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MISO Ignores Cost of Unbundling Capacity in Describing Resource Adequacy Construct
May 31, 2011
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The Midwest ISO ignored the fact that its Module E Resource Adequacy construct, regardless of whether an auction is used to procure capacity, has imposed new costs on load that would otherwise not be required, and that such costs would be imposed on customers at Entergy Texas should it join MISO.
MISO was speaking at a PUCT technical conference held Friday.
Asked about capacity markets, MISO stressed that load serving entities have "no obligation to participate in the auction," and have the choice of relying on the centralized capacity auction, or the LSE's owned generation and bilateral contracts.
However, this is merely a Hobson's choice, in that the load serving entity must now meet a novel, unbundled capacity obligation to which it was not previously subject. Regardless of whether the LSE relies on the "voluntary" auction or an opt-out portfolio, its customers will have to pay for capacity, unless the LSE happens to be long on generation, and projected to remain long on generation for the entire forward planning period. The Entergy operating companies are capacity short, and thus their customers would either have to build or bilaterally buy new capacity upon joining MISO and becoming subject to the mandated capacity obligation, in order to avoid the capacity auction.
MISO's revisions to its resource adequacy mechanism have not yet been filed with FERC, but a filing is expected in June and the major tenets of the program have taken shape. As described in an FAQ on MISO's website updated in early May, "Planning Resource Auction participation is mandatory," although LSEs may "self schedule" into the auction (the opt-out choice).
"This is necessary due to the need to allocate scarce zonal import and export limits. Information about how all LSEs are intending to meet their forward obligations is required to ensure import and export constraints are not voilated [sic]."
Furthermore, while MISO stressed to the PUCT that LSEs can contract bilaterally for any capacity deficiency and will not be required to rely on the auction, the MISO FAQ states:
Q: "If a regulated LSE has more load than capacity during one of the capacity auctions, is the LSE forced to bid this short position into the auction? Can this short position be served from bi lateral [sic] arrangements from other MISO members or from outside of MISO?"
A: "Yes, LSE will need to replace short positions through the PRA [Planning Resource Auction]."
It is not apparent what this answer means, and whether it indicates that any bilateral contracts, aside from having to be vetted by MISO, must also be submitted before a certain deadline to excuse the LSE from the auction. Such is the case in PJM, where an opt-out of the RPM market exists, but is required on such a forward basis it is not conducive to many LSEs, especially those facing dynamic load, such as Entergy Texas which is seeing load growth in its western area.
There was also no discussion at the technical conference about local capacity requirements under the new MISO construct. Such local requirements, a hallmark of other RTO capacity markets, could force LSEs which are even long on capacity to procure supplemental capacity, either through the auction or other means, due to the location of the long capacity outside of constrained zones.
According to the MISO FAQ, the Planning Resource Auctions will include a demand curve to represent the volume of capacity needed to cover the coincident peak demand forecast plus the planning reserve margin. MISO has proposed a vertical demand curve (price inelastic).
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