United States: FERC Partially Accepts MISO Order No. 831 Compliance Filing, Orders Further Modifications To MISO Tariff

On March 28, 2018, FERC partially accepted the Midcontinent Independent System Operator, Inc.'s ("MISO") Order No. 831 compliance filing ("March 28 Order").  In Order Nos. 831 and 831-A, FERC required Regional Transmission Organizations ("RTOs") and Independent System Operators ("ISOs") to amend their respective tariff provisions governing existing offer caps on incremental energy offers, which FERC determined was necessary to: (1) avoid suppressing Locational Marginal Prices ("LMPs") below the marginal cost of production; and (2) fully compensate generation resources for the costs incurred to serve load (see November 21, 2016 edition of the WER). 

MISO filed its initial Order No. 831 compliance filing on May 8, 2017, which FERC rejected in an order issued November 9, 2017 ("November 2017 Order").  On December 11, 2017, MISO filed a request for clarification and, alternatively, rehearing.  While that request was pending, and in response to the November 2017 Order, MISO submitted a second compliance filing on January 8, 2018, which was amended on January 29, 2018.  In the March 28 Order, FERC: (1) granted in part and denied in part MISO's request for clarification or rehearing; and (2) partially accepted MISO's second compliance filing, but ordered MISO to file a further compliance filing within 60 days.

In its November 9, 2017 order, FERC rejected MISO's first compliance filing, finding that it failed to comply with the directives contained in Order No. 831, including by:

  • proposing tariff revisions appeared to prohibit resources from submitting incremental energy offers above $2,000/MWh;
  • failing to describe the factors it would use to verify cost-based offers or distribute uplift; and
  • failing to explain the difference between the fuel cost uncertainty adder and MISO's "legitimate risk" component.

In the March 28 Order, FERC granted MISO's December 11, 2017 request for clarification or rehearing, in part.  MISO sought clarification or rehearing of two aspects of FERