MSC: Application of VOLL during Force Majeure Events (MSC-2021-3) (20210311)

Comments of the Coalition of MISO Transmission Customers, the Association of Businesses Advocating Tariff Equity, the Illinois Industrial Energy Consumers, the Louisiana Energy Users Group, the Texas Industrial Energy Consumers, the NIPSCO Large Customer Group, the Midwest Industrial Customers, and Alcoa Power Generating Inc. Regarding the Application of Value of Lost Load Pricing During Force Majeure Events

Re: March 11, 2021 MISO Market Subcommittee Request for Stakeholder Feedback

1. Introduction

During the January 7, 2021 MISO Markets Subcommittee Meeting (“MSC Meeting”), MISO discussed impacts and outcomes of administrative pricing during force majeure events, such as the August 27, 2020 Maximum Generation Event (“Max Gen Event”) triggered by Hurricane Laura’s landfall in Texas and southwest Louisiana and associated damage to and outages on transmission, generation, and distribution systems.  MISO requested feedback from stakeholders on the use of administrative pricing during local transmission system emergencies, including force majeure events.  Accordingly, on January 28, 2021, the Coalition of MISO Transmission Customers, the Association of Businesses Advocating Tariff Equity, the Illinois Industrial Energy Users Consumers, the Louisiana Energy Users Group, the Texas Industrial Energy Consumers, the NIPSCO Large Customer Group,the Midwest Industrial Customers, and Alcoa Power Generating Inc. (together, “Industrial Customers”) submitted comments to MISO, mainly highlighting the unjustness and unreasonableness of the post hoc application of Value of Lost Load (“VOLL”) pricing at $3,500/MWh in a force majeure scenario. 

During the March 11, 2021 MSC Meeting, MISO announced that, in response to the concerns expressed by stakeholders, it now proposes to eliminate VOLL pricing for emergencies declared in areas comprising less than a Local Resource Zone, and for any emergency caused by force majeure events.  MISO also requested formal feedback from stakeholders.  The Industrial Customers appreciate the opportunity to submit further comments to MISO.  The Industrial Customers support MISO’s proposal from the March 11, 2021 MSC and appreciate MISO’s consideration of and incorporation of the Industrial Customers’ prior comments on this matter.

1. Comments

Stakeholders, including the Industrial Customers, expressed concerns about administrative pricing during local transmission system emergencies, including force majeure events, in light of the August 27, 2020 Max Gen Event triggered by Hurricane Laura.  Specific concerns related to the application of VOLL administrative pricing during force majeure events, after the fact price corrections, and dead bus price corrections.  In light of these expressed concerns, MISO now proposes to eliminate administrative pricing (Tier III pricing) at VOLL for emergencies declared in areas that comprise less than a Local Resource Zone, and/or for any emergency caused by events of force majeure resulting in significant loss of Transmission Capacity, Sub-Regional Transfer Capacity, or Local Generation Capacity.  The Industrial Customers recognize this proposal as being consistent with the comments the Industrial Customers submitted in response to the January 7, 2021 MSC Meeting, and, therefore, support MISO’s proposal.  As noted by MISO, its proposed solution provides a number of benefits, including mitigation of impacts of balancing congestion costs and uplift; mitigation of impacts of dead bus logic issues; ensuring appropriate pricing; ensuring reliability; and publication of prices in real-time subject to settlement.[1] 

During the MSC Meeting, MISO also indicated that it would continue to evaluate dead bus logic concerns that manifested themselves during Hurricane Laura and to propose future enhancements and clarifications accordingly.  The Industrial Customers previously expressed, and now reiterate, our opposition to applying VOLL pricing at dead buses, and support MISO’s commitment to further evaluate that issue. 

During the March 11, 2021 MSC Meeting, MISO Staff indicated that MISO can apply administrative pricing tools other than VOLL pricing that are already available to MISO for use in system emergencies, such as the Reserve Procurement Enhancement (“RPE”) mechanism and the Transmission Constraint Demand Curves (“TCDCs”). 

MISO applies the RPE mechanism to ensure that the Regional Directional Transfer (“RDT”) limit between MISO North/Central and MISO South can be restored within 30 minutes of the loss of the largest generation resource in each MISO sub-region.  MISO currently has the ability to apply the RPE mechanism to clear Contingency Reserves.  The RPE mechanism will be applied to the procurement of Short-Term Reserves once that product is implemented in December 2021.  In its emergency pricing filing in FERC Docket No. ER21-700-001, MISO proposed to increase the administrative price (Marginal Value Limit) for RPE procurements to $200 per MWh and to give MISO operators the ability to override this limit and set a higher value as needed to ensure that the RDT is respected. 

