RASC: Market Design Guiding Principles (20230418-19)

Mississippi Public Service Commission (MPSC) Feedback Regarding Market Design Guiding Principles (MSC 20230418-19)

MISO Requested Feedback Statement:

In the April 18-19, 2023, meeting of the Resource Adequacy Subcommittee (RASC), stakeholders were invited to submit feedback on MISO's Market Design Guiding Principles.  Guiding Principles are copied below, and available in the RASC Liaison Report (page 4).  

1. Support an economically efficient wholesale market system that minimizes cost to distribute and deliver electricity.
2. Facilitate non-discriminatory market participation regardless of resource type, business models, sector or location. 
3. Develop transparent market prices reflective of marginal system cost and cost allocation reflective of cost-causation and service beneficiaries.
4. Support market participants in making efficient operational and investment decisions.
5. Maximize alignment of market requirements with system reliability requirements 

Feedback is due by May 5. 

MPSC Feedback:

These principles do not apply to the resource adequacy construct because RAC is a requirement, not a market. According to MISO, the goal of these proposed principles is to: “promote significant market enhancements to ensure continued reliability and value in anticipation of the changing resource mix, more frequent extreme weather events, and increasing electrification.”

Principles 1 and 4 may apply to energy and ancillary service markets, but they do not apply to resource adequacy.  Utilities in conjunction with their jurisdictional commissions meet resource adequacy requirements through resource planning, not the PRA.  States do not need MISO to establish federal capacity market efficiency goals; state and utility policy will determine the goals best suited to resource planning.

Regarding principles 2 and 4, states have their own procedures to govern RFP processes to determine which resources are needed.  Ensuring “non-discriminatory market participation regardless of resource type” is not a prerequisite for state run resource adequacy.  If a state’s IRP concludes that a specific type of fuel source is needed because that generation will have the needed characteristics (e.g., availability, ramp rate, ancillary services) that most effectively serves the customer base, then by definition, not all resource types will be able to compete.  Principle 2 does not apply. 

Principle 3 does not apply.  Unlike energy, capital investment in generation resources is not dependent nor reflective of marginal system cost. They are long-term investments for assets intended to last over forty (40) years.  Dispatch of resources to produce energy may be based on marginal costs, but the capital investment is based on available fuel supply, proximity to transmission, state and utility policies and other criteria.  Likewise, cost allocation is irrelevant since the cost of network resources used to serve network load is recovered through retail rate base.  The question of cost allocation is not at issue.

Principle 5 is ambiguous.  It states: “Maximize alignment of market requirements with system reliability requirements.”

AMES supports MPPA's feedback.

I am happy to discuss.

David Sapper

dsapper@ces-ltd.com

The Entergy Operating Companies ("EOCs")^[1] appreciate the opportunity to provide feedback on MISO’s Market Design Guiding Principles. The EOCs generally support these principles. However, the EOCs do not believe that the MISO PRA should be based on “marginal” system costs as described in principle 3. For that reason the EOCs recommend that MISO strike the word “marginal” from principle 3 so it reads:

“Develop transparent market pries reflective of system costs and cost allocation reflective of cost-causation and service beneficiaries.”

Alliant Energy agrees with MISO’s balanced approach to maximize the use of limited staff time for the greatest benefit.  We particularly appreciate MISO’s guiding principle to support market participants in making efficient investments decisions, which has become exceeding difficult to forecast in our resource planning processes due to lack of certainty around future RA rules.

WEC Energy Group is concerned that the Market Design Guiding Principles, which in our opinion were designed to help guide improvements to the energy and ancillary services markets, are now inappropriately applied to Resource Adequacy.  We agree that the transition from traditional capacity resources to intermittent resources will shift risky hours from the traditional summer peak to summer twilight hours and winter hours.  This does not necessarily mean that the MISO Resource Adequacy construct needs to "develop transparent market prices reflective of marginal system cost" and drive investment decisions.  Most, if not all, LSEs in MISO have a fiduciary and regulatory responsibility to ensure sufficient capacity and energy resources to serve their load obligations, not just at the summer peak but during all hours.  To accomplish this, resource planners consider needs during all hours and seasons beyond three or four years into the future (while taking into account the shifting resource mix) because it takes at least that long to develop and achieve commercial operation of a new resource.  MISO's prompt-year Resource Adequacy construct is not a true capacity market; rather it encourages LSEs to perform longer-term resource planning to avoid a potential financial penalty equal to CONE if they are short.  The clearing of the 2022-23 PRA at CONE and a modest 1,200 MW shortage was not a failure of the Resource Adequacy construct - it worked exactly as designed.  Those LSEs that were substantially short of their planning reserve margin requirements paid a CONE penalty, as they should.  We fully expect those LSEs that were substantially short in the 2022-23 PRA to be under heightened scrutiny of their Relevant Electric Retail Regulatory Authority (RERRA) such that those short positions are rectified.

We support the development of a separate set of guiding principles for the Resource Adequacy construct, driven by stakeholders and RERRAs (predominately, the OMS).  Arguably, those principles have already been established as "ensure capacity resources are available when needed", which guided the development of the seasonal construct and the Schedule 53 availability-based accreditation.

MPPA does not think one set of guiding principles is effective for the design of constructs/markets as disparate as Energy and Ancillary Services (E&AS), Resource Adequacy (RA), and Financial Transmission Rights (FTR).  Consequently, MPPA proposes the RA Guiding Principles below.

MISO Resource Adequacy (RA) Guiding Principles

1. Support an economically efficient wholesale Resource Adequacy (RA) construct that allows load-serving market participants to minimize cost of procuring capacity sufficient to meet the RA requirements defined in tariff Module E-1.
2. Establish RA requirements and capacity accreditation methods aligned with Relevant Electric Retail Regulatory Authority (RERRA) jurisdictional preferences, including resource planning methods and horizon and reliability requirements. Calculate RA requirements and capacity accreditation transparently from relevant data and reliability criteria.
3. Facilitate non-discriminatory participation in the RA construct regardless of resource type, business model, sector or location.
4. Develop a central auction process with clearing prices reflective of the marginal cost and marginal load-serving value of the last MW procured to meet the RA requirements.  Minimize or eliminate make-whole payments for supply that clears any auction.
5. Support market participants in making efficient investment decisions and allow load-serving market participants the ability to fulfill some or all of their RA requirements by directly matching accredited resources.
6. Maximize alignment of RA construct with system reliability requirements in the planning horizon.

Submitted on behalf of East Texas Electric Cooperative, Inc. (ETEC):

ETEC appreciates the opportunity to submit the following feedback to MISO regarding the Market Design Guiding Principles:

It is unclear to ETEC what the scope of MISO’s market design guiding principles is intended to be. Does MISO intend to apply these principles to some or all of its markets? Presumably MISO intends to apply these principles to its resource adequacy construct since the feedback is associated with the Resource Adequacy Subcommittee, but ETEC would appreciate more context and clarity. If MISO does indeed intend to apply the principles to its resource adequacy construct, then ETEC believes the principles must be expanded to recognize the role of vertically integrated utilities in resource planning according to state- or self-regulated processes. Whereas MISO’s principles may be appropriate for the operation of the MISO system, they are insufficient for resource planning given the role that MISO utilities perform in that area.