By Amanda Durish Cook

FERC last week affirmed its 2018 ruling approving MISO’s current resource adequacy construct, rejecting multiple rehearing requests from critics of the decision.

Among those requesting rehearing were a collection of Midwest transmission-dependent utilities, a group of major capacity suppliers, Main Line Generation and MISO’s Independent Market Monitor.

The commission said most of those arguing for rehearing sought to make MISO’s RA construct more like the centralized capacity markets of Eastern RTOs/ISOs. But FERC noted that those designs ignore the fact that the RTO must defer to multiple state jurisdictions in its 13-state reach and that its RA design is meant to be complementary to states’ authority (ER18-462).

The commission also pointed out that 90% of MISO’s load is served by vertically integrated load-serving entities that for the most part don’t use the RTO’s capacity auction to meet capacity requirements.

” … [U]nlike the centralized capacity constructs used in the Eastern RTOs/ISOs, MISO’s auction is not — and has never been — the primary mechanism for its LSEs to procure capacity,” the commission stressed.

Two years ago, MISO pre-emptively refiled its entire RA construct in response to a D.C. Circuit Court of Appeals ruling that FERC overstepped its “passive and reactive” role when it prescribed revisions to PJM’s minimum offer price rule. MISO was concerned the decision could impact some of the RA rules that had been guided by FERC’s recommendations.

In a pair of orders a few months later, FERC both vacated and reinstated MISO’s entire RA construct, ultimately leaving the RTO’s current capacity auction format — and past auction results — undisturbed. (See FERC Vacates, Upholds MISO Resource Adequacy Rules.)

Still No Sloped Demand Curve, MOPR, Forward Mechanism

MISO Independent Market Monitor David Patton used the RA refiling as an opportunity to ask FERC to order the RTO to employ a sloped demand curve in its capacity auction in order to produce more efficient pricing. (See MISO Monitor to FERC: Order Sloped Demand Curve.)

On rehearing, Patton again argued that a good RA design “will produce price signals sufficient to attract and retain the necessary amount of capacity” and that FERC itself made that issue paramount when accepting the sloped demand curves used in NYISO, PJM and ISO-NE’s capacity auctions.

But in last week’s ruling, FERC said MISO’s high percentage of vertically integrated utilities sets it apart it from NYISO, PJM and ISO-NE because MISO’s RA is not determined by its capacity auction prices alone. It said the RTO’s vertical demand curve is fine for now.

” … [W]e continue to find that MISO’s resource adequacy construct enables the MISO region to maintain sufficient resources to meet system-wide and locational reserve requirements,” the commission said, noting that last year’s Organization of MISO States-MISO RA survey indicates sufficient capacity supply through 2022.

The commission also rejected the capacity suppliers’ request that the RTO conduct the auction on a three-year forward basis for retail-choice areas in Illinois and Michigan. FERC found that both a prompt auction and a multi-year forward capacity auction can be reasonable, and the suppliers’ support of one design over the other wasn’t a justification to order MISO to change its auction timing. The commission also told the suppliers that MISO’s auction didn’t require a minimum offer price rule, again noting that vertically integrated utilities own about 90% of capacity in MISO.

The commission also rejected the suppliers’ argument that it’s discriminatory for the MISO capacity auction to be voluntary for buyers and mandatory for sellers who have uncommitted capacity. FERC said while it does have an obligation to ensure that “similarly situated market participants are not unduly discriminated against … it does not follow that market participants who are not similarly situated are unduly discriminated against simply because they are subject to different sets of rules.”

The transmission-dependent utilities argued that the RA construct should allow new capacity resources to obtain long-term financial hedges to shield against inter-zonal price separation in the auctions. FERC said such a provision fails to consider the capacity auction’s main purpose of ensuring reliability during peak days.

The commission said MISO’s local clearing requirements and capacity import and export limits are essential to zonal reliability and declined to order alterations so more resources could compete inter-zonally. The commission also left in place MISO’s zonal delivery charge, which the RTO uses to cover congestion between zones when an LSE that submits its own fixed resource adequacy plan taps resources in a lower-priced local resource zone to serve demand in a higher-priced zone. The commission disagreed that the zonal delivery charge is a form of rate pancaking, pointing out that the charge is meant to cover auction price separation between the LSE’s location and its load, not transmission service. Capacity prices should reflect the “locational cost of capacity,” FERC said.

MISO’s RA construct “appropriately balances the competing goals of maximizing competition and ensuring reliability by allowing LSEs to serve their load with remote resources but having them bear the risk of auction price separation if there are impediments to the deliverability of such resources,” FERC said.