISO Supply Adequacy Working Group

14. 14 OMS Working Groups (cont’d) Seams (Commissioner Robert Nelson, Michigan) –MISO-PJM Joint Operating Agreement –MISO seams arrangements with MAPP, SPP, TVA –Readiness Metrics –Regional Through and Out Replacement Rate

15. 15 OMS Working Groups (cont’d) Market Rules and Implementation Timelines (Nancy Campbell, Minnesota Dept. of Commerce) –Energy Market Tariff provisions –Business Manuals’ content –Readiness Metrics Transmission Planning and Siting (Klaus Lambeck, Ohio) –Updating planning and siting reports –Midwest Transmission Expansion Plan –Regional Expansion Criteria and Benefits

16. 16 Recent OMS Activities Comments to FERC on large generator interconnection (FERC Order 2003) Comments to MISO on its draft energy market tariff Comments to FERC on MISO’s energy market tariff Comments to FERC on MISO’s reactive power provisions Comments to FERC on grandfathered agreements Comments to DOE on National Interest Bottleneck Transmission Facilities

17. 17 Upcoming OMS Activities Comments to FERC on RTO costs Long-term regional transmission rate development Regional expansion criteria and benefits MISO performance metrics and market readiness

18. 18 OMS Benefits Efficiency of dealing with the states collectively –FERC –RTO –RTO members More attention from FERC, RTOs, and RTO stakeholders More and better expertise and better analysis of issues

19. 19 OMS Novelties and Growing Pains Commissioner participation Selecting and assigning staff to working groups Balancing OMS work with commission work State commissions’ open meeting schedules Individual state commissions’ communications with MISO and FERC Handling differing and nuanced positions Still have not addressed siting issues

20. 20 OMS Website www.misostates.org