By Amanda Durish Cook

CARMEL, Ind. — MISO’s market was competitive in 2017, but the RTO should do more to address increasing congestion and low capacity prices, Independent Market Monitor David Patton told stakeholders last week.

Patton said potential economic withholding throughout the year was low, at about 0.11% of load, with market power mitigation rarely necessary.

“The offers we’re getting and the market outcomes are very competitive,” Patton said in a 2017 post-mortem during an Aug. 9 Market Subcommittee meeting, part of his annual State of the Market report. In late June, he recommended seven new market revisions from the report to the Board of Directors. (See 7 New Recommendations from MISO IMM.)

Patton said MISO’s 2017 peak load of about 121 GW was comparable to the nearly 120-GW peak in 2016 and below the forecasted 125-GW peak. However, congestion costs last year still rose 7% to $1.5 billion, in part because of higher natural gas costs for frequently dispatched gas units.

Patton said four key factors have increased the RTO’s costs of managing congestion.

Factor 1: Lack of Market-to-Market Testing

Patton faulted MISO for not requesting testing from other markets to define market-to-market (M2M) constraints for congestion management. He said his team identified almost 170 chronically binding constraints costing $240 million in 2017 that were never classified as M2M, “generally because MISO did not ask for testing.”

“Most of those dollars are because MISO didn’t ask for the test from either PJM or SPP,” Patton said. “When you don’t define market-to-market constraints with your neighbors that are impacting them, then you’re basically subsidizing their flows on the constraint. You don’t go through the settlement process that would bill them for the constraint.”

Patton acknowledged that the RTO put a tool in place in January to screen for potential constraints, but he said his team has not yet assessed the results of the new practice.

Factor 2: Keeping the Current Pseudo-tie Construct

Patton again leveled his aim at the pseudo-tie process and said PJM’s dispatching of the RTO’s resources has to date resulted in 95 new M2M constraints and $155 million in congestion on those constraints.

“It’s no surprise that we think PJM’s Tariff … shows a lack of understanding of how to run an electrical system,” Patton said, adding that PJM cannot effectively model all constraints in the day-ahead market and is overscheduling flows on the MISO system.

Patton said the RTO should deny new pseudo-tie requests, and his firm, Potomac Economics, currently has a FERC complaint pending against PJM’s pseudo-tie construct. (See PJM: MISO Monitor Lacks Standing in Pseudo-tie Complaint.)

“We think it’s unfortunate that FERC hasn’t figured out how bad this is yet,” Patton said, adding that there are other ways for MISO to deliver PJM’s purchased capacity without giving it dispatch control over resources located in MISO. He said he hoped more of the RTO’s market participants would come out in public support of the complaint.

Factor 3: Need for Increased Outage Coordination

Patton said transmission and generation outages occurring simultaneously on the same constraint have contributed to $400 million in congestion to date — more than 30% of all of MISO’s real-time congestion.

“What this points to is the need to give MISO more authority in denying or approving outages,” Patton said. “In some cases, MISO is the only one that can coordinate these because of the lack of communication between generation and transmission.”

Greater outage coordination is an ongoing discussion in the RTO’s larger effort around resource availability and need currently being discussed in its Reliability Subcommittee. (See MISO Moving to Combat Shifting Resource Availability.)

Factor 4: Incomplete Facility Ratings

Patton said most of the RTO’s transmission owners don’t adjust their facility ratings to reflect ambient temperatures and wind speeds. He said adjusted facility ratings could have saved the RTO as much as $127 million in production costs in 2017.

“If transmission owners submitted dynamic ratings to MISO, we’d have much more transmission capability,” Patton said.

Capacity Auction

Patton also said the RTO’s capacity auction design is causing capacity prices to remain “inefficiently low.” The 2018/19 auction resulted in almost all local resource zones clearing at $10/MW-day, while the 2017/18 auction resulted in a single clearing price of $1.50/MW-day. (See MISO Clears at $10/MW-day in 2018/19 Capacity Auction.)

Had MISO implemented a sloped demand curve design in its auction, Patton estimated that auction clearing prices would have been $115.74/MW-day in all zones in the 2017/18 planning year and $111.06/MW-day in nearly all zones for the 2018/19 planning year. He said the RTO’s competitive suppliers stand to benefit the most from a sloped demand curve.

Patton said the RTO lost 2.6 GW of capacity on net in 2017 owing to a flawed capacity auction design, “persistent” low natural gas prices that suppress energy prices and environmental regulations “requiring costly retrofits for certain resources.”

MISO Response Timed to Market Roadmap

MISO Executive Director of Market Operations Shawn McFarlane said the RTO is still preparing its required response to the Monitor’s observations and recommendations.

He said this year MISO will align its written response with the release of the RTO’s Market Roadmap list of market improvements to its board. The RTO will publicly post a written response in October, present the response at the November Market Subcommittee meeting and discuss it with the board at the December meeting of its Markets Committee.

“This year we will use most of the 120 days allotted by the Tariff,” McFarlane said, adding that the RTO has historically provided a written response within 90 days.

MISO Charts Market Improvements with Stakeholder Help

Meanwhile, MISO is continuing its Market Roadmap prioritization to determine what improvements it should undertake in 2019. Unofficial Market Roadmap rankings show that the RTO and stakeholders agree that creating short-term capacity reserves is a pressing matter.

MISO melded its market improvement priorities with the Monitor’s and stakeholders’ rankings after a June and July voting period in which 67 stakeholders participated. (See MISO Stakeholders to Rank Market Improvement Ideas.) The preliminary results show the RTO should next year focus on creating an improved combined cycle generation model and developing a short-term capacity reserve product that can supply capacity within 30 minutes.

Three other projects earned medium priority: creating a multiday market forecast to guide generators’ commitment decisions (See MISO Moving to Combat Shifting Resource Availability.)

MISO market strategy adviser Lakisha Johnson said the RTO will finalize the prioritization of Market Roadmap projects through the end of the year.