MISO Says FERC-Approved Capacity Mechanism Could Result in Some Retail Suppliers Over-paying

The Midwest ISO said in a FERC filing that a further review of the resource adequacy construct as accepted and modified by FERC in a June 11 Order is subject to two risks: (1) that some Planning Resource Margin Requirement may not be sufficiently accounted for and modeled at the time of the Planning Resource Auction; and (2) that some Load may switch providers during the Planning Year, which would result in an originally serving LSE having over-procured capacity and the LSE acquiring the new Load having under-procured sufficient capacity.

Where no LSE claims an obligation to serve certain Load in an Electric Distribution Company's territory (and the Electric Distribution Company and LSEs are unable to agree on the appropriate provider), MISO proposes to assign responsibility for such Load to the Provider of Last Resort (POLR).

"For example, suppose that: (1) an LSE has a contract to serve certain retail customers and the contract will expire on May 31 prior to a Planning Year; (2) the LSE has no expectation of continuing to serve that load; and (3) the LSE has no obligation to continue to serve the load. If no other LSE has contracted with these retail customers before the Planning Resource Auction is held to serve the load, then the POLR will be assigned the responsibility to meet the Planning Reserve Margin Requirements for such load," MISO said.

The Provider of Last Resort may choose to satisfy the Planning Resource Margin Requirement by procuring Zonal Resource Credits through the Planning Resource Auction (or by one of the other options previously discussed).

"The benefits to the Provider of Last Resort of meeting the Planning Resource obligations through the Planning Resource Auction include ensuring that the accurate amount of required Planning Resources are purchased," MISO said. As a result, the Provider of Last Resort can mitigate any financial impact of Load switching relating to resource adequacy, MISO said.

When Load switches suppliers (i.e., LSEs) during a Planning Year, then the obligations to serve that Load and procure sufficient capacity Resources should follow the Load to the new LSE, MISO said. Once an LSE has met its obligations at the time of the Planning Resource Auction, then it cannot be deemed deficient later. When Load switches after the start of the Planning Year, the original committed resource obligation remains unchanged. If the Load is cleared through the Planning Resource Auction and then switches to a new LSE at some point during the Planning Year, then the new LSE would pay, through MISO Settlements an amount equal to the transferred capacity (in MWs) times the Auction Clearing Price for the Local Resource Zone where the Load is located less any zonal deliverability benefits. The scenario provides the Provider of Last Resort with the option of placing such potentially switching Load into the Planning Resource Auction and therefore ensuring that it neither over-nor under-supplies its Planning Resource Margin Requirement by paying for more or less capacity than it serves when Load switches, MISO said.

MISO proposes to enhance Sections 69A through 69A.1.3 of the Tariff to resolve the potential problems that are created when Load switches providers, and to ensure that all Load is adequately modeled in the Planning Resource Auction.

Currently, the Tariff requires that each LSE shall submit a Coincident Peak Demand forecast by November 1 prior to the upcoming Planning Year, as described in Section 69A.1.1. Additionally, by November 1 prior to the upcoming Planning Year, the Transmission Provider shall establish the Planning Reserve Margin pursuant to Section 68A.2. The Planning Resource Margin Requirement is calculated for each LSE within a Local Resource Zone pursuant to Section 68A.7. Sufficient Planning Resources to meet the Planning Resource Margin Requirement must be acquired or procured for the upcoming Planning Year pursuant to Section 69A.1. Once sufficient Planning Resources are procured for the upcoming Planning Year, such Planning Resources may be recognized as satisfying an LSE's reliability obligations on a daily basis.

MISO is proposing to amend Section 69A.1.1 of the Tariff to specify an Electric Distribution Company's obligation to provide either Coincident Peak Demand or each retail customer's peak load contribution to both MISO and the respective LSE by December 15th.

Any LSE that knows of retail customer load that will switch providers for the upcoming Planning Year will be required to alert MISO of this fact. Additionally, MISO will assist Market Participants by publishing the calculation of transmission losses for each LBA by the first Business Day in December, as opposed to the current Tariff deadline of the first Business Day in January.

