RTO Changes Elements of Auction Proposal; IMM Still Voicing Concern
By Amanda Durish Cook
Carmel, Ind. — Independent Market Monitor David Patton last week asked MISO’s Board of Directors to suspend the RTO’s work on the proposed redesign of its capacity auctions, escalating a running disagreement over the issue.
“I regret we’re at this point,” Patton told board members. “We’re talking about carving out Zone 4,” referring to his concerns that a proposed forward procurement plan for retail-choice areas will isolate the Illinois region.
Patton’s request came shortly after RTO staff produced a handful of revisions to its competitive retail solution construct. The changes included transforming the proposed forward auction to fulfilling full — rather than partial — reserve requirements, eliminating a provision for optional participation among load-serving entities and adding forward-looking transmission modeling.
“The [forward auction construct] we’re proposing today is not that dramatically different from our March 18 proposal,” said Jeff Bladen, MISO executive director of market services.
“I feel like the last proposal was more reasonable than this one,” Patton said. “And, of course, I didn’t consider the last one reasonable — because you’re only pricing one capacity value of megawatts.”
Patton continued to oppose the proposal because forward procurement for competitive retail areas remains “a central piece.” He maintained that price “is going to be massively undervalued in Zone 4.” (See MISO Considering Changes to Proposed Auction Design.)
According to the Monitor, generating units in competitive areas cannot guess three years in advance what procurement offer prices will be outside of their areas. Such attempts at guessing would “dominate” the forward auction, he contended.
Patton offered to run simulations to show that a MISO-wide prompt auction with a sloped demand curve applied to deregulated areas would produce efficient price signals.
He argued that, by 2018, expansion of transmission capability will render Zone 4’s local clearing requirement essentially unnecessary and deliverability constraints would disappear.
Board Says MISO and IMM Need Dialogue
Board member Paul Feldman said MISO mixing auction constructs “is problematic” and asked whether the RTO was trying to guide Illinois into an integrated resource planning (IRP) process.
Richard Doying, MISO executive vice president of operations and corporate services, countered that no one in Illinois is offering a plan for resource adequacy in retail-choice areas.
“If no one is going through an administrative planning process … there needs to be a market planning process in place,” Doying said.
MISO board members questioned the use of the vertical demand curve in any of the auctions, saying both retail-choice and regulated states could implement a sloped demand curve. But the board ultimately declined to order MISO staff to pursue that option.
“Vertically integrated constructs do not avail themselves of efficient outcomes, [but] I don’t want to re-litigate the sloped demand curve,” Feldman said. “We need productive relationships with the states.”
Feldman added that he was not convinced that MISO had fully vetted the auction design with third parties. He asked MISO and the Monitor to “get back in the room” to rework the proposal.
Phyllis Currie, another board member, agreed: “I think we need to give more thought to this.” Currie also asked for a presentation to explicitly address price volatility.
Bladen said he was open to scheduling a mediated conversation with the Monitor and other consultants.
Patton’s response: There is no way to “remedy MISO’s proposal” without completely rewriting it.
The board asked both parties to attend a joint work session to run simulations on their respective recommendations and be ready to defend their results.
MISO continues to plan for a July FERC filing for the proposal. It is finishing work on a revised competitive retail solution paper and developing Tariff language for stakeholder review in June.
RTO staff is evaluating a tandem filing with seasonality and locational constructs currently under stakeholder review.
A new auction construct could be in place as early as spring 2017 for the 2017/2018 planning year, said Bladen. “That’s dependent on a lot of things falling in place in a straightforward way, but we do believe it’s feasible.”