In the May 24, 2023, meeting of the Resource Adequacy Subcommittee (RASC), MISO presented updates to the Reliability Based Demand Curve (RBDC) proposal and design elements. Specifically, stakeholders are asked to answer the following in their feedback:
Comments are requested by June 9.
The Environmental Sector appreciates the opportunity to provide feedback to MISO regarding the design and implementation of its Reliability Based Demand Curve. During the May 24 RASC meeting, MISO requested feedback to four request prompts in regards to its latest RBDC proposal (RASC-2019-8). Each of these feedback prompts are addressed in turn:
Prompt 1: Rationale for RBDC curves
MISO: Please provide comments and guidance on the premise of the creation of RBDC curves, namely that additional MWs above the .1 LOLE reliability target have incremental reliability value which should be reflected in the construct, and the rationale if otherwise.
The Environmental Sector agrees with the premise that additional MWs above the .1 LOLE reliability target have incremental reliability value which should be reflected in the construct. However, considering the impacts that a sloped demand curve will have on the mechanisms of the current FRAP framework, we believe that any new options (such as the new RBDC Opt-out) must provide states and state-regulated entities with a practical alternative that will work with the resource adequacy framework currently deployed by various state IRP processes. In addition, the incremental reliability value of these additional MWs declines rapidly above the reliability target, and the demand curve should be designed to reflect that, in order to avoid excess capacity procurement. For example, while a flatter curve will somewhat reduce price volatility, this comes at a cost, in that such a curve will consistently clear excess capacity at too high a price. Some volatility is to be expected in a residual spot market, and MISO should be careful not to prioritize reducing this volatility over the objective of sending accurate price signals for the value of capacity beyond the PRM.
At the May 24 meeting, MISO indicated that it is currently intending to lock in RBDC shapes and parameters for three to four years, with revisions occurring at the end of each period. We agree that this provides some short term stability, but would like further information regarding how MISO intends to transition between iterations, e.g. would any revisions be incorporated over a number of years or would such a transition be immediate?
Prompt 2: Net CONE
MISO: Comment on the appropriateness of the steps involved in the calculation of Net CONE, and the rationale if otherwise.
Given MISO’s current reference technology, the Environmental Sector believes that the steps involved in the calculation of Net CONE are appropriate and reasonable, including MISO’s consideration of a 2-sigma standard deviation to exclude outlier resources and MISO’s proposal to determine a scaling factor to address future fuel prices.
With respect to the current reference technology, we were pleased to hear MISO reiterate its willingness to reconsider such reference technology after the current RBDC effort is complete. If this is something that falls within the scope of MISO’s Roadmap, we request that it do so.
With respect to the calculation of infra-marginal rents that underlies the Net CONE calculation, we believe that a forward-looking estimate of market revenues and production costs may provide a more accurate representation than MISO’s current proposal to adjust the historic net revenue estimate based on a ratio of LMPs to gas prices. In particular, the proposed methodology is unlikely to capture important changes to revenue as MISO undertakes reforms of its existing ancillary service markets. MISO should evaluate what steps would be needed to develop a more robust, forward-looking approach in the coming years, including necessary modeling and available forward price indicators.
Prompt 3: Multi-Season Block Participation Model
MISO: Comment on the newly proposed multi-season block participation model for enhanced market participation that allows resources looking for multi-season but not all-season commitments.
On June 5, MISO presented further information about the multi-season block participation model in addition to information regarding the IMM’s proposed extended multi-season offer model. MISO also stated during this presentation that further information would be shared at the next RASC meeting. We are still digesting the information presented on June 5 and will submit comments in the open feedback channel after submission of the present comments.
Prompt 4: RBDC Opt-out Option
MISO: Existing participation models (e.g., FRAP) in the PRA remain unchanged. Comment on the newly proposed RBDC Opt-out option that has been provided that will significantly mitigate quantity uncertainty and respect IRP processes and states’ rights toward resource adequacy.
The Environmental Sector appreciates the new option for LSEs to opt out of the PRA as an alternative to the AFRAP. While we are still reserving judgment until more information is available, our initial response is that the concept of a percent increase adder (via the X variable) to the LSE capacity requirement appears reasonable in light of the reliability assurances that MISO is seeking through its PRA reform efforts. However, our main concern is that LSEs that opt out will be required to meet a LOLE standard more stringent than 1 day in 10 years, resulting in either a de facto subsidy to those LSEs that participate in the PRA or a LOLE standard greater than that required by various state laws. We request that MISO fully discuss this concern and how its proposal will alleviate it. The X variable adder has the potential to unnecessarily increase capacity costs for consumers whose LSEs utilize the RBDC opt-out, and should only be included if MISO can demonstrate that the PRMR is inadequate. We understand that MISO only introduced this X variable adder as a concept, that MISO is considering various ways in which to calculate it, that MISO is taking ideas from stakeholders, and that further details are forthcoming.
One potential idea that we are provisionally supportive of was put forward by Hwikwon Ham of the MN PUC, which was that the X variable should be tied directly to the amount that MISO’s PRA goal is above 1 day in 10 years, e.g. if that goal is exactly 1 day in 10 years, then the X variable should be zero but if that goal is above 1 day in 10 years, then the X variable should be some positive percentage. We too look forward to seeing ideas from other stakeholders and to the discussion that will follow.
