By Amanda Durish Cook
CARMEL, Ind. — FERC on Thursday rejected MISO’s Order 831 compliance filing just hours after the RTO told stakeholders it would head into winter with a $1,000/MWh soft cap and a $2,000/MWh hard cap on energy.
MISO’s changes were to go into effect Dec. 1, according to Markets System Analyst Chuck Hansen, who spoke at a Nov. 9 Market Subcommittee meeting before the FERC order was released later that day.
The commission ordered the RTO to make a new compliance filing within 60 days (ER17-1570).
Order 831, issued a year ago, required RTOs to cap energy offers at the higher of $1,000/MWh or a price based on Market Monitor-verified costs (soft cap), and to cap those cost-based offers at $2,000 (hard cap). While cost-based offers above the hard cap — or those above the soft cap but unable to be verified before the market clears — would be excluded from setting LMPs, generators making those offers would still be eligible for make-whole payments once their costs were verified (RM16-5). (See New FERC Rule Will Double RTO Offer Caps.)
However, FERC determined that MISO completely prohibited resources from submitting cost-based offers above the hard cap.
“Although Order No. 831 requires that such offers are prohibited from being used to set LMP, resources with verified costs exceeding $2,000/MWh must be eligible to recover costs above $2,000/MWh through uplift,” FERC said. “Although MISO proposes to increase the maximum incremental energy offer from $1,000/MWh to $2,000/MWh, there does not appear to be any mechanism, outside of proxy offers, that would allow a resource to make a cost-based incremental energy offer above $2,000/MWh. We therefore find that MISO has not met this requirement of Order No. 831.”
But based on Hansen’s statements at the subcommittee meeting, it appears the RTO did not foresee a problem with its filing.
“It’s possible that you can have costs even above $2,000/MWh and have those costs verified and be eligible for make-whole payments, but payments over $2,000/MWh will not be available to set price,” Hansen said.
Such offers will be verified by the Independent Market Monitor after market close, Hansen said. The Monitor will also continue to review generator energy offers above $1,000, he said, before they can be used to calculate LMPs. Hansen also said the processing of offers under $1,000 will remain unchanged in MISO’s market system.
Those statements are all in compliance with Order 831. In its ruling, however, the commission said MISO didn’t satisfactorily explain what factors would be considered when verifying offers, and whether those factors would be new to the RTO’s existing mitigation measures. MISO also failed to lay out a process for dispensing uplift payments when an offer in excess of $1,000/MWh is verified after market close or detail how a resource’s reference level may factor into that verification, although the RTO’s revisions suggested a relationship between reference level and uplift payment, FERC said.
Order 831 was a response to the 2014 polar vortex, in which a severe cold snap sent natural gas prices soaring. Many generators complained they were unable to recover their fuel costs because of grid operators’ hard $1,000/MWh offer caps.
Resource-Neutrality, External Transactions
The order also stipulated that offers be resource-neutral, and that external and virtual transactions also be capped at $2,000/MWh.
MISO’s market currently automatically blocks all offers above $1,000/MWh. The RTO’s new proposal was to block energy offers above $9,999/MWh from generators, Type I demand response resources and external asynchronous resources, as well as virtual offers and those from Type II DR r and price-sensitive demand resources above $2,000/MWh.
However, FERC found that MISO failed to show how its verification process applies to DR and that, with the exception of external asynchronous resources, the RTO was “silent with regard to import and export transactions or the requirement that external transactions be able to make offers up to $2,000/MWh without verification.”
For the last two winters, FERC has granted MISO a waiver of its $1,000/MWh offer cap for verifiable offers, although MISO has not needed to use it. (See MISO Granted Winter Waiver on Offer Cap.)
Other RTOs
Where MISO failed, other RTOs succeeded — mostly.
FERC found that NYISO (ER17-1561), PJM (ER17-1567) and SPP (ER15-1768) complied with its directives on bifurcating their offer caps and showed that their existing verification processes were sufficient and resource-neutral.
