MISO is seeking stakeholder input on how to revise its energy offer cap rule while awaiting guidance from FERC for developing a final rule.

“If we have some of the groundwork laid out for the final rule, we’ll be in better shape,” said Chuck Hansen, a MISO senior engineer.

The RTO has queried market participants about changing the operating reserve demand curve and whether to remove — or increase — the $3,500/MWh LMP cap.

This winter is likely to see a repeat of the “temporary” solution implemented the past two years, in which the RTO used revenue sufficiency guarantees to cover costs exceeding the offer cap. (See MISO: No Change to Energy Offer Cap this Winter.)

In January, FERC issued a Notice of Proposed Rulemaking that would require offers more than $1,000/MWh be verified before being used to calculate LMPs. Offers not verified in time for market clearing would become eligible for a make-whole payment. (See FERC Proposes Uniform Offer Cap Across RTOs.)

Market participants became concerned about the hard cap in 2014 when natural gas demand spiked during extreme cold. Although inefficient generators were called up, offers more than $1,000 never materialized.

“The MISO market is becoming more and more dependent on natural gas,” Hansen explained. “The problem with this is if we actually clear and commit these units,” their costs would be higher than offers allow.

While MISO generally supports FERC’s proposals, it prefers that administrative caps be gradually relaxed to provide incentives for competitive offers so the need for “artificial, administrative caps” would disappear, Hansen said.

“We thought [FERC’s NOPR] was a reasonable compromise between protecting customers and potential exercise of market power, [and it] sets appropriate prices during periods of high fuel cost,” Hansen said. “Eventually we’d like to see the offer caps be relaxed to the point where they’re not getting in the way of valid offers.”

MISO said that over time, new technologies and new demand response will supplant offer caps with more efficient pricing during scarcity situations.

MISO currently uses a $3,500/MWh LMP cap, which reflects the cost of firm load shedding. Hansen said that amount is adequate — for now.

“The $3,500/MWh works with the current experience, but there’s not a lot of room,” Hansen said.

Hansen said MISO must consider the different verifiable costs among external asynchronous resources, hydro, storage, demand response, imports and virtual supply.

‘Modest’ Price Impacts as Extended LMP Enters Phase 2

Extended locational marginal pricing (ELMP) will enter a second phase of implementation despite its limited effect on energy prices a year after its introduction.

ELMP is intended to improve the way the security economic dispatch (SCED) algorithm calculates LMPs and sets market-clearing prices. The practice was designed to reduce uplift charges by allowing certain fast-start resources that are either offline or scheduled at their limits to set clearing prices.

Clearing prices under SCED often fail to compensate fast-start units for their start-up costs, necessitating use of revenue sufficiency guarantees.

According to MISO market design engineer Congcong Wang, stakeholders generally support roll-out of the second phase, which will allow 30-minute fast-start resources into the program. Currently, only real-time scheduled units with 10-minute start times and an hour or less of minimum runtime are eligible to set real-time energy prices under ELMP.

Wang said the inclusion “captures more fast-start schedules.” Including resources with a 60-minute start time would not make as much of a difference on prices, she said.

Wang noted that stakeholders also want offline units included in the price-setting process if those units “appropriately reflect system conditions.”

In the meantime, MISO is studying cases from last winter to evaluate price impacts and determine if offline fast-start resources are “truly available and economic.” Wang also said MISO will create a “recommendation tool” that lists eligible ELMP offline fast-start resources for operators to manage shortages or congestions.

MISO will present its findings at the August Market Subcommittee meeting.

MISO Independent Market Monitor David Patton said ELMP’s impact on prices has been “modest.” (See MISO Monitor: Extended LMP Changes Minimal Thus Far.) The practice only lifted real-time prices by about a penny per megawatt-hour in spring 2015, and reduced them by almost 8 cents in summer and 3 cents in fall. Day-ahead market impacts were even lower.

That minimal effect was a product of the limited number of units eligible to set prices under ELMP, Patton said. Units with a 10-minute start time account for just 2% of total peaking resources.

Patton advocates expansion of ELMP, saying MISO could capture 90% of peaking units in the real-time market if it expanded the practice to include resources with two-hour minimum runtimes and 30-minute startup times, as well as those committed in the day-ahead market.

“There’s no clear reason for day-ahead units not to contribute to price setting,” Patton said. He said no software changes would be required if MISO allowed 30-minute fast-start resources — representing 12% of peakers — to be eligible in the second phase of ELMP.

However, the Monitor recommended suspending offline price-setting in LMP, saying that although the offline units are economic, “analysis indicates that the units setting prices are rarely utilized.”

Sunset on Financial Transmission Rights Working Group

The MSC approved retirement of the Financial Transmission Rights Working Group and will absorb tasks associated with financial transmission rights and auction revenue rights.

Working group Chair Brad Arnold said the group agrees with a MISO proposal last month to sunset the group.

“The only request was stakeholders continue to have access to FTR reports and continued MISO support,” Arnold said.

Zakaria Joundi, MISO liaison to the working group, said a decrease in agenda items and stable FTR funding prompted the move. He added that MISO will continue to post FTR and ARR reports on a monthly basis as needed.

Joundi also noted that MISO subject matter experts will respond to inquiries about the reports, and that the RTO could always create a task team in the future if a specific FTR issue arises.

— Amanda Durish Cook