We appreciate MISO’s clarification that any surplus capacity above the PRM plus the X variable may be sold into the market. Likewise, we appreciate MISO’s statement that changes to the X variable would correspond to the timing of any changes to RBDC curves, as discussed under that prompt above.
Notwithstanding our comments on the X variable adder above, we would like to know how MISO determined that 1.5-3 percent was an appropriate starting point. To what extent do initial ideas of what the X variable should be limit possible methodologies for calculating the X variable in the first place?
Additionally, we appreciate the clear language in the “Requirements” row on slide 11 indicating that any resulting design “should neither unfairly incent RBDC Opt-out nor force RBDC participation.” This is a vital component of the design of any participatory options and partially addresses one of our core concerns with the RBDC Opt Out option.
Finally, although we do appreciate what MISO is trying to do, we quibble with the call of the question for this part of the feedback that MISO is requesting. The question is a heavily leading one, implying that the RBDC Opt-out participation option is one “that will significantly mitigate quantity uncertainty and respect IRP processes and states’ rights toward resource adequacy.” While we believe that the general framework proposed on May 24 is one that will help MISO better hedge against reliability risk, we believe that more details are needed in order to determine that the RBDC Opt-out concept is one that addresses states’ concerns.
Other issues:
Slides 21-24 present an illustrative RBDC that has a maximum price near $1200/MW-day. Such an extraordinarily high price is unlikely to be needed to incent new entry, and would likely be unacceptable to buyers. MISO should explain what principles it has considered in setting this price cap, which is significantly higher (as a multiple of Net CONE) than price caps on other sloped demand curves. For example, PJM’s recently approved, updated curve sets its price cap at the greater of Gross CONE or 1.75 x Net CONE, which was consistent with the recommendations of its consultant, The Brattle Group. This price cap was considered adequate to incent new entry even in the case of Net CONE uncertainty.
ND strongly supports the premise that additional MWs above the .1 LOLE target have reliability value that needs to be reflected in the construct. This will help to send appropriate price signals that will impact retirement decisions as well as better incent construction of new generation. The MISO market has long undervalued excess capacity and we have seen this excess capacity erode to the point where today we face extremely tight capacity conditions. This must be corrected and the RBDC is a tool that can be implemented quickly to help improve stability near and long-term in MISO’s capacity position.
ND generally supports the process that MISO has proposed to calculate Net CONE but would like to see additional analysis in support of the effectiveness of tying LMP to gas prices.
ND is in support of an RBDC Opt-out option that will garner the most support and participation within the stakeholder community and allow the RBDC construct to function properly and efficiently. The newly proposed RBDC Opt-out seems to provide the option that will allow for greater certainty to the long-term planning process and will help to mitigate adverse cost impacts for those LSEs that do not wish to be exposed to the variability of the RBDC. However, we would like MISO to explain how the ‘X%’ will be set and to continue to explore the potential drawbacks of this option as well as continue to consider other possible proposals.
WPPI supports MPPA’s feedback.
Feedback by Public Service Commission of Wisconsin (PSCW) Office of Regional Markets (ORM) Staff to MISO on Reliability Based Demand Curve (RBDC) proposal and design elements.
1. Please provide comments and guidance on the premise of the creation of RBDC curves, namely that additional MWs above the .1 LOLE reliability target have incremental reliability value which should be reflected in the construct, and the rationale if otherwise.
We see the RBDC effort as a means for the PRA to send more transparent price signals regarding capacity prices rather than a means to properly value capacity over 1-in-10. The 1-in-10 metric has been a long-standing metric that is widely agreed upon. The value of reliability above that quantity is not widely agreed upon and is likely highly subjective. We expect discussions around updates to resource adequacy requirements or using updated metrics to continue, and to involve the RBDC if a RBDC filing is eventually approved by the FERC.
2. Comment on the appropriateness of the steps involved in the calculation of Net CONE, and the rationale if otherwise.
We hope MISO will offer more details about the assumptions underlying Net CONE so that stakeholders may comment on them.
Could MISO explain more about how settled futures gas prices will be used as a scaling factor for Net CONE, and provide an example?
Will Net CONE be the same across each season within each LRZ?
3. Comment on the newly proposed multi-season block participation model for enhanced market participation that allows resources looking for multi-season but not all-season commitments.
We appreciate that MISO offered examples of how the multi-season option would work in a workshop. We suggest that MISO provide more detail on the alternative proposal introduced by the IMM, including how the auction would clear under that plan in different circumstances.
Going forward, we also note that MISO’s illustrative examples would be more clear if MISO provided more explanations in the slides. For example, in the slides showing examples of how the multi-season auction would clear, a price and offer is listed for each resource in the “Resource offers” lines, but then in the section that shows which resources clear and for how much, the resources sometimes clear at different quantities than what were listed for their offers. Adding an explanation to the slides about the other offer quantities would be helpful. Additionally, in Examples 1, 2, and 3, the auction clearing price is set at what a resource offered specifically. Wouldn’t the RBDC quantity be likely to set the auction clearing price at some other level, rather than at an exact resource’s offer? Either way, it would be helpful to add content to the slides to explain.
4. Existing participation models (e.g., FRAP) in the PRA remain unchanged. Comment on the newly proposed RBDC Opt-out option that has been provided that will significantly mitigate quantity uncertainty and respect IRP processes and states’ rights toward resource adequacy.
The framing of this question is problematic. While existing participation models would remain as options under the RBDC, participants selecting those options would experience changes, namely the requirement to procure additional megawatts at additional expense to ratepayers.
