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Industrial Customers Say MISO Use of Wrong Zonal Import Limit Raised Capacity Prices By $50/MW-Day, Seek Refunds

Would "Preserve" Revenue Streams For Generators That Relied on Incorrect Clearing Price (Uplift?)

Customers Seek FERC Audit of IMM

September 12, 2016

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Copyright 2010-16 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

The Coalition of MISO Transmission Customers (CMTC) has filed a complaint at FERC alleging that MISO used the incorrect import limit for on the maximum quantity of capacity resources that could be exported from Zones 8-10 into Zones 2-7 for the 2016-17 capacity auction, which inflated capacity prices by $50/MW-day

MISO imposed a limit of 876 MW on the maximum quantity of capacity resources that could be exported from Zones 8-10 into Zones 2-7.

CMTC alleged that, "MISO misapplied its Tariff when conducting the 2016-2017 Auction by failing to properly calculate transfer capability between MISO South and MISO Midwest. MISO understated the transfer capability by at least 206 MWs, and possibly more. When the correct transfer capability is calculated and MISO Tariff provisions are properly applied, the clearing price for Zones 2-7 in the 2016-2017 Auction is reduced from $72.00/MW-day to $20.00/MWday. Customers are entitled to refunds of excess capacity payments that have been collected from customers and are entitled to pay this new clearing price for any balance of the Planning Year that remains after issuance of the Commission order."

CMTC argued that the 876 MW Sub-Regional Export Constraint (SREC) that MISO used in the 2016-2017 PRA does not reflect the full power transfer limit between MISO South and MISO Midwest, which CMTC said should have been established using the 2,500 MW power transfer limit established by a MISO-SPP Settlement minus a reasonable expectation of the use of firm transmission reservations in both directions between the regions.

Rather than setting the MISO South to MISO Midwest SREC at 2,500 MWs, reflecting the physical transfer capability between the regions, MISO elected to reduce the SREC to 876 MW to reflect the level of firm transmission service reservations MISO had accepted from the MISO South region that would be in place during the 2016-2017 delivery year, CMTC said

"The firm transmission service reservations of 1,624 MW that MISO deducted from the available system capacity usage of 2,500 MW do not reflect actual power transfers from the MISO South to MISO Midwest region. Rather, the deductions reflect firm service that MISO has agreed to provide NRG Energy Inc. ('NRG') in order to allow NRG capacity resources located in the MISO South region to qualify as a capacity resource in PJM Interconnection, L.L.C.’s ('PJM') Reliability Pricing Model ('RPM'). The problem with MISO’s approach, and one of the reasons it is inconsistent with Tariff-based obligations to properly calculate an SREC, is that there is no evidence that NRG is, in fact, using this firm transmission reservation during the 2016-2017 Planning Year to actually flow energy from MISO South to MISO Midwest in such a way that NRG’s full transmission reservation should be deducted from the 2,500 MW total," CMTC said

"As recognized by MISO’s IMM, MISO overstates the impact of firm transmission reservations in such a way as to sub-optimize the use of the transmission system," CMTC said. "For the 2016- 2017 PRA, MISO calculated and subtracted the full amount of firm transmission reservations (in the case of the 2016-2017 PRA, in one direction ...), without considering the actual or reasonably likely use of the firm transmission reservation. This deficiency in MISO’s calculations has been recognized by MISO’s IMM in the 2015 State of the Market report, which was issued in June 2016, after the 2016-2017 PRA had been cleared: 'The clearing prices in the 2016/2017 PRA where higher in most of the zones in the Midwest (except in Zone 4). Zones 2 through 7 cleared at $72 per MW-day, while Zone 1 remained export constrained and cleared at $19.72. Zones 8, 9, and 10 in MISO South were constrained by the transfer constraint and cleared at $2.99 per MW-day. These results were substantially affected by the transfer limit of 876 MW that MISO employed in this action. Under the Settlement Agreement with SPP, MISO may use up to 2,500 MW of transfer capability from MISO South to MISO Midwest in real time and this amount has been reliably available. Modeling the transfer constraint with a limit that reflects a probabilistic expectation of available transfer capability would allow MISO to more fully utilize its planning reserves in MISO South and would have affected prices on both sides of the transfer constraint in the PRA. Hence, we recommend MISO adopt a new methodology for establishing the transfer limit in future PRAs.'"

"Therefore, CMTC asks the Commission to direct MISO to recalculate the 2016-2017 PRA based upon a revised MISO South to MISO Midwest transfer limit of at least 1,082 MW and to provide refunds of excess capacity payments collected from customers, while preserving revenue streams for resources that justifiably relied on offers between the original clearing price and the revised lower clearing price," CMTC said

While not explicit, as noted above, CMTC suggests that $20 should be the clearing price paid by load (customers, "are entitled to pay this new clearing price."). This leaves the question of how to achieve CMTC's stated preservation of revenues for generators that relied on the incorrect, higher clearing price, with the answer presumably being uplift.

CMTC also sought that FERC conduct an audit of the IMM's approval of offers in the 2016/2017 PRA.

"MISO's current Tariff includes less-than-clear language that leaves room for the IMM to exercise discretion in its review and calculation of going-forward costs and opportunity costs that may comprise individual unit capacity offers," CMTC noted

As customers are barred from reviewing such information, due to confidentiality rules, CMTC said that FERC must review the IMM's actions -- not automatically (a policy FERC has previously rejected), but in this unique instance, "given the offers that comprise the supply curve for the 2016-2017 PRA show significant 'step-jumps' near the end of the curve and show offers that appear to exceed any reasonably calculated level of going-forward costs."

"The offer data that were released by the IMM (without revealing the identity of either the unit or the unit owner) indicate that offers calculated on the basis of facility-specific foregone opportunities or going-forward costs formed a 'hockey stick' shape supply curve, with offers on the end of the supply curve at levels that were higher than reasonably anticipated under a 'going-forward costs' approach," CMTC said

Docket EL16-112

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