In the April 18-19, 2023, meeting of the Resource Adequacy Subcommittee (RASC), MISO presented additional information on the Reliability-Based Demand Curve (RBDC) design. Stakeholders were asked to provide feedback on the proposal and design elements.
Comments are due by May 5.
Minnesota Power appreciates the opportunity to provide stakeholder feedback to the RASC.
Reliability Based Demand Curve (RBDC)
1) From Slide 5 of the RDBC slides from the April 18-19, 2023 RASC
i) Establish a RBDC to meet the reliability targets
(1) Feedback:
(a) The current PRA and the proposed RDBC utilize clearing price as the means of showing if the reliability targets have been met. This approach is not proactive in meeting reliability targets. The clearing price is only known after the PRA clears.
(b) The design of the RDBC that includes a more gradual sloping pricing curve than the current PRA, but it is not demonstrated how this curve would provide a direct means of impacting the cleared capacity on the system. As a specific example, the PRA for PY 22-23 was 1,230 MW short of meeting the 1 day in 10 criteria. The IMM is using this event as a means of showing the merits of the RDBC, but the question isn’t answered is how the higher price of a RDBC would have provided the direct impact on the capacity balance.
(c) Slide 19 showing the expected RDBC impacts on the PY 22-23 included an assumption that 1,300 MW of capacity would not have been retired before the PY 22-23 cleared. It is unclear and unsupported how an RDBC would have impacted decisions related to the resource retirements.
(d) In summary, Minnesota Power does not view the RDBC as a means of meeting reliability targets. We view the market price as an indirect and imprecise mechanism as an indirect means of showing the capacity balance
ii) Construct should create outcome that, over time, a MP participating in the PRA has the opportunity to recover costs to build and operate an asset in excess of rents achieved from energy & operating reserve market participation
(1) Feedback
(a) Market based cost recovery to build and operate resources from the PRA has not been demonstrated to be a significant decision criteria to build or retire resources in a market mostly comprised of regulated utilities.
(b) Limited information has been provided to stakeholders that support this point.
iii) Create reliability-based demand curves that do not overbuild, nor produce insufficient capacity
(1) Feedback
(a) The PRA clearing price does not provide a timely price signal for capacity build or retirement decisions. Decisions for capacity building are in the 3 - 5 year range and +10 - 15 year range for emerging technologies like nuclear SMR, hydrogen, and carbon capture, and the decision to retire resource is made with adequate lead time to implement the process. A one year PRA with does not provide enough information to make these complex resource decisions, and as mentioned earlier is MP believes is not a factor is decision making for long-term capacity needs.
b) Opt out provisions of the RDBC
i) The fundamental design of the RBDC introduces uncertainty in the planning process in quantifying the required accredited capacity requirements by shifting the demand curve. It is our understanding that the RDBC includes a defined mechanism for shifting the demand curve based on the simulated peak demand impacts of system unserved energy. The demand shift appears to be the basis for not being able to provide an opt out option, due to the unknown shift in the demand curve based on the market clearing, resulting in an update PRMR based on the shifted demand curve.
ii) The AFRAP is being proposed as a means of locking into the PRMR for a defined period of time. The AFRAP proposal is not adequate for an opt-out mechanism for an LSE that is participating in a defendable planning process due to the nature of the RDBC shifting the demand curve.
c) Value of a Resource planning mechanism
The large majority of MISO members participate on a resource planning process that has includes the means of assessing resources and requirements. Long-term decisions are made using standardized analysis that leads to providing support to make capital investment decisions. It is not envisioned that the RDBC would have adequate basis for supporting a long-term capital investment decisions.
Ameren, holding company for Ameren Illinois Company (d/b/a Ameren Illinois), Union Electric Company (d/b/a Ameren Missouri) and Ameren Transmission Company of Illinois appreciates the opportunity to provide feedback on MISO's proposed Reliability Based Demand Curve (RBDC). Ameren Missouri supports MISO's development of a Reliability Based Demand Curve. The RBDC will provide advance indication of potential capacity shortages. MISO's use of the current vertical demand curve only indicates the shortage of resources during extreme conditions.
AMES and AMP support the attached 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 Reliability Based Demand Curve proposal. The Entergy Operating Companies support MISO implementing a reliability-based demand curve (RBDC) in the PRA to help form price signals that more reasonably reflect the supply and demand and needs of the market. 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.
