On November 29, 2016, FERC granted Midcontinent Independent System Operator, Inc’s. (“MISO”) request for waiver of (1) the $1,000/MWh energy offer price cap (“Offer Cap”) on incremental energy offers in MISO’s day-ahead and real-time energy markets established in its Open Access Transmission, Energy, and Operating Reserve Markets Tariff (“Tariff”), and (2) the process that MISO’s Independent Market Monitor (“Market Monitor”) uses to establish reference levels for generation resources in MISO. Going forward, MISO resources will be allowed to include costs above the $1000/MWh Offer Cap in their supply offers from December 1, 2016, through April 30, 2017.
According to MISO, the $1000/MWh Offer Cap is not sufficient to compensate gas-fired generation resources when fuel prices rise suddenly and unexpectedly such as during periods with severe winter weather conditions. In its request for waivers, MISO stated that when natural gas prices rise to $67/MMBtu, the Offer Cap may obligate generators with must-offer requirements to offer output at a price below their marginal cost, and threaten reliability by constraining the incremental energy offers of some MISO resources. MISO also noted that FERC granted MISO similar waiver requests for the winter of 2014-2015 and the winter of 2015-2016.
In its order granting MISO’s instant waiver request, FERC found that MISO satisfied the factors FERC has previously analyzed under similar circumstances. First, FERC found that MISO acted in good faith by working with stakeholders to evaluate alternatives to waiving the Offer Cap. Second, FERC found that “the requested waiver is limited in scope in that the duration is from December 1, 2016 through April 30, 2017, and is limited in its application to resources with verifiable incremental energy costs that exceed the offer cap.” Third, FERC found that the waiver addresses a concrete problem by ensuring that MISO resources will receive payments sufficient to cover incremental energy costs. Fourth, FERC found that any potential harm to third parties from granting the waiver is mitigated by the requirement that MISO’s Market Monitor file a report with FERC detailing the use of the waiver and “implement a true-up mechanism within its settlements process to ensure that make-whole payment credits associated with incremental energy costs in excess of $1,000/MWh result only in the recovery of actual and verifiable costs.” FERC explained further that its waiver does not allow market participants with incremental energy costs above $1,000/MWh to submit No Load offers that exceed their newly devised No Load offer reference levels.
Finally, FERC noted that Order No. 831, regarding FERC’s regulation of incremental energy offer caps (see November 21, 2016 edition of the WER), is intended to provide a long-term solution to issues associated with offer caps, including MISO’s Offer Cap.
FERC’s Order Granting Waiver is available here.