FERC largely approves MISO plan to ensure resource adequacy

The Federal Energy Regulatory Commission (FERC) on June 11 conditionally approved the Midwest ISO’s enhanced resource adequacy proposal, which will provide even greater market and reliability benefits to MISO’s members and the customers they serve.

The enhanced mechanisms become effective Oct. 1, 2012, for the planning year that begins on June 1, 2013. MISO and its stakeholders developed modifications to MISO’s resource adequacy mechanisms during a year-long process, MISO said in a June 11 statement.

“We thank the FERC for recognizing the value that these revisions bring to the region. The order clears the way for us to continue delivering value to our members and their customers and stakeholders,” said John Bear, President and CEO of MISO. “Through the efforts of our stakeholders and our staff, we are working toward ensuring greater reliability. These enhancements also have the potential added benefit of promoting greater capacity portability and market efficiency across adjoining markets.”

The enhanced resource adequacy proposal, filed in July 2011, includes market mechanisms to address zonal deliverability of resources while taking into account the physical limitations of the transmission system. These mechanisms should further improve reliability in a cost-efficient manner. In addition, MISO said its procedures include a permanent approach to demand response and behind-the-meter generation.

“Our enhanced resource adequacy procedures will prove particularly helpful in managing reliability as the prospect of aging coal plant retirements nears,” said Richard Doying, Vice President of Operations. “In addition, these enhancements preserve existing benefits from state planning processes while providing market mechanisms to ensure we have the right resources located in the right areas and available in the most economical manner. MISO looks forward to working with the FERC and will submit a compliance filing by July 11, 2012.”

A number of issues are covered by the new policy. For example, MISO proposed to overhaul its resource adequacy construct and filed Module E-1 to replace the currently effective Module E. As part of its filing at FERC, MISO proposed to allow Load Serving Entities (LSEs) to meet their planning resource requirements by: participating in the Planning Resource Auction; self-scheduling resources into the auction; or opting out of the auction by submitting a fixed resource adequacy plan (FRAP).

The self-scheduling option allows LSEs to offer capacity resources into the auction at a price of zero and then bid to purchase the same amount of resources. “In other words, an LSE that selects the self-schedule option would be left financially indifferent because it would be buying and selling the same amount of capacity through the auction at the same capacity price,” FERC noted in its June 11 order. “MISO also proposes to replace the current monthly auction framework in Module E with an annual auction.”

MISO also asserted that LSEs can “opt out” of the auction by submitting a FRAP demonstrating that they have sufficient resources to cover all or a portion of their resource requirements. LSEs that own resources or have contractual commitments for resources that are in excess of their FRAPs may submit offers into the auction for those excess resources. Also under MISO’s proposal, LSEs whose FRAP does not cover all of their resource requirements will be required to make up any shortfall through the auction.

Parties object to various parts of MISO proposal

Some parties, including the Organization of MISO States, Otter Tail Power and Midwest TDUs, argued that MISO’s proposal is well beyond the commission’s previous orders, had not been justified, and is not beneficial (if not harmful) to the MISO market. These parties claim that MISO is trying to create a central mandatory forward auction that is unnecessary. They seek a commission order rejecting the filing in its entirety. In particular, some parties contended that a centralized capacity auction is not needed given the historic success of state integrated resource planning and the large amount of excess capacity in MISO.

A group known as Capacity Suppliers argued in part that revenues for resource owners are currently not sufficient in MISO to incent the development of new generation. Capacity Suppliers also contended that a new construct is needed because conditions could change based on an aging generation fleet and potential consequences of environmental mandates.

Capacity Suppliers is a coalition of power providers and LSEs that includes Ameren Energy Marketing, Calpine Corp., Constellation Energy Commodities Group and Dynegy Power Marketing LLC.

MISO responded that, in addition to addressing the commission’s compliance requirements, its proposal resolves capacity issues raised by an independent consultant, improves reliability and addresses potential capacity shortages among other items. MISO noted that virtually all parties agree that its proposal is different from Eastern RTO capacity markets since it includes self-scheduling and opt-out provisions, among other items.

The commission said in the June 11 order that it has consistently rejected a one-size-fits-all approach to resource adequacy in the various RTOs. With regard to MISO, the commission said it has recognized that “MISO does not face the same degree of transmission and generation constraints” that are faced in other RTOs. MISO differs from other RTOs because of the extensive use of bilateral contracts and cost-of-service regulation in MISO as compared to the prevalence of retail-choice in other RTOs. “It is for these reasons, as well as others, that the Commission accepted Module E and approved MISO’s use of voluntary capacity auction in the March 2008 Order and the Financial Settlements Order,” the commission noted.

The commission added: “MISO’s proposal, though introducing certain new features, largely maintains the existing resource adequacy construct. Under MISO’s proposal, LSEs can continue fulfilling their capacity obligations through, self-supply, bilateral contracting, or through the auction. Based on MISO’s proposal and our determination, discussed below, that deficient LSEs do not have to procure capacity through the market, Module E-1 retains the voluntary nature of the auction since LSEs can develop plans to meet all their resource requirements outside the auction. This feature of the MISO’s proposal allows LSEs and their regulators to maintain significant flexibility when developing resource plans based on their specific region.”

MISO’s proposal requires that LSEs must obtain their resources in the auction – and pay the auction price – if they are resource deficient. Based on MISO’s depiction of resource planning in its footprint to be based largely on bilateral arrangements, as well as its intent to only supplement the current resource adequacy plan, rather than transform it into a mandatory forward capacity process, MISO has not justified the need for a mandatory auction, the commission wrote. “For this reason, we reject MISO’s proposal for a mandatory auction for deficiencies. We direct MISO to address resource deficiencies without requiring a mandatory auction, and include these revisions in the compliance filing due within 30 days after the date of this order.”

The commission did find that MISO’s proposed opt-out is reasonable because it enables LSEs to manage how they will fulfill capacity requirements. “We note that this option ensures that the resource adequacy plan going forward maintains the voluntary framework of the currently effective resource adequacy plan, and therefore we do not expect it will impinge on state resource planning,” the commission explained.

MISO ensures reliable operation of, and equal access to high-voltage power lines in 11 U.S. states and Manitoba in Canada. MISO manages one of the world’s largest energy markets, with more than $23.6bn in annual gross market energy transactions. It is governed by an independent Board of Directors and is headquartered in Carmel, Ind.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.