Formulation of Demand Curve
The EOCs request that MISO provide additional detail in the form of workpapers demonstrating how the Marginal Reliability Impact curves are translated into Reliability Based Demand Curves through Monte Carlo Analysis to support recovery of Net CONE.
Advanced FRAP (AFRAP)
The EOCs support a FRAP opt-out mechanism in the MISO PRA that allows LSEs to meet their reliability needs that limits the uncertainty and load obligation increase imposed by a sloped demand curve. LSEs that are subject to retail regulation and that engage in reasonable resource planning to serve the large majority of their loads with long-term resources are entitled to the optionality that a reasonable FRAP opt-out mechanism would provide. Such a mechanism also helps preserve the jurisdiction of state regulators, acknowledges the discretion of regulated LSEs to determine what types and quantities of resources are appropriate to meet the needs of the customers whose interests they have a duty to protect, and provides the right incentives and price signals to ensure other LSEs engage in reasonable resource planning. An LSE that has procured enough generation to meet the overwhelming majority of its customers’ needs at the 0.1 LOLE planning reserve margin for a multi-year period should have less exposure to the impacts of a sloped demand curve than LSEs that rely on the PRA for a significant portion of their capacity needs.
As presently designed, AFRAP is not a plausible or attractive option because of the combination of the following four provisions; (1) an LSE must cover 100% of their PRMR, (2) the planning reserve margin (PRM) is uncertain across the three-year term and is higher than the 0.1 LOLE PRM, (3) the penalty for not meeting the AFRAP obligation is set at the capacity deficiency charge (2.7 x CONE) which is significantly higher than the highest possible auction clearing price, and (4) an LSE’s ability to sell excess capacity is limited.
The EOCs encourage MISO to work with stakeholders to revise the current AFRAP proposal so that it is a more reasonable option for LSEs to pursue while still enabling customers to receive the benefits provided by a sloped demand curve.
Questions
The EOCs have the following question for MISO:
[1] The Entergy Operating Companies are Entergy Arkansas, LLC, Entergy Louisiana, LLC, Entergy Mississippi, LLC, Entergy New Orleans, LLC, and Entergy Texas, Inc.
The NDPSC supports the RBDC because it provides a price signal to the market that more properly reflects the reliability value of capacity. We support an opt-out provision that is designed to minimize market distortions.
ICC staff remains supportive of the RBDC, and appreciates MISO staff continuing to work on this project. ICC staff agrees that RBDC is an important tool to value incremental capacity, thereby improving reliability. Given the inherent risks of the ongoing fleet transformation’s pace, the projected costs associated with the RBDC will produce meaningful benefits. Further, the better pricing signals from the RBDC and lessened price volatility will benefit more than the regulated utilities within the footprint, but also those municipal utilities and cooperatives that choose to participate, including those in vertically integrated states. Merchant generation will also receive a price signal that will better enable resource and investment planning. Given the number of issues that MISO is addressing right now, the RBDC should be acted on sooner rather than later.
ICC staff hopes that as this conversation continues new issues, such as the shape of the curve and reference unit, can be addressed more fully and directly.
ICC staff also has several clarification questions:
Similar to the comments of other stakeholders, WEC Energy Group appreciates the modest delay in the FERC filing and proposed implementation of a Reliability Based Demand Curve (RBDC). A RBDC has far-reaching impacts on resource planning and expansion in addition to the state regulatory processes for evaluation and approval of new resources. We continue to closely monitor and engage in the development of a RBDC opt-out, which we believe this is an essential component of a RBDC (as applied to the existing Resource Adequacy construct) to ensure cost-effective and reliable service to our customers.
Feedback by Public Service Commission of Wisconsin (PSCW) Office of Regional Markets (ORM) Staff to MISO on the Reliability-Based Demand Curve (RBDC) proposal and design elements
We encourage MISO to find solutions that will enable all MISO states to participate together. We hope MISO can offer a plan that provides price signals needed in some states, and an opt-out at 1-in-10 needed by others.
