By Amanda Durish Cook

FERC has ordered MISO to change the way it conducts capacity auctions beginning with the 2016/17 auction in April as it continues to investigate allegations of market manipulation against Dynegy (EL15-70).

While the commission didn’t rule on the issue of consumer refunds, several parties to the case predict such relief might be in the works.

“We find that the record shows that certain of the Tariff provisions governing market mitigation measures are no longer just and reasonable,” FERC wrote in its determination.

According to the commission, MISO stumbled on two fronts: The $155.79/MW-day maximum bid was too high for a “vibrant market” and needed to be set closer to $25, and MISO didn’t accurately gauge power exports. FERC said MISO’s current approach to determining capacity import limits doesn’t take into account counter-flows created by neighboring RTOs.

MISO has 30 days to file revised capacity import limits and set the initial reference level for capacity at $0/MW-day and 90 days to file Tariff revisions to develop default technology-specific avoidable costs ahead of the 2017/18 auction. The $0 default will replace MISO’s current practice of allowing offers based on the estimated opportunity cost of exporting capacity.

More Rulings to Come

More is to come on the matter, however, as the Dec. 31 order only addressed parts of the complaints brought forward by Public Citizen, Illinois Attorney General Lisa Madigan, the Illinois Industrial Energy Consumers and Southwestern Electric Cooperative that deal with Tariff provisions on the auction “given the limited amount of actionable time prior to the 2016/17 auction,” according to the commission. FERC is continuing its non-public investigation into the matter. (See FERC Launches Probe into MISO Capacity Auction.)

Public Citizen, the consumer advocacy group that filed the first complaint in May, called the ruling a “partial victory.” The group alleged that Houston-based Dynegy manipulated the April capacity auction by withholding capacity, resulting in prices clearing at $150/MW-day for the Zone 4 portion of Illinois, up to 40 times greater than clearing prices elsewhere in the footprint. The spike represented a nine-fold price increase in the zone compared with the year before and prompted FERC to call an October technical conference. (See MISO Stakeholder Process Under Scrutiny.)

Dynegy said it is “looking forward to working with MISO” to implement the changes mandated by FERC.

Spokesman Micah Hirschfield said it is “imperative” that the market construct in Zone 4 work with Southern Illinois’ competitive structure to avoid future retirements.

“Generators in Southern Illinois rely on the markets for revenues, unlike the traditionally regulated utilities in the neighboring states that embed their costs into their rates. Generation has, and will continue to, retire in Southern Illinois unless the market design reflects the competitive nature of the market, which has delivered lower costs to consumers than many of the neighboring states,” Hirschfield said.

Dynegy continues to maintain that it offered all of its megawatts into the April capacity auction “with no physical or economic withholding” and followed MISO’s Tariff.

MISO to Weigh Rehearing

FERC’s order that MISO set offers to a zero default elicited a critical reaction from MISO Independent Market Monitor David Patton, who said entering offers at $0 makes little economic sense. “I can’t imagine what the economic theory is behind that,” he said.

“We’re weighing whether to file for rehearing. I don’t know that we will because we argued all of this at the technical conference,” Patton said. He added that FERC and MISO seem to be employing separate economic principles, and that he will reach out to MISO to see how the Tariff will have to be revised to comply with the order.

“I think they recognize a problem, but at this point, [FERC is] unwilling to address it,” Patton said of FERC’s decision.

Refunds to Come?

The ruling has some groups anticipating refunds, and FERC has allowed for a refund effective date of May 28, 2015, the date of Public Citizen’s initial complaint.

“If FERC follows the logic of its New Year’s Eve ruling, and regardless of whether the commission finds Dynegy manipulated the market, then Illinois consumers will be in line for tens of millions of dollars in refunds,” Tyson Slocum, director of Public Citizen’s energy program, said in a statement.

Madigan also said refunds are in order. “It’s great news that FERC has acknowledged downstate electric customers deserve relief from an inflated and absurd pricing process. I am pleased with FERC’s decision to fix the auction rules, but FERC still needs to order refunds to consumers for the outrageously high prices,” she said in a press release.

FERC’s Ruling Limited

FERC stated in the order that MISO is under no obligation to modify zones or combine Zones 4 and 5. “Nevertheless, we encourage MISO to continue to work with its stakeholders to ensure its zonal boundaries reflect the physical realities of the transmission system,” the commission wrote.

FERC also determined that use of a sloped demand curve would not be addressed, as it falls outside of FERC’s response to the complaint. “We will not address potential revisions to MISO’s capacity construct, including a sloped demand curve, longer forward period and a minimum offer price rule, here because they are beyond the scope of these proceedings.

“However, we recognize that MISO is working with stakeholders to explore potential revisions to the capacity construct, including concerns specific to Zone 4, and we encourage them to continue doing so,” FERC wrote.