STATE OF IOWA DEPARTMENT OF COMMERCE UTILITIES BOARD IN RE: MIDAMERICAN ENERGY IN RE: DOCKET NOS. E-22269, E-22270, AND E-22271 DOCKET NO. E-22279 (consolidated) ITC MIDWEST LLC BRIEF BY THE MIDCONTINENT INDEPENDENT SYSTEM OPERATOR, INC. I. INTRODUCTION The Midcontinent Independent System Operator, Inc. ( MISO ) supports approval of the planned transmission project by MidAmerican Energy ( MidAmerican ) and ITC Midwest LLC ( ITC, collectively with MidAmerican, Applicants ) that is the subject of this docket (referred to in combination as the Project ). The testimony and exhibits of record submitted to the Iowa Utilities Board ( Board ) at the hearing that took place on May 3, 2017 support approval of the Applications that seek franchises associated with the Project under Chapter 478 of the Iowa Code. The Project includes approximately 40 miles of high voltage (345 kv) electric transmission lines and related facilities. 1 MISO is a regional transmission organization ( RTO ), under the supervision of the Federal Energy Regulatory Commission ( FERC ) and other federal authorities, 2 that (among other matters) is responsible for ensuring that the regional transmission system is reliably 1 2 See, e.g., Ghodsian Direct (MISO) at 8. Ghodsian Direct (MISO) at 3 and 7. MISO is a not-for-profit regional transmission organization that provides reliability and market services over a region that stretches from the Ohio-Indiana border to Eastern Montana and south to New Orleans. Id. at 3.
planned to provide for existing and expected use of that system. 3 MISO performs collaborative planning functions for the transmission system with its member transmission owners and other stakeholders while independently assessing regional transmission needs. 4 Those planning functions resulted in identification of the Project as an important link that is needed to support public policy requirements and ensure the continued reliability of the transmission system in Iowa as well as the surrounding region. 5 The Project is an important part of MISO s Multi-Value Project ( MVP ) portfolio of transmission upgrades that is comprised of a 345 kv electric transmission line and related facilities in an area extending across Southeastern Iowa and linking up with 345 kv facilities located elsewhere in Iowa to the north (and continuing on to MVP facilities in Minnesota) as well as Northeastern Missouri to the south (and continuing on to MVP facilities in Illinois). 6 The MVP portfolio is a group of transmission projects distributed across the transmission system whose expansion is overseen by MISO. 7 The MVP portfolio provides for net economic benefits by increasing market efficiency (reducing production and operating reserve costs), deferring investments, and providing other benefits related to capital investments; 8 enables the satisfaction of renewable portfolio standards in the MISO footprint; and helps ensure the future reliability of 3 4 5 6 7 8 Ghodsian Direct (MISO) at 4. Id. (Ghodsian Direct); Swanson Direct (MidAmerican) at 3 ( evaluated through MISO s MTEP process ). Ghodsian Direct (MISO) at 18 and 21; Swanson Direct (MidAmerican) at 17. Ghodsian Direct (MISO) at 8. Swanson Direct (MidAmerican) at 16. Ghodsian Direct (MISO) at 32 and Ghodsian Direct, Attached Exhibit 1 (MISO) at 49 (MVP Portfolio Report, followed by explanations in Section 8 of the same report); accord Swanson Direct (MidAmerican) at 21. 2
the local and regional transmission systems. 9 After an extensive, multi-year, collaborative planning effort that included information provided by transmission owners, state regulatory personnel, and other stakeholders, 10 the MVP portfolio was approved as part of the MISO Transmission Expansion Plan ( MTEP ) for 2011. 11 Each MVP Project is a necessary component of the portfolio that provides benefits that broadly span the MISO footprint. 12 The eventual result of not constructing the Project would be higher prices for generation in Iowa 13 and the increased cost of dealing with the electrical consequences of improved 345 kv connections on either side of the Project. The Project will help develop wind resources and other zero or low emission sources of generating electricity 14 and will result in additional jobs for Iowa. 15 II. REQUIREMENTS FOR FRANCHISES AND OVERVIEW The Applications relating to the Project satisfy the requirements of Chapter 478 of the Iowa Code for a franchise to construct, erect, maintain, [and] operate a [high voltage] transmission line.... 16 The franchise may be granted if the utilities board... make[s] a finding that the proposed line or lines are necessary to serve a public use and represents a reasonable relationship to an overall plan of transmitting electricity in the public interest. 17 The 9 10 11 12 13 14 15 16 17 Ghodsian Direct (MISO) at 10. Id. (Ghodsian Direct) at 19-20. Id. (Ghodsian Direct) at 18. Id. (Ghodsian Direct) at 18-19. MISO footprint, in the Ghodsian Direct Testimony and in this Initial Brief, refers to the transmission system under MISO s functional control in 2011 before the integration of areas south of Missouri. Id. at 9. Id. (Ghodsian Direct) at 32. Id. (Ghodsian Direct) at 14. Swanson Direct (MidAmerican) at 15, 16, and 20. Iowa Code 478.1(1). Iowa Code 478.4. 3
