MISO Says It Can't Require PLC Method of Capacity Allocation to Retail Suppliers

The Midwest ISO filed an answer at FERC attempting to justify its capacity cost allocation method for states with retail choice, but its arguments were strained or simply puzzling.

As only reported in Matters (9/16), the "default" allocation of capacity charges under MISO's sought forward capacity mechanism would be to apportion such charges on a daily Energy pro rata basis to load served within the EDC's area.

Accordingly, an LSE's share of the Coincident Peak Demand forecast would not be known until each operating day.

"The [competitive] LSE in that situation will not be able to reliably know, understand or be able to determine its Load and the resulting capacity costs necessary to serve its customers ... [T]his will be disruptive to retail LSEs seeking to bring competition to markets, while favoring an LSE/EDC in a non-competitive area who will be fully capable of determining its own capacity obligation," the Retail Energy Supply Association had previously protested, as RESA favors an allocation based on a peak load forecast or peak load contribution.

While the MISO tariff would allow an alternative capacity cost allocation method, such an alternative would only be permitted if agreed to by the EDC, which RESA said would allow EDCs to block alternatives that mitigate the competitive advantage provided to EDCs under the default method.

In response, MISO merely said, "MISO also recognizes that a federal Tariff cannot resolve all retail choice issues and cannot grant MISO authority that the Commission lacks. MISO is confident that Relevant Retail Electric Regulatory Authorities (RERRAs) will use their authority to take appropriate actions on a case-specific basis if – as predicted by some parties – unfair outcomes ultimately occur."

However, the Illinois Commerce Commission has already stated that MISO's tariff language insufficiently recognizes state authority in this regard, as it delegates to the host EDC any issues related to an alterative capacity allocation, directing only that the EDC "work with" the relevant state regulator (see 9/12). MISO did not apparently offer to alter this language.

Furthermore, MISO devoted much discussion to practical barriers to implementation of a PJM-style Peak Load Contribution (PLC) for capacity cost allocation.

"To those who believe that MISO should adopt the PLC methodology as the Default Method for tracking load, MISO notes it has studied this matter extensively and the current proposal is born out of the recognition that an EDC is not necessarily a Market Participant and is thus not bound by MISO's tariff," MISO said.

Frankly, we are perplexed as to MISO's meaning here regarding "market participant." Clearly, the three primary retail choice EDCs at issue -- Ameren Illinois, The Detroit Edison Company, and Consumers Energy Company -- are all market participants. Indeed, even if the native utilities were not participants for energy and ancillaries, imposing a 12-month capacity obligation on all load serving entities clearly will make the retail choice EDCs MISO market participants, as even under the "opt-out" scenario, the capacity obligation must be included in the MISO mechanism.

MISO likely means the EDCs are not transmission-owning members of the ISO, which would limit MISO's authority to obtain necessary data, but if this is what MISO means, it is not clear.

MISO continues, "The PLC is impractical as a default method because MISO cannot force the EDC to follow a certain retail load tracking methodology and (without the EDC's agreement) MISO is unable to obtain the necessary retail information to calculate the PLC methodology."

Matters will not opine on MISO's legal authority over the EDCs, but will note, in the past, MISO has routinely required market participants to provide data that the participant may not readily have. Indeed, under the original resource adequacy construct, each individual LSE was directed to provide load forecasts. While not as granular as the customer peak data at issue, for many retail suppliers, load forecasting was simply something they did not perform in the manner prescribed by MISO, but MISO never suggested it did not have authority to direct suppliers to comply with the load forecasting requirement due to a lack of data.

"MISO's proposal allows for and encourages cooperation between LSEs and EDCs, but cannot require it in that EDCs in a retail choice environment likely will not be taking service from MISO," MISO adds.

Detroit Edison and Consumers Energy filed comments opposing calls for a PLC methodology or similar alternative. The utilities did offer to use Daily Peak values for each retail choice load provider in making the daily capacity cost allocation, as opposed to the use of the cumulative daily energy values. However, this would apparently still leave the problem that the retail supplier would not know their capacity obligations in advance.

Turning to the issue of a capacity auction, the Organization of MISO States filed additional comments stating, "Relying on price signals from a centralized forward auction will not achieve long-term efficiency."

"Mandatory capacity auctions are not like other markets. Capacity is not a homogeneous one-dimensional product that is easily understood or well-defined by market participants. Some buyers and sellers are not willing participants. The demand curve is administratively determined and does not necessarily represent willingness to pay. Supply is manipulated by market rules such as Minimum Offer Price Rules ('MOPRs'). Attempts to preserve the 'market integrity' of capacity auctions can unreasonably interfere with states’ jurisdiction over resource adequacy," OMS said.