Our understanding is that MISO sees two primary problems with the 1-in-10 opt out. One is that the steepness of the RBDC is based not just on the MRI curve, but also on auction participation (as stated in MISO’s last round of feedback), where high levels of opt-out would result in a nearly vertical curve. Could MISO explain whether there are other ways to model capacity demand that could accommodate a 1-in-10 opt out, and what the implications would be? For example, is it possible to avoid having a more vertical demand curve as participants opt out if MISO creates an MRI curve for the RBDC where the target quantity is not the PRMR, but just the MW needed to achieve the PRMR after accounting for opted out MW? We have included a diagram to illustrate this question.
Secondly, we have heard MISO express concerns about fairness and a 1-in-10 opt out. Is it MISO’s understanding that FERC would not accept a RBDC proposal with a 1-in-10 opt out based on fairness, and if so, can MISO offer details about this conclusion?
Thirdly, we hope MISO can address whether an opt-out without a multi-year commitment could be feasible. MISO stated that for the AFRAP, a 3-year AFRAP commitment would be important for “auction dynamics” and for “RBDC stability.” Can MISO explain in more detail what these terms mean, and whether there are design options that would not require this multi-year commitment? The 3-year commitment is a non-starter for some utilities and may make planning difficult at the state-level, as utilities would be locked into this commitment when other market factors are changing.
In addition to attending to concerns about the opt-out, we encourage MISO to more holistically consider the financial impact of the RBDC. MISO presented information about the financial impact of the RBDC (slide 16 from the April 18-19 RASC slide deck) that showed revenue for selling excess capacity and expenses of buying capacity. This slide omits the costs related to offering that excess capacity (e.g., the cost of building resources to achieve accreditation to that excess point beyond the PRMR, less energy revenue) and costs avoided from purchasing capacity on the PRA rather than having built resources to receive accreditation and achieve the PRMR.
As a last point, we suggest that MISO continue to help stakeholders understand MISO’s long-term resource adequacy plans, and how the RBDC fits into other goals. We would like for MISO to explain the collective effect of accreditation and attributes on the calculation of the PRMR/PRM, and how this would in turn impact the RBDC.
We do understand that MISO feels it needs to change the capacity price signal being sent and are committed to continued engagement on the topic.
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 April 19th RASC meeting; we sincerely thank MISO Staff for their hard work to advance this concept, and we look forward to future discussions on the RBDC. Vistra continues to believe there is an urgent need for the implementation of a RBDC ahead of the 24/25 PRA in order to establish efficient capacity prices that will incentivize new generation and reduce the ever-increasing reliability gap; the efficient price signals that result from the RBDC will also assist market participants with resource retirement decisions, including potentially reducing some uneconomic retirements. Vistra encourages MISO to reconsider the decision to delay the RASC tariff filing which would eliminate the opportunity for the implementation of the RBDC ahead of the 24/25 PRA.
Vistra would like to address comments made in the stakeholder process by some market participants who oppose the implementation of a RBDC, and thus more efficient price signals, over concerns that the RBDC will negatively impact the ability of states to achieve their clean energy goals. Specifically, there is concern that exposure to PRA clearing prices will undermine those decarbonization efforts. That concern is not warranted, as market participants can utilize MISO’s FRAP model or its proposed AFRAP model to limit, if not completely eliminate load exposure to PRA prices. Participants can also procure ZRCs through bi-lateral transactions, thus avoiding PRA pricing exposure. For these reasons, Vistra believes there are tools enabling participants to eliminate, or at least limit, PRA pricing exposure, and thus concerns over higher PRA prices under the RBDC can be readily addressed.
Separately, while states and market participants certainly have the right to establish clean energy timelines and goals, MISO will still need to ensure it has procured the right mix of essential resource attributes[1] in order to operate reliably and maintain the planning reserve margin requirement of a less than one-day loss of load event every 10 years. Thus, when a load serving entity is unable to fulling its full capacity obligation, either due to a state’s decision to procure specific technology types to meet clean energy goals or for some other reason, the responsibility of providing those essential resource attributes doesn’t disappear, it shifts to other MISO market participants. In this instance, it is critically important that MISO’s PRA accurately reflects the value of capacity so that each load serving entity is responsible for the full cost of its decisions.
