MISO’s Independent Market Monitor issued five new recommendations in its annual State of the Market report released Wednesday, focusing on the RTO’s management of flows across its seams, dynamic transmission line ratings and whether energy efficiency should be considered a capacity resource.

But IMM David Patton also used presentation time before the MISO Board of Directors’ Markets Committee to issue a warning on the deteriorating condition of the RTO’s reserve margins.

MISO Executive Director of Market Strategy and Design Scott Wright said the new recommendations this year concentrate on seams and efficient use of the transmission system. Three recommendations offer advice on how to manage flows between neighboring RTOs, where the Monitor suggests:

• Using new testing criteria for defining market-to-market constraints. Patton said the rules for determining flowgates have not been overhauled since 2004 and could use an update that places more emphasis on how much available flow relief a non-monitoring RTO can provide.
• Improving the relief request software used in market-to-market coordination. Patton said MISO’s current relief request software does not always request enough relief from the non-monitoring RTO because it doesn’t consider shadow price differences between the RTOs.
• Clearing coordinated transaction scheduling transactions with PJM every five minutes based on the most recent five-minute prices, not forecasts. The Monitor said “persistent forecasting errors by MISO and PJM have likely hindered” use of coordinated transaction scheduling. Instead, Patton said the most recent five-minute prices are a more accurate forecast of the prices over the next five minutes.

Patton’s two other recommendations include MISO developing the capabilities to apply dynamic transmission line ratings from transmission owners and disqualifying all energy efficiency resources from the capacity auction.

Most MISO TOs don’t adjust line ratings to reflect ambient temperatures and wind speeds, Patton said. He said a “broad adoption” of ambient-adjusted ratings could have reduced congestion costs by $150 million in 2018 and 2019.

Patton also said if all TOs provided short-term emergency ratings, which tend to be about 10% higher than normal ratings, MISO might have saved as much as $114 million in congestion over the past two years.

“The ratings transmission owners provide tend to be overly conservative,” Patton said. “If you calculate how much we could save by rating transmission lines more efficiently, it would be something like $265 million.”

Further, Patton said more efficient line ratings on just the top 25 constraints could achieve two-thirds of that estimated savings alone.

“Hopefully over the next year, we’ll see some progress,” he said, adding that effectively managing congestion can save MISO more than developing a new, big-ticket market product.

Patton also said allowing energy efficiency resources to offer into the MISO Planning Resource Auction (PRA) makes little sense.

“Funneling an additional subsidy to pay for LED lightbulbs is an inefficiency,” Patton said, adding that capacity payments for energy efficiencies don’t make sense because entities with installed energy efficiency are already saving on retail bills.

He also said capacity payments for energy efficiency owners further offset the bills that contain, ironically, the cost of serving them, including energy, ancillary services, and capacity, transmission and distribution costs.

“When they purchase energy-efficient equipment, the electric bill savings include all of these elements. There’s just an array of problems,” Patton said of energy efficiency receiving funding through MISO’s capacity market. “The quantities are growing rapidly and in key tight locations like Michigan.”

Last year, Patton produced six new market recommendations as part of his 2018 report, among them clarifying the criteria for calling emergencies, procuring operating reserves on the Midwest-to-South regional transfer limit and lowering the generator shift factor cutoff for transmission constraints with limited relief. (See MISO Monitor Poses 6 New Market Recommendations.) MISO has yet to issue proposals on any of the 2018 recommendations, though it is working on new capacity accreditation requirements that could address two of the six recommendations. The RTO also discussed possible improvements to the logging and documenting of emergency procedures with the Monitor last year.

Markets Competitive, but Trouble Brewing

Patton also reported that offers into the MISO markets throughout 2019 were highly competitive.

“The prices were about as competitive as they could be. The MISO markets always performed very competitively,” Patton told board members.

Real-time prices for the year averaged just $26/MWh in the footprint, driven by cheap natural gas and a 2% decrease in average load, while a cooler year overall brought lower demand, he said.

By the IMM’s count, 3.3 GW of resources retired in MISO last year. Of those megawatts, almost 90% were coal generation. Patton said more than 4.5 GW of new capacity entered MISO over the same time, including nearly 2 GW of natural gas capacity in MISO South and more than 2 GW of less dependable nameplate wind capacity.

“Nuclear and coal resources are under a tremendous amount of pressure, mainly because gas prices are so low,” Patton said.

Patton predicted a continued gradual loss of coal resources in MISO, making the need for reliable capacity resources more pressing. He said the retirements make MISO’s possible rethink of its capacity resource accreditation even more crucial. Capacity accreditation must be doled out according to resource’s ability to serve capacity reliably, he said.

“It’s likely to be one of the most unpopular proposals among participants, since it’ll look like we’re taking capacity credits away. It’ll be a heavy lift because it’ll look hostile — or at least adverse to their interests — to participants,” Patton said.

“What’s striking about this [report] is the theme of a resource mix in transition,” Wright said.

The Monitor also reserved space in the report to decry the continued use of a vertical demand curve and advocate for a sloped demand curve in the PRA.

Save for a high zonal price in Lower Michigan in this year’s capacity auction, the PRA produces prices that are “close to zero and generally represent less than 2% of the revenue needed to support investment in new peaking resources,” Patton said. “These prices have really hammered the merchant generation and forces them into retirement … or selling capacity outside the footprint.”

Addressing its board earlier this month, MISO said there was a “lack of assurance that the existing resource adequacy construct will … promote participant investments that ensure sufficient resources are available to meet load in all time periods.”

According to MISO’s Tariff, the RTO’s leadership has 120 days, until Oct. 16, to make a public response to Patton’s recommendations.