Commissioner Clements Dissent Regarding Midcontinent Independent System Operator, Inc.

Docket Nos. ER22-495-000 and ER22-495-001

I dissent from today’s order accepting a suite of resource adequacy reforms filed by Midcontinent Independent System Operator (MISO) because I cannot conclude they will yield just and reasonable rates for capacity in the region.  While I agree that reforms are needed, I believe critical design details of MISO’s proposal are flawed such that capacity may not be accredited consistent with its availability during times of greatest reliability risk.  In addition, MISO’s support for its proposed mitigation revisions contains an inconsistency that I fear could provide a loophole for excessive customer costs. 

Because MISO’s proposal addresses reliability risks present in the current tariff and offers the potential to better align capacity payments with services provided, I would have rejected MISO’s filing with specific guidance and given MISO the opportunity to expeditiously re-file with necessary revisions.  I note, however, that MISO’s chosen path to a seasonal construct, the Seasonal Accredited Capacity (SAC) methodology, is not well aligned with the Expected Load Carrying Capability (ELCC) methodology it currently uses for calculating the seasonal accreditation of wind resources and plans to use for solar resources.  As MISO takes next steps beyond the market changes proposed herein, I urge MISO to rethink this misalignment and provide a more consistent framework that fairly credits all resource types.

 I have spoken publicly about the need for the Commission to focus on emerging reliability challenges driven by the changing resource mix and increasing extreme weather and to show leadership in fostering market-based solutions to those challenges.[1]  The wind, solar, storage, and hybrid resources entering the market have different operating characteristics and capabilities than the thermal resources that have dominated the electric system for decades.  Many of those thermal resources are also retiring, adding to the pace of generation fleet change.  At the same time, extreme weather events are becoming more frequent, disrupting fuel delivery systems, stressing generator performance, and causing correlated generator outages.[2]  With these factors converging, it comes as no surprise that the services, attributes, and resource performance required to maintain grid reliability are also changing.

In some cases these changes have driven RTOs/ISOs to modify energy and ancillary services market rules,[3] and the Commission has recognized a potential need for broader adoption of such revisions.[4]  In other cases these changes have motivated resource adequacy reforms, including a ramp product in CAISO,[5] penalties when capacity resources fail to deliver energy during emergencies in ISO New England[6] and PJM,[7] and effective load carrying capability capacity accreditation changes in PJM,[8] NYISO,[9] and SPP.[10]  While I have not agreed with the specific path taken in some of these proposals, it is essential that grid operators update their market rules to adapt to changing market conditions, and this diversity of efforts demonstrates that there is no single, one-size-fits all fix across all regions.  At the same time, however, the Commission must review each particular proposed rule change in detail, ensuring that it does not create unjust and unreasonable, or unduly discriminatory rates.  It is not sufficient that a proposal represents an improvement over the status quo, which itself may no longer be just and reasonable in light of current and future market conditions.

Here, MISO proposes two significant resource adequacy reforms: a new capacity accreditation methodology for Schedule 53 resources, which include thermal and demand response resources,[11] and a shift to seasonal capacity auctions.  MISO states that the reforms in this filing are part of MISO’s broader “Reliability Imperative” effort and fit within the “Market Redefinition” pillar of that effort, which aims “to ensure that resources with needed capabilities and attributes will be available during the highest risk periods across the year.”[12]  MISO explains that its objectives include providing a deeper assessment of system needs in the highest risk periods, including required capabilities such as flexibility; improving how resources are accredited for capacity; and developing market products that provide the right incentives for resources to maintain system reliability.[13]  MISO asserts that it “cannot reliably operate the system if the resources it depends on do not or cannot perform (that is, do not provide energy or reserves) during periods of highest reliability risk.”[14]  It argues that its proposed reforms will foster efficient investment decisions by capacity resource owners consistent with resource performance during times of need.[15] 

MISO’s justification for its proposed reforms is therefore that they will value capacity consistent with its actual availability during periods of highest reliability risk and will incentivize capacity resource owners to invest and maintain their facilities so that they are more likely to be available during those periods. 

