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MISO: Retail Suppliers Will Pay Auction-Clearing Price for New Capacity Obligations

August 2, 2011
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The Midwest ISO told Matters this afternoon that retail suppliers will pay the applicable capacity auction clearing price for any new load acquired as a result of switching under MISO's proposed modifications to its Module E resource adequacy construct.

MISO submitted its proposed tariff to FERC in July (see 7/21), but the pricing implications for switched retail load, particularly in an environment where the incumbent load serving entity opts out of the capacity auction and meets its capacity obligation via owned generation, was not clear from the filing.

Todd Hillman, MISO's Executive Director of Market Development & Services, and Kevin Larson, MISO's Senior Manager of Resource Adequacy, spoke with Matters and confirmed that, regardless of whether the LSE losing the capacity obligation originally relied on the auction, self-scheduling, or the opt-out mechanism, the price paid for capacity by the retail supplier acquiring the capacity obligation will be the auction-clearing price.

LSEs which opt-out of the auction commit a set amount of capacity to MISO, and this commitment is unchanged due to customer migration. Additionally, as part of committing such capacity to MISO, an LSE which opts-out agrees that, should its capacity obligation be reduced due to retail switching, it will accept the auction-clearing price of the capacity auction as compensation for any lost capacity obligation.

There is no ability for such an opt-out LSE, or any regulator, to change the rate paid for such capacity. This is in contrast to PJM's Fixed Resource Requirement, where the rate paid for capacity originally committed as part of the FRR, and which is then assumed by another supplier due to migration, may differ from the auction-clearing price, based on either an order from a retail regulator or FERC.

MISO's treatment of wholesale capacity costs due to load switching can be considered competitively neutral in this manner. Of course, as retail rates are outside of MISO's jurisdiction, this does not address any underlying difference in retail capacity rates paid by customers, which may result if an LSE elects to opt-out and use owned generation to meet its obligation, whose cost of service for such capacity as reflected in retail rates may differ from the auction clearing price.

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