During local emergencies, MISO can also apply administrative pricing using the TCDCs to prevent the violation of limiting local transmission constraints.  While the pricing on the TCDCs varies by factors such as the percentage exceedance of the binding constraint and the voltage level of the facility, TCDC pricing is typically significantly lower than VOLL pricing.  In its emergency pricing filing in FERC Docket No. ER21-700-001, MISO also proposed to implement emergency offer floors to ensure that offers for emergency supply reflect their value.   

The Industrial Customers submit that MISO can effectively rely on administrative pricing tools such as the RPE and the TCDCs to manage future system emergencies that occur during force majeure events or during events that impact areas that comprise less than a Local Resource Zone, without resorting to VOLL pricing.  The Industrial Customers look forward to working with MISO to ensure that its proposal is expeditiously implemented in a manner that accounts for the Industrial Customers’ concerns and ensures that MISO’s rules during local transmission system emergencies and force majeure events result in just and reasonable pricing outcomes. 

1. Issue Statement

MISO has identified the below Issue Statement for analysis:

Market prices and market outcomes, including uplift charges, during local transmission system emergencies, including force majeure events, should be consistent with MISO’s market design, assumptions and incentives. Prices, including administratively set prices, should: be published in Real-Time (Ex-Ante); recognize the reliability value of energy provided during those times; account for assets, load or generation that are physically unable to respond. Market outcomes should incentivize Market Participant behaviors that support system reliability while respecting system and operational constraints; and assign the resulting costs exclusively to cost causers/beneficiaries.

To ensure the effective implementation of the proposal that MISO set forth during the March 11, 2021 MSC Meeting, the Industrial Customers recommend that MISO clearly define the possible scenarios that could constitute a force majeure event, and consider any changes that are necessary in the definition of force majeure in Section 10.1 of its Tariff.  If needed, MISO should also clarify its Tariff to explain how it will use the RPE mechanism and the TCDCs in lieu of VOLL pricing during force majeure events and during local transmission emergencies. 

1. Conclusion

The Industrial Customers respectfully ask MISO to consider these comments in determining the Issue Statement and next steps for MISO’s investigation on VOLL and administrative pricing in the context of localized transmission system emergencies and force majeure events.  Industrial Customers also request that MISO expeditiously implement its proposal to discontinue the use of VOLL pricing for emergencies declared in areas that comprise less than a Local Resource Zone, and/or for any emergency caused by events of force majeure. Thank you again for providing us an opportunity for providing these comments.  If you have any questions concerning our comments, please do not hesitate to contact:

Jim Dauphinais

Brubaker & Associates, Inc.

(Consultants to ABATE, IIEC, LEUG, NLCG and TIEC)

(636) 898-6725

jdauphinais@consultbai.com

Ali Al-Jabir

Brubaker & Associates, Inc.

(Consultants to ABATE, IIEC, LEUG, NLCG and TIEC)

(361) 994-1767

aaljabir@consultbai.com

Kevin Murray

Ken Stark

McNees Wallace & Nurick LLC (for CMTC)

(614) 719-2844

murraykm@mcneeslaw.com

kstark@mcneeslaw.com

Kavita Maini

KM Energy Consulting, LLC (Consultants to MIC)

(262) 646-3981

kmaini@wi.rr.com

Steve Dowell

Alcoa Power Generating Inc.

(812) 842-3377

Steve.Dowell@alcoa.com 

Date: March 25, 2021

MGE and MPPA support WPPI Energy's feedback.

Thanks,

David Sapper

dsapper@ces-ltd.com

Xcel Energy appreciates the opportunity to provide feedback regarding the application of VOLL pricing during force majeure events. 

We do support the removal of the VOLL pricing for Local Transmission Emergencies but would like to understand how the different event types are/would be defined.  Do the definitions of a LTE, a Transmission System Emergency, a capacity event and a force majeure event create bright lines that would distinguish each?  Are there any potential scenarios in which they would overlap?  In addition, it seems that Schedule 52  Compensation for Restoration Energy contains the same definition that would be used for an LTE in a partial LRZ so we would like to understand how these events would be distinguished from each other.  It would be insightful to review the NERC EEA events from the last several years and provide the event scope that would have been assigned if this proposal have been in force at the time.

The cost allocation shown on slide six of the presentation was not clear to us.  We believe it implies that if the sub-regional demand is greater than the sub-regional supply plus transfers then the uplift would be allocated only at the sub-regional level, and if the LRZ demand is greater than the LRZ supply plus transfers then the uplift would be allocated only at the LRZ level.  Please confirm.

It doesn’t appear that MISO specifically asked for feedback regarding their dead bus logic or application of VOLL to dead buses so we are assuming that this will be a second phase of this project, but this is definitely an issue that needs to be addressed.

MidAmerican Energy Company appreciates this opportunity to comment on the application of VOLL during force majeure events.