Retail Load switching is addressed in Section 69A.1.1.1 of the Tariff. In this section, MISO proposes to identify the notification responsibilities of the affected Market Participants that may be subject to retail Load that switches during the Planning Year.

Section 69A.1.1.1 also outlines accounting for wholesale customers that may switch LSEs during the upcoming Planning Year. If an LSE has responsibility to serve a wholesale Load during the next Planning Year, then such LSE will meet the Planning Resource Margin Requirement requirements for such Load. If no LSE has responsibility for serving a wholesale Load for the next Planning Year, then the LSE with an obligation to serve such Load on January 15th (of the year prior to the Planning Year) will meet the Planning Resource Margin Requirement requirements for the next Planning Year, provided that such LSE anticipates that the contract will be extended. If the LSE does not anticipate that the contract for wholesale Load will be extended, then the wholesale customer responsible for the wholesale Load must meet the Planning Resource Margin Requirement requirements by informing the Transmission Provider by January 30th of the name of the Market Participant with the Planning Resource Margin Requirement obligation. In this way all load shall be accounted for at the time of the Planning Resource Auction and sufficient Zonal Resource Credits will be procured to ensure reliability, MISO said.

To address the reliability risk where retail Load switching occurs during the Planning Year, MISO proposes to amend Section 69A.1.2 so that the process for the assignment of Coincident Peak Demand obligations is delineated for Market Participants that use either the preferred default method or the daily peak default method. "This process will assign cost obligations on a daily basis to reasonably capture the requisite granularity of retail load that switches providers during the Planning Year," MISO said.

For LSEs that use the preferred default method in Section 69A.1.2.1, costs shall be allocated on a daily basis to such LSEs by multiplying the peak load contributions for load served by the LSE multiplied by the Auction Clearing Price for the Local Resource Zone where the Load is located less any zonal deliverability benefits. For LSEs that use the daily peak load default methodology, in Section 69A.1.1, costs shall be allocated on a daily basis to such LSEs by multiplying the load served by the LSE as a percentage of the Electric Distribution Company's load during the Hour of MISO's peak load, multiplied by the Planning Reserve Margin Requirement for the Electric Distribution Company's Coincident Peak Demand forecast, times the Auction Clearing Price for the Local Resource Zone where the Load is located less any zonal deliverability benefits.

If wholesale Load switches providers during the Planning Year, costs shall be allocated on a daily basis to such LSEs based on the Planning Reserve Margin Requirement reflecting the coincident peak MWs for load that the LSE did not account for in its forecast times the Auction Clearing Price for the Local Resource Zone where the Load is located less any zonal deliverability benefits.

The revenues from such cost allocations will be distributed to the Market Participant that cleared Zonal Resource Credits in the Planning Resource Auction at the appropriate Auction Clearing Prices.

Additionally, MISO has proposed improvements to the preferred default peak load contribution methodology under Section 69A.1.2.1 to include additional calculation explanation regarding the peak load contribution value derived from each retail customer based upon their prior Summer peak Demand coincident with MISO's peak Demand. The term “Prior Summer Retail Customer Coincident Peak” captures a key concept necessary for MISO to verify that the peak load contributions calculated by the Electric Distribution Company equal the Electric Distribution Company's Planning Resource Margin Requirement. MISO has included a formula that will be used to verify the Planning Resource Margin Requirement for each Electric Distribution Company equals the peak load contributions provided by such Electric Distribution Company.

MISO is also proposing to eliminate Section 69A.1.2.2, which describes alternative methods for determining and assigning Coincident Peak Demand obligations. Given that the Commission's June 11 Order expressed a clear preference for using the peak load contribution method (and the availability of an approved alternative daily peak load approach), alternative methods are no longer required and could potentially result in confusion regarding compliance with applicable Tariff provisions

FERC Docket: ER12-2706