FERC Resurrects Rehearing Request, Seeks Briefing on Prior Decision to Reject Capacity Market Price Floor

A year after rehearing requests were filed regarding buyer-side "mitigation" in the Midwest ISO's capacity market, FERC said that it would benefit from briefing on the issue, and set a schedule for such briefs.

In originally adopting the latest design of the MISO capacity market, FERC rejected MISO’s proposed minimum offer price rule, finding that buyers within MISO are, "generally unlikely to benefit from exercising market power by subsidizing uneconomic entry ... [because] utilities own the vast majority of capacity within MISO."

In a rehearing request, the MISO Market Monitor (which Matters notes is Potomac Economics, which serves a similar role in ERCOT), according to FERC, "presents evidence suggesting that 'a large share of the capacity requirements in MISO are satisfied via bilateral purchases, including purchases from outside MISO. Therefore, if capacity prices rise as capacity margins fall ... states and regulated LSEs are likely to have the incentive to depress capacity prices.'"

"We believe that the Commission would benefit in its further consideration of this matter by the receipt of briefs from parties in this proceeding addressing the matters raised in the requests for rehearing submitted by the Market Monitor and Capacity Suppliers with respect to the Commission’s rejection of MISO’s proposed minimum offer price rule," FERC said.

Commissioner Tony Clark dissented from the order.

"MISO’s resource adequacy construct is intended to promote regional reliability in concert with the local planning processes that have been used for years to meet resource adequacy needs in the Midwest. I am concerned that a minimum offer price rule (MOPR) in MISO could undermine these local planning processes and unwind the design changes recently accepted by the Commission in the Resource Adequacy Order," Clark said.

"My concern is that reopening the MOPR issue on rehearing could ultimately lead to changes that decrease the flexibility of MISO’s resource adequacy construct. The Commission recognized this tension in the Resource Adequacy Order when it found that certain elements of MISO’s resource adequacy construct, including the opt-out provision, would not allow for an effective MOPR," Clark said.

"[T]his flexibility is necessary for maintaining the balance between state and regional resource planning processes in MISO and it would be inappropriate to upset this balance by injecting Eastern RTO capacity market principles into it," Clark said

"In upholding the voluntary nature of the capacity auction, the Commission previously recognized that this feature allows LSEs and their regulators to maintain significant flexibility when developing resource plans based on their specific region. Retaining this flexibility is a core issue for states in the MISO region. MISO’s footprint is overwhelmingly composed of state-regulated, vertically-integrated utilities subject to integrated resource planning regimes. This regulatory framework places MISO in a different position than Eastern RTOs that are substantially relying on capacity markets, and administrative constructs such as a MOPR, to produce accurate price signals for resource development needs," Clark said

"Given the seemingly poor fit of a MOPR in the MISO region, and lacking a compelling rationale for rehearing, I cannot support the decision to initiate briefing procedures. Circumventing the stakeholder process by reopening the MOPR issue in this narrow context interjects unnecessary uncertainty into MISO’s resource adequacy construct at a time when the region is still adapting to the major design changes just recently approved. If market participants believe a MOPR will further the ability for the region to meet its resource adequacy needs, then they should bring these issues to the MISO stakeholder process where interested parties can comprehensively consider MOPR related issues," Clark said.

Docket No. ER11-4081