Docket No. ER22-495-000, et al.
I support accepting MISO’s proposed seasonal resource adequacy construct in Docket Nos. ER22-495-000 and ER22-495-001. It is now a truism, established through numerous Commission precedents,[1] that in an FPA section 205 filing, we are not looking for the perfect proposal, or even one that we may prefer as relatively better than the specific one proposed in the filing. Instead, we look to see if the specific proposal filed meets the “just and reasonable” rates requirement of section 205.[2] I believe MISO’s proposal herein meets that standard.[3]
I also support rejecting MISO’s proposed Minimum Capacity Obligation (MCO) in Docket Nos. ER22-496-000 and ER22-496-001 because I believe the Market Monitor’s concerns about the potential exercise of market power cast sufficient doubt on the proposal’s claim to meet the section 205 standard.[4] However, I emphasize that we are rejecting only the MCO proposal before us and that we are not prejudging a future MCO filing by MISO.
Both cases serve to illustrate a much bigger issue: Regardless of the details of the market designs of the various RTOs/ISOs — which are not true markets at all but administrative constructs using an increasingly opaque, complex and questionable pricing mechanism [5] — it is the states which retain the primary responsibility to ensure their load-serving entities (LSEs) have adequate resources to serve their states’ consumers. While regional system operators — RTOs and ISOs — are responsible for balancing the system on a real-time operational basis to keep the lights on, RTOs/ISOs are not regional long-term Integrated Resource Plan (IRP) planners of generating or other resources. Rather, it is the states which have the ultimate authority to decide which resources get built and which get retired and whether and how their regulated LSEs have sufficient generating capacity or demand-side programs to ensure that the lights stay on for their states’ residents. Yes, the market design of federally regulated RTO/ISO markets certainly affects the entry or exit of generating resources from those markets, but even in RTOs/ISOs the states still retain their inherent police-power authority to direct their LSEs to achieve resource adequacy in ways other than through RTO/ISO markets — including various forms of self-supply, such as rate-basing, or purchased power agreements or other bilateral arrangements.
This is particularly true in MISO. No one disputes that the MISO capacity market has always been a purely residual option; it is not the primary option for an LSE to obtain the resources needed to ensure reliability.[6] Importantly, states need to focus on their own authority to ensure adequate generating resources to serve their citizens and not default to an administrative construct regulated by FERC.[7] I am encouraged by recent efforts by the Organization of MISO States to address this critical issue.[8]
For the reasons given above, I respectfully concur.
[1] E.g., City of Winnfield v. FERC, 744 F.2d 871, 875-76 (D.C. Cir. 1984); PJM Interconnection, L.L.C., 170 FERC ¶ 61,243, at P 57 (2020) (citing Petal Gas Storage, L.L.C. v. FERC, 496 F.3d 695, 703 (D.C. Cir. 2007); Cities of Bethany v. FERC, 727 F.2d 1131, 1136 (D.C. Cir. 1984); Cal. Indep. Sys. Operator Corp., 128 FERC ¶ 61,282, at P 31 (2009)); see also Midcontinent Indep. Sys. Operator, Inc., 180 FERC ¶ 61,141, at P 79 (2022) (citations omitted).
[2] I agree generally with the concern expressed by Commissioner Clements in paragraphs 44 and 45 of her dissent to the order, which I understand to mean that we are constrained by the precedents related to section 205 filings, including, of course, NRG v. FERC, 862 F.3d 108 (D.C. Cir. 2017), that do not let us make non-minor improvements to RTO proposals. I also agree that trying to address every existing market design flaw through individual section 206 proceedings may simply not be workable. I would favor a more comprehensive approach to evaluating threats to reliability that are increasingly becoming evident in RTO markets, and in a manner not subject to the ex parte communications limits of contested individual filings. As I note herein in P 3 and Note 5, among the issues that should be examined in such a general proceeding should be the continued use of single-clearing price mechanisms in RTO markets. The European Union is already re-evaluating such mechanisms in light of skyrocketing prices in EU power markets. See Sam Fleming and Valentina Pop, EU to unveil emergency measures to curb soaring prices: Pressure grows for bloc to reform markets by cutting link between electricity and the cost of gas, Financial Times, August 29, 2022 (“Wholesale electricity costs reflect the price of the last unit of energy bought via auctions held in member states. In practice, this currently mirrors the price of natural gas rather than renewable energy or nuclear power. . . . However, [EU President Ursula] von der Leyen hinted in June that the commission would have to reconsider the system.”), https://www.ft.com/content/02f848fc-3b80-4ddc-ba4f-26109d79db89.