With that said, we appreciate that the new opt-out will not lock MW out of participation. We would like MISO to provide more details about:
If MISO moves forward with these plans, we suggest MISO set “X” at a low number initially if reasonable for the auction to function. A lower “additional MW” requirement would reduce the burden on participants. If MISO expects an X on the higher end of what was estimated in initial examples (X > 2%), this should be shared with stakeholders as soon as possible with a clear justification.
ICC staff appreciates the opportunity to provide feedback on issues raised at the May 24, 2023 RASC. ICC staff continues to support the creation of the RBDCs and agrees that there is value in the incremental capacity procured with a sloped demand curve. In an energy shortage situation, the next extra megawatt has value because it is the next megawatt that will be called if there is an unexpected outage among a committed resource. That value may not be as large as the megawatt needed to first meet the PRM, but that first extra megawatt has more value than the hundredth. This value should be recognized financially. Winter Storm Elliott showed that capacity resources are not always able to supply promised energy, suggesting the wisdom of properly valuing capacity. Valuing additional megawatts above the PRM, and slowing resource retirements as a result, will help improve reliability.
In addition, ICC staff understands MISO’s rationale for developing distinct RBDC models for the North and South regions. Correcting the RBDC curves for transmission limitations is reasonable. However, as Tranches 3 and 4 improve connections between MISO North and South, ICC staff asks that regularly MISO reevaluate this necessity for separate curves in each region
ICC staff supports the new RBDC opt-out proposal. ICC staff supports states having the option to meet their resource adequacy needs in their preferred manner. The opt out should be comparable to costs, benefits, and reliability that results from anticipating in the PRA with an RBDC. In addition, ICC staff believes that any opt out should ensure that states taking part in the PRA are not subsidizing reliability for states that opt out
ICC staff is still evaluating the multi-season block participation model. The multi-season offer does seem to simplify offers for some resources. Enabling resources to make offers in a manner that works for them and earn sufficient revenue to continue operation will support system reliability. However, MISO should provide more information on the potential impact the multi-season block offers could have on prices. The seasonal construct should price capacity accurately in a more granular manner. ICC staff would like more guidance from MISO whether discouraging units from making PRA offers that reflect seasonal price could change the strategic bids of multi-season offer resource or any resource in the auction. Any auction structure should value both reliability and prices disciplined through competition, and ICC staff is looking for assurance that this option achieves this balance.
ICC does not have a firm position on the net CONE method MISO has proposed. Net CONE that essentially reflects a unit’s construction cost (CONE – inframarginal rents (IR), where IR are from energy and ancillary services market revenues) is a sensible starting point for these conversations.
Vistra Corp. (“Vistra”) appreciates the opportunity to submit feedback on the Reliability Based Demand Curve (RBDC) proposal and design elements that MISO shared during the May 24th RASC meeting; we look forward to future discussions on this topic. Vistra would like to use this opportunity to comment on three key RBDC related issues:
1) MWs above MISO’s reliability target provide additional reliability value which should be reflected in MISO’s RBDC construct.
2) MISO’s zonal based Net-CONE design elements should be reviewed on a regular basis and properly reflected in the MISO tariff. This includes reviewing and updating, if need be, the capacity revenue an economically-efficient new generation resource would need to recover its capital and fixed costs.
3) MISO should separate the in development multi-season block participation model from the more critical RBDC proposal.
Additional Reliability Value Provided by a Sloped Demand Curve
A number of RTO focused reliability studies highlight the fact that a properly developed sloped demand curve- with surplus capacity above the minimum requirement- increases system reliability and lowers energy and ancillary services costs for consumers. Under MISO’s current vertical demand curve, the last MW of capacity needed to meet the 1 in 10 reliability standard has a value at or near CONE, while the first MW of surplus capacity, under a vertical demand curve, is assigned little to no value. Because of the year-to-year extreme price variation caused by this construct, consumer payments are frequently higher because price risks for investors and generators are greater, given the unpredictable nature of the annual clearing prices under a vertical demand curve.[1] Moreover, a sloped demand curve is a better signal for achieving needed entry and exit. As we’ve seen in MISO, this price volatility increases resource retirements and delays much needed new generation. FERC Commissioners have also noted the challenges presented by a vertical demand curve, stating that “[w]hen vertical demand curves are used, even small increases or decreases in supply can result in large changes in price, because a fixed amount of capacity must be procured.”[2]
Alternatively, a sloped demand curve properly values the additional MWs above the reliability target that resources participating in the capacity market provide. A sloped demand curve delivers more predictable revenue to generators and thus lowers consumer costs by reducing price volatility.[3] When MISO implements the Reliability Based Demand Curve (RBDC), the adjustments to the offered volume of capacity will result in incremental price changes and stable capacity market price increases or decreases, something that the vertical demand curve does not provide. Importantly, the RBDC will eliminate the volatile year-to-year price swings in the capacity market, establish efficient capacity prices to keep economic resources online, and attract new investment in the MISO region.
