FERC Conditions Approval of MISO’s Capacity Market Proposal, Says One Size Does Not Fit All
On June 11, 2012, FERC conditionally approved the Midwest Independent Transmission System Operator’s (“MISO”) proposed changes to the resource adequacy provisions of its tariff. FERC conditionally approved a controversial capacity market design, but ordered some significant changes to MISO’s proposal that differ from capacity markets in place in eastern RTOs. FERC stated that it consistently rejects a one-size-fits-all approach to resource adequacy in the various RTOs due to differences in the make-up of the regions, including MISO’s extensive use of bilateral contracts and cost-of-service regulations in contrast to retail-choice regimes in other parts of the country.
FERC found that MISO had not justified the need for a mandatory capacity market. The approved market design permits Load Serving-Entities (“LSE”) to meet their needs through self-supply, bilateral contracts, demand response and energy efficiency, but FERC directed MISO to remove provisions that would have required LSEs to satisfy capacity shortfalls in the capacity auction. Instead, LSEs will pay a deficiency charge for any shortfalls. The Commission also approved MISO’s proposed auction opt-out plan, which allows a load-serving entity to submit a Fixed Resource Adequacy Plan (“FRAP”) in lieu of participating in the capacity auction. In submitting a FRAP, an LSE must demonstrate that it possesses sufficient resources to cover all or a portion of its resource requirements. FERC found this proposal reasonable, but required any market participant with supplies in excess of their FRAP to offer those supplies into the market, subject to a 50 MW withholding threshold, which FERC deemed “a reasonable point at which the Market Monitor should investigate if the market participant is withholding capacity.”
Ruling on one of the more controversial provisions of the MISO proposal, FERC rejected MISO’s inclusion of a Minimum Offer Price Rule (“MOPR”). The MOPR would have effectively applied a bid floor to capacity offers at 75 percent of the cost of new entry, even if the new unit had a different cost profile. MISO proposed its MOPR over concerns that load-serving entities could improperly attempt to artificially depress the auction clearing price. The MOPR has led to significant ongoing litigation in eastern RTOs and engendered considerable debate among MISO stakeholders. FERC rejected the MISO MOPR, noting that it made little sense in a vertically-integrated region because “utilities own the vast majority of capacity within MISO” and “[b]uyers within MISO are generally unlikely to benefit from exercising market power by subsidizing uneconomic entry and the resulting reduction in capacity prices in MISO’s voluntary capacity market.”
A full copy of the Commission Order is available here.