By Amanda Durish Cook

CARMEL, Ind. — After a missed July filing target and subsequent weeks of hints, MISO on Monday confirmed that it was postponing its forward capacity auction proposal until the 2018/19 planning year.

Richard Doying, MISO executive vice president of operations and corporate services, told the Markets Committee of the Board of Directors that the RTO plans to file the proposal with FERC in early November while using September and October for continued analysis with The Brattle Group.

“I’m glad we’re going to take more time. We need the community along with us,” MISO board member Jennifer Curran said.

Resource Adequacy Subcommittee Chairman Gary Mathis said stakeholders “greatly appreciate the additional time.” MISO had released the draft Tariff language and business rules at a RASC meeting last week.

IMM Wants Board Intervention

Independent Market Monitor David Patton, whose proposed changes were rejected by MISO staff, said the Board of Directors should intervene to stop the forward auction filing.

“This is the first time we’ve asked this in over a decade since the markets were created,” Patton said. “That doesn’t mean good work hasn’t been done, and I think MISO has worked very hard in the last few months. There’s a tremendous amount that we agree on, most importantly that there is a problem.

“I just haven’t been able to come up with anything that would make this market produce efficient prices” within the voluntary forward construct, Patton added.

Board member Thomas Rainwater said MISO’s plan to take more time to explain the Brattle analysis and hold additional stakeholder meetings was enough to hold off on action. However, the Markets Committee plans to hold an executive session to “evaluate the quality of the decisions being made” and determine whether to proceed with the filing.

Board members said their role isn’t to order MISO staff to adopt specific provisions, but to provide oversight. “We’re not going to adjudicate dueling economists,” Curran said.

Patton said he was concerned that MISO plans to make the forward auction voluntary, unlike those in PJM and ISO-NE, which are mandatory.

He also repeated his concern that the proposed auction’s prices will be “highly volatile.” He said demand needs to reflect reliability requirements, and current merchant demand doesn’t include planning reserve margins. (See MISO Backs Forward Auction Plan, Rejects Prompt Proposals.)

The board expressed concerns that excess regulated generation entered at the lower prices expected under the vertical demand curve in the prompt Planning Resource Auction will be “dumped” into the forward auction.

Doying said MISO will restrict the suppliers participating in the forward market to address the concern. MISO says it doesn’t plan to enact a minimum offer price rule.

Patton said he did not share the board’s concern. “That’s not dumping, that’s simply desiring to sell capacity and benefit their customers,” he said.

Rainwater wondered if Patton was paying too much attention to economics and not factoring in electricity subsidies and public policy: “the reality of the markets versus the theoretically perfect market structure.”

Patton said that in private conversations, Brattle staff shared his price signal concerns. He also said Brattle made no attempt to model forward auction participation trends, but it is “nearly unknowable.”

“It wasn’t a very satisfying reliability analysis,” Patton said.

Doying said MISO’s proposal is similar to other FERC-approved designs except for the smaller scale of the affected areas. He also told the board that the forward auction is intended to produce an efficient price, not send strong investment signals.

Meanwhile, Brattle analyst Sam Newell took aim at the hybrid prompt proposal, saying it would create price discrimination between merchant and non-merchant suppliers. He said when a utility has extra capacity to sell, mandating that the price be raised “much higher” for merchant suppliers is “clear economic waste.”

He added that “indisputable economic discrepancy” exists in the hybrid prompt proposal: a two-stage prompt auction with separate clearing prices for retail choice and regulated load.

The board also asked MISO officials about the stakeholder process over the 18 months of negotiations on a new auction design.

“Given that the issue is targeted to retail choice load in Illinois and Michigan, we did start the stakeholder discussions in those areas,” Doying said, adding that once affected stakeholders weighed in, the discussion was brought before the RASC.

Rainwater said he noticed stakeholders were split and asked if the RASC was a public-enough forum for redesign discussion.

“This was a very well attended set of meetings,” Doying replied.

Board member Paul Feldman asked if the state legislatures in either Michigan or Illinois could supersede MISO’s proposed solution. Stakeholders have expressed concerns that state laws could force an entire zone into the forward auction, such as Zone 2, which contains Michigan’s Upper Peninsula. The Michigan Legislature is considering removing its current 10% cap on retail choice and becoming fully regulated.