Development of MISO’s Net-CONE Calculation Methodology
As MISO continues to develop a Net-CONE methodology in conjunction with the RBDC, Vistra recommends that MISO include the specific rules governing Net-CONE inputs and the Net-CONE calculation process in the MISO tariff, rather than in business practice manuals, so that rules are enforced under the tariff, and stakeholders and FERC have a clear understanding of how MISO will determine Net-CONE values; this tariff-based approach is similar to how other RTOs, such as PJM and NYISO, manage their Net-CONE or “Gross CONE” calculation process. In addition, Vistra believes it’s important that the tariff clarify how frequently MISO will review the appropriateness of the various components of Net-CONE, including but not limited to, the reference technology used in the Net-CONE calculation. MISO’s current tariff language does not include information on the inputs, calculation, and periodic review process for the existing CONE methodology that’s tied to the vertical demand curve. To assist with this process, Vistra recommends that MISO study NYISO’s CONE related tariff language[4] for a template on how to calculate, review, and periodically refresh (if needed) Net-CONE values and sloped demand curves. For example- NYISO’s tariff requires NYISO to perform a top to bottom review of its sloped demand curves and Net-CONE inputs once every four years. This review includes NYISO hiring independent consultants to analyze all aspects of Net-CONE, including: 1) the choice of existing reference technology; 2) development of demand curves; 3) relevant environmental regulations; 3) interconnection costs; 4) capital investment and other plant costs; 5) operating and maintenance costs; 4) levelized cost adjustments; and 5) changing fuel costs. Importantly, once the NYISO consultants complete their review and publish their initial report, stakeholders are given an opportunity to review and comment on the findings.
Given recent legislative activity in the MISO region that impacts generators, Vistra also recommends that MISO closely track and account for the impact of changes in law when calculating Net-CONE and updating inputs for the Net-CONE formula.[5] For example, several states in the MISO region have recently approved green energy legislation that significantly increases the construction costs and shortens the expected operating life of advanced combustion turbine generators (CT), which serve as the technology for determining the cost of new entry in MISO. It’s critical that the existing inputs for the current CONE, and future Net-CONE calculations, such as cost of capital, return on equity, environmental compliance, and fuel costs, reflect the impact of this legislation.
Multi Block Participation Model
Vistra reiterates the comments we previously filed on May 5th which addressed MISO’s Annual Commitment Model proposal. Vistra continues to believe that it’s inconsistent with the existing tariff language to mix and match this proposed multi block participation model with the FERC approved seasonal construct. Based on the confusion this proposal has caused, highlighted by a significant number of stakeholder comments and questions during the June 5th Block Participation Model Workshop and May 24th RASC meeting, MISO should separate the multi block concept from the much more critical RBDC proposal. Vistra continues to believe that if MISO chooses to file both reforms as part of a single section 205 filing, there is a risk that FERC will reject both reforms under the NRG precedent[6].
[1] Benjamin F. Hobbs, S. I.-C. (2007). A Dynamic Analysis of a Demand Curve-Based Capacity Market Proposal: The PJM Reliability Pricing Model. Institute of Electrical and Electronics Engineers.
[2] 153 FERC ¶ 61,338 (2015)
[3] Hobbs (2007)
[5] 183 FERC ¶ 61,130 (2023)
[6] NRG Power Marketing, LLC, et al. v. FERC, 862 F.3d 108 (2017).
AES Indiana is generally supportive of the RBDC, to the extent that it will be a tool to drive lower volatility in prices. We wish to highlight the comments of MISO senior leadership at the OMS meeting last summer in Madison, WI where it was expressed that MISO “does not want to send price signals” but rather “want[s] the prices to be accurate.” The RBDC curves will send price signals.
American Municipal Power (AMP) appreciates the opportunity to provide feedback on the Reliability-Based Demand Curve proposal and design elements.
AMP provides the following comments on the newly proposed RBDC Opt-out option in MISO’s proposal:
DTE appreciates the ability to provide feedback on the updates to the Reliability Based Demand Curve (RBDC) proposal and design elements. DTE is in favor of the creation of RBDC curves and believes they will better reflect the incremental value of capacity resources. The comments below are related to details of implementation, but do not suggest DTE does not want to move forward with the concept as a whole.
Regarding Net CONE, DTE is cautious of supporting the steps described in the 5/24 RASC to determine the scaling factor for the estimated inframarginal rents. DTE does not believe that there is a simple relationship between gas prices and LMPs as described in Step 1, and DTE believes using only 3 years’ worth of market data to model the ratio of LMPs/gas prices to inframarginal rents would be too short of a timeframe and would be too heavily swayed by outlier years as described in step 3. We would like MISO to provide additional data to support the claims that are made in Step 1 and Step 3. Additionally, DTE is concerned about the ability of models to capture the behavior of simple cycle CTs, which are strongly dependent on the hourly gas and electric price assumptions.
DTE is in favor of the newly proposed RBDC Opt-out option. The update to the capacity requirement and ability to sell excess capacity are fair compromises that allow Market Participants to have the option to opt-out without favoring one participation method over the other.
The OMS Resources Work Group (OMS RWG) appreciates the opportunity to provide feedback to MISO on its latest update to its Reliability Based Demand Curve (RBDC) proposal and design elements. This feedback is from an OMS work group and does not represent a position of the OMS Board of Directors. The OMS Board of Directors will be submitting separate responses to Question 1 and Question 4.
Question 1: Please provide comments and guidance on the premise of the creation of RBDC curves, namely that additional MWs above the 0.1 LOLE reliability target have incremental value which should be reflected in the construct, and the rationale if otherwise.
The OMS Board of Directors submitted feedback in response to this question.
Question 2: Comment on the appropriateness of the steps involved in the calculation of Net CONE, and the rationale if otherwise.
