Late last month, FERC issued its Order on Rehearing[1] affirming a 2012 order conditionally approving MISO’s proposal to improve the deliverability of capacity resources.  Among other things, FERC upheld its earlier rejection of portions of MISO’s initial proposal to make its Planning Resource Auction mandatory and subject to a minimum offer price rule (MOPR). FERC’s continued rejection of the mandatory proposal relied heavily on the specific characteristics of the MISO region and the differences between the MISO region and other regions in the country. Commissioner LaFleur commented on these regional distinctions when voting on the rehearing order. As MISO continues to consider modifications to its resource adequacy mechanism, FERC Staff planned to attend a recent meeting of the Illinois Commerce Commission on resource adequacy in MISO Zone 4.

Last month’s order pointed to several differences between the MISO region and other ISO-RTO regions. FERC stated that the predominance of vertically-integrated load serving entities (LSEs) and long-term bilateral contracts in the region demonstrated a lack of incentives to suppress prices. In contrast, LSEs in many other RTOs and ISOs are no longer vertically integrated and rely less heavily on long-term bilateral capacity transactions. Thus, while MOPRs are in place in ISO markets in the eastern part of the country, MISO failed to demonstrate the need for market power mitigation through a MOPR in its region. In the Order, FERC “continued to conclude that a MOPR is not needed at this time for the MISO capacity market.”  Id. at P. 105. FERC rejected a number of specific concerns raised on rehearing, including a claim that a MOPR is necessary because prices in the capacity market heavily influence bilateral contract prices. While FERC agreed that contracting parties are likely to consider expected future spot market prices in bilateral contract price negotiations, it noted that several factors “mute the effect of spot market prices on bilateral prices . . . [T]o the extent contracting parties consider spot market prices in negotiating long-term bilateral contracts, they are likely to consider expected spot market prices over time – not spot market prices in any single year.  Id.

The Order also specifically rejected additional challenges made by various parties, including claims that MISO’s auction is unjust or unreasonable because it does not result in a price equal to the cost of new entry (CONE). FERC noted that the MISO region has a significant capacity surplus and consequently, there “are not necessarily defective price signals simply because the MISO construct has not yielded prices equal to the CONE.”[2]

FERC also rejected assertions that the two-month forward period is not just and reasonable because it does not allow sufficient time to respond to the auction’s price signals and so fails to encourage long term investment and promote reliability. Again citing the peculiarities of the MISO region where traditionally-regulated utilities predominate, FERC noted that a forward auction can be helpful in encouraging long-term investment in restructured markets but found “nothing in the record to demonstrate that an auction with a long forward period is necessary to encourage long-term investment in the market.”[3]

In addition, FERC rejected challenges to its acceptance of MISO’s use of a vertical demand curve. The Market Monitor and others had argued that FERC erred in rejecting a sloped demand curve. FERC disagreed with claims of the Market Monitor that the MISO resource adequacy plan is producing unreasonable market outcomes attributable to the use of a vertical demand curve. While FERC did not dispute the fact that a sloped demand curve can be beneficial, it found that “an administratively-determined sloped demand curve would inappropriately diminish the deference give to states in the MISO capacity construct . . .   Even if states in MISO have not yet exercised their right to do so, the MISO resource adequacy construct allows them to determine the demand curve based on their own reserve requirements.”  Id at P. 155.

Finally, the Order rejected other challenges including claims that the 2012 order failed to properly distinguish between FERC’s authority under Sections 205 and 206 of the Federal Power Act (FPA). FERC reiterated its determination in recent orders that while its authority under Section 205 to accept an electric utility’s proposal as just and reasonable does not permit it “to impose on the utility significant changes, without satisfying our burden under [S]ection 206,” the utility “may prefer to implement its proposal with the changes necessary to make that proposal just and reasonable [under Section 205] rather than continue to operate under its existing just and reasonable tariff.”[4] FERC noted that in this case, MISO has apparently consented to FERC’s conditions. For clarity, last month’s order requires MISO to file a notice within 30 days if it determines that it did not consent to the conditions and would prefer to withdraw its filing.

Given FERC’s emphasis in last month’s order on regional differences between RTOs and ISOs, those interested in resource adequacy in the MISO region should be aware of regional efforts, such as the ICC meetings on resource adequacy.




[1] Midwest Independent Transmission System Operator, Inc., Order on Rehearing (Docket No. ER11-2081-001), 143 FERC ¶61,229 (2015) (Order).

[2] Id. at P 51.

[3] Id. at P 138.

[4] Id. at P 38.