Order Setting Briefing Schedule issued on May 17, 2017, sets out five special issues, but also states that parties may brief whatever issues they wish.... MISO sponsored the testimony of one of its transmission planners, Mr. Arash Ghodsian, in which he explained the need for the Project as part of the MVP portfolio of transmission projects that serve the needs of Iowa while creating a more robust transmission system that will also serve the interconnected region. 18 This explanation addresses the transmission planning issues that are the subject of Iowa Code 478.3(2)(a). As a consequence, this Brief addresses the need for the Project to serve the public use as part of a comprehensive plan in the MISO footprint to transmit electricity in the public interest. Comment is made in this Brief 19 upon an aspect of the third issue identified in the Order Setting Briefing Schedule that asks, [t]o what extent should the Board consider increases in the estimated cost of this project [under]... Iowa Code chapter 478? 20 The record supports a finding that the Project serves the public use and provides an overall plan that is in the public interest as required by Chapter 478 of the Iowa Code. Supporting information was provided by Applicants through testimony and exhibits sponsored by multiple witnesses as well as in the Applications filed with the Board. MISO s witness supported approval of the Project, especially adding perspective to MISO s transmission planning process. 21 The Office of Consumer Advocate ( OCA ) sponsored testimony that added 18 19 20 21 The region of concern for the Project is the footprint, which for present purposes is the transmission system under MISO s functional control in 2011. Ghodsian Direct (MISO) at 9. See infra at 9-10. Order Setting Briefing Schedule at 2 (May 17, 2017). See, e.g., Ghodsian Direct (MISO) at Section III ( MISO Regional Transmission Planning ) and Section IV ( Multi Value Project Planning Process ). 4
conditional support for the Project. 22 The Project is necessary to provide adequate, reliable, and efficient transmission service, supports important policy objectives, is the least-cost means of satisfying these needs, and promotes the development of an effectively competitive electricity market that operates efficiently. The Board should issue an order finding that the facilities serve the public use and authorize the Applicants to engage in activities furthering the Project. III. THE PROJECT IS NEEDED AND PROMOTES THE PUBLIC USE Construction of the Project is needed to provide the State of Iowa and the region the benefits of MISO s MVP portfolio of transmission projects. 23 The need for the Project was determined through a deliberate, collaborative stakeholder process, which included the design and planning of transmission projects through a structured, multi-year planning process: 24 In addressing its RTO planning responsibilities, MISO undertook a multi-year planning process aimed at addressing the regional transmission plans necessary to enable RPS mandates to be met at the lowest delivered wholesale energy cost. This effort was known as the Regional Generation Outlet Study ( RGOS ), and was conducted between 2008 and 2010. The RGOS identified energy zones in which mandated energy could locate and indicative transmission options that would provide sufficient transmission capacity and connectivity needed for the efficient and reliable delivery of new generation capacity to meet the combined renewable portfolio standards of the MISO region while providing value across this footprint. These indicative plans were further consolidated into a proposed MVP portfolio and evaluated for effectiveness in meeting the RGOS objectives. * * * Energy zone development began during the RGOS referenced previously in my testimony. Zone selection involved MISO staff evaluation of multiple energy zone configuration and extensive stakeholder interaction, including with various state and regulatory agencies within the MISO footprint, including the Midwest Governors Association, the Organization of MISO States, and the Upper Midwest Transmission Development Initiative ( UMTDI ). The analyses and selection process optimized transmission and wind generation capital investment across the 22 23 24 See, e.g., Shi Direct (OCA) at 7. The condition relates to the resolution of regulatory issues... in Missouri. Id. at 10. Ghodsian Direct (MISO) at 18-19. Id. (Ghodsian Direct) at 19-20 (citation omitted). 5