“We’d need a lawyer to answer that question,” Doying replied. “In that case, there may be a difference between [MISO] ‘choos[ing] to abide by’ and ‘respect[ing] the jurisdiction of.’”

Demand Curve Shape not Decided

Jeff Bladen, executive director of MISO market services, said at last week’s RASC meeting that MISO will respond to stakeholder questions on the draft Tariff language and business rules; however, a scheduled Aug. 12 conference call was cancelled in light of the filing delay. The thrust of both drafts is to put generators in retail choice states on the “same footing” as utilities in traditional, vertically integrated states.

MISO’s proposal specifies that the full planning reserve margin be procured in the forward auction, instead of fulfilling local clearing requirements as proposed in the first version of the auction redesign.

The RTO is still working to shape a demand curve for the three-year forward auction for retail choice load. A demand curve was not included in the draft Tariff language.

“We are working with The Brattle Group to refine the shape,” Bladen said. “This is the main element that’s outstanding.” Bladen said the RTO is reviewing demand curve parameters it recently received from Brattle’s pricing and reliability analysis.

NRG Energy’s Tia Elliott asked if MISO could still implement the forward auction construct by next year with an October filing. Bladen said the RTO was “unlikely to implement” the revised auction design in 2017 if a filing is made in the fall.

Michael Chiasson, of the Independent Market Monitor, stressed “the importance of having adequate time to review the Brattle analysis.” (See MISO Backs Forward Auction Plan, Rejects Prompt Proposal.)

PJM Influence

Bladen said some of the Tariff language was inspired by PJM’s three-year forward auction descriptions. “There aren’t very many examples of closely modeled language except in the conceptual sense,” he said.

“This is difficult because there’s very little being presented. It’s hard to understand what’s going on,” Indianapolis Power and Light’s Ted Leffler said, adding that although Tariff language and business rules were issued, MISO did not walk through them in a public forum.

Bladen said Leffler’s assessment of the “dense” Tariff language was “fair enough” and said it is why MISO was considering taking more time before filing.

Jim Dauphinais of the Illinois Industrial Energy Consumers said he was concerned that local resource zones with competitive demand — otherwise required to participate in the forward auction based on a bright line test — will be exempted if the demand’s local requirement is less than 0.5% of the systemwide planning reserve margin requirement.

“To us, they’re complicating things,” Dauphinais said.

Arkansas Public Service Commission Chairman Ted Thomas asked if load-serving entities failing to procure capacity in the new model will still be subjected to the capacity deficiency charge of 2.75 times the applicable cost of new entry. Bladen said they would.

Six External Zones

MISO is considering the addition of six external resources zones, Manager of Resource Adequacy Coordination Laura Rauch told the RASC.

Rauch said the RTO used participation from the 2016/17 planning year to create four external resource zones in MISO North and two  in MISO South. Rauch said that external resources bordering the RTO and companies with reliability coordination duties not participating in the market would be excluded from the zones.

MISO officials asked for stakeholder suggestions by the end of the month on external resource zone offer price caps. The RTO still does not have a target date on filing its seasonal and locational proposal.

Customized Energy Solutions’ David Sapper asked why external resource zones need a price cap, as external resources are not subject to economic withholding rules. “External resources are not registered with MISO, and it doesn’t seem like you could force them to offer in the first place,” Sapper said.

MISO engineer Akshay Korad said price offer caps could be useful when there’s insufficient supply to clear. Korad said the RTO could set price and offer caps based on the cost of new entry or assign two separate values for the South and North external zones.

Korad said adding external zones will not significantly increase cleared capacity in the auction.

He also said external resources will only clear toward the planning reserve margin requirement in the capacity auction, and that cleared external capacity will count toward sub-regional import and export limits. External zone auction clearing prices would be the same as systemwide clearing prices if sub-regional import/export limits do not bind.  Marginal resources could set external clearing prices, Korad said, if a simultaneous feasibility test reduces the external zone’s capacity export limit.