Properly calibrated, I agree that MISO’s proposal could satisfy these objectives and produce just and reasonable capacity rates.  However, while the general thrust of MISO’s proposal is appropriate, it contains several design flaws that will impede the proposal’s ability to satisfy these objectives, and result in compensation for resources that does not match their true capacity contribution to the region.  It also contains ambiguous tariff language inconsistent with MISO’s expert testimony that creates the potential for the exercise of market power.  Considering the significance of MISO’s proposal, the Commission’s duty to engage with the details to ensure grid reliability and consumers are protected was particularly important.  But the Majority Order glosses over these critical details.  While a narrow rejection order could have set the stage for MISO to return with an improved proposal that addresses these issues, today’s order cements flaws into the region’s market design, thereby undermining a just and reasonable outcome.  

Seasonal Accredited Capacity Methodology

In transitioning to a seasonal market, MISO’s proposal devises a new method of crediting resources for each season based on their historical performance during 65 hours when emergency conditions or tight operating conditions were present.  While MISO justifies this general framework, it includes several unsupported design features that cause MISO to look to the wrong set of hours, and to credit resources that are unlikely to be capable of performing when called upon.  These flaws threaten system reliability and make for a poor foundation on which MISO’s new proposal rests. 

MISO argues that “[r]esource accreditation should reflect the anticipated capability and availability of Planning Resources during times when they are most needed,”[16] but unfortunately its SAC methodology for valuing thermal resources falls short of this goal.  The SAC methodology seeks to measure each resource’s anticipated availability by assessing its prior performance during 65 hours of emergency or other tight operating conditions, which MISO calls “RA Hours.”  Critical design decisions include (1) determining what constitutes an RA Hour; (2) determining what constitutes “availability” during each of those RA Hours, particularly if the resource was offline at the time; and (3) determining under what circumstances a resource that was on outage during RA Hours will be exempted from having its future accreditation reduced due to its unavailability.  Each of these elements of MISO’s proposal has flaws, as identified by MISO’s Independent Market Monitor (IMM) and other stakeholders. 

I recognize that the IMM supports MISO’s overall proposal despite these flaws.  The IMM states that “MISO made a number of changes in the course of the stakeholder process that are likely to reduce the benefits” of the proposal, but the IMM clarifies that it is supporting the proposal nonetheless “because we believe they are improvements over MISO’s current market design and rules.”[17]  While I agree that, on balance, MISO’s proposal likely provides a better framework than the status quo, a rate revision submitted pursuant to section 205 of the Federal Power Act is not necessarily just and reasonable solely because it is an improvement to the existing rate.[18]  Rather, the filing utility bears the burden to demonstrate that the rate revision is itself just and reasonable.[19]  Because MISO has failed to demonstrate through substantial evidence and sound economic logic that the market design choices discussed above are just and reasonable, the Commission’s duty is to reject the proposal.  Rejecting with guidance would have created the opportunity for MISO to revise it and submit an improved proposal that is truer to MISO’s intent to accredit capacity consistent with its likely availability during periods of greatest reliability risk.

MISO looks to the wrong set of hours to determine capacity performance

With regard to setting RA Hours, MISO acknowledges that in many seasons, particularly non-summer seasons, it is unlikely there will be 65 hours of emergency conditions.  MISO proposes to backfill the remainder with other historical hours that saw the tightest operating margins.[20]  The calculation of operating margin (i.e. resource supply minus demand at any given point in time) is therefore of great consequence because it will determine in which hours each resources’ availability is evaluated.  MISO proposes to include in operating margin the capacity of any offline resource with a lead time of 12 hours or less.  But offline capacity with a lead time of more than 6 or 8 hours is not “available” in any given hour, so MISO’s approach inaccurately excludes some tighter hours from the “RA Hours” designation by overcounting supply, while including as RA Hours some periods where operating margin is comparatively less tight.

