By Michael Brooks

Resource adequacy in MISO’s Zone 4 isn’t a problem now, but it will be if the RTO doesn’t reform its markets to encourage generation development and demand response participation, speakers told the Illinois Commerce Commission at a policy session last week.

The commission called the session to inquire into the status of resource adequacy in Zone 4, which comprises Illinois south of the Chicago area. But there was universal agreement among attendees that, at least in the short term, reliability in the area would not be a concern.

“I think it’s important that there’s an agreement today that Zone 4 has sufficient capacity for today and for the short term,” said Illinois Senior Assistant Attorney General Susan Satter. “That means we’re not in a crisis situation. That means there is time to consider policy responses to assure resource adequacy going forward.”

“There won’t be a resource adequacy issue in the long term if we do what we should do as a state,” said David Kolata, executive director of the Illinois Citizens Utility Board. That is, “doing everything we can to encourage demand response and energy efficiency, [and] doing what we can to maximize and encourage distributed generation.”

Zone 4 has been the subject of controversy since MISO’s Planning Resource Auction in April, when prices cleared at $150/MW-day, compared with just $16.75 a year earlier. The nine-fold price increase prompted complaints from Illinois officials and stakeholders, including Attorney General Lisa Madigan. In late October, FERC held a technical conference on MISO’s capacity market in response to the complaints. (See MISO Stakeholder Process Under Scrutiny.) It’s also investigating whether market manipulation played a role in the jump in prices. (See FERC Launches Probe into MISO Capacity Auction.)

The danger for Illinois, and the MISO footprint as a whole, is the retirement of generation because of market design flaws in the RTO, said Independent Market Monitor David Patton.

Dean Ellis, vice president of regulatory affairs for Dynegy, compared the current situation to standing on a peaceful beach with a tsunami in the distance. He cited the retirement of the 465-MW Wood River power plant, which was scheduled to lose $20 million over the next five years. “Without forward price signaling, without an adequate price, it just can’t continue to lose that type of money,” Ellis said. Some market participants have criticized the scheduling of MISO’s capacity auction, which occurs just two months before the start of the delivery year.

Patton repeated his call for a switch to a sloped demand curve, a change supported by other stakeholders in attendance, including Ellis and Bill Berg, vice president of wholesale market development at Exelon.

“It’s well documented at FERC that a vertical demand curve produces binary prices: It’s either very, very high or very, very low,” Berg said. Those looking to develop generation in MISO will look at the prices produced by the vertical curve and wonder, “Am I going to get my money back, or would I be better off taking my money elsewhere?”

Zone 4 to PJM?

Illinois’ status as a retail-choice state — unlike the other states in MISO’s footprint — as well as the fact that northern Illinois is under PJM’s control, led some to call for Zone 4 to change RTOs.

Ellis called Illinois “the redheaded stepchild” of MISO. “It would be much more homogenous in PJM,” he said. “There’s robust retail competition in the PJM states; there is not in the MISO states. There’s robust wholesale competition that fosters programs like demand response in PJM; it doesn’t exist in MISO. … Southern Illinois belongs in a market like PJM. … No other state is bifurcated so dramatically between two ISOs.”

Greg Poulos and Bruce Campbell, representatives for DR providers EnerNOC and EnergyConnect respectively, lamented that Zone 4 was an inhospitable market for their companies.

“There’s a lot of demand response in the MISO markets … there’s very little in Zone 4,” Poulos said. “That would not be the case if it was in PJM.” Illinois being entirely in PJM would also make it easier for the ICC, as it would only have to deal with one RTO, he said.

“I would like my company to be active in [Zone 4], and that will not happen until we see the right pricing in that region,” Campbell said.

But Campbell also said that MISO could adopt some of PJM’s aspects, such as a sloped curve, without entirely becoming like PJM, such as having a mandatory forward capacity market.