footprint, resulting in a least-cost distributed set of wind zones. The analysis balanced relative wind capacities with distances from natural gas pipelines and existing transmission infrastructure. The process involved the identification of candidate transmission projects, identification of alternatives, and completion of reliability analyses of identified projects and alternatives, stakeholder vetting, and multiple studies that consider various options and alternatives to designing and structuring needed transmission facilities. 25 The record reflects that upon the completion of MISO planning process, MISO (the Regional Transmission Organization) determined that the Project is necessary to meet local load serving needs of the system in the area, 26 to promote the development of a reliable and efficient competitive electric market, 27 and to ensure that renewable portfolio standards of all states in the MISO footprint can be met 28 while distributing economic benefits from reduced congestion and production costs within the region. 29 The Project was included in the MVP portfolio that was approved by MISO s Board of Directors in December 2011 as part of MISO s MTEP11. 30 MISO witness Ghodsian testified that the improvements increase market efficiency, competitive supply, and provide opportunity for economic benefits to retail electric consumer well in excess of the [MVP] portfolio costs. 31 25 26 27 28 29 30 31 See, e.g., Ghodsian Direct (MISO) at 14. Ghodsian Direct (MISO) at 10. Id. (Ghodsian Direct) at 26. Id. (Ghodsian Direct) at 19. Id. (Ghodsian Direct) at 21. Id. (Ghodsian Direct) at 10. Id. (Ghodsian Direct) at 21-22. 6
MISO s witness Ghodsian summarized MISO s findings regarding the benefits provided by the MVP portfolio 32 The MVP portfolio allows for a more efficient dispatch of generation resources, opening wholesale markets to competition and spreading the benefits of low cost generation to Iowa and throughout the MISO footprint. These benefits reflect the savings achieved through the reduction of transmission congestion and through more efficient use of generation resources. The analyses found that the MVP portfolio will produce an estimated $12.4 to $40.9 billion in present value adjusted production cost benefits (2011 dollars) to the aggregate MISO footprint under existing energy policies, depending on the period over which benefits are calculated, discount rates applied, and assumptions about growth rates of energy and demand. Under additional possible Future Scenarios representing sensitivities to variations in energy policies, this benefit increases to a maximum present value of $91.7 billion (2011 dollars). * * * While congestion-driven production cost benefits were by far the single greatest benefit identified, additional benefits from the new transmission facilities were also identified. These additional benefits included reductions in operating reserve requirements, reduced planning reserve margin requirements, reduced transmission system losses, lower capital costs of renewable resources, and deferrals of transmission investments that would be required for the reliability of the system in the absence of the MVPs. These additional factors contribute between $3.1 billion and $8.2 billion in additional present value of benefits above the production cost savings (2011 dollars). * * * When compared to the present value of the revenue requirements for the MVP portfolio, the portfolio produces total benefits of between 1.8 and 3.0 times the costs on a present value basis, under existing policies. When these system-wide benefits were evaluated for their distribution within the MISO footprint, benefits to Iowa amounted to between 1.6 and 2.8 times the portfolio costs to Local Resource Zone 3. Zone 3 is comprised of MISO member companies within Iowa and a portion of Minnesota along the Iowa-Minnesota state line. This testimony describes the underlying MISO evaluation of the MVP portfolio that includes the Project. The MVP portfolio was designed for both reliability and its economic attributes. MISO witness Ghodsian explained that the transmission system must be adequately planned to be able 32 Id. (Ghodsian Direct) at 31-33. 7