As the IMM and Clean Energy Coalition argue, unexpectedly tight hours typically arise on a shorter timeframe, requiring a response time faster than many of the resources counted within that operating margin can deliver.[21]  As the IMM explains, a 2-6 hour lead time is appropriate, because that “is the timeframe in which MISO often recognizes that emergency conditions are developing.”[22]  Resources with lead times as long as 12 hours “are not relevant” to the reliability threat during these events “because the conditions were not recognized 12 hours in advance.”[23]  

Defining tight operating conditions assuming that resources with a 12-hour lead time are available, as MISO does, could cause MISO to ignore hours where offline resources with a lead time between 6 and 12 hours are comparatively abundant, when in fact uncertainties like load forecast errors, wind forecast errors, large unit forced outages, and other factors that are not known far in advance pose a reliability risk for the system for which these resources are of no use.  MISO’s approach thereby inappropriately shifts RA Hours toward more foreseeable conditions where operating conditions are not truly as tight, while excluding hours that are in fact tighter when considering the system’s true ability to respond to uncertainties.  The IMM notes that as the uncertainties on the system grow, the adverse effect of MISO’s 12-hour lead time assumption are likely to increase.[24] 

While MISO must necessarily make some qualitative judgments in determining how to design its seasonal capacity mechanism (including whether to use such an “RA hour” construct and, if so, which RA hours to look at), it fails to offer sufficient defense of its 12-hour lead time rule.  In support of the 12-hour threshold, MISO’s witness only emphasizes that its starting point was an even longer 24-hour lead time threshold, which it shortened based on the feedback from the IMM.[25]  But in endorsing the IMM’s general logic, MISO provides no explanation as to why it did not choose a shorter lead time threshold that better matched likely system conditions contributing to the concerns this construct is intended to address.

MISO’s capacity accreditation does not match resource contribution to system reliability

MISO repeats this same mistake of crediting resources incapable of contributing to system reliability when determining resource availability for purposes of accreditation.  MISO proposes to credit a resource as having been available during an RA Hour if it was offline but had a lead time of 24 hours or less.  But as the IMM explains, this lax crediting includes many resources that will not be able to deliver any value when called upon.[26]  Further, MISO’s attempted rationale to justify the inconsistency of its approach of using a longer 24-hour window for resource accreditation while using a shorter 12-hour lead time used for purposes of determining RA Hours does not make sense.  MISO argues that while the 12-hour threshold better represents “times of need,” the 24-hour threshold “better reflects whether MISO could have reasonably committed a resource in its Day-Ahead Market or Forward Reliability Assessment Commitment processes.”[27]

But examining whether a resource could have been committed answers the wrong question.  As the IMM explains:

[MISO’s] logic is flawed . . . If most of the threats to reliability emerge during the operating day, only offline resources that can [be] started once the threat is recognized can contribute to reliability.  Offline resources that could theoretically have been committed the prior day, but whose lead time is too long for them to start to mitigate the reliability threat provide no value in such events.[28]

In other words, whether a resource could have been committed if MISO knew about a reliability situation in advance is beside the point when assessing contribution to tight operating hours that arise on a shorter timeframe.[29]  By MISO’s own admission, “[h]istorically most MaxGen Events have been driven by events occurring after the Day-Ahead Market clears.”[30] 

The majority declares that “[r]esources that can be committed through the Day-Ahead or Forward Reliability Assessment Commitment process contribute to MISO’s resource adequacy needs.”  Majority Order at P 275.  But this runs contrary to the evidence in the record that offline resources with response times longer than 6 or 8 hours are incapable of contributing to the system during times of need.  The majority hypothesizes that there may be capacity needs that could be identified with longer than 12 or even 24 hours of advanced notice, “such as resources being out on an extended planned or forced outage . . . or certain meteorological events forecast 24 or more hours in advance.”[31]  But those events, to the extent they may exist, could be responded to by resources with a lead time of longer than 24-hours, making the 24-hour requirement arbitrary.  In setting a lead time of 24 hours, MISO divorces its accreditation determination from the question whether a resource contributes to reliability during RA Hours.  This is at odds with the design of its proposal and lacks any reasonable basis in the record.[32]  It is worth noting that were a shorter response time requirement implemented, this would not give slow-response resources zero capacity credit.  Rather, resources that were online during RA Hours and therefore contributing to resource adequacy would still get credit for contributing to system needs.[33]

Over-valuing less flexible units is unjust and unreasonable not only because it gives resources more credit than they deserve, but also because pursuant to the SAC’s design it will necessarily under-value more flexible and available resources.[34]  This misalignment between payment and reliability contribution is unjust and unreasonable due to its financial implications, and also because it undermines system reliability.  The IMM suggests a reasonable alternative of a sliding scale, which would “recognize that certain units (e.g., fast-starting units) provide more reliability value than other units (long-lead time units),” and measure windows with tight operating conditions accordingly.[35]  While MISO was not required to propose this alternative, it does have the burden under section 205 of justifying why the threshold it has chosen properly credits resources for their contribution to reliability and is therefore just and reasonable.  It has not done so.

