By Amanda Durish Cook

Dynegy and Exelon proposed last week that MISO Zone 4 procure capacity in three-year forward auctions separate from the rest of the RTO.

The two companies — Illinois’ biggest power producers — offered separate proposals that would adopt elements of PJM’s model beginning in 2017. Both proposals were offered during MISO’s Competitive Retail Solution Task Team meeting Feb. 22.

The companies say that MISO’s Planning Resource Auction, currently held about three months before the beginning of a planning year on June 1, isn’t conducted far enough in advance to create a clear price signal. Both claim their proposals would further reliability and boost investments in new and existing power plants.

Exelon Proposal

“The overarching principal of Exelon’s Southern Illinois solution is to adapt PJM’s Reliability Pricing Model (RPM) to Zone 4, while integrating with the rest of MISO as seamlessly as possible,” Exelon wrote in its proposal. The company said the RPM “has proven to be highly successful at maintaining reliability at a reasonable cost to consumers using competition to determine market revenues.”

The company proposes that Zone 4 acquire capacity three years in advance in one-year commitment periods, as in PJM. The 2020/21 Planning Resource Auction would take place in April 2017.

Exelon’s proposal also requests a switch to a downward-sloping demand curve in Zone 4 and mandatory participation for all loads and internal supply in the zone. Exelon also wants “strong performance incentives” for resources that clear the auction.

FERC in November rejected a MISO proposal to implement a mandatory capacity auction while upholding its use of a vertical demand curve. (See FERC Rebuffs MISO’s Push for Mandatory Capacity Auction.)

Dynegy Proposal

Dynegy, which also called for use of downward-sloping demand curves, proposed holding four competitive auctions during the first quarter of 2017 to procure capacity through mid-2021. The company additionally proposed that by the first quarter of 2018, MISO would hold a three-year forward auction for delivery during the 2021/22 planning year.

Dynegy said the auction would procure 100% of the zone’s planning reserve margin requirement, based on load forecasts independently verified by a third party.

Participation would be mandatory only for load-serving entities and electric distribution companies in local resource zones with retail choice. Dynegy acknowledged its proposal would primarily affect the generators it purchased from Ameren Illinois in 2013.

Monitor Offers Own Proposal

Independent Market Monitor David Patton said a voluntary forward procurement — a single-year “strip” or a multiyear contract — “could be useful if desired by participants.”

But he said the mandatory forward auctions proposed by Exelon and Dynegy would be less efficient than MISO’s “prompt” procurement in facilitating efficient investment and retirement decisions.

In forward markets such as PJM, Patton said, generation owners must determine whether their older plants will continue to operate for an additional four years — three years plus the planning year. “In prompt procurement markets, old units can operate until they suffer equipment failure and can make efficient decisions to mothball or retire based on the auction.”

Forward markets also do not ensure that new resources offer capacity at prices close to the cost of new entry, he said.

Patton acknowledged that higher capacity prices in PJM have caused increasing levels of capacity exports from MISO. But he said that MISO’s design required “only incremental but meaningful” changes to address the challenges in Zone 4.

He would continue a single PRA for the entire footprint but replace the vertical demand curve with a variable reliability target in the competitive retail area. “Capacity product and obligations should be comparable throughout all of MISO,” he said.

Patton also said adding economic import limits to the existing electrical import limits would create a more efficient mix of resources inside and outside of deregulated markets.

MISO Offers Criteria, No Comment

MISO officials withheld comment on Exelon’s and Dynegy’s proposals, saying they want to consider a second round of stakeholder presentations at the next Competitive Retail Solution Task Team meeting March 7. Once the task team evaluates proposals, MISO will submit a recommendation to the newly created Resource Adequacy Subcommittee.

“We appreciate the dialogue and participation from stakeholders to collaboratively develop a solution,” MISO spokesperson Andy Schonert said. “We continue to study both Exelon and Dynegy’s proposals and look forward to more feedback from stakeholders on this topic.”

MISO released criteria that capacity proposals must meet for consideration, including acknowledgement that nearly all states in the RTO’s footprint are rate-regulated. Any new structure would be required to improve MISO’s ability to ensure sufficient resources, optimize economic use of existing and potential resources and maintain the benefits of MISO membership.

FERC Actions

Meanwhile, FERC continues to mull a number of MISO capacity issues.

On Feb. 25, the commission said it is considering a joint rehearing request by Illinois Attorney General Lisa Madigan and Illinois Industrial Energy Consumers, who are seeking clarification on whether “going-forward costs” used to calculate facility-specific reference levels should include sunk costs (EL 17-50, et al.).

The commission also is considering MISO’s Jan. 29 rehearing request regarding its capacity import limit calculation. (See MISO Seeks Adjustments on Capacity Import Limits.)