Commissioner James Danly Statement
October 3, 2022
EL22-60-000
I join the Commission’s decision to deny the complaint the Coalition of MISO Transmission Customers (Complainants)[1] filed pursuant to sections 206, 306, and 309 of the Federal Power Act (FPA).[2] Complainants allege that the Midcontinent Independent System Operator, Inc.’s (MISO) Open Access Transmission, Energy and Operating Reserve Markets Tariff (Tariff) is unjust and unreasonable because it does not enable MISO to address system reliability by allowing load to exit the MISO system without being responsible for capacity payment obligations when MISO’s Planning Resource Auction (Auction) fails to procure enough capacity for MISO’s upcoming Planning Year.[3]
As I recently explained,[4] I have become increasingly concerned by MISO’s ever-decreasing excess reserve margins[5] and MISO’s apparent inability to retain sufficient dispatchable generation to ensure reliability and resource adequacy. MISO’s interconnection queue, which is composed almost entirely of intermittent generation,[6] shows that MISO is unlikely to obtain much more dispatchable generation any time soon. Right now, the combined effects of the market’s price signals and the state and federal policies under which the market must operate has brought MISO to a point where the total quantity of nameplate capacity is rising, but the quantity of accredited capacity is decreasing.[7] This is a problem that should not be ignored, and the need for dispatchable generation cannot be overstated.[8]
For example, the total quantity of accredited capacity in the North/Central sub-regions fell below the Planning Reserve Margin Requirement for the 2022/2023 planning year.[9] The stability of MISO’s North/Central sub-regions is now vulnerable to any number of contingencies and will continue to be so for as long as MISO’s market mechanism is inadequate to the task of procuring sufficient capacity. A market’s failure to procure sufficient capacity with the needed characteristics is a flaw so fundamental that it calls into question the justness and reasonableness of the resulting rates.[10] Perhaps, given this systemic failure, Vistra Corp. was correct in describing MISO’s capacity market as “irreparably dysfunctional.”[11]
While MISO’s existing market structure appears flawed for the reasons I highlighted, they are irrelevant to the arguments in this complaint. The Complainants have not met their burden under FPA section 206.[12] I agree with the Electric Power Supply Association (EPSA) that had the Commission granted the complaint as submitted, it would have in effect allowed load serving entities (LSE) to engage in “‘heads I win, tails you lose’” gamesmanship resulting in “further harm [to] the MISO capacity construct.”[13]
Moreover, Complainants’ proposed remedy presents several problems, including the creation of “an uneven playing field between bilateral [sellers] and buyers, [which] incentivizes a lack of investment to keep resources online or for new development, and [which] complicates the establishment of load assumptions for future auction models.”[14] And though not directly relevant to our analysis under FPA section 206, the proposal submitted by Complainants is also unnecessary. LSEs had the opportunity to avoid the circumstances underpinning this complaint.[15] The plight suffered by the unnamed customer arose from an injudicious, but purposeful, business decision.[16] Those facts are far from sympathetic.
Regardless of poor decisions by market participants or the long-term consequences of systemic defects in MISO’s capacity construct, the 2022/2023 Auction actually functioned as intended. As MISO explained, the results of the Auction reflected a capacity shortfall in the MISO North/Central regions, which resulted in participating entities being net short.[17] The clearing price was then set at the Cost of New Entry (CONE) for the Planning Year.[18] Why observers of MISO would shriek and clutch their pearls when the price rises to CONE in the event of a capacity shortfall (which is to say, in the event of scarcity) is beyond me. Anyone who gets upset about prices rising in times of scarcity cannot truly be a proponent of competitive markets.
For these reasons, I respectfully concur.
[1] See Coalition of MISO Transmission Customers v. Midcontinent Indep. Transmission Sys. Operator, Inc., 181 FERC ¶ 61,005 (2022).
[2] 16 U.S.C. §§ 824e, 825e, 825h.
[3] See MISO, FERC Electric Tariff, Module A, § 1.P (Definitions) (65.0.0) (defining “Planning Year” as “[t]he period of time from June 1st of one year to May 31st of the following year that is used for developing Resource Plans.”); see id. § 1.R (Definitions) (67.0.0) (defining a “Resource Plan” as a load serving entity’s annual and monthly plan used to meet Resource Adequacy Requirements). These also are currently effective definitions.
[4] See Midcontinent Independent System Operator, Inc., 180 FERC ¶ 61,141 (2022) (Danly, Comm’r, concurring at P 2).
[5] See 2022 Summer Reliability Assessment, N. Am. Elec. Reliability Corp., at 4 (May 2022), https://www.nerc.com/pa/RAPA/ra/Reliability%20Assessments%20DL/NERC_SRA_2022.pdf (“Midcontinent ISO (MISO) faces a capacity shortfall in its North and Central areas, resulting in high risk of energy emergencies during peak summer conditions.”); id. (“Capacity shortfall projections reported in the 2021 [Long-Term Reliability Assessment (LTRA)] and as far back as the 2018 LTRA have continued. Load serving entities in 4 of 11 zones entered the annual planning resource auction (PRA) in April 2022 without enough owned or contracted capacity to cover their requirements.”); id. (“More extreme temperatures, higher generation outages, or low wind conditions expose the MISO North and Central areas to higher risk of temporary operator-initiated load shedding to maintain system reliability.”); id. at 15 (“Tighter than normal operating conditions are anticipated, particularly in the MISO North/Central region[s], which cleared too little capacity in the 2022–2023 PRA. The PRA capacity shortfall of 1,230 MW signals a potential for operating risk during peak summer conditions.”); id. (“Expected resources do not meet operating reserve requirements under normal peak-demand and outage scenarios.”).