MISO’s outage framework is unjust and unreasonable

Another significant flaw in MISO’s proposed framework is its proposal to exempt resources from negative impacts to their accreditation if the resource owner provides 120-days’ notice of the outage to MISO and MISO determines there is an adequate “maintenance margin.”  This proposal is logically inconsistent and inadequately supported.  As the IMM states, “[r]esources that schedule more frequent or longer-duration outages are less likely to be available during reliability events than resources that take less frequent or shorter-duration outages.”[36]  Further, as the IMM asserts, MISO’s maintenance margin calculation is incapable of accounting for any and all unexpected factors and conditions that may lead to reliability risk, including extreme weather, system contingencies, unusual intermittent output levels, and load forecast errors.[37]  In approving an outage—and the attendant accreditation exemption—MISO will have no way of knowing months in advance if challenging operating conditions will arise and the resource will be needed.  Indeed, the very need for an exemption suggests the opposite.  If in fact MISO could be sure that tight operating conditions would not occur where it has “maintenance margin,” then resources could schedule during that period without fear that RA Hours would occur and their accreditation would be penalized.  But the truth is that MISO may find itself short during those periods. 

MISO does not adequately justify why it proposes to give full credit to resources as though they are providing reliability value during these periods when that is not the case.  The Majority Order accepts MISO’s rationale, that it “appropriately balances the need for resources to have flexibility to schedule planned outages and the need for MISO to have such visibility.”[38]  But as Clean Energy Coalition argues, MISO’s framework “offer[s] little motivation for a resource owner—even one with a commitment under the Planning Resource Auction—to think twice before scheduling an outage, even at peak times.”[39]  And MISO provides no information to suggest that full accreditation is necessary in order to incent resources to give MISO adequate notice as to planned outages, or to engage in necessary maintenance activities.  

To the contrary, the Majority Order’s own logic suggests that the accreditation rules themselves give resources ample built-in incentive to perform maintenance: “Given the functional relationship between resource accreditation and resource availability,” resources likely “will not risk delaying necessary maintenance” even if that means losing some accreditation in the short run because that could “result in resource underperformance, unavailability, or forced outages, which would negatively impact that resource’s future accreditation.”[40]  In other words, the accreditation rules “encourage resource owners to appropriately balance maximizing short-term availability when it is most needed and perform[ing] maintenance, which requires scheduling planned outages, to ensure long-term resource performance.”[41]  Neither MISO nor the majority explain why an outage exemption is necessary given the presence of these incentives, much less reason why resources should be given full credit as opposed to a more limited incentive to provide advanced outage notification.

Moreover, beyond overcompensating resources when they are not contributing to system reliability, MISO’s proposed maintenance framework also draws arbitrary lines that many market participants have rightly protested as lacking a logical basis.  For example, several entities note that MISO has not explained how the proposed 120-day notice cutoff would increase resource availability during RA Hours,[42] pointing out that the proposal provides a relative disincentive against short to medium term maintenance.[43]  They persuasively argue that this framework arbitrarily discourages non-consecutive outage days, as well as conducting any maintenance during each 120-day window even if there is an adequate maintenance margin during that time.[44]  Others ask why, when resources that fully de-power are eligible for full credit, are those that de-rate for a period subject to an accreditation haircut?[45]  MISO’s framework also includes a capacity replacement obligation for any resource whose outage lasts more than 31 days in a single season,[46] providing an incentive for resources to arbitrarily stack outage requests at the last 31 days of the season leading into the first 31 days of the next, regardless of whether that timing is appropriate from the perspective of grid reliability.