The OMS RWG requests justification for the subregional bifurcation of inframarginal rents that will be used in the calculation of Net CONE. While the historical data clearing the PRA shows that inframarginal rents can vary significantly across Local Resource Zones, nothing indicates that the subregion in which the Local Resource Zone is located plays a role in that variation. Inframarginal rents either need to be calculated on a Local Resource Zone basis (aligning with the Local Resource Zone basis for determining CONE), or if that is not feasible, on a footprint-wide basis.
Additionally, while acknowledging MISO’s response to this request in previous feedback, the OMS RWG still encourages MISO to consider revising the reference technology as soon as practicable. A carbon-neutral technology needs to be considered to accommodate the policy goals of various states.
Question 3: Comment on the newly proposed multi-season block participation model for enhanced market participation that allows resources looking for multi-season but not all-season commitments.
If MISO plans to move forward with allowing block participation in the Planning Resource Auction, the OMS RWG agrees that including a multi-season block option along with the annual block option is appropriate. However, the OMS RWG believes that MISO has not yet demonstrated how allowing these types of offers will improve outcomes for load that outweigh the potential for uplift. The OMS RWG requests that MISO provide and walk through several more examples with stakeholders that capture a broader array of potential outcomes. This will be critical for enhancing stakeholder understanding and support of the proposal.
While the OMS RWG does not oppose the application of block participation to the MISO Resource Adequacy Construct, we note that during discussion at the RASC, several commenters expressed concern and stated that MISO should consider filing this component separate from the rest of the RBDC proposal to decrease the risk of FERC rejecting the entire package. The block participation model may provide additional value, but it is not an essential component to make the rest of the RBDC functional. Additionally, MISO has stated that this block participation model could be applied to the existing Resource Adequacy Construct and add value there, further demonstrating that this does not need to be paired with the RBDC.
Question 4: Existing participation models (e.g., FRAP) in the PRA remain unchanged. Comment on the newly proposed RBDC Opt-out option that will significantly mitigate quantity uncertainty and respect IRP processes and states’ rights toward resource adequacy.
The OMS RWG defers policy and position statements on the opt-out option to the OMS Board of Directors, which submitted feedback in response to this request. The OMS RWG’s response is limited to areas where we believe that additional clarification is needed.
“Existing participation models (e.g., FRAP) in the PRA remain unchanged. Comment on the newly proposed RBDC Opt-out option that has been provided that will significantly mitigate quantity uncertainty and respect IRP processes and states’ rights toward resource adequacy.”
Additional feedback on the RBDC presentation at the 5/24 RASC: the $/MW amounts listed at the top of slide 20 (115 and 37) are incorrect, as they should be the day-weighted average (not sum) of the four seasonal prices if in $/MW-day terms (~23.75 and ~9.25 respectively). Please make appropriate corrections and re-post the presentation.
Mississippi Public Service Commission (MPSC) Feedback Regarding
RBDC Proposal and Design Elements (RASC-2019-8) (20230530)
MISO Requested Feedback Statement:
In the May 24, 2023, meeting of the Resource Adequacy Subcommittee (RASC), MISO presented updates to the Reliability Based Demand Curve (RBDC) proposal and design elements. Specifically, stakeholders are asked to answer the following in their feedback:
• Please provide comments and guidance on the premise of the creation of RBDC curves, namely that additional MWs above the .1 LOLE reliability target have incremental reliability value which should be reflected in the construct, and the rationale if otherwise.
• Comment on the appropriateness of the steps involved in the calculation of Net CONE, and the rationale if otherwise.
• Comment on the newly proposed multi season block participation model for enhanced market participation that allows resources looking for multi season but not all season commitments.
• Existing participation models (e.g., FRAP) in the PRA remain unchanged. Comment on the newly proposed RBDC Opt out option that has been provided that will significantly mitigate quantity uncertainty and respect IRP processes and states’ rights toward resource adequacy.
Comments are requested by June 9.
Feedback:
The need for capacity to reliably serve load is analyzed under a loss of load expectation (LOLE) study using the 1 in 10 loss of load standard and the loss of load expectation study. Capacity above that amount is like excess insurance - - it is optional. If some LSEs want incremental reliability above what is needed, it is their choice, and they can build or contract for additional capacity, or pay for it through the PRA. The incremental value of additional MW above 0.1 LOLE has different values to different LSEs.
We are not convinced that MISO has offered adequate objective evidence demonstrating that excess capacity offered into the PRA improves reliability. Capacity that is already built and operating and satisfying the reserve margin provides reliability. MISO and the IMM have stated adamantly that MISO has the authority to call on capacity if needed, even if it did not clear in the PRA. The IMM has said that capacity not offered into the market could be considered physical withholding if offering the capacity was economic.
No comment regarding Net CONE calculation.
No comment on seasonal block participation.
MISO should keep the existing FRAP (not AFRAP) option. MISO must also offer an Opt Out that (i) protects LSEs from exposure to changes in capacity requirements or costs associated with RBDC, (ii) allows an LSE to sell any capacity it has in excess of what is needed to satisfy its 0.1 LOLE, and (iii) does not require the LSE to Opt Out beyond one year.
In the absence of that proposal, MISO should accept Entergy’s Opt Out proposal that offers a reasonable compromise.
