By Amanda Durish Cook
MISO is considering changes to its proposed forward capacity auction for Southern Illinois in the face of opposition from stakeholders and Independent Market Monitor David Patton.
In addition, MISO staff have again postponed a FERC filing seeking approval for seasonal and locational capacity constructs in order to gain more buy-in from market participants.
Patton last week told the Resource Adequacy Subcommittee (RASC) that the auction plan — which would procure Zone 4’s local capacity requirement three years in advance and all other capacity in the prompt-year auction — will fail to optimize procurement or provide accurate pricing and efficient transfers between zones.
“You can’t bifurcate this market and have any hope of establishing an efficient price,” Patton said.
Patton said the plan will result in underprocurement and depressed forward prices in competitive retail areas because the “optimal procurement level in the competitive retail area is likely higher than the minimum requirement.” While Patton thinks the residual prompt auction could be optimized, he said that still would fail to correct prices and procurement volume in the forward auction.
The Monitor had other general criticisms of forward procurement, saying units can’t “intelligently” decide to retire or suspend four years in advance. New resources, meanwhile, are unlikely to enter the auction at competitive prices close to the cost of new entry because clearing guarantees only one year of revenue. As a result, those investing based on expectations of future revenue will offer as price takers, close to zero, and those seeking to maximize the one year will offer much higher than CONE. (See PJM-Type Capacity Auction for MISO Zone 4 Proposed.)
The Monitor recommended that MISO instead introduce a sloped demand curve for the local requirement in the competitive retail areas and jointly optimize the amounts procured inside and outside of the competitive retail areas on a prompt-year basis.
MISO: Auction a ‘Continued Evolution’
Jeff Bladen, MISO executive director of market services, offered possible adjustments to the proposal, telling the RASC that auction design is “a continued evolution.”
MISO staff could alter the plan so that the full forward procurement occurs in a separate auction — or altogether eliminate the forward auction and revert to prompt-only procurement. Under the former scenario, MISO would consider enacting a minimum offer price rule to combat price distortion for competitive retail areas.
Bladen said MISO is “seriously considering” assigning risk of congestion to the buyer, in scenarios in which retail areas are subject to a full forward procurement.
“If you run a forward auction, you need to think about access to the transmission system and congestion costs,” Bladen said.
MISO must also prevent “infeasible procurement” because of high congestion, Bladen said, pointing out that market participants that self-schedule already face risk that congestion will render their procurements unusable. “This is not a new design element to think about,” he added.
Bladen said MISO could either constrain transmission availability through forward-looking modeling or keep the current modeling based on local clearing requirements.
Patton countered that MISO’s option to procure the full planning requirement for the competitive retail area in the forward auction cannot be reasonable because it would “divorce the procurements and prices from MISO’s true reliability needs.”
The Monitor also cautioned against MISO’s ambitious timeline for rolling out the proposal and the resources that will be required: “It took New England years to set up their forward procurement. They virtually worked on nothing else.”
Bladen also said MISO is considering instituting a fixed resource adequacy plan requirement preventing market participants from “opportunistically toggling in and out” of the auction and causing price volatility.
Patton said “it would be best” if auction opt-in and opt-out provisions did not exist so that prices will reflect the true supply and demand in the area.
Mark Volpe, Dynegy senior director of regulatory affairs, said it was “encouraging” to see MISO and the Monitor move away from dependence on a local clearing requirement.
“Dynegy has preferred a forward auction, but that preference has always been predicated on if price formation is right,” Volpe said. “It would be preferable to have a prompt auction where the price is correct, rather than a forward auction where the price is wrong. You have to have that price formation correct before you get into the timing.”
Exelon’s Marka Shaw echoed the Monitor’s timeline concerns, saying more time was needed for discussion. “We’re facing very real and serious decisions … and it’s clear it’s not serious to others,” she said, referring to MISO staff’s insistence that a July filing is still feasible.
Seasonal, Locational Filings Delayed
MISO RASC liaison Renuka Chatterjee said the RTO is willing to postpone its planned May Tariff filing on seasonal and locational capacity constructs and use June to further explore the filings.
“What do you need to get comfortable with the proposal, and what language do you think the proposal lacks?” Chatterjee asked stakeholders.
“We’re looking for time to discuss alternatives to the proposal,” said David Sapper of Customized Energy Solutions. “Frankly, if MISO isn’t willing to discuss material changes, we don’t need that time. I don’t think that you’re offering anything that we’re seeking.”
Chatterjee said MISO has already provided justification for concepts such as using two seasons instead of four. “You might not like our answers, but to the extent that we didn’t answer anything, please let us know,” she said.
Stakeholders also denied a motion from East Texas Electric Cooperative urging MISO to move ahead with a seasonal filing.