As with the elements discussed above, the negative effects of MISO’s decision to credit unavailable resources as though they were serving the system are likely to grow in the future “[s]ince reliability events are increasingly likely to occur when they are not expected because of the uncertainties described earlier”  such as load forecast errors, wind forecast errors, large unit forced outages, and other factors that are not known far in advance.[47] 

The Commission should have rejected MISO’s proposal given its capacity accreditation design flaws

By choosing to support its SAC accreditation on the grounds that it aligns accreditation with resources’ likely availability in the future during times of greatest reliability risk, MISO bears the burden of demonstrating how these critical design choices support that objective or otherwise lead to just and reasonable outcomes.  Using assumptions that over-value less flexible, longer lead-time resources and under-value more flexible, shorter lead-time resources undercuts MISO’s justification.  So, too, does an outage exemption approach that ignores that resources that require more frequent or longer outages provide less reliability value than those that require less frequent or shorter planned outages.  By failing to accredit resources consistent with their actual value in time of greatest reliability risk, these design choices will hinder efficient capacity procurement, cause unjust and unreasonable capacity rates, and pose a threat to system reliability.

Rejecting MISO’s proposal for its failure to properly align capacity credit with reliability value is supported by precedent, as the Commission has previously found that rules that do not adequately align capacity payment with a resource’s true contribution to system reliability are not just and reasonable.[48]   

Seasonal Capacity Auctions

MISO’s proposal is also flawed because it may provide an opportunity for capacity sellers to exercise market power and potentially expose consumers to unjust and unreasonable capacity prices.  MISO proposes to conduct auctions for all four seasons simultaneously, which requires revisions to its market power mitigation framework.  I am not convinced by the record before us that the revisions MISO has offered protect consumers against inflated capacity prices.  

MISO’s proposal to conduct four seasonal auctions simultaneously for each Planning Year is novel.  NYISO, the only RTO with an existing seasonal auction framework, conducts sequential auctions.[49]  Conducting four auctions simultaneously adds complexity beyond that involved in conducting a single annual auction or sequential seasonal auctions.  A capacity seller must determine how to offer into each seasonal auction without knowing the results—whether its resource cleared and at what price—of the other three. 

A critical question for purposes of market mitigation under these circumstances is what constitutes an economic offer that allows a resource’s costs of providing capacity (i.e., its “avoidable” or “going-forward” costs) to be reflected and adequately compensated while preventing excessive compensation.  MISO’s proposal and accompanying testimony send mixed signals as to how this critical question will be answered.  As explained below, the tariff appears to prevent excessive compensation, but MISO’s testimony suggests that it may be permissible.  Given the complexity introduced by MISO’s proposed simultaneous auction process, I fear that this ambiguity may provide a basis for excessive market offers, leading to unjust and unreasonable costs for consumers.  

Part of MISO’s proposed mitigation framework involves calculating a facility-specific reference level under certain circumstances (i.e. it requires calculating an “economic” offer from the unit).  Tariff Module D, Section 64.1.4.f details what going-forward costs are permissible in a facility-specific reference level.  It states, in relevant part:

The Going-Forward Costs of a Planning Resource . . . shall be calculated by determining the costs that can be avoided by the . . . seasonal operation of the Planning Resource.  Thus, Going-Forward Costs are equal to the costs that will be borne by a Planning Resource supplier by either maintaining in, or returning a Planning Resource to, commercial operation for a specific Season of a Planning Year minus the costs that would be borne by such supplier resulting from retiring, suspending, or keeping a Planning Resource in suspension.

This appears to say that going-forward costs—and by extension a seller’s seasonal auction offer price—may only include costs associated with providing capacity for that season. 

However, MISO’s testimony suggests something different.  MISO’s expert witness Shawn McFarlane, testifying in support of the proposal, states: “[Capacity] Offers may not reflect the actual costs of providing capacity if a Planning Resource clears in multiple Seasons but its annual costs are compressed into each season’s [capacity] Offer to ensure recovery if the Resource only clears in a single Season.”[50]

So here is what I am worried about:  If, contrary, to the wording of section 64.1.4.f.iii, a seller may include in each of its seasonal auction offers up to its annual going-forward costs, and that seller clears multiple auctions, it could receive in excess—potentially up to two, three, or four times—its legitimate costs of providing capacity.[51]  Even worse is if that resource sets the clearing price, such that all cleared resources would be paid not based on the marginal cost of providing capacity for the season, but based on a multiple thereof.  Such an outcome cannot constitute just and reasonable rates for capacity.