to accommodate load growth and/or changes in load and load growth patterns, as well as changes in generation and generation dispatch patterns. 33 For the MVP portfolio, however: 34 [R]esults were not driven by population and load growth. The benefits provided by the MVP 7 [of which the Project is part] facilities and the MVP portfolio are only minimally affected by even the absence of reliability benefits linked with population and peak load growth. The Board s evaluation of the public interest, under these circumstances, should recognize the multiple benefits provided by state siting approvals for all segments of the MVP portfolio. This evaluation of the overall plan for transmitting electricity must be broader than solely focusing on the reliability benefits provided by the Project. 35 MISO s Tariff requires the analysis contained in the Triennial Review, Exhibit 2 to the Ghodsian Direct Testimony. The document provides a full economic review of the MVP portfolio benefits three years after MISO s approval of the portfolio. 36 Mr. Ghodsian testified regarding that updated review: 37 The MVP Triennial Review found that the MVP portfolio continues to allow for a more efficient dispatch of generation resources, opening wholesale markets to competition and spreading the benefits of low cost generation to Iowa and throughout the MISO footprint through the reduction of transmission congestion and more efficient use of generation resources. The review found that the MVP portfolio will produce $17.3 to $59.6 billion in present value adjusted production 33 34 35 36 37 Ghodsian Direct (MISO) at 15. Id. (Ghodsian Direct) at 34. As an example, applications must usually address future projections based on population trends. Iowa Code 478.3(2)(a)(3). Local conditions are served by the Project. Swanson Direct (MidAmerican) at 19. However, the MVP portfolio recognizes changes in the pattern presented by added generation from renewables and the dispatch of that generation during some periods at very low cost. The evaluation of the public interest must be more inclusive of benefits than to limit them to those tied to population/demand increases. Id. (Ghodsian Direct) at 38. Id. (Ghodsian Direct) at 36-37 (citation omitted). 8
cost benefits (2014 dollar terms), an increase of 22 to 44 percent from the original MTEP 11 valuation. * * * When compared to the present value of the revenue requirements for the MVP portfolio, the MVP Triennial Review found that the portfolio produces total benefits of between 2.6 to 3.9 times the costs on a present value basis, an increase from the benefit cost ratio of 1.8 to 3.0 determined in the initial portfolio justification. When these system-wide benefits were evaluated for their distribution within the MISO footprint, benefits to Iowa amounted to between 2.5 and 3.2 times the portfolio costs to Local Resource Zone 3, as compared to 1.6 to 2.8 previously. As stated earlier in this testimony, Zone 3 is comprised of MISO member companies within Iowa and a portion of Minnesota along the Iowa- Minnesota state line. MISO s evaluation of the MVP projects continues on an annual basis, and shows consistent benefits net of costs. 38 MISO s evaluations and re-evaluations of net benefits for MVPs initially, triennially, and on a limited basis annually are responsive to the Board s concern over estimates that the Project will cost more than originally projected. 39 Estimates should be expected to rise as the distance from the MTEP approval increases due to inflation. 40 Any concern by the Board concerning its evaluation of the Project should consider that MISO s re-evaluations of the MVP portfolio are financial and take into consideration any changing cost figures for the MVP projects 38 39 40 The Ghodsian Direct Testimony states, at 38: The MVPs are the subject of limited annual review in addition to the more comprehensive reviews that take place at three year intervals. MTEP16 provided a limited assessment of benefits from the MVP portfolio of projects. The portfolio opens up access to wind generation that has no fuel cost. Replacing generating units fueled by natural gas in the dispatch order means that changing the projected natural gas price also changes the projection of fuel savings benefits provided by the MVP portfolio. The benefit-to-cost ratio for Local Resource Zone 3 in the MVP limited review are 2.0 to 2.9, still above the values reported in the original MVP report associated with MTEP 11. Order Setting Briefing Schedule at 2 (May 17, 2017), referring to Iowa Code 478. See, e.g., Ambrose Rebuttal (MidAmerican) at 3 ( Inflationary-type cost component increase ). 9