Vistra Comments on MISO’s Annual Commitment Model Proposal
Finally, Vistra believes that MISO’s proposed annual capacity commitment model is at odds with the FERC approved, and recently implemented, seasonal resource adequacy construct. During several presentations detailing the proposed annual resource commitment concept to stakeholders, MISO stated that ‘there is currently no mechanism for market participants seeking to make an annual commitment as opposed to a seasonal commitment.’ While Vistra does not disagree that certain market participants may find an annual commitment preferable over a seasonal commitment, we understand the interest is likely from those market participants with resources that are considering retirement. Vistra would emphasize that we own resources in MISO with announced retirement dates in the future but would not prioritize the implementation of the annual commitment model. Despite the possible interest from a limited set of stakeholders, we note that MISO purposely eliminated this option with the decision to implement a seasonal resource adequacy construct with availability-based accreditation. In their Order[2] accepting the proposed tariff changes, FERC referenced MISO’s arguments that a seasonal resource adequacy approach was better for the MISO region than the existing annual construct. MISO stated that “…the proposed (seasonal) resource adequacy construct more accurately represents resource capabilities at different times during the year, improves certainty of resource availability outside the Summer Season, provides better incentives for resources to be available when needed, establishes seasonal reserve requirements that better align with risks, and delivers additional visibility into risks throughout the Planning Year…these advantages are not currently captured in the annual construct.”
Vistra does not believe it’s prudent for MISO to start mixing and matching elements of the old annual commitment model with the new seasonal construct. Offering an alternative annual product would undermine the incentives and price signals that a seasonal market is intended to promote. As a practical matter, Vistra is concerned with MISO’s current approach, which appears to be bundling the annual resource participation model with the much-needed RBDC proposal. In Vistra’s view, notwithstanding our concerns with the annual construct, these two design elements seem separate and distinct and should be treated as such, similar to how MISO managed the seasonal resource adequacy and Minimum Capacity Obligation (MCO) proposals. Moreover, if MISO chooses to file both reforms as part of a single section 205 filing, there is a risk that FERC will be forced to reject both reforms under the NRG precedent[3]. Based on stakeholder discussions, it appears that were this to be packaged as a single section 205 filing, a number of market participants would support the RBDC concepts but oppose the annual commitment model proposal. To address these concerns, Vistra recommends MISO spin off the annual participation model concept into a separate project.
The OMS Resources Work Group (OMS RWG) appreciates the opportunity to provide feedback to MISO on its 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.
Questions/Comments
On the RBDC proposal and design elements, the OMS RWG asks the following questions/comments:
- The OMS RWG would like to better understand what will happen to the resource adequacy construct under the proposed change to the RBDC if one or more Local Resource Zones have a net-CONE of zero? How would the PRA clear?
- The OMS RWG is disappointed by the implementation delay of the RBDC, which the group sees as a near-term improvement that could have been implemented in time for the 2024/2025 PRA.
- With the delay in the implementation of the RBDC, the OMS RWG requests that MISO and stakeholders review the use of a combustion turbine as the reference technology for the CONE/net-CONE determination and consider alternatives ahead of implementation of the RBDC.
- Several OMS RWG members view a 1-in-10 opt-out mechanism as important for any RBDC implementation, and further discussion at future RASC meetings is needed. MISO stated in recent feedback that the RBDC steepness is a function of both the MRI curves and the level of auction participation, but more clarity would be appreciated regarding whether there are options to create a durable curve that also allows for a 1-in-10 opt out.
- MISO has stated that the provision in Module E-1 that allows for retail regulatory authorities to establish the PRM for their regulated entities is, in effect, an existing opt-out mechanism available to market participants. The OMS RWG requests that MISO provide more details on how such an election would be implemented and MISO’s view on how this would work as a practical matter. This response should include examples to demonstrate the mechanism and how problems with jurisdictional, regulatory, and statutory conflicts/problems that may occur would be resolved.
Rainbow Energy Center (“REC”) appreciates the opportunity to comment on MISO’s proposal to implement a Reliability Based Demand Curve (“RBDC”). The RBDC will improve capacity market efficiency and support investment retention. The RBDC will allow MISO load to secure additional capacity at incrementally lower costs to support the reliability needs of the system. Capacity beyond the fixed PRMR will be provided with a price signal, and MISO will commit additional capacity reserves that can be available during periods of system stress. This decreases the risk of load shed and increases expected resource availability during extreme weather events.
