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MISO Market Requires Suppliers to Take on Excessive Risk in Serving Small Volume Customers
April 7, 2011
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"[B]arriers that exist in the MISO [Midwest ISO] market make Ameren a less attractive market," than Commonwealth Edison and other PJM residential markets, several retail suppliers told the Illinois Commerce Commission.
The ICC's Office of Retail Market Development had asked suppliers to comment on the lack of residential supply offers at Ameren. Eight suppliers responded, with the identity of each set of comments kept confidential unless the supplier agreed to waive such confidentiality.
Four of the respondents cited Ameren's residential default service rate structure, which contains a subsidy meant to lessen bill impacts for electric heating customers but which, rather than applying to only a space heating class, apply to all customers, as a barrier. See 2/23 story for discussion of this space heating subsidization
However, Ameren's membership in MISO, and the difficulty in serving load as a competitive supplier in the MISO market, was ranked equally as a barrier to residential entry, with four suppliers citing challenges associated with the MISO market.
"[W]e have concluded that in comparison to almost all PJM utility markets it is more difficult for a RES [retail electric supplier] to profitably serve small customers in MISO without taking on excessive market risk," one unidentified supplier said.
This supplier further blamed the lack of robust virtual trading in MISO for the excessive risk. "To profitably serve smaller customers (especially if you do not have an existing MISO pool) without taking on excessive risk, an ARES [alternative retail electric supplier] needs to be able to financially hedge 'mini contracts' of under 2.5 MWh ... In general, it is virtual players who insure that there is a broad small lot market every day, not just on days when the major generation players in the RTO are interested in mini contracts," the supplier said.
"It is our opinion that the virtual trading volume in MISO is not sufficient for an ARES to financially hedge in mini contracts," the supplier continued, noting that (not surprisingly when it comes to retail market barriers) FERC carries most of the responsibility for this problem.
"We believe that this is primarily due to a history of lack of support for virtual players and significant retroactive negative impacts on virtual players from the FERC requiring MISO to begin charging virtual-only participants Revenue Sufficiency Guarantee ('RSG') charges in late 2008 and 2009. The impact of this FERC order resulted in extremely large retroactive charges being assessed to virtual traders by MISO in 2009. While the virtual traders successfully challenged and eventually largely overturned these charges, the experience of having the risk of significant retroactive charges being accessed resulted in the many virtual traders leaving MISO and dramatic drops in the volume of virtual trading in MISO in 2009," the supplier noted.
A different supplier echoed these concerns: "[G]enerator make-whole payments within MISO, also known as Revenue Sufficiency Guaranty (RSG) payments, are a significant cost to residential suppliers. These costs and MISO's continued inability to meet FERC's requirements of an equitable allocation have caused several historical resettlements of RSG costs within the market. While FERC has indicated that no further resettlements will take place, MISO is currently developing a new RSG cost allocation methodology which will again change the amount of RSG that suppliers are responsible for."
Suppliers also cited the movement of transmission zones out of MISO to PJM (including the coming loss of the liquid Cinergy hub) and astronomically increasing MISO transmission costs ($30 billion over 10 years), with no available forecast of such costs, as preventing the offering of fixed residential supply in MISO.
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