However, NYISO and PJM failed to specify that any price adders included in cost-based offers be limited to $100/MWh, another stipulation of Order 831. Such adders also can’t be recovered through uplift payments.
In PJM’s case, the RTO acknowledged this and laid out further revisions in an answer to a protest filed by its Independent Market Monitor.
In NYISO’s, FERC found the ISO also incorrectly included opportunity costs as an adder. As it explained in its clarification order, “verifiable opportunity costs should not be subject to the $100/MWh limit on adders above cost because opportunity costs are legitimate short-run marginal costs and not adders above cost.”
“NYISO’s proposal prevents resources from recovering opportunity costs through uplift when NYISO is unable to verify these costs before the close of the relevant market,” the commission said. “Accordingly, we direct NYISO to ensure that opportunity costs for bids exceeding $1,000/MWh are eligible for uplift, even if they are not verified before the close of the relevant market, if such costs are submitted as part of the resources’ bid, those costs were timely submitted and supported with documentation, and that those costs were verified by NYISO after-the-fact.”
PJM also failed to address external and virtual transactions — both of which have $2,700/MWh hard caps — in its filing, the commission found.
FERC directed PJM and NYISO to submit further compliance filings by Dec. 9. It accepted SPP’s revisions in full, with an effective date of April 1, 2019 — the day the RTO estimates it will launch its new settlement system software.
The commission itself, however, did not rule on ISO-NE’s compliance filing. Instead, its Office of Energy Market Regulation accepted the RTO’s changes under delegated authority (ER17-1565). This was because, unlike the other grid operators’ filings, no intervenors filed any comments or protests to ISO-NE’s.
The RTO was also granted an Oct. 1, 2019, effective date by staff. Like SPP, ISO-NE said this was needed to give it time to implement software changes necessary to comply. Unlike SPP, however, ISO-NE needs to start from scratch.
“ISO-NE anticipates that it will take approximately 18-24 months to design, develop, implement and fully test the necessary software and process changes to implement the Order 831 revisions,” it told FERC in its May compliance filing. “The requested effective date of Oct. 1, 2019, is aggressive and assumes that each phase of the implementation goes smoothly and is not delayed due to demands from competing priorities.”
CAISO in May asked FERC for an extension until May 1, 2018, to submit a proposal for implementing Order 831, saying it doesn’t currently have market mitigation measures in place to verify cost-based offers prior to market clearing. The commission has not yet ruled on that request.
MISO VoLL also Rejected
MISO’s plan to similarly raise the limit on its operating reserve demand curve was likewise rejected by FERC because of its reliance on the RTO’s offer cap revisions (ER17-1571).
“We agree with MISO that changes to MISO’s operating reserve demand curves may be necessary to accommodate the requirements of Order No. 831,” FERC wrote in its brief order. “However, because MISO’s proposal relies upon definitions and provisions that are not part of MISO’s effective Tariff, we reject this filing without prejudice to MISO submitting another filing as may be necessary to accommodate Tariff revisions made in its future compliance filing for Order No. 831.”
MISO was planning to maintain its $3,500/MWh cap on the value of lost load (VoLL) for the time being, with staff acknowledging that it still needs to conduct analyses to update it. This year, Market Monitor David Patton recommended that the cap be increased to almost $12,000/MWh to create a more sloped contingency reserve demand curve. (See MISO Board Hears State of the Market Recommendations.) MISO’s proposed curve is much flatter, hovering at $2,100/MWh unless the RTO clears less than 8% or more than 96% of its requirement level.
“In principle, we agree with potentially looking at the value of lost load, but we wanted to take some time, not rush into anything and get stakeholder input because this does impact prices,” MISO’s Hansen said.
Jeff Bladen, MISO executive director of market design, said the existing VoLL is a “historical artifact at this point.”
Michael Brooks, Michael Kuser and Robert Mullin contributed to this report.
