MISO to Lower Credit Requirements for LSEs Participating in Capacity Auction

The Midwest ISO has submitted tariff revisions to FERC to lower the credit requirements in the monthly Voluntary Capacity Auction (VCA) after determining that the current credit requirements are "excessive" based on historical pricing.

"The issue arises when an LSE desires to be a 'price taker' in a VCA," MISO said. "In this situation, in order to assure that the APRCs [Aggregate Planning Resource Credits] are acquired in the VCA, an LSE's RAR Auction Credit Allocation must be equal the Cost of New Entry (CONE) amount per megawatt/month. CONE represents the capital, operating, and other costs that would be incurred to develop a Capacity Resource in the MISO region; this value has moved from $80,000 megawatt/month when it was first determined in August 2009 to its currently approved level of $90,000 megawatt/month."

"These values far exceed historical VCA clearing prices," MISO noted.

MISO proposed to include a cap on the bid requirement for VCA participation to address the excessive credit requirement. "More specifically, based on stakeholder feedback and review of historical prices, a initial cap of $1,000/MW is proposed for bids entered into a VCA," MISO said.

"As a result, a participating LSE's RAR Auction Credit Requirement would be calculated as the lesser of $1,000/MW for bids submitted or the output from the existing formula," MISO said.

"MISO believes the $1,000/MW proxy price is appropriate because it represents a dollar value well below the CONE value of $90,000/MW and well above historical clearing prices. Over the previous fifteen months, for example, the auction clearing price has not exceeded $2.50/MW and has averaged $0.49/MW."

However, MISO does propose a contingency in the event that the auction clearing price exceeds the cap of $1,000/MW. "More specifically, MISO proposes including the ability to re-clear the VCA if, after the initial clearing of the VCA, the following occur: i) the VCA clearing price exceeds the cap of $1,000/MW; and ii) an LSE's established RAR Auction Credit Allocation is insufficient to cover the updated RAR Auction Credit Exposure," MISO said.

"If the situation as described above were to occur, MISO proposes to implement a process in which an applicable LSE would be informed of the deficiency. MISO would inform the applicable LSE in writing that they would have two (2) business days from the date of communication to increase the RAR Auction Credit Allocation to a level that equals or exceeds the updated RAR Auction Credit Exposure. If the LSE does not sufficiently increase the RAR Auction Credit Allocation to meet the request, the LSE's bids into the VCA will be rejected and MISO will re-clear the VCA without considering the rejected bids. MISO deems the likelihood of re-clearing as extremely remote," MISO said.