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FERC Denies Rehearing Of Prior Finding That MISO Zone 4 Capacity Rates From 2015/16 Auction Were Just And Reasonable

March 19, 2020

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Copyright 2010-20
Reporting by Paul Ring •

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FERC has denied rehearing of its prior finding that the results from the Midcontinent ISO 2015/16 Planning Resource Auction for Local Resource Zone 4 were just and reasonable

In the case, EL15-70 et al., Public Citizen, Inc. alleged that the spike in prices from $16.75 to $150.00 for Zone 4 in the 2015/16 auction, "may be the result of illegal manipulation and gaming of the auction bidding process, specifically capacity withholding, contrary to Section 222 of the FPA."

"Public Citizen believes that the available evidence suggests Dynegy may have engaged in intentional capacity withholding," Public Citizen had alleged in the complaint

In an answer to the complaint, Dynegy had said that its offers were competitive, and that there was no physical or economic withholding. In its initial answer, Dynegy said that the price spike resulted from the use of a vertical demand curve and residual capacity market construct, which Dynegy said results in volatility. Dynegy denied the allegations in the complaint

FERC's original July 2019 order had denied Complainants’ allegations that Dynegy exercised market power in the 2015/16 Auction, with FERC concluding that, "MISO conducted the 2015/16 Auction in compliance with the MISO Tariff, including the Tariff provisions pertaining to Dynegy’s offers in the Auction, that were designed to mitigate the exercise of market power and result in a just and reasonable rate."

FERC affirmed such conclusion on rehearing

"As the Commission explained in the July 2019 Order, market-based rate tariffs are lawful under the FPA so long as they are authorized under a regulatory framework that incorporates both an ex ante finding of the absence of market power and enforceable post-approval transaction reporting," FERC said

"From an ex ante standpoint, the Commission will allow a seller to make wholesale power sales pursuant to a market-based rate tariff provided that the seller and its affiliates do not have, or have adequately mitigated, horizontal and vertical market power. For sellers, such as Dynegy, that operate in a regional transmission organization or independent system operator (RTO/ISO) with Commission-approved market monitoring and mitigation, the Commission has adopted a rebuttable presumption that the market monitoring and mitigation is sufficient to address market power concerns. The presumption that MISO’s market monitoring and mitigation rules were sufficient to address market power concerns in MISO’s Auctions was not challenged until the filing of the instant Complaints, which occurred after the 2015/16 Auction had taken place. Accordingly, Dynegy’s bids into the 2015/16 Auction were permissible under its market-based rate tariff and did not constitute new or changed rates subject to Commission review under section 205 of the FPA," FERC said

FERC further said, "Dynegy has followed the Commission’s post-approval reporting requirements, and Public Citizen does not allege otherwise. Accordingly, the sales made pursuant to Dynegy’s market-based rate tariff at the time of the 2015/16 Auction were appropriately made."

Commissioner Richard Glick dissented.

"I dissent from today’s order because the Commission continues to sidestep the key question posed in these proceedings: Whether the results of the Midcontinent Independent System Operator, Inc.’s (MISO) 2015/2016 capacity auction (2015 auction) were just and reasonable in light of the allegations of market manipulation by Public Citizen and others. Rather than directly confronting that issue, the Commission states that the relevant tariff language was followed and that a non-public investigation was conducted and did not, in my colleagues’ view, uncover manipulative conduct. That enforcement proceeding, however, was terminated by the Chairman without a vote by the Commission and the details of that investigation remain confidential. Accordingly, the Commission has at no point provided Public Citizen with an adequate response to the concerns raised in its complaint or explained why, in light of those concerns, the auction results were just and reasonable," Glick wrote

"As an initial matter, the fact that MISO and the individual market participants appear to have followed the relevant tariff language does not insulate them against the argument that market manipulation rendered the resulting rates unjust and unreasonable. I am not aware of any authority to support the proposition that a market participant can commit market manipulation with impunity so long as it does not violate the relevant tariff language. To the contrary, in cases involving section 10(b) of the Securities Act of 1934—the template for the prohibition on market manipulation in section 222 of the Federal Power Act (FPA)— courts have repeatedly recognized that a facially legal action can constitute manipulation when it is taken for an improper purpose. The courts have similarly admonished the Commission to 'not take a cramped view of the types of deception that can give rise to fraud' and that 'the same conduct may or may not be deceptive depending on an actor’s purpose.' And the Commission itself has recognized that conduct consistent with the relevant tariff can nevertheless be manipulative if motivated by an illicit or improper aim," Glick wrote

"I do not interpret the underlying order—or today’s order on rehearing—to indicate that the Commission has had a change of heart and now believes that simply following the relevant tariff creates a safe harbor for market manipulation. Such an about face would be an unreasoned departure from settled policy and would seem to directly contravene the case law cited in the previous paragraph. That means, however, that the absence of a tariff violation cannot be a complete answer to an allegation that market manipulation rendered the 2015 auction results unjust and unreasonable," Glick wrote

"Instead, the Commission must also conclude that the 2015 auction results were not the product of market manipulation. I see no basis for such a conclusion in today’s order. As in the underlying order, the Commission notes that a non-public investigation into alleged manipulation was commenced by the Commission and has since been closed. Although the Commission directed that investigation, the decision to terminate the enforcement process was made by the Chairman without consulting the other commissioners. Had I been consulted, I would have argued against terminating the enforcement process. Because the details of the investigation remain non-public, I cannot explain why I believe that the Chairman erred in terminating the enforcement process. Suffice it to say that I am confident that the evidence uncovered in that investigation was more-than-sufficient to press ahead," Glick wrote

"But even putting aside my disappointment with the fate that befell that investigation, today’s order provides a wholly unsatisfactory response to the allegations of market manipulation raised in the complaints. Although the Commission can choose to publicly disclose aspects of a non-public investigation, the Commission has refused to do so here, meaning that the evidence uncovered and staff’s findings remain confidential. As such, today’s order does not provide even the scantest reasoning to support its finding that the nearly 1,000 percent year-over-year increase in the MISO Zone 4 capacity price had nothing to do with market manipulation. Instead, all we have is the Commission’s unsubstantiated assurance that there is nothing to see here," Glick wrote

"The premature end to the enforcement process coupled with the conclusory assertion that there was no market manipulation leave important questions unanswered. Given those unanswered questions, I do not believe we can say with any confidence that the 2015 auction was not subject to market manipulation. Accordingly, because I cannot make that judgment, I cannot join the Commission’s conclusion that those auction results are just and reasonable," Glick wrote

Docket Nos. EL15-70 et al.

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