[6] See Managing Reliability Risk in the MISO Footprint, MISO, at 8 (June 16, 2022), https://cdn.misoenergy.org/20220616%20Board%20of%20Directors%20Item%2008a%20Reliability%20Imperative625168.pdf.
[7] See id. at 5.
[8] See 2021 State of the Market Report for the MISO Electricity Markets, Potomac Economics (The Independent Market Monitor for MISO), at 22 (June 2022), https://www.potomaceconomics.com/wp-content/uploads/2022/06/2021-MISO-SOM_Report_Body_Final.pdf (explaining “the importance of having sufficient dispatchable resources available to satisfy the system demands when intermittent generation is not available”).
[9] See 2022/2023 Planning Resource Auction (PRA) Results, MISO, at 5 (Apr. 14, 2022), https://cdn.misoenergy.org/2022%20PRA%20Results624053.pdf.
[10] Midcontinent Independent System Operator, Inc., 180 FERC ¶ 61,141 (Danly, Comm’r, concurring at P 2); see also Midcontinent Independent System Operator, Inc., 180 FERC ¶ 61,142 (2022) (Danly, Comm’r, concurring in the judgment at P 2) (expressing misgivings regarding MISO’s capacity construct and a concern regarding the increasing risk that MISO will be unable to retain sufficient dispatchable generation to ensure reliability and resource adequacy”).
[11] Vistra Accelerates Pivot to Invest in Clean Energy and Combat Climate Change, Vistra Corp., https://investor.vistracorp.com/2020-09-29-Vistra-Accelerates-Pivot-to-Invest-in-Clean-Energy-and-Combat-Climate-Change (Sept. 29, 2020) (announcing that Vistra Corp. “expects to retire seven Luminant power plants, of which the company owns a combined capacity of more than 6,800 MW, between 2022 and 2027” and explaining that “[t]hese plants, especially those operating in the irreparably dysfunctional MISO market, remain economically challenged”); see also Edward Klump, E&E News, Vistra touts major zero-carbon push as it unplugs coal, E&E News (Sept. 30, 2020), https://www.eenews.net/articles/vistra-touts-major-zero-carbon-push-as-it-unplugs-coal/ (“Vistra pointed to a number of issues, including what it called a systematic failure of the MISO capacity market to provide Illinois power plants with adequate revenues.”).
[12] 16 U.S.C. § 824e(b) (“In any proceeding under this section, the burden of proof to show that any rate, charge, classification, rule, regulation, practice, or contract is unjust, unreasonable, unduly discriminatory, or preferential shall be upon . . . the complainant.”).
[13] EPSA June 15, 2022 Protest at 6.
[14] MISO July 18, 2022 Motion for Leave to Answer & Answer at 6 & n.29 (citing EPSA June 15, 2022 Protest at 8-9).
[15] See, e.g., The MISO Independent Market Monitor June 15, 2022 Motion to Intervene and Protest at 2-3 (Accession No. 20220615-5184) (“The tariff contains options for the [Complainants’] loads to choose not to consume during peak periods by participating as Load Modifying Resources under the MISO tariff. The tariff contains provisions governing the qualification and testing of such loads. Importantly, this tariff-approved process establishes load reductions that are reflected in the clearing of the [Auction]. Presumably, the determination by [Complainant] to remove its load is based exclusively on the [Auction] price. This determination can be made in advance and submitted in the [Auction] as a[] [Load Modifying Resource].”).
[16] See EPSA June 15, 2022 Protest at 2 (“This complaint is certainly largely motivated by buyers’ remorse from customers who did not prudently hedge their capacity obligations through bilateral contracts—as many LSEs do to protect their customers.”); MISO June 15, 2022 Motion to Dismiss & Answer at 2 (“While most LSEs provide a [Fixed Resource Adequacy Plan] to meet their respective [Planning Reserve Margin Requirement (PRMR)], some LSEs rely solely on MISO’s [Auction] to procure the capacity required to meet the PRMR. While [Auction] clearing prices have historically been low, this economic decision exposes the LSE and its customers to potentially high prices that reflect the scarcity of capacity in relation to the local, sub-regional, or regional PRMR.”).
[17] MISO June 15, 2022 Motion to Dismiss & Answer at 3.
[18] See id. (“Zones 1-7 (MISO North/Central) were deficient of the aggregate PRMR by 1,230 MWs and, therefore, prices were set at the CONE value of $236.66 per MW/Day.”); id. at 19 (“[T]he [Auction] for the 2022/2023 Planning Year cleared approximately 1200 MW short of the PRMR target for the North/Central sub-region. This does not mean that the North/Central sub-region is short 1200 MW for expected energy demand; rather; the reserve margin associated with the forecasted energy demand in the sub-region is less and is now reduced to approximately 7.7%. In other words, MISO has procured resources sufficient to meet the forecasted peak demand for the energy during the 2022/2023 Planning Year plus an additional 7.7% or 9600 MW in reserve.”) (emphasis in original) (footnotes omitted); 2022/2023 Planning Resource Auction (PRA) Results, MISO, at 2 (Apr. 14, 2022) https://cdn.misoenergy.org/2022%20PRA%20Results624053.pdf (“Results from MISO’s 2022-23 [Auction] indicate a capacity shortfall for the MISO North/Central Regions, thus exposing entities with net short positions to the clearing price of Cost of New Entry (CONE) for the planning year.”); see also id. at 4.