By Amanda Durish Cook

CARMEL, Ind. — FERC on Wednesday approved MISO’s plan to permanently double its hard offer cap but told the RTO to clarify some details about the proposal in a compliance filing within 60 days (ER17-1570-001).

The proposal marked MISO’s second attempt to comply with FERC Order 831, which required RTOs and ISOs to raise their hard caps for verified cost-based incremental energy offers to $2,000/MWh. The commission issued the order in response to the 2014 polar vortex, which sent natural gas prices soaring and left some generators unable to cover fuel costs.

FERC late last year rejected MISO’s first attempt at complying with the rule, saying the RTO wrongly proposed a provision that prohibited resources from submitting cost-based offers above the required $2,000/MWh hard cap. (See MISO’s Plan for Wintertime Offer Caps Stalled by FERC.)

The commission had also ruled that MISO:

• failed to describe what factors it would consider when verifying cost-based offers or distributing uplift;
• was silent on its treatment of external supply offers in excess of the cap;
• neglected to specify a verification process for demand response; and
• failed to limit the cap on all adders above cost to $100.

On Wednesday, FERC determined that MISO’s second filing had cleared up the offer validation process, which gives the Independent Market Monitor discretion to validate market participants’ data. The RTO additionally complied with a requirement that external energy transactions not exceed the hard cap but also not be subject to validation.

However, FERC said MISO still must pledge to apply the new hard cap to adjusted energy offers from fast-start resources.

The commission acknowledged that its previous ruling mistakenly understood “proxy offers” to include fast-start resources’ adjusted offers, but it said it now recognizes the term applies to resources deployed during emergency operating procedures.

“The commission did not intend to change the definition of ‘proxy offers,’” FERC said.

MISO had proposed to apply the $2,000/MWh hard cap to most proxy offers used during emergency conditions for price-setting purposes, but it said emergency demand response proxy offers would not be included. The RTO has long allowed emergency DR resources to exceed the hard price cap up to the value of lost load, which is currently $3,500/MWh.

FERC said it viewed MISO’s value of lost load as an “administratively determined pricing mechanism beyond the scope of the offer cap reforms in Order No. 831.”

The commission also accepted the RTO’s plan to have its Monitor verify offers from DR resources above the $1,000/MWh soft offer cap before market clearing in order to allow them to set the LMP. FERC also approved edited Tariff language that allows resources to submit cost-based incremental energy offers above $2,000/MWh and recover verified costs through make-whole payments, although such offers are barred from setting LMPs.

But the commission is requiring MISO to provide more detail on the Monitor’s verification process for resources that submit incremental energy offers above $1,000/MWh that cannot be verified prior to the market clearing. FERC said MISO must also describe when the Monitor will verify the prices and revise reference levels, and when a market participant can dispute revenue sufficiency guarantee make-whole payments.

“Additionally, we direct MISO to propose Tariff language describing how the amount of the make-whole payment will be determined,” FERC added.

FERC also ordered MISO to update its Tariff to include references to its Operating Cost Survey, which is used to determine reference levels by collecting more than 200 “pieces of data for a single plant,” according to the RTO.

FERC additionally said MISO must clarify the use of its adder for “outage risk,” a term the RTO used in its amended offer cap filing but is not found in Tariff provisions that define reference levels, which instead employs the term “legitimate risk.”

FERC also said MISO appeared to violate a rule that limits to $100/MWh the sum of any adders for cost-based incremental energy offers above $1,000/MWh by allowing two types of adders within its offer cap: the legitimate risk adder and a fuel cost uncertainty adder. The commission gave the RTO 60 days to explain the differences, if any, between the two terms and describe how it will stay within the $100/MWh adder limit.