MISO’s post AFRAP Opt-Out proposal is unsatisfactory. It does not significantly mitigate uncertainty. It contains the ambiguous, undefined “X factor” that will be based on MISO’s subjective determination. Those that Opt Out will none the less be subject to costs and capacity requirements above that required to meet 1 in 10 LOLE thereby subsidizing those LSEs that have chosen to under-build or under-acquire sufficient capacity to serve their load and instead rely on an auction that was never intended to satisfy an LSE’s full resource adequacy. This process does not respect state resource adequacy authority.
The Entergy Operating Companies ("EOCs")[1] appreciate the opportunity to provide feedback on MISO’s Reliability Based Demand Curve proposal. The EOCs believe that the RBDC alone is not sufficient to ensure reliability and ensure that each LSE procures reasonable long-term resources to meet its load obligations; rather, at a minimum, appropriate regulation of resource planning and a reasonable minimum capacity obligation are also needed. However, the RBDC, if properly implemented, would improve the MISO PRA and provide helpful incentives, particularly to LSEs not subject to state regulation and to merchant generation owners, to help achieve reasonable market outcomes consistent with maintaining reliability over the long-term.
MISO RBDC Opt-Out Proposal
The EOCs do not believe that MISO’s latest RBDC Opt-Out proposal is acceptable for the following reasons:
Entergy Operating Companies’ AFRAP Proposal
The EOCs propose that MISO adopt an AFRAP with the following features:
The EOC’s proposal would have the following impacts:
The EOCs believe that this proposal is reasonable because:
Multi-Season Block Participation Model
The EOCs are interested in learning more about the IMM’s proposal described on slide 7 of the presentation used in the June 5th RASC Workshop and would like to understand how the proposal is different from the current process for using Facility Specific Reference Level (FSRLs) in the PRA. The EOCs believe that it is useful for a resource to have the ability to submit the capital investment required to remain in operation along with seasonal operational cost information and then to allow the PRA optimization logic to decide which seasons the resource will clear while ensuring that the resource will have its capital and operational costs recovered through the PRA revenue it receives.
Additionally, the EOC’s believe that MISO’s proposed multi-season block offer model could provide value that is not achieved by the IMM’s slide 7 proposal, so both should continue to be explored.
[1] The Entergy Operating Companies are Entergy Arkansas, LLC, Entergy Louisiana, LLC, Entergy Mississippi, LLC, Entergy New Orleans, LLC, and Entergy Texas, Inc.
Xcel Energy appreciates the opportunity to provide feedback regarding the specific design components of the RBDC. As submitted previously, we supported the postponement of the RBDC filing to allow the impacts from the seasonal construct to be realized and incorporated into the simulations and design detail. Although the masked PRA offer data has not been made available, we believe that PRA supply offer behavior for the seasonal construct and Schedule 53 requirements has shifted from the annual construct. This is to be expected, due to the shift from annual to seasonal offers and the requirement to replacement capacity or pay the Capacity Replacement Non-Compliance Charge for units with outages greater than 31 days within a season. We believe that offer behavior will continue to mature throughout the next several years so we would like to better understand how MISO plans to accommodate for these shifts in offer behavior if the RBDC is approved for PY 25/26.
We believe the multi-season block participation model should proceed as a separate filing. Specifically, the IMM’s proposal for the extended multi-season offer model provides the most flexibility for capacity offers by allowing for capital investment across multiple seasons plus operational costs for each season to be cleared. If a MP wants to offer only as seasonal, then the annual/multi-season offer component would be zero. If a MP wants to offer only as annual/multi-season, then the seasonal offer component would be zero. Therefore, we believe the IMM’s proposal should replace MISO’s multi-season block participation model and should proceed as a separate FERC filing this year.
Regarding the NetCONE calculation, we support the exclusion of CTs registered as part of a Combined Cycle to reflect the correct inframarginal rents. We are also supportive of using three years’ worth of historical data, adjusted with readily available settled futures gas prices to calculate the NetCONE.
Regarding the RBDC Opt-Out component, we believe the new proposal improves upon the AFRAP proposal but there is still a high degree of risk associated with making a three-year commitment with a Capacity Deficiency Charge penalty and possibly forced back to the RBDC. We understand that there may be new stakeholder proposed options regarding the RBDC and ask that those proposals are discussed and evaluated before the filing.
Arkansas Public Service Commission’s Feedback 6/9/23
The Arkansas Public Service Commission (“APSC”) appreciates the time and attention MISO and its stakeholders have dedicated to developing a solution to address the region’s resource adequacy needs. The APSC also appreciates the opportunity to provide feedback to MISO on its latest update to its Reliability-Based Demand Curve (RBDC) proposal and design elements.
Question 1: Please provide comments and guidance on the premise of the creation of RBDC curves, namely that additional MWs above the 0.1 LOLE reliability target have incremental value which should be reflected in the construct, and the rationale if otherwise.
While the APSC is not opposed in principle to a downward-sloping demand curve, the APSC has some practical concerns about the development of the RBDC. The RBDC should approximate as closely as possible the marginal value of reliability. It should not just be an “administratively”- determined demand curve.
Question 2: Comment on the appropriateness of the steps involved in the calculation of Net CONE, and the rationale if otherwise.
The APSC has no comment at this time.
Question 3: Comment on the newly proposed multi-season block participation model for enhanced market participation that allows resources looking for multi-season but not all-season commitments.
The APSC has no comment at this time.
