On March 20, 2020, FERC denied rehearing of a February 2018 order accepting the Midcontinent Independent System Operator, Inc.’s (“MISO”) resource adequacy Tariff provisions (see March 5, 2018 edition of the WER). FERC noted that many of the arguments raised on rehearing sought to impose on MISO the rules and requirements used in the centralized capacity markets in the eastern Regional Transmission Organizations/Independent System Operators (“RTOs/ISOs”). FERC rejected those arguments, concluding that unlike the centralized capacity constructs used in the eastern RTOs/ISOs, MISO’s capacity auction is not, and never has been, the primary mechanism for Load-Serving Entities (“LSEs”) to procure capacity.

Under MISO’s resource adequacy construct as accepted by the February 2018 order, LSE in each MISO zone must procure sufficient capacity to meet their respective annual reserve margin requirements, and can do so by: (1) purchasing capacity through MISO’s capacity auction; (2) submitting a Fixed Resource Adequacy Plan to demonstrate that it has designated capacity to meet all or a portion of its requirements; (3) self-scheduling capacity and offering it into the auction at a price of zero; and/or (4) paying a deficiency charge. MISO applies a Zonal Deliverability Charge to LSEs that, rather than participating in the auction, submit a Fixed Resource Adequacy Plan which designates resources in a zone that has a lower auction clearing price to serve demand in a zone with a higher auction clearing price (termed price separation). The Zonal Deliverability Charge effectively represents the “congestion” caused by the LSE in using what would have been lower-priced resources to serve higher-priced demand.

The March 20 order primarily analyzes and rejects a request for rehearing regarding the application of the Zonal Deliverability Charge to LSEs. Specifically, FERC rejected the argument that MISO may not impose a Zonal Deliverability Charge on LSEs without the ability to hedge such a charge, affirming its prior conclusion that the Zonal Deliverability Charge is just and reasonable as applied to LSEs. FERC reaffirmed its prior determination that nothing in the language of section 217 of the Federal Power Act—which entitles LSEs to use “the firm transmission rights” that they held as of August 8, 2005 to deliver the output of certain generation facilities or purchased energy specified in section 217—entitles them to hedges against auction price separation. FERC also noted that, even if section 217 were interpreted to require that LSEs be shielded from auction price separation, MISO’s resource adequacy program, including but not limited to the Historic Unit Considerations (“HUC”) provisions of MISO’s Tariff, provides certain LSEs the opportunity to hedge against auction price separation. Under the HUC provisions, if capacity prices in the auction separate, MISO will allocate the resulting excess auction revenue to LSEs with historic arrangements that could not have foreseen MISO’s zonal construct or charges.

In addition, FERC affirmed prior determinations, including:

  • It is not unduly discriminatory for MISO’s capacity auction to be voluntary for buyers but mandatory for sellers;
  • MISO’s resource adequacy construct results in just and reasonable rates;
  • The use of a vertical demand curve as a method for LSEs to procure sufficient capacity to meet resource adequacy requirements;
  • MISO’s prompt auction, occurring six weeks before each planning year, is just and reasonable and works cohesively with state mechanisms to ensure long-term resource adequacy; and
  • A Minimum Offer Price Rule is not needed for MISO’s resource adequacy construct to protect against price suppression, given that the vast majority of capacity in MISO is owned by vertically integrated utilities and that only a small portion of capacity is acquired by LSEs through the auction.

FERC’s March 20 order is available here.