MISO’s proposal includes other mechanisms to limit under- and over-compensation that can result from its simultaneous auction design: a clearing price adjustment coupled with a new make-whole payment.[52]  But as MISO acknowledges, there is a scenario where those mechanisms are not triggered despite the potential for auction revenues to exceed CONE on a per-MW basis,[53] in which case prices could unjustly and unreasonable rise to excessive levels should MISO’s facility-specific reference calculation allow resources to make offers that would recoup up to that resource’s annual costs in each of the four seasonal auctions as Mr. McFarlane suggests.

This is not the only case of inconsistency between MISO’s proposed tariff and Mr. McFarlane’s testimony.  The Majority Order highlights another such inconsistency, regarding the applicability of Tariff section 69A.7.1.c.x governing the pricing for Zones in ZRC Shortage and Near-Shortage Conditions, and in that case reasons that the approach in the McFarlane testimony is more appropriate and orders MISO to file revised tariff sheets reflecting the testimony.[54]  While the absence of such clarification with regard to facility-specific reference levels should dictate that the tariff governs, the McFarlane testimony presents concerns about how it will be applied in practice.  Before approving MISO’s proposal, the Commission should have insisted on obtaining a clear answer to this question from MISO.  I dissent from the decision to approve such a significant market change in the face of this ambiguity on a critical consumer protection measure.

The Commission’s approval of MISO’s ambiguous proposal is especially discouraging because, as NYISO’s experience shows, a proven alternative market design is readily available: sequential auctions that take place at different times in advance of each particular season.[55] 

MISO’s proposal further entrenches disparate treatment between Schedule 53 non-Schedule 53 resources

As discussed above, but for the flaws I have identified, I would have approved MISO’s proposal as a reasonable near-term mechanism to enhance system reliability.  At the same time, however, I am concerned that the proposal may set MISO on a course that makes it more difficult to arrive at a future system of capacity accreditation and market design that treats all resources equally.

Clean Energy Coalition urges the adoption of three principles in order to prevent discrimination between different technologies: (1) “a resource that mitigates more risk should receive higher accreditation”; “(2) two resources that mitigate the same level of risk should receive the same accreditation”; and (3) “accreditation of each resource should be the same, regardless of the order in which resources’ accreditation is calculated and accounted for.”[56]  While our precedent has traditionally permitted the application of different capacity accreditation methodologies to different resource types as not undue discrimination given the different characteristics of various technologies,[57] the Clean Energy Coalition rightly highlights that equal treatment should be the goal to the extent it is achievable.  

Grid operators have gained extensive experience with wind and solar resources over the past decade, and are beginning to rapidly integrate energy storage resources in the wake of market developments and the Commission’s Order No. 841.[58]  As methodologies for valuing these resources mature, and as grid operators engage in efforts to more accurately value thermal and demand response resources, it becomes reasonable to expect grid operators to move toward methodologies that are more consistent across resource types.  And even where uniformity is not fully achieved, the Commission should assess valuation methodologies side by side to ensure that even if different, the methodologies when taken together treat different resource types fairly relative to one another. 

Many of the changes proposed in MISO’s new SAC methodology are motivated by the same fundamental concern underlying ELCC methodologies that are being pursued in other regions: the need to value capacity more accurately.  But as Clean Energy Coalition points out, MISO’s chosen “ex post approach based on actual historical performance” is at odds with MISO’s ELCC valuation methods that use an ex ante approach “based on a statistical expected value.”[59]  MISO’s proposal therefore creates a significant concern that it may further entrench the differences between Schedule 53 and non-Schedule 53 resource accreditation in a manner that makes it more and not less difficult to arrive at a consistent framework for all resources. 

