By Amanda Durish Cook

FERC last week rejected MISO’s bid to expand its Independent Market Monitor’s physical withholding mitigation to include non-capacity resources.

MISO had sought to change its resource adequacy construct to remove provisions that exempt all resources that aren’t planning resources from physical withholding penalty charges in the day-ahead market. On Friday, however, the commission said the proposal was too vague and could effectively subject the RTO’s non-capacity resources to a must-offer rule (ER20-668).

Monitor David Patton had said the proposal would remedy a “flaw” in MISO’s Tariff that excludes non-capacity resources from physical withholding mitigation even if they have market power.

MISO and its Monitor introduced the idea with stakeholders last summer. Patton said the expansion of mitigation would apply only in “clearly” uneconomic behavior from units. Suppliers without market power will not be subject to the new rule and are not under an obligation to offer, he said at the time. (See MISO, Monitor Strengthening Mitigation Measures.)

The RTO had proposed that behavior wouldn’t be deemed physical withholding if a market participant “reasonably expected the costs of making its resource available to be higher than the resource’s expected net revenues from being available.”

But FERC said MISO’s proposed process “lacks sufficient clarity to distinguish between non-capacity resources legitimately withheld from day-ahead markets due to economic reasons and those withheld in an attempt to exercise market power.”

The commission said the proposal’s ambiguity “places non-capacity resources at risk of being penalized in circumstances that do not warrant it.” FERC said it was unclear whether MISO’s market participants would have to prove their units weren’t “economically viable prior to each day-ahead hour.”

The commission also said MISO’s Tariff change was silent as to how seasonally available resources would be treated if an operator decides that it’s economic to operate on a day when it would normally be idled.

FERC also agreed with protesters that MISO’s provision could have the effect of forcing non-capacity resource operators to make offers in the day-ahead market rather than risk potential sanctions. Protesters included several MISO generators, the Electric Power Supply Association, Calpine, Midwest Power Producers, the New England Power Generators Association and the National Hydropower Association.

“MISO’s proposal may effectively create a must-offer obligation on resources that do not receive a corresponding capacity payment,” FERC said. Even though the Monitor promised in an affidavit to be on-hand to discuss ahead of time whether a unit should offer into the day-ahead market, FERC pointed out that MISO didn’t include the pledge in its proposed Tariff language.

Glick Advises Alternate Course

Commissioner Richard Glick tacked a fuller explanation at the end of the order to explain his rejection and urge MISO to find another solution.

“I agree with my colleagues that MISO’s proposal casts too wide a net, putting certain non-capacity resources at risk of being penalized even when they lack market power and, therefore, have no incentive to withhold their capacity for the purpose of driving up prices,” Glick wrote in a concurrence.

However, Glick said he shared MISO’s concern that non-capacity resources could exercise market power through physical withholding.

“The Market Monitor has observed what appear to be exercises of this type of market power by non-capacity resources in MISO over the past several years. Addressing the potential for market participants to exercise market power is critical and would not, in and of itself, require the imposition of a must-offer obligation on non-capacity resources,” Glick said.

Glick said MISO, the Monitor and the stakeholder community should devise another way to prevent non-capacity resources from exercising market power.