Capacity Owners Grasp at Straws by Invoking Impact on Retail Choice in MISO Capacity Market Rehearing Request

A group of capacity owners, desperate to overturn a FERC order addressing capacity obligations on load in the Midwest ISO market which the capacity owners oppose because it will not inflate capacity prices as desired, have now claimed FERC's order somehow "unduly discriminates" against retail choice providers.

Background on FERC Order

The rehearing request was filed by Ameren Energy Marketing, Calpine Corporation, Dynegy Power Marketing, LLC, Dynegy Midwest Generation, LLC, Electric Power Supply Association, Exelon Corp., FirstEnergy Solutions Corp. and NextEra Energy Resources, LLC. While four of those companies have retail books, none of the companies have historically been a retail-choice focused operation -- that is, until the cratering of the wholesale market prompted these companies to look to the retail market to support their margins. With due respect to the Constellation NewEnergy business, acknowledged as the market-leader in terms of competitively served retail load for a decade, even NewEnergy focused exclusively on wholesale-like large and mid-merit customers, and only deigned to serve the mass retail market when wholesale prices collapsed.

The capacity owners' sudden concern for the capacity market's broad impact on retail choice is in contrast to their hundreds of pages of protests and answers filed previously in the proceeding, in which they identified a single, discrete issue that would negatively harm retail suppliers under the MISO market design (specifically, the allocation of capacity obligations, and problems in MISO's proposed average daily energy usage allocation versus a Peak Load Contribution allocation).

Now, however, capacity owners claim that the market design approved in FERC's order, "unduly discriminates against existing merchant generation and retail choice providers."

No explanation is provided regarding how the order unduly discriminates against retail choice providers.

Capacity owners continue, "retail choice providers still have a statutory right to just and reasonable wholesale markets," which we do not dispute. But capacity owners merely assert, and do not explain, how the rates which will result from the FERC-designed market will be unjust and unreasonable to retail providers.

Noting that only two states in MISO currently feature retail choice, capacity owners add that, "jurisdictions always can switch to retail choice, but this becomes less likely if the wholesale markets discriminate against retail choice."

Capacity owners said that the, "unreasonably short [two-month] forward period will significantly increase volatility, reduce competition, harm retail choice and make it virtually impossible for many planned resources, including demand response, to effectively participate in capacity auctions, particularly given the de facto existence of a vertical demand curve in MISO (as opposed to an administratively-set, sloped demand curve)."

Capacity owners continued, "While the 'vast majority' of capacity might be owned by load serving entities, a significant amount of capacity is not. Merchant generators who offer their capacity into the market will undoubtedly suffer from artificially lowered prices, as will retail choice providers."

"And there is no question that a flawed, voluntary, artificially suppressed capacity market puts retail choice entities at a large disadvantage compared to utilities."

Indeed, there is a very large question of how low capacity prices puts retail choice entities at a large disadvantage compared to utilities, because capacity owners never answer it. We are only left to guess what the discrimination faced by retail suppliers would be, an exercise in which we will not engage.

The silence from the capacity owners is deafening. While this is a rehearing request and therefore expected to be limited, the fact is that the capacity owners' argument that the features adopted by FERC for the MISO capacity market are harmful to retail choice -- features well-known in the proceeding and raised by other stakeholders which capacity owners could have answered in prior comments -- received no attention in three rounds of comments from capacity owners, aside from the discrete capacity obligation allocation issue mentioned above.

On a broad basis, capacity owners never previously argued that key elements of the FERC-adopted market design (voluntary auction with opt-out, vertical demand curve, no multi-year forward obligation, and no buyer-side mitigation) are harmful to retail choice. We suspect this is because such features are not per se discriminatory to retail providers (although with anything, implementation may take a path which is not competitively neutral, see the Fixed Resource Requirement in PJM, but nothing would prevent the use of the MISO market design elements in a retail competitively neutral manner).

Rather, now that capacity owners have lost on four key points which will impede their desire for unnecessarily increased capacity pricing in MISO, capacity owners are grasping for any argument which raises the specter of disaster for the retail market.

But this does a disservice to retail choice and efforts to expand choice, by associating choice with a market design that is not supportive of the goal of customer choice, but is merely the exchange of one form of command and control regulation (state cost of service regulation) with another (federally required purchases of capacity in a federally run auction).

Indeed, the capacity owners' emphasis on retail "choice" is laughable considering what the crux of their complaint is:

"Another of the primary failings of the capacity construct approved in the Order is that buyers do not have to participate unless they want to -- it is a 'voluntary' market."

Shocking. A market where buyers can -- choose -- whether to participate or not. This, clearly, is an affront to competitive markets.

Note, of course, that although the auction (not, market) is voluntary, all load serving entities in MISO are subject to a FERC-determined capacity obligation, or deficiency penalties. In other words, load already has to buy capacity

The capacity owners not only want to make load buy capacity, but dictate how, where, when, and for how long load buys this capacity.

If that isn't command and control regulation (the regulation capacity owners are howling about in New Jersey and Maryland), we don't know what is.