Question 4: Existing participation models (e.g., FRAP) in the PRA remain unchanged. Comment on the newly proposed RBDC Opt-out option that will significantly mitigate quantity uncertainty and respect IRP processes and states’ rights toward resource adequacy.
The newly proposed RBDC Opt-out option is not much improvement over the previous AFRAP. If MISO insists on proceeding with RBDC implementation, an Opt-Out Option is required. An Opt-Out Option would recognize that a Load Serving Entity (LSE) will satisfy its PRMR with generation it owns or has purchased bilaterally, and it will insulate an LSE from any (i) exposure to PRA pricing, and (ii) change to its capacity obligation (PRMR) determined according to NERC’s 1 in 10 standard.
MISO must recognize that any support previously provided by OMS for the RBDC/DSDC was expressly conditioned on incorporation of an Opt-Out Option. The concept of Opt-Out is to be insulated from the effects or held-harmless from the repercussions of the mechanism to which the Opt-Out applies. In this case, it means being held-harmless from additional costs and changes to existing capacity requirements.
Providing the Opt-Out Option will ensure that those states/LSEs that choose to participate in the PRA with a RBDC are free to do so, and those that choose not to participate need not. If states/LSEs agree that the PRA is beneficial, they will likely participate.
The Organization of MISO States (OMS) Board of Directors appreciates the time and attention MISO and its stakeholders have dedicated to developing a solution to address the region’s resource adequacy needs. OMS also appreciates the opportunity to provide feedback to MISO on its latest update to its Reliability-Based Demand Curve (RBDC) proposal and design elements. This feedback is submitted because a majority of OMS members support it.[1]
Question 1: Please provide comments and guidance on the premise of the creation of RBDC curves, namely that additional MWs above the 0.1 LOLE reliability target have incremental value which should be reflected in the construct, and the rationale if otherwise.
OMS notes that the fourth point of the organization’s Position on Consideration of a Revised Demand Curve in MISO’s Planning Resource Auction states that “Continued reliance on a vertical demand curve may not appropriately value the reliability benefits of excess capacity.”[2] Since this position statement was issued, the 2023/2024 Planning Resource Auction cleared at very low prices, which OMS believes do not accurately reflect the value of capacity or the tight conditions the region faces.
Question 2: Comment on the appropriateness of the steps involved in the calculation of Net CONE, and the rationale if otherwise.
The OMS Resource Work Group intends to submit comments on this matter, and the OMS board declines to comment on this topic at this time.
Question 3: Comment on the newly proposed multi-season block participation model for enhanced market participation that allows resources looking for multi-season but not all-season commitments.
The OMS Resource Work Group intends to submit comments on this matter, and the OMS board declines to comment on this topic at this time.
Question 4: Existing participation models (e.g., FRAP) in the PRA remain unchanged. Comment on the newly proposed RBDC Opt-out option that will significantly mitigate quantity uncertainty and respect IRP processes and states’ rights toward resource adequacy.
OMS appreciates MISO’s continued efforts to modify the opt-out provision in a way that addresses concerns expressed by various OMS members. OMS believes the RBDC Opt-Out that MISO proposed and presented to stakeholders at its May 24th RASC meeting is a significant improvement over the original AFRAP proposal. OMS is encouraged by the general framework of the new proposal, as it strikes a more appropriate balance between those interested in quantity certainty and those supporting a viable market outcome. OMS looks forward to continuing to work with MISO to refine this opt-out proposal and ensure that it provides comparability to those that choose to participate in the Planning Resource Auction once the RBDC is implemented.
[1] The Arkansas Public Service Commission, the Louisiana Public Service Commission, the Minnesota Public Service Commission, and the Mississippi Public Service Commission abstained from the vote on this feedback.
MPSC Staff would like to thank MISO for its efforts to reform the RBDC Opt-out proposal and for being responsive to stakeholder feedback on this item over the past 8+ months. Staff fully supports the RBDC Opt-out as envisioned, as hopes MISO can implement this swiftly along with the reliability-based demand curve. In Staff’s opinion, the revised opt-out proposal balances stakeholders’ desire to create another participation option to give quantity certainty with the need to ensure parity between those that participate in the market and those that opt-out. Staff also reiterates that it is critical to craft an opt-out that has tradeoffs over market participation- both to retain effective levels of market participation and to treat LSEs both in and out of the market comparably. MISO’s proposal has done just that.
Staff is pleased to see that the 3-year term and no partial opt-out components were retained, as those are crucial to MPSC Staff support. Staff thinks the ‘PRM +X%’ requirement is also key to ensure equity with other market participants, with that updated requirement balanced with the added ability to sell any excess capacity back into the market.
MidAmerican appreciates the opportunity to provide feedback on the Reliability Based Demand Curve proposal and design elements (RASC-2019-8) (20230530).
MidAmerican agrees that additional MWs above the .1 LOLE reliability target have incremental reliability value. MidAmerican would argue that a market demand curve should be either set by the demand or the body that has jurisdiction over the resource adequacy for the demand, which in neither case is MISO. The value of that additional reliability is different for each LSE, each LRZ, and each state. If there is a need for incremental reliability beyond the 1 day in 10 years target, load serving entities and the OMS should consider decreasing the loss of load expectation target or by changing to a different adequacy measure such as Expected Unserved Energy.