Further, MISO’s chosen approach entails the use of a UCAP/ISAC ratio “to ensure continued alignment between MISO’s UCAP-based Reserve Requirements and its SAC proposal,” but declines to apply this same ratio to non-Schedule 53 resources because those resources “will not experience the same level of accreditation reduction as Schedule 53 Resources.”[60]  But while MISO justifies this approach as a reasonable mechanism to avoid raising demand to a level not necessary to maintain system reliability, a natural consequence of it is that it does not change the relative valuation of Schedule 53 versus non-Schedule 53 resources despite the acknowledged shortcomings of the capacity valuation methodology MISO is applying to Schedule 53 resources before the proposed tariff changes go into effect.  If MISO’s current method over-credits Schedule 53 resources as compared to non-Schedule 53 resources, MISO’s proposal accepted by the Commission today does not address that concern.  Further, should MISO undertake future efforts to more accurately value non-Schedule 53 resources, unfairness could be introduced if MISO does not employ a similar ratio for those resources, or address the relative valuation of Schedule 53 and non-Schedule 53 resources in a different way.  While the Majority Order finds that the Clean Energy Coalition has not provided evidence demonstrating that Schedule 53 resources are over-credited as compared to non-Schedule 53 resources,[61] that finding does not preclude a conclusion that the tariff is unjust and unreasonable should the Clean Energy Coalition or another stakeholder bring forth such evidence in the future.

MISO is not alone in proposing a new capacity accreditation method that raises potential fairness concerns with regard to relative treatment of different resource types.  SPP’s recently-accepted ELCC methodology raises a similar concern, as it reduces the credit given to wind, solar, and run-of-the-river hydroelectric resources while leaving an outdated Installed Capacity methodology in place for other resources.[62]  The Commission should keep a keen eye on this fairness issue as capacity valuation methodologies develop across regions, gathering data and potentially interceding as appropriate to ensure just and reasonable and not unduly discriminatory rates.  

Ultimately, whether MISO initiates changes itself or is forced to do so through a section 206 proceeding, MISO’s long run direction should be toward equal treatment of all resources across capacity types.  It is therefore lamentable that, in making a much-needed shift toward a seasonal capacity construct that more accurately values resources’ contributions to the system, MISO has chosen an approach that sets Schedule 53 and non-Schedule 53 resources on different courses.  In the coming months and years, it should work to bring its divergent resource valuation techniques into alignment.  

Conclusion

I conclude by highlighting the difficult position the Commission is in with regard to responding to MISO’s proposal and similar recent initiatives to improve capacity valuation.  In the wake of the D.C. Circuit’s decision in NRG v. FERC,[63] the Commission faces a significant temptation to accept rather than reject any rate proposal that improves upon the status quo, even where a portion of such a proposal is unjust and unreasonable or unduly discriminatory.  The reality is that the Commission does not have the capacity to open a section 206 investigation in every instance where an existing rate may be unjust and unreasonable or unduly discriminatory.  Even if it did, modifying rates via section 206 processes is time consuming, contentious, and triggers ex parte rules that make open discussion of challenging issues more difficult.  So, it is understandable that accepting a proposal despite its flaws is compelling.

The temptation to accept rate proposals is particularly strong where they address reliability challenges, given the Commission’s paramount responsibility of ensuring system reliability.  But giving in to this temptation does not ensure proposals will be sufficient to address any given reliability challenge, and risks significant costs.  Today’s decision and the recent decision accepting Southwest Power Pool’s ELCC valuation methodology[64] have together set a low bar for RTO filings.  Together, they effectively say that omissions and inconsistencies in tariff filings will be tolerated, with the Commission doing the work of the RTO to fill in the gaps in the filing and push it across the finish line.  They leave stakeholders guessing as to the meaning of critical provisions even after the Commission issues its decision, depriving them of notice and due process in responding to proposed changes.  Even more concerningly, today’s order suggests that, when it comes to reliability, market design flaws are permissible.  In my view the opposite is true: the Commission should be particularly insistent that market design is sound in carrying out our bedrock responsibility of ensuring a reliable grid.

Today’s decision bakes troubling flaws into MISO’s capacity rules that may jeopardize reliability for years to come.  While the majority urges MISO to continue working to improve its capacity rules,[65] it is not clear how some of these improvements could be made within the confines of MISO’s stakeholder process absent Commission action forcing such an outcome.  Taking just one example, the IMM observes that MISO’s proposed outage “exemptions were introduced in response to stakeholder feedback from entities concerned that such outages would reduce their accreditation.”[66]  The Commission has no reason to believe that these stakeholder dynamics will change such that MISO will better align capacity payments with system value in the future.  Today’s order therefore puts a flawed short-term improvement ahead of long-term results, leaving it to industry to regulate themselves.  In my view, it would be better for us to insist the job is done right.  “Measure twice, cut once,” as the old adage goes.

For these reasons, I respectfully dissent.