REC also supports the Advanced Fixed Resource Adequacy Plan (“AFRAP”). The AFRAP, as proposed, provides LSEs with the ability to opt-out of the capacity market. Thus, LSE’s who do not wish to participate in the PRA and face de minimis capacity volume risk associated with the slope of the MRI curves can leverage the AFRAP and secure capacity on their own. AFRAP adequately protects LSE’s rights while protecting system integrity through year-to-year capacity balancing requirements that reflect increased or decreased load forecasts or Planning Reserve Margins.
MidAmerican appreciates the opportunity to provide feedback on the Reliability Based Demand Curve (RBDC) (20230418-19).
MidAmerican supports a more stable framework to enable long range planning for new and retiring resources. RBDC gets at price stability in that the prices of the PRA will not be CONE or zero, but implementation of the RBDC has significantly increased the mid- and long-range uncertainty into the planning reserve MWs that load serving entities need to plan for to ensure they won’t have financial exposure. The RBDC may keep some units from retiring in the short run, but MISO has not provided adequate information regarding long range planning certainty with respect to MW of accredited capacity for each resource type, and the planning reserve margin requirement.
MidAmerican is concerned that MISO is trying to solve problems with long-range resource adequacy by making the planning resource auction (PRA) a more efficient and effective auction by introducing the RBDC. With MISO wanting to change accreditation processes again, load serving entities don’t know how much capacity they may need in the next planning year, let alone know if it is better to build additional capacity or buy it from the PRA.
With respect to long-range resource adequacy, MISO should focus more on the resource adequacy construct with the objective of making the process more transparent and predictable. The PRA clearing prices provide load serving entities limited value about the future of their generation fleet leaving two glaring issues. The first issue is that the auction clears only two months prior to the start of the planning year which makes it too late for load serving entities to do anything to avoid financial exposure. The generation interconnection queue alone takes several years to get through. The second issue is that 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 either provide the necessary data to the market or develop more simplistic methods of translating this information such that load serving entities can make informed decisions regarding long-range resource adequacy.
Submitted on behalf of East Texas Electric Cooperative, Inc. (ETEC):
ETEC appreciates the opportunity to submit the following feedback to MISO regarding the Reliability-Based Demand Curve (RBDC):
ETEC appreciates MISO delaying the planned RBDC implementation and providing additional information / analysis in the April meeting. ETEC has two additional feedback requests of MISO at this point.
First, ETEC would appreciate if MISO would discuss and compare a simpler sloped demand curve design to the simulated marginal reliability impact design shown so far. For example, PJM utilizes a sloped demand curve that is the linear connection of three points that are based on its reserve margin target and Net CONE. The design of a simpler curve could still be informed by marginal reliability impact, but a simpler curve could improve stakeholders’ comprehension of the curve and connect it to the traditional LOLE study that stakeholders are more comfortable with.
Second, ETEC continues to believe that changes to accreditation reform need to be discussed in parallel with their impact on the capacity demand curve. If MISO is going to implement the RBDC and make further accreditation changes, then stakeholders need to understand the interplay between those items.
MPSC Staff is very disappointed with MISO’s decision to delay filing this proposal and implementation until the 2025/26 PRA. We agree with MISO that the resource adequacy construct fails at least three guiding principles and is inconsistent with the reliability objectives of the region.
With the above said, MPSC Staff is concerned with retaining the status quo for yet another year while continuing to take no action to guard against reliability shortfalls.
MPSC Staff sees the RBDC as a near-term improvement that should be implemented as soon as possible to remedy problems with the resource adequacy construct. Implementing RBDC should be a relatively simple improvement that can be accomplished now while continuing to work on more impactful resource adequacy reforms such as accreditation and attributes in the mid-term.
Staff cautions against making implementation of RBDC more complex than it needs to be. We understand that states and stakeholders have raised concerns with opt-out and other mechanics of the RBDC, but MPSC Staff continues to support timely implementation of the RBDC. Staff also cautions against attempts to overcomplicate the proposal and advises MISO to keep the effectiveness, stability, and intended goals of the RBDC design in mind as MISO attempts to finalize its proposal and respond to the diverse opinions of stakeholders.
Xcel Energy supports 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.
Alliant Energy appreciates MISO moving the proposed RBDC implementation date out to the 2025-2026 Planning Year to allow for greater discussion of an extremely detailed concept. MISO’s estimates of how previous auctions would have cleared under an RBDC were helpful, and we would like to see this for the 2023-2024 PY results.