MISO should focus more on the resource adequacy construct and informing load serving entities of possible accreditation outcomes for each resource type using appropriate futures scenarios, which will provide more long-term benefits to the market with respect to long term resource planning. This will better align with the objective of making the resource adequacy construct more transparent and predictable. The PRA clearing prices provide load serving entities limited value about the future of their generation fleet. There is no ability for load serving entities to predict or project future resource accreditation values for future years to warrant (or not warrant) a retirement or encourage construction of a generation resource of a particular fuel type. Only MISO currently has the hourly data across weather years to assess tight margin hours. MISO should provide the necessary hourly data to the market to improve modeling by load serving entities. More importantly, MISO should develop more simplistic methods of translating information regarding the timing of tight margin hours (e.g., to seasonal peak load). These actions by MISO are needed to facilitate load serving entities making informed decisions regarding long-range resource adequacy.
MidAmerican currently has no comments on the other issues but would encourage additional information and discussion on those topics.
FEEDBACK OF THE LOUISIANA COMMISSION STAFF
While the Louisiana Commission Staff does not dispute that there could be value in additional MWs above the .1 LOLE for some entities, that value will be different for each entity, and for many it could be zero. The desirability and value of additional MWs above what is needed for reliability is a decision within the jurisdiction of retail regulators for regulated entities and should not be a requirement for participation in the PRA by MISO.
At this time the Louisiana Commission Staff neither supports nor objects to the methodology currently used by MISO to calculate Net Cone. We join the requests by others that MISO provide the backup data, calculations, and workpapers that support the Net Cone calculations so that such a determination can be made.
The Louisiana Commission Staff supports the OMS Resource Working Group Comments to this question:
If MISO plans to move forward with allowing block participation in the Planning Resource Auction, the OMS RWG agrees that including a multi-season block option along with the annual block option is appropriate. However, the OMS RWG believes that MISO has not yet demonstrated how allowing these types of offers will improve outcomes for load that outweigh the potential for uplift. The OMS RWG requests that MISO provide and walk through several more examples with stakeholders that capture a broader array of potential outcomes. This will be critical for enhancing stakeholder understanding and support of the proposal.
While the OMS RWG does not oppose the application of block participation to the MISO Resource Adequacy Construct, we note that during discussion at the RASC, several commenters expressed concern and stated that MISO should consider filing this component separate from the rest of the RBDC proposal to decrease the risk of FERC rejecting the entire package. The block participation model may provide additional value, but it is not an essential component to make the rest of the RBDC functional. Additionally, MISO has stated that this block participation model could be applied to the existing Resource Adequacy Construct and add value there, further demonstrating that this does not need to be paired with the RBDC.
First, the LPSC Staff rejects the slanted question and conclusion that the new opt-out, “will significantly mitigate quantity uncertainty and respect IRP processes and states’ rights toward resource adequacy.” Second, the LPSC Staff does not support the newly proposed RBDC “opt-out” because it requires LSEs to secure more than the 1 day in 10-year PRMR requirement, it does not eliminate the uncertainty and variability in the auction requirements, and it subjects an entity to a capacity deficiency charge penalty if the opt-out is selected but uncertain opt-out requirements are not met.
The opt-out does not protect ratepayers from paying costs associated with the PRMR + X reserve margin, which is socializing to all ratepayers the costs caused by entities that are not planning to meet their own long-term resource needs. This is not reasonable.
The opt-out does not protect ratepayers from the volatility of changing PRMRs and other unknowns for the required 3-year participation commitment period. State regulators need to have more certainty as to the cost consequences to ratepayers.
The proposed Capacity Deficiency Charge penalty is unreasonable. There has been no demonstration that the penalty is needed for any purpose, including to prevent gaming in the PRA.
WEC Energy Group agrees with the premise that additional MWs above the 0.1 LOLE reliability target have incremental reliability value. However, the actual value of that additional reliability is different for each LSE, each LRZ, each state, etc. and for some it may approach zero. As we have seen in other markets, a single, administratively established RBDC often creates controversy amongst participants and their regulators, leading to protracted dockets and legal costs. If there is a need for incremental reliability beyond the 1 day in 10 years target, MISO, stakeholders and the OMS could consider decreasing the loss of load expectation to 1 day in 15 years (for example) or by changing to a different adequacy measure such as Expected Unserved Energy.
As with previous proposals for a RBDC opt-out (AFRAP), the current proposal is not a viable opt-out. First and foremost, the opt-out has a requirement of 100% of the sum of (PRMR + x%). On its face, this is not a true opt-out because of the requirement to secure more capacity than the PRMR would dictate. A true opt-out would not subject the LSE to secure capacity beyond its 1 day in 10 years requirement.
Realistically, a LSE can only utilize the RBDC opt-out if it is certain that its resource accreditation, PRMRs, LCRs (and therefore CILs), load forecasts, assumed value for "x", and the timing for new resource additions/retirements are perfectly known and will meet 100% of each seasonal PRMR + x% for the next three (3) years or twelve (12) upcoming seasons. Because of the uncertainty associated with each of these factors, we have difficulty with the viability of the opt-out proposal. While there is uncertainty in the process today regarding all of these factors (except for additional x% added to the PRMR), the consequence of selecting the opt-out and not meeting the opt-out requirements in a single future season is a Capacity Deficiency Charge (CDC) and possible remand to the RBDC. The only way to hedge the opt-out CDC risk is to overbuild capacity in amount significantly in excess of PRMR, increasing costs to customers that may not value reliability beyond the PRMR commensurate with those additional costs.