[3] I note that the Organization of MISO States, Inc. (OMS) supports the seasonal resource adequacy filing, along with Michigan and Indiana individually. Louisiana supports the concept of a seasonal resource adequacy construct, but not the details of the proposal filed. Mississippi opposes the proposal. I also note that, while critiquing aspects of the filing, the MISO Independent Market Monitor (Market Monitor) overall supports it.
[4] See Market Monitor Protest, Docket No. ER22-496-000, at 13-18. I further note that OMS has filed no comments at all in the MCO proceeding, whether in support or opposition. Only two individual states filed comments, with Indiana in support and Illinois opposed.
[5] For an excellent analysis of the theory behind Locational Marginal Pricing (LMP) and how it is supposed to work in RTO markets (and why it increasingly may not work any longer), see Tony Clark and Vince Duane, Stretched to the Breaking Point: RTOs and the Clean Energy Transition (July 2021), https://www.wbklaw.com/wp-content/uploads/2021/07/Wholesale-Electricity-Markets-White-Paper-07.08.21.pdf.
[6] As the Commission has explained:
Notably, approximately 90% of the load in MISO is served by vertically integrated LSEs, the vast majority of which are subject to state integrated resource planning processes. To accommodate the make-up of the MISO’s footprint, MISO’s proposed Tariff provisions accepted in the February 2018 Order provide that its resource adequacy requirements “are complementary to the reliability mechanisms of the states and the Regional Entities . . . within the [MISO] region.” Moreover, MISO’s proposed Tariff language explains that the resource adequacy requirements “are not intended to and shall not in any way affect state actions over entities under the states’ jurisdiction.” In other words, unlike the centralized capacity constructs used in the Eastern RTOs/ISOs, MISO’s Auction is not—and has never been—the primary mechanism for its LSEs to procure capacity.
Midcontinent Indep. Sys. Operator, Inc., 170 FERC ¶ 61,215, at P 13 (2020) (emphasis in original) (quoting MISO, FERC Electric Tariff, Module E-1, § 68A (33.0.0)); see also Midcontinent Indep. Sys. Operator, Inc., 180 FERC ¶ 61,142, at P 110 (2022) (citation omitted).
[7] Indeed, although the MISO tariff provides that MISO will calculate the Planning Reserve Margin Requirements (Reserve Requirements) for LSEs, the MISO tariff also provides that, if a state regulatory authority establishes an alternate Planning Reserve Margin, MISO will use the alternate Planning Reserve Margin to calculate LSEs’ Reserve Requirements for the geographic area under that state’s jurisdiction. MISO, FERC Electric Tariff, Module E-1, § Module E-1, § 68A.7 (Establishing Planning Reserve Margin Requirements) (32.0.0).
[8] See OMS Resource Adequacy Summit (Aug. 8-10, 2022), https://www.misostates.org/index.php/meetings/other-meetings/2-uncategorised/380-ra-summit; see also Darren Sweeney, Midwest Utilities Delay Plant Retirements To Offset Reliability, Cost Concerns, S&P Global Market Intelligence, Aug. 19, 2022, https://www.capitaliq.spglobal.com/web/client?auth=inherit#news/articleabstract?id=71797391.