By Amanda Durish Cook
DETROIT — MISO’s Independent Market Monitor added eight new recommendations in its 2015 State of the Market Report.
The 124-page report concluded that MISO’s energy and ancillary markets “generally performed competitively” last year.
Monitor David Patton outlined the recommendations, four of which involve resource adequacy and planning, before the Markets Committee of the Board of Directors on Wednesday:
Energy Pricing and Transmission Congestion
- Disable price setting by offline resources in extended locational marginal pricing (ELMP) and expand the share of online generators eligible to set prices to include those with start times of one hour or less and minimum run times of two hours or less, regardless of whether they are scheduled in the day-ahead market.
MISO has proposed increasing the share of online peaking resources able to set prices to 14% from the current 2% in ELMP Phase II, which would eliminate $4.4 million in revenue sufficiency guarantee (RSG) payments. Patton said the RTO should permit pricing by 90% of online peaking resources, which he said would eliminate $20 million in RSG payments.
The Monitor said offline resources should only set prices when they are economic and can be started quickly to address a shortage — a threshold it said was met by less than 10% of the offline resources that currently set prices. “Accordingly, we conclude that ELMP’s offline pricing is inefficiently changing prices during shortage conditions and recommend that MISO disable the offline pricing logic as quickly as possible,” the report says.
Board member Paul Feldman said the negligible benefits of ELMP were “disappointing.” (See “‘Modest’ Price Impacts as Extended LMP Enters Phase 2,” MISO Market Subcommittee Briefs.)
Jeff Bladen, executive director of MISO market services, said ELMP Phase I was “designed to be conservative” and that MISO is analyzing the Monitor’s recommendation.
- Increase use of temperature-adjusted and short-term emergency ratings for transmission facilities.
Guarantee Payment Eligibility Rules and Cost Allocation
- Begin modeling the voltage and local reliability requirement in the day-ahead market.
Improve Dispatch Efficiency and Real-Time Market Operations
- Address “poor” dispatch performance and state estimator model errors in real-time operations by improving tools and procedures.
Resource Adequacy and Planning
- Implement firm capacity delivery procedures with PJM instead of using pseudo-tied resources.
The Monitor said a firm capacity approach with PJM “would guarantee the delivery of the energy from MISO capacity resources to PJM, while maintaining the efficiency and reliability of MISO’s dispatch.”
In its quarterly report for spring 2016, Patton said 100 new market-to-market flowgates were created between March and June when MISO pseudo-tied 22 resources to PJM territory. Congestion on the new constraints totaled $22 million for the quarter, a six-fold increase over the first quarter.
Patton said the M2M process doesn’t have an efficient enough response for pseudo-ties positioned farther from the seam.
The next batch of pseudo-tied resources to be committed outside of MISO will occur in June 2017.
“We expect higher congestion as this process unfolds. We hope PJM gets tired of these high prices … and bearing the cost of MISO congestion. It’s certainly bad for the Eastern Interconnect,” Patton said.
However, PJM has said it will not consider firm capacity delivery as an alternative to continue pseudo-ties, he said.
MISO CEO John Bear said the RTO is discussing the issue with PJM but doesn’t expect a resolution until the middle of 2017.
“I’d encourage both parties to go back to the beginning,” board member Michael Curran said. “Untying this knot could be more difficult than going back to the beginning and saying, ‘how did we get here?’”
- Improve the modeling of transmission constraints in the Planning Resource Auction.
- Improve the physical withholding mitigation measures for the PRA by addressing uneconomic retirements and recognizing affiliates.
The report says falling capacity margins will leave MISO more vulnerable to physical withholding and cites Tariff provisions that it says prevent the RTO from addressing it. “First, the physical withholding thresholds are applied on a market participant basis, rather than a company basis. This would allow a large supplier to create multiple market participants to effectively circumvent the mitigation. Second, it is not clear [that] retiring a unit that is clearly economic to continue operating would be considered physical withholding and subject to MISO’s mitigation measures.”
- Improve modeling of the limit on transfers between MISO South and Midwest regions in the PRA.
MISO’s recent settlement with SPP and other parties allows the RTO to transfer as much as 2,500 MW from MISO South to Midwest. But in the most recent PRA, MISO set a limit of only 874 MW.
The Monitor said the transfer limit in the PRA should equal the total transfer limit minus a derating factor that represents the probability that MISO neighbors will request a derating because of an emergency. “This recommendation would have had a substantial effect on the clearing prices in most of the Midwest zones in the most recent PRA for planning year 2016/17,” it said.
Incentives for New Investment Lacking
Curran said the board would schedule a conference call with MISO and the Monitor for a more in-depth conversation on the remaining recommendations.
Patton said long-run price signals continue to discourage new investment, with net revenues declining in 2015. The Monitor noted the $27/MWh average electricity price was 32% lower than in 2014. Natural gas prices fell 50% for the year to their lowest levels since MISO launched its energy markets in 2005.
Milder weather in 2015 caused average load levels to fall 2% from 2014. The peak load of 120 GW, set in July, was well below the forecast peak of 127.3 GW.
Gas-fired generation increased its share of total output from 17% to 23% over the year. Gas-fired resources were central to price-setting, “setting the system marginal price in 76% of intervals and locational prices somewhere in MISO in 95% of intervals,” the report said.
Patton said the spring 2016 quarter was competitive, attributable in part to continued low natural gas prices. The average cost of energy was $21.50/MWh, about 20% lower than in spring 2015.
Board member Thomas Rainwater asked how much MISO’s market would have to value carbon to incentivize continued operation of nuclear units. Patton said if carbon was valued at $20/short ton, nuclear resources would be closer to recovering costs. Patton also said expansion of wind generation is not the most cost-effective means to reduce carbon but is currently economic because of subsidies.
Board members expressed concern that the Monitor’s report included capacity margin values for the summer that differed from the RTO’s projected 18.2% summer reserve margin.
The Monitor’s base case scenario predicted a 20.5% margin because Patton said the 1,000-MW North-South transfer limit is too “pessimistic.” For its margin, MISO assumes 1,203 MW of capacity in MISO South cannot be accessed because of the North-South transfer limit. However, in the Monitor’s one-year-in-10 scenario, in a high-temperature, high-load forecast, the reserve margin falls to 11.6%.
Board members questioned the disparate reserve margins and asked why the board wasn’t presented with them during MISO’s summer readiness presentation. (See “MISO Prepped for Summer Demand,” MISO Markets Committee of the Board of Directors Briefs.)
“If MISO doesn’t see the world in the same way, our numbers may not match,” Patton said, reminding the board that the Monitor is independent of MISO.
Board members asked that Patton display his results alongside MISO’s in future summer readiness presentations. MISO and the Monitor agreed.
MISO’s Shawn McFarlane also delivered the RTO’s quarterly report during the meeting:
- Average load for the spring was 86.3 GW, 2.7% lower than last spring.
- Natural gas prices averaged $1.87/MMBtu, a 34.2% decline relative to spring 2015.
- Total forced and planned generation outages accounted for 23.8% of market capacity: Planned outages averaged 23.6 GW, an 18% drop from spring 2015; forced outages averaged 19.3 GW, up 5.5%.
- Average wind generation increased to 5.6 GW, 4.5% higher than last spring. Wind production was 4,934 GWh in April, setting a new monthly record.
