Energy Choice
                            

Matters

FERC Rejects MISO Forward Capacity Market For Retail Choice Areas

Use of State-Determined Capacity Payment For Michigan Retail Suppliers Implicated

February 3, 2017

Email This Story
Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

FERC has rejected the Midcontinent ISO's proposal to create a three-year forward capacity auction specific to those areas of MISO with retail choice (often called the "competitive retail solution" or CRS)

"We find the CRS Proposal has not been shown to be just and reasonable, and not unduly discriminatory or preferential, and therefore reject it," FERC said

The treatment of retail suppliers' capacity obligations in Michigan, and whether the use of a state compensation mechanism (mandated payment from retail suppliers to utilities) is triggered, is premised on whether a forward capacity auction was adopted in MISO for retail choice areas. (see discussion here)

"The proposed Forward Auction would apply only to load in Competitive Retail Areas, which accounts for only a small (less than 10 percent) portion of the total load within MISO, and would occur more than three years prior to the Prompt Auction, thereby bifurcating the MISO capacity market ... this bifurcated approach could have uncertain, and potentially adverse, impacts on price formation in both the Forward Auction and the Prompt Auction," FERC said

"MISO’s proposal bifurcates the MISO capacity market into two distinct market clearing mechanisms held at different points in time. Market-wide clearing processes are typically more efficient than bifurcated clearing processes. Rather than clear the market as a whole for a given Planning Year through a single market-wide auction (i.e., the current practice in all Commission-jurisdictional wholesale capacity markets), MISO’s proposed construct will likely result in clearing prices and capacity resource selections that lack the desirable properties associated with a single market-wide clearing process ... We are not convinced that the proposed bifurcated market clearing process will result in the efficient and desirable outcomes generally associated with a market-wide clearing process," FERC said

"Due to the bifurcated structure, which requires owners of these supply resources to decide whether to offer into the Forward Auction more than three years prior to the Prompt Auction for the same Planning Year, it is not clear the extent to which these supply resources will offer into the Forward Auction or how this uncertainty will impact clearing prices in the Forward and the Prompt Auction. Such unpredictable and variable supply participation could result in significant and unnecessary price volatility in both the Forward and the Prompt Auction. Given the limited amount of demand that will be represented in the Forward Auction, relatively small changes in supply participation from non-Competitive Retail Areas on a year-to-year basis could result in substantial unnecessary year-to-year differences in Forward Auction clearing prices, even with a downward sloping demand curve that should reduce price volatility. Because the Forward Auction and the Prompt Auction occur at different times, the prices in those two auctions could diverge based on supply participant behavior, even when such divergence is not supported by underlying supply and demand fundamentals. Varying and uncertain levels of supply participating in the Forward Auction could have a significant impact on the clearing prices in the Prompt Auction. Furthermore, the use of a downward sloping demand curve in the Forward Auction while retaining the vertical demand curve in the Prompt Auction would allow for variable amounts of capacity to clear in the Forward Auction, which could amplify volatility in the Prompt Auction," FERC said

"We also find that MISO has not adequately explained or provided clear Tariff language to demonstrate that the CRS Proposal would reasonably allocate transmission capability across capacity zones and across sub-regions in the MISO footprint between the Forward Auction and the Prompt Auction. In past Prompt Auctions, transmission capability constraints between Zones and sub-regions have caused substantial price separation. Consequently, the allocation of Zonal and sub-regional transmission capability between the Forward Auction and the Prompt Auction could significantly impact clearing prices in both the Forward Auction and the Prompt Auction. However, the proposed bifurcated clearing mechanism requires MISO to choose how much transmission capability to allocate between the Prompt Auction and the Forward Auction, which could lead to improper or inefficient allocations. Allocating an insufficient amount of transmission capability to the Forward Auction could result in price separation in the Forward Auction that does not truly reflect the physical limitations of the system or the locational need for capacity. On the other hand, allocating an insufficient amount of transmission capability to the Prompt Auction could prevent load serving entities in the Prompt Auction from procuring lower-cost capacity. This allocation concern is not present with a market-wide clearing process because, as noted above, a market-wide clearing process employs a single set of transmission capability constraints," FERC said

Docket No. ER17-284

ADVERTISEMENT
NEW Jobs on RetailEnergyJobs.com:
• NEW! -- Senior Analyst -- Retail Energy -- Houston
• NEW! -- Implementation Manager -- Retail Energy -- Houston
• NEW! -- Manager of Regulatory Affairs -- Retail Supplier
• NEW! -- Channel Manager, Sales -- Retail Supplier
• NEW! -- Manager of Billing Operations
• NEW! -- Marketing Associate -- Retail Supplier -- Houston
• NEW! -- Directors: Telemarketing or Broker Channel Management - Retail Electric Supplier -- Houston
• NEW! -- Analysts, Sales and Marketing - Retail Electric Supplier -- Houston
• NEW! -- Market Director -- Retail Energy
• NEW! -- Energy Business Development Professional
• NEW! -- Managers, Sales and Marketing - Retail Electric Supplier -- Houston
• NEW! -- Sales Associate -- Retail Energy