MidAmerican believed that VOLL should only be applied during events that result from widespread generation shortages or during conditions where load pockets experience conditions of generation shortages because of transmission congestion but due to normal events. During natural disasters such hurricanes, tornadoes, or other extreme weather events causing local transmission emergencies, the value of lost load should not be applied. These events are not consistent with MISO’s market design, assumptions and incentives.

MidAmerican’s believes VOLL pricing should not apply to generation and load that’s been physically disconnected from the system due to force majeure event and is not physically capable of reconnecting to the system. In addition, MidAmerican believes that system generated LMPs and MCPs should be used during these events.

MISO should create a concrete rules around when the force majeure rules would apply and could be based on the number of transmission lines that trip, the number of generators that trip and/or the amount of load that is disconnected from the system as a result of the event.

WPPI supports MISO’s proposal not to implement administrative pricing at the Value of Lost Load in the cases of certain Emergencies:

(1.)  Emergency declared for an area that comprises less than a  Local Resource Zone level (for a variety of compelling, including likely transmission driven) or

(2.)  Emergency caused by Force Majeure events resulting in significant loss of transmission capacity, sub-regional transfer capacity, or local generation capacity.

As was discussed briefly at the MSC meeting on 3/11/2021, this proposal necessitates a review of the current tariff definition of Force Majeure. It may be that the current definition needs minimal or no revision. In any case, it would be helpful for MISO and stakeholders to reach a common understanding of what types of events would meet this definition, which could be documented in in the appropriate Business Practices Manual.

In addition, as noted at the MSC meeting on 3/11, WPPI found the edits MISO made to the issue statement connecting the issue to the Hurricane Laura Max Gen Event on 8/27/2020, very helpful. In particular, it transformed what seemed to be a quite broad issue statement (and therefore challenging to tackle) to one focused on addressing a force majeure event.

DTE Energy is pleased to offer feedback on the important topic of price formation and how MISO's pricing constructs should be refined in light of the lessons learned from the Hurricane Laura load shed event.  DTE appreciates both these initial first steps as well as the longer-term efforts to ensure that administrative pricing is applied appropriately and the resulting costs are allocated fairly.  

MISO has proposed changes to the circumstances in which VOLL would be applied.  Specifically, VOLL would not be applied to load shed over areas smaller than a Local Resource Zone.  VOLL would also not be applied in any Force Majeure event, regardless of scope.  

With respect to the application of VOLL during Force Majeure events:

• At a high level this proposal is an improvement over the current state, particularly because Force Majeure events are fundamentally not driven by market forces.  As such, applying a market-based remedy may have limited effectiveness in improving the system's ability to reliability serve load.  As was observed in the ERCOT deep freeze, an extended period of VOLL pricing primarily just penalizes customers.  
• However, the lack of clarity on what constitutes a Force Majeure event is a bit concerning - there are certainly events that are Force Majeure events, but where does one draw the line?
• As discussed in the Market Subcommittee meeting, DTE would like further clarity on whether load shed during the February deep freeze would have constituted a Force Majeure.  
• For example, MISO pointed out that TVA called a TLR which cut imports into MISO.  This resulted in a period of directed load shed in MISO-South.  Is this an act of God (because of the extreme cold), or is this an act of the Tennessee Valley Authority (because it called the TLR)?
• If the Force Majeure determination is applied too loosely or arbitrarily, it seems MISO's energy market construct could get to the point that any situation resulting in VOLL pricing could be considered a Force Majeure.  Presumably we plan to avoid such events, so their occurrence suggests that some kind of unforeseen circumstances or act of God materialized that led to the need for load shed.  Continuing down this slippery slope will move the market away from pricing energy at its reliability value during times of system stress.  

With respect to the application of VOLL for areas smaller than a Local Resource Zone:

• DTE's primary concern with the Hurricane Laura load shed was not the pricing that was applied, but the resulting cost allocation, which is not addressed by this proposal.  
• Setting non-market Force Majeure events aside (assuming those are clearly defined), it seems logically inconsistent to say that VOLL should be applied in system-wide emergencies where load is shed but not in local emergencies where load is shed - why would the value of lost load be different from one market situation to another?  Drawing a distinction based on the geographic scope of an event poses another slippery slope for properly pricing energy during load shed events.  

In light of these concerns, DTE would propose the following modifications for MISO's and stakeholders' consideration:

• Perhaps Force Majeure for price formation purposes should be defined in terms of some quantifiable system criteria, such as percentage of generation out of service and/or number of contingencies unavailable.  This would at least provide more clarity on the circumstances in which market remedies to reliability would no longer apply.  
• DTE would also recommend retaining VOLL pricing for local emergencies where load is shed while ensuring that the resulting costs are appropriately allocated to those who benefit.