On October 31, 2018, FERC accepted revisions to the Midcontinent Independent System Operator, Inc.’s (“MISO”) Open Access Transmission, Energy and Operating Reserve Markets Tariff (“Tariff”) to enhance the locational aspects of its resource adequacy construct (“Filing”).  In March of 2018 (“March 2018 Filing”), MISO had proposed a similar filing, which FERC rejected, without prejudice, on August 2, 2018.  There, FERC found two elements of the March 2018 Filing to be unjust and unreasonable, but FERC provided MISO with guidance with respect to any future filing.  With the exception of those two elements, MISO stated that its Filing contains the same proposal and justification for the proposal as in its March 2018 Filing.

In its Filing, MISO focused on three areas: (1) modeling and pricing External Resources, i.e., those capacity resources that are external to the Local Zones comprising MISO’s footprint, in newly proposed External Resource Zones; (2) changing how MISO allocates excess auction revenues through the introduction of Historical Unit Considerations (“HUC”); and (3) refining the calculations of existing locational market parameters (i.e., Capacity Import Limits, Capacity Export Limits, and Local Clearing Requirements).

Regarding (1), the treatment of External Resources, MISO identified reliability and inequity concerns associated with the way it currently models External Resources.  As a solution, MISO proposed to model and price External Resources in newly created External Resource Zones that will still count towards satisfying MISO’s region-wide Reserve Requirement but will not count towards satisfying the Local Clearing Requirement for any MISO Local Zone. MISO stated that its proposal appropriately reflects the location of External Resources and enables states and load serving entities (“LSEs”) within those states to have an accurate accounting of their local resource needs and their capabilities to utilize resources from outside their Local Zone.  FERC found it just and reasonable for MISO to no longer count all External Resources towards satisfying the Local Clearing Requirements for MISO’s Local Zones because, according to FERC, continuing to do so would undermine the purpose of the Local Clearing Requirement, which is to ensure that a sufficient amount of capacity is located within each Local Zone so that each Local Zone can meet its Loss of Load Expectation (“LOLE”) during its Local Zone Peak Demand when it is import constrained.  FERC disagreed with protestors regarding allegations of undue discrimination and found that MISO reasonably demonstrated that Border External Resources (a resource that has a point of interconnection at a substation that contains the terminal of a transmission line under MISO’s functional control) warrant different treatment than their External Resources for the limited purpose of satisfying Local Clearing Requirements.

Regarding (2), Historical Unit Considerations, MISO proposed that, because of the changes to its treatment of External Resources, it is necessary and equitable to introduce HUCs, a new methodology to allocate excess auction revenue.  MISO explained that, under its HUCs proposal, if capacity prices in the auction separate, MISO will allocate the resulting excess auction revenue to LSEs with historic arrangements, such as Grandfathered Agreements, pre-zonal capacity contracts (i.e., arrangements that predate July 20, 2011), or pre-March 26, 2018 (i.e., the date of the March 2018 Filing) contracts with External Resources.  FERC explained that, because under the MISO HUCs proposal the amount of existing arrangements that are eligible for HUCs will decrease over time and eventually no HUCs will remain, FERC found that the HUCs proposal is a just and reasonable solution that will not embed inefficiencies in MISO’s resource adequacy construct.

Finally, with respect to (3), Market Parameters, MISO proposed to further align its locational market parameters, such as Capacity Import Limits, Capacity Export Limits, and Local Clearing Requirements, with auction assumptions and visibility by requiring the output from all resources in its LOLE studies to be aligned with the Local Zone or External Zone in which they are accredited in the auction.  FERC found MISO’s alignment proposal to be just and reasonable.

A copy of FERC’s order can be found here.