Commissioner Mark C. Christie Statement
April 21, 2022
Docket No. AD21-10-000
While I recognize that the primary focus of the reports ordered herein is on the energy and ancillary services (E&AS) markets, a subject of discussion at two technical conferences held by the Commission last year,[1] the recent capacity auction results in the Midcontinent Independent System Operator (MISO) are only the latest evidence that the future of all RTO/ISO market constructs should be considered in this effort.[2]
For immediate purposes, I suggest we need to expand the scope of this Order’s mandated reports beyond just E&AS market constructs. If we choose to exercise the Commission’s discretion to direct the RTOs and ISOs to invest the significant time and resources necessary to produce these reports on the long-term future workings of RTO/ISO E&AS markets, we should also ask the RTOs and ISOs to expand the scope of their reporting to include a few fundamental questions about market constructs that are particularly pertinent to the future reliability challenges each will experience as the generation mix changes. Those areas explicitly deal with how pricing and compensation potentially affects reliability in all market constructs.
Last year, we also held two technical conferences – one on March 23, 2021 and one on May 25, 2021 – in the same docket in which today’s Order is issued (Capacity Market Technical Conferences).[3] In the Capacity Market Technical Conferences, an important discussion took place and questions arose about the role of capacity markets in achieving reliability and resource adequacy. As of now, the Commission has taken no additional action related to the record developed in the Capacity Market Technical Conferences.
Today’s Order recognizes that “[b]ased on the record in this proceeding, it appears that reforms beyond the scope of RTOs/ISOs E&AS markets may be necessary to address changing system needs.”[4] I agree. Moreover, as some of the questions asked herein already go beyond strictly E&AS questions,[5] I propose asking several additional questions. Specifically, I propose fundamental questions regarding pricing and compensation in the energy, ancillary services and capacity markets that merit discussion due to their potential impact on reliability and fairness to consumers. For example, I think it is time to put the all-important question of the continued use of locational marginal pricing (LMP) in these market constructs on the table for serious scrutiny and discussion.[6]
To that end, I would ask the RTOs and ISOs, in preparing the reports required by this order (as well as commenters to those RTO/ISO reports), to address these additional topics:
- Are the RTO/ISO markets compensating dispatchable resources appropriately in all markets? Are pricing policies causing premature retirements of dispatchable resources that may threaten reliability (as the MISO Midwest results may indicate)?[7]
- Are intermittent and hybrid resources compensated appropriately to ensure reliability?
- Is it appropriate to continue to use LMP in energy and capacity markets? Does the continued use of LMP threaten reliability as the generation mix changes? Does the use of LMP ensure that consumers get the benefit of low clearing prices? Is there a better pricing model than LMP in RTO/ISO markets to achieve reliability and fairness to consumers?
- Are capacity markets appropriate to use for resource adequacy? If not, is there a better alternative to capacity markets? Should capacity markets be purely residual or mandatory?
- How will compliance with Order No. 2222 mandating the participation and compensation of aggregated distributed energy resources (DERs) in RTO/ISO markets affect the answers to questions 1-4 above?
I believe these are compelling questions that belong in any comprehensive look at the future of RTO/ISO market constructs, their pricing and compensation policies, and their effects on the goal of reliable service at just and reasonable rates to consumers. I ask that the RTOs/ISOs respond to these questions, as well as those entities that comment on the RTO/ISO responses.
For these reasons, I respectfully concur.
[1] The two technical conferences were held on September 14, 2021 and October 12, 2021, as part of Docket No. AD21-10-000, Modernizing Electricity Market Design.
[2] See, e.g., Jeffrey Tomich, Soaring prices signal challenges ahead for Midwest grid, Energywire, Apr. 18, 2022 (“David Patton, MISO’s independent market monitor, said during a MISO call on Friday that the auction results are ‘the outcome we’ve been worried about for a decade.’ MISO market rules that suppressed capacity prices in previous years, he said, have led to the retirement of otherwise economic power plants. And steps to improve the market have proven ‘woefully inadequate,’ he said.”) (available at https://www.eenews.net/articles/soaring-prices-signal-challenges-ahead-for-midwest-grid/ ); Ethan Howland, Capacity prices jump across MISO’s central and northern regions, driven by supply shortfall, Utility Dive, Apr. 18, 2022 (“MISO’s market is flawed, according to [David] Patton. ‘If we’re going to say that reliability is an imperative, we need to fix this market because we can’t expect the market to support reliability if we know that it’s not designed to produce efficient economic signals,’ Patton said during the conference call. . . . In the last four years, power plants totaling 4 GW to 5 GW retired, even though they appear ‘clearly economic,’ Patton said. ‘Our capacity market doesn’t price capacity efficiently, so it sends out a clear economic signal to retire.”) (emphases added) (available at https://www.utilitydive.com/news/capacity-prices-auction-miso-midcontinent/622186/ ).
[3] March 16, 2021, Supplemental Notice of Technical Conference on Resource Adequacy in the Evolving Electricity Sector, Docket No. AD 21-10-000, Modernizing Electricity Market Design (noticing March 23, 2021technical conference); May 17, 2021 Supplemental Notice of Technical Conference on Resource Adequacy in the Evolving Electricity Sector: ISO New England, Docket No. AD 21-10-000, Modernizing Electricity Market Design (noticing May 25, 2021 technical conference). See March 23, 2021 Technical Conference on Capacity Markets and Resource Adequacy Opening Remarks of Commissioner Mark C. Christie (“While these multi-state administrative constructs called capacity markets may have been based on a sound or at least defensible economic theory at the beginning 15 years ago, does the reality of politics and rent-seeking in a large multi-state RTO simply make it impossible for these constructs to consistently deliver on the economic goal of reliable power at the least cost . . . ?”) (available at https://www.ferc.gov/news-events/news/technical-conference-capacity-markets-and-resource-adequacy-opening-remarks ).
[4] Modernizing Wholesale Electricity Market Design, 179 FERC ¶ 61,029, at P 41 (2022).
[5] See, e.g., Questions 9, 9.1 and 9.2.
[6] See, e.g., Tony Clark and Vincent Duane, “Stretched to the Breaking Point: RTOs and the Clean Energy Transition,” July 2021 at 5 (“. . . RTOs need to come to terms with the reality that we may be rapidly moving towards a post-marginal price world. . . .[T]hat new paradigm will have enormous implications for the viability of the RTO model.”) (available at https://www.wbklaw.com/wp-content/uploads/2021/07/Wholesale-Electricity-Markets-White-Paper-07.08.21.pdf ).
[7] See, n.2 supra.