(as-built and estimated figures). The increases in costs for projects are considered in the financial re-evaluations contained in the testimony of MISO witness Ghodsian (quoted in this MISO Brief). As stated in Mr. Ghodsian s testimony, MISO studies continue to find favorable benefit-cost ratios (large benefits in excess of costs) for the MVP portfolio as a whole and for the regions served in the MISO footprint. MISO s witness explained MISO s extensive planning and selection process and explained that the Project is part of a larger effort to provide for transmission improvements considering generation, transmission, and other factors under a range of future conditions. 41 Projects were studied to evaluate the expansion of transmission facilities to effectively meet multiple needs, including economic benefits, local and regional reliability, and policy objectives. 42 It is important that the Project be completed as proposed. MISO Witness Ghodsian addressed the negative impact, both in Iowa and elsewhere, that would result from not constructing the Project as part of the MVP portfolio as planned: 43 The MTEP amounts to the design of a very complex system that will serve both short- and long-term needs of the bulk electrical grid in a coordinated manner. The inability to construct a key element of the regional expansion plan, especially a backbone element such as the one proposed in the Application that is designed for both reliability and its economic attributes, could result in the loss of the economic benefits provided by the project and the need to develop less optimal solutions to reliability concerns. MidAmerican witness Swanson testified that an example of how MVP-7 will reduce congestion and improve reliability is through facilitating an additional connection between the south-central 41 42 43 Ghodsian Direct (MISO) at 14-15 and 30. Id. (Ghodsian Direct) at 21 ( overall goal.... ). Id. (Ghodsian Direct) at 39-40. 10
portion of the Iowa transmission system and portions of the MISO system in Missouri, Illinois and Indiana. 44 Mr. Swanson stated that [s]ome of these conditions [mitigated by MVPs] could be severe enough to cause cascading outages on the system, 45 and testified regarding local reliability benefits from construction of the Project. 46 Resolving local reliability concerns separately is less optimal than constructing the MVP projects. 47 The Project carries with it large benefits in addition to resolving reliability concerns. The Project is a necessary component of the MVP portfolio of transmission projects, providing a holistic solution for delivering these [transmission] improvements 48 that will provide benefits in Iowa and across the MISO region. IV. CONCLUSION MISO respectfully requests that the Board grant the requested franchises and issue an order that authorizes steps towards completion of the Project. The Applications should be approved, as submitted and as adjusted by the efforts of Applicants in this proceeding. The construction of the Project is important to the ability of the transmission system in Iowa to continue reliable service and to deliver the economic benefits of the MVP portfolio of transmission projects to the State. 44 45 46 47 48 Swanson Direct (MidAmerican) at 8. Id. (Swanson Direct) at 10-11 and 16. Id. (Swanson Direct) at 17-18. MISO witness Ghodsian provided an example concerning consideration of an alternative to MVP 7 that would improve reliability without providing the additional economic benefits of MVP 7. Ghodsian Direct (MISO) at 28-29. Ghodsian Direct (MISO) at 22. 11
Dated: May 31, 2017 Respectfully submitted, THE MIDCONTINENT INDEPENDENT SYSTEM OPERATOR, INC. By: /s/_amanda James Amanda James Sullivan & Ward, P.C. 6601 Westown Parkway, Suite 200 West Des Moines, IA 50266-7733 Telephone: (515) 247-4712 ajames@sullivan-ward.com Jeffrey L. Small Midcontinent Independent System Operator, Inc. 720 City Center Drive Carmel, IN 46032-7574 Telephone: (317) 249-5248 Facsimile: (317) 249-5912 jsmall@misoenergy.org Counsel for the Midcontinent Independent System Operator, Inc. 12
CERTIFICATE OF SERVICE I hereby certify that copies of the foregoing Brief of the Midcontinent Independent System Operator, Inc. was served upon all current parties, the Board, and the Iowa Office of Consumer Advocate this 31 st day of May, 2017. /s/_amanda James Amanda James 13