FERC last week rejected rehearing requests from MISO and stakeholders over the grid operator’s minimum capacity obligation. In affirming a previous decision, the commission again blocked MISO from requiring load-serving entities to demonstrate that they have obtained at least 50% of the capacity required to meet their peak load before capacity auctions (ER22-496-002).
The agency last August denied MISO’s request to install the minimum capacity obligation (MCO), explaining that the RTO did not show the rule would address resource adequacy concerns or that it would incent members to construct new generation. The commission said the rule would likely only shift “a portion of the supply and demand for capacity from the auction into the bilateral market in a given year.” (See FERC OKs MISO Seasonal Auction, Accreditation and Regulators, LSEs Ask FERC to Reconsider MISO’s Seasonal Capacity Accreditation.)
MISO and Entergy and Cleco filed for a rehearing, the latter two challenging the commission’s view that the rule would lead to market power concerns. Entergy’s Arkansas, Louisiana, Mississippi, New Orleans and Texas operating companies have also asked the D.C. Circuit Court of Appeals to override FERC’s rejection. (See Entergy Seeks Review of FERC’s Block on MISO Capacity Obligation.)
The commission stuck to its original decision, saying MISO did not meet its burden of proof and that its proposal ran the risk of “negative impacts on bilateral market dynamics.” It said that the proposal ran the risk of concentrating market power in MISO South, where buyers would likely have limited recourse to purchase capacity in the auction.
FERC said an MCO would “undermine the important disciplining effect the auction has on the bilateral capacity market.”
“This disciplining effect becomes all the more important as reserve margins throughout MISO tighten. Shifts in market dynamics, such as concentration of market share, may exacerbate these concerns,” the commission said. “Particularly given the tightening of reserve margins in MISO as a whole and a capacity shortfall in [MISO Midwest] in the 2022/23 auction, under the MCO as proposed, entities in MISO South might struggle to identify and transact with capacity sellers in bilateral markets to meet half of their reserve requirements and would not be able to rely on the full disciplining effect of the auction to mitigate possible exercises of market power in bilateral capacity markets.”
Commissioner James Danly dissented, as he had previously, saying FERC mishandled the decision by not further examining potential market-power issues. He said he was disappointed that his “colleagues did not pursue a paper hearing in this proceeding.”
“More information is needed regarding the possible exercise of market power. After considering the arguments on rehearing, I am even more firmly convinced that we should have sought further development of the record,” Danly said. “In this case, the commission failed to sufficiently explore the market power issues raised by the litigants both initially and on rehearing. My questions on this subject remain unanswered, and I am not convinced that the commission’s determinations on rehearing are supported by the record.”
Commissioner Mark Christie wrote a separate concurrence to again stress that potential market power consequences were his only sticking point with the proposed MCO.
“There is nothing inherently wrong with an MCO in the MISO capacity market — which, we should remember, is voluntary — and if MISO can resolve such concerns, the outcome of a future filing should not be predetermined by our order herein,” he said. “Indeed, I appreciate the concerns expressed by MISO and other parties in this proceeding that an overreliance by load-serving entities on MISO’s capacity auction may jeopardize the reliability of the MISO system.”
