Tuesday, June 27, 2017

FERC Rejects MISO’s 3-Year Forward Auction Proposal

By Amanda Durish Cook

It’s back to the drawing board for MISO, as FERC on Thursday rejected its proposed three-year forward capacity auction in its retail-choice areas, saying it would create too much price volatility and uncertainty.

The commission dismissed MISO’s 1,700-page proposal with an unusually short eight-page order — an apparent sign of its haste to rule before it loses a quorum with the resignation of Commissioner Norman Bay effective Feb. 3 (ER17-284).

miso ferc forward auction

Stakeholders discuss the competitive retail solution at the MISO’s September 2016 Board of Directors Week in St. Paul, Minn. | © RTO Insider

The commission sided with MISO’s Independent Market Monitor, who opposed bifurcating the RTO’s capacity market by holding a forward capacity auction for competitive load three years prior to the current Planning Resource Auction.

A market-wide clearing process that operates within a single set of transmission capability constraints and supply offers is more efficient than a bifurcated capacity market, leading to better price formation, FERC said.

The commission also pointed out that a single market-wide auction is the current practice in all commission-jurisdictional capacity markets. MISO was attempting to single out its competitive retail areas, which account for less than 10% of total MISO load, FERC noted.

Volatility Concerns

The commission also said the three-year gap between forward auction and PRA could lead to “unpredictable and variable supply participation,” which could drive up price volatility in both auctions.

“Given the limited amount of demand that will be represented in the forward auction, relatively small changes in supply participation from noncompetitive retail areas on a year-to-year basis could result in substantial unnecessary year-to-year differences in forward auction clearing prices, even with a downward sloping demand curve that should reduce price volatility,” FERC said.

The introduction of a downward-sloping demand curve in the forward auction while preserving a vertical demand curve in the PRA also creates an inconsistent amount of capacity clearing in the forward auction and could intensify volatility in the PRA, FERC said.

It also said that MISO had not given enough thought to how transmission capability across zones and the MISO North-South contract path would be divided between the two auctions or how those allocations would impact clearing prices.

The commission noted that in MISO’s past prompt auctions, transmission capability constraints have caused significant price separation between zones. An insufficient amount of transmission capability in the PRA could prevent load-serving entities from procuring lower-cost capacity. A transmission shortage in the forward auction could cause price separation “that does not truly reflect the physical limitations of the system or the locational need for capacity,” FERC said.

“We appreciate the efforts of MISO and its stakeholders to address the important objective of resource adequacy and recognize that the [Competitive Retail Solution] proposal represents a significant undertaking. However … we find that MISO has not adequately supported” it, FERC said.

MISO Ponders Response

Richard Doying, MISO executive vice president of operations and corporate services, said that even though the order was a short read, staff continue to examine it. He said the RTO will approach its stakeholders for suggestions in the coming days.

“There are lots of smart people reading it and looking it over and over,” Doying told the Markets Committee of the Board of Directors during a Feb. 3 conference call. Doying also said MISO is not ruling out a request for rehearing.

Deputy General Counsel Eric Stephens said lack of a commission quorum moves MISO into “unchartered territory” with contested matters, which will be put on hold.

MISO’s proposal, filed Nov. 1, drew more than 40 comments and protests at the end of 2016 from critics, including the Monitor, which included in its protest a proposal for a two-stage prompt auction. (See MISO Forward Auction Filing Draws Protests.)

In a departure from normal practice, the commission did not provide a detailed description of — or response to — the protests.

“I think the FERC order is consistent with the concerns we raised, so we’re not unhappy with that, except that FERC didn’t provide any guidance,” Monitor David Patton said.

Patton said the commission’s lack of guidance in the order “creates uncertainty” and expressed disappointment that his two-stage prompt auction proposal was not addressed.

MISO spokesman Jay Hermacinski said the RTO’s effort to determine its next steps “will be complicated by the lack of detail” in the order concerning the reasons the proposal was rejected and the lack of guidance on how MISO can correct it.

“MISO appreciates the time and effort states and other stakeholders have already contributed to resource adequacy efforts in the MISO region,” he said in a statement Friday. “We will continue to work closely with them while seeking opportunities to gain guidance from the commission.”

Acting Chairman Cheryl LaFleur pledged to issue as many orders as possible before losing Bay, who announced his resignation after President Trump replaced him with LaFleur on Jan 26.

His resignation will leave the commission with only LaFleur and Commissioner Colette Honorable, one short of the three-person quorum required to act on major orders and rulemakings. The commission can continue to issue routine decisions under authority delegated to office directors. (See Backlog, Delays Feared as FERC Loses Quorum.)

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