Commissioner James Danly Statement
May 18, 2023
Docket No. ER22-496-002
I disagree with how this proceeding was handled and therefore I dissent from this “Order Addressing Arguments Raised on Rehearing.”[1]
In my statement to the underlying order rejecting Midcontinent Independent System Operator, Inc.’s (MISO) tariff revisions to implement a Minimum Capacity Obligation (MCO),[2] I concurred in the judgment and explained that, while I share my colleagues’ concerns regarding the proposal’s potential impact on market power, I was not persuaded by the entirety of the Commission’s reasoning.[3]
Specifically, I pointed out[4] that whether the Commission finds that the proposal accomplishes MISO’s goals is not the standard under section 205 of the Federal Power Act (FPA).[5] Instead, the question under FPA section 205 is always whether the proposal is just and reasonable.[6] I am pleased that the Commission has retracted that basis for rejection in today’s order.[7]
I am disappointed, however, that my colleagues did not pursue a paper hearing in this proceeding. As I explained in my separate statement to the underlying order, more information is needed regarding the possible exercise of market power.[8] After considering the arguments on rehearing, I am even more firmly convinced that we should have sought further development of the record.
Simply put, I am not persuaded by today’s order. This case turns on the issue of market power. If the Commission could have determined that there were no market power concerns on a regional basis, then we should not have rejected the proposal. A market tariff, like any other tariff, need not be designed to our liking. In order to pass muster under FPA section 205, it need merely be just and reasonable. In this case, the Commission failed to sufficiently explore the market power issues raised by the litigants both initially and on rehearing. My questions on this subject remain unanswered and I am not convinced that the Commission’s determinations on rehearing are supported by the record.
Today’s order states that “the discussion of the Market Monitor’s concerns in the MCO Order, relating to expected increased market share in MISO South, was in the context of the Commission’s finding that MISO’s proposal would limit buyers’ recourse to purchase capacity in the Auction, where all sellers are subject to market power mitigation, and undermine the important disciplining effect the Auction has on the bilateral capacity market.”[9] But as I indicate above, it is not clear that there is a regional market power issue at all, and the Commission did not see fit to explore the matter; instead, the Commission points back to the “disciplining effect the Auction has.” Does this mean that the Commission would never entertain an MCO proposal in MISO? That certainly seems to be the implication.[10] The Commission asserts that “arguments that the regional nature of the proposal alleviates market power concerns fail to recognize that MISO’s proposal is applied to a capacity construct that enforces network constraints, sub-regional constraints, and Local Clearing Requirements.”[11] One of my colleagues rightly points out that MISO may submit another filing.[12] But, as I have said before, the fact that MISO can file again, with all of the time, expense, and effort that such a successive filing would require is, at best, cold comfort.[13]
As the Commission today recognizes, “Entergy . . . argued that the MCO proposal is consistent with an element of Southwest Power Pool, Inc.’s (SPP) resource adequacy construct, which includes a requirement for each LSE to demonstrate that it owns or has bilateral contracts sufficient to meet 100% of its summer and winter peak load plus a reserve margin, as well as a non-compliance penalty equal to 125-200% CONE.”[14] In responding to this argument, the Commission asserts that “Entergy and Cleco have not shown that SPP and MISO are similarly situated so as to make the acceptance of the proposal at issue in the SPP Order persuasive to the outcome to this case.”[15] Fair enough. Different markets, different rules. But one has to ask: What is the significance of the market differences? Do these differences mean that MISO could never establish any kind of minimum capacity obligation? If so, why? Though it scarcely bears repeating, under the FPA the question is not whether the Commission favors the current construct over the proposed replacement rate. Instead, we approve rates that are just and reasonable. The fact that the Commission might favor an auction over the bilateral procurement of capacity does not require the rejection of a proposed tariff revision establishing a minimum capacity obligation.
The Commission is not without recourse in the face of market power. We could always apply indicative screens for market-based rate authority, just as we did in SPP to protect against the exercise of market power. But without delving into the threshold question of whether there actually is the possibility of market power being exercised can the Commission truly be said to have engaged in reasoned decision making?
For these reasons, I respectfully dissent.
________________________
James P. Danly
Commissioner
[1] Midcontinent Indep. Sys. Operator, Inc., 183 FERC ¶ 61,112 (2023) (MCO Rehearing Order).
[2] See Midcontinent Indep. Sys. Operator, Inc., 180 FERC ¶ 61,142 (2022) (MCO Order).
[3] Id. (Danly, Comm’r, concurring in the judgment at P 1).
[4] See id. (Danly, Comm’r, concurring in the judgment at P 1 n.1).
[5] 16 U.S.C. § 824d.
[6] MCO Order, 180 FERC ¶ 61,142 (Danly, Comm’r, concurring in the judgment at P 1 n.1).
[7] MCO Rehearing Order, 183 FERC ¶ 61,112 at P 18 (“we clarify that we are not rejecting the MCO proposal based on a conclusion that the proposal fails to accomplish MISO’s stated goals”) (citing MCO Order, 180 FERC ¶ 61,142 at PP 108-11).
[8] MCO Order, 180 FERC ¶ 61,142 (Danly, Comm’r, concurring in the judgment at P 1).
[9] MCO Rehearing Order, 183 FERC ¶ 61,112 at P 13.
[10] See id. (citing MCO Order, 180 FERC ¶ 61,142 at P 112 (“Were the Commission to accept the 50% limitation, it would need to revisit its analysis for resources who relied on the presence of the Auction to make the showings needed to secure market-based rate authority.”)); id. (“This disciplining effect becomes all the more important as reserve margins throughout MISO tighten.”); id. (“Particularly given the tightening of reserve margins in MISO as a whole and a capacity shortfall in MISO North/Central in the 2022/23 Auction, under the MCO as proposed, entities in MISO South might struggle to identify and transact with capacity sellers in bilateral markets to meet half of their Reserve Requirements and would not be able to rely on the full disciplining effect of the Auction to mitigate possible exercises of market power in bilateral capacity markets.”) (citations omitted).
[11] Id.
[12] See id. (Christie, Comm’r, concurring at P 2) (“There is nothing inherently wrong with an MCO in the MISO capacity market – which, we should remember, is voluntary – and if MISO can resolve such concerns, the outcome of a future filing should not be predetermined by our order herein.”).
[13] MCO Order, 180 FERC ¶ 61,142 (Danly, Comm’r, concurring in the judgment at P 1).
[14] MCO Rehearing Order, 183 FERC ¶ 61,112 at P 6.
[15] Id. P 17.