FERC decides to reopen issue of MISO resource adequacy construct

With commissioner Tony Clark offering a dissent, the Federal Energy Regulatory Commission on Aug. 13 agreed to entertain further arguments related to a Midcontinent Independent System Operator (MISO) resource adequacy order.

In June 2012, the commission issued an order conditionally accepting MISO’s proposed resource adequacy construct. In July 2012, capacity suppliers and Potomac Economics Ltd., the independent market monitor for MISO, among other parties, filed requests for rehearing of the order.

In the order, the commission rejected MISO’s proposed minimum offer price rule, finding that buyers within MISO are “generally unlikely to benefit from exercising market power by subsidizing uneconomic entry . . . [because] utilities own the vast majority of capacity within MISO.” Moreover, the commission concluded that “even if utilities had a significant incentive to exercise buyer market power . . . MISO’s proposed MOPR provisions would not likely be effective in deterring suppression of prices through the exercise of buyer market power.”

In its request for rehearing, the Market Monitor presented evidence suggesting that “a large share of the capacity requirements in MISO are satisfied via bilateral purchases, including purchases from outside MISO. Therefore, if capacity prices rise as capacity margins fall . . . states and regulated [load serving entities] LSEs are likely to have the incentive to depress capacity prices.” The capacity suppliers argued that approximately one-fourth of the generation in MISO is “merchant or non-utility affiliated.”

“We believe that the Commission would benefit in its further consideration of this matter by the receipt of briefs from parties in this proceeding addressing the matters raised in the requests for rehearing submitted by the Market Monitor and Capacity Suppliers with respect to the Commission’s rejection of MISO’s proposed minimum offer price rule,” said the Aug. 13 FERC order. “Accordingly, pursuant to Rule 713(d)(2) of the Commission’s Rules of Practice and Procedure, we will permit briefs to be submitted by any party to this proceeding on these issues. Initial briefs should be filed within 30 days of the date of this order. Reply briefs should be filed 21 days thereafter.”

Clark says intervening in this matter bad idea

Clark, in his dissenting opinion, wrote: “MISO’s resource adequacy construct is intended to promote regional reliability in concert with the local planning processes that have been used for years to meet resource adequacy needs in the Midwest. I am concerned that a minimum offer price rule (MOPR) in MISO could undermine these local planning processes and unwind the design changes recently accepted by the Commission in the Resource Adequacy Order.”

Clark added: “In their requests for rehearing, Potomac Economics and Capacity Suppliers dispute the Commission’s finding that most load serving entities (LSEs) in MISO would not have an incentive to exercise buyer-side market power. They base their argument on data showing that utilities obtain a portion of their resource adequacy needs through bilateral purchases. This is no revelation, however. The Commission has already acknowledged in this proceeding that resource planning in MISO is largely based on bilateral arrangements. I see no reason to initiate briefing procedures based on this less-than-compelling information.”

Clark said his concern is that reopening the MOPR issue on rehearing could ultimately lead to changes that decrease the flexibility of MISO’s resource adequacy construct. FERC recognized this tension in the Resource Adequacy Order when it found that certain elements of MISO’s resource adequacy construct, including the opt-out provision, would not allow for an effective MOPR, Clark noted.

“Yet, this flexibility is necessary for maintaining the balance between state and regional resource planning processes in MISO and it would be inappropriate to upset this balance by injecting Eastern RTO capacity market principles into it,” Clark wrote. “In upholding the voluntary nature of the capacity auction, the Commission previously recognized that this feature allows LSEs and their regulators to maintain significant flexibility when developing resource plans based on their specific region. Retaining this flexibility is a core issue for states in the MISO region. MISO’s footprint is overwhelmingly composed of state-regulated, vertically-integrated utilities subject to integrated resource planning regimes. This regulatory framework places MISO in a different position than Eastern RTOs that are substantially relying on capacity markets, and administrative constructs such as a MOPR, to produce accurate price signals for resource development needs.”

Given the seemingly poor fit of a MOPR in the MISO region, and lacking a compelling rationale for rehearing, Clark said he cannot support the decision to initiate briefing procedures.

The capacity suppliers are Ameren Energy Marketing, Calpine Corp., Dynegy Power Marketing LLC, Dynegy Midwest Generation LLC, Electric Power Supply Assn., Exelon Corp., FirstEnergy Solutions Corp., and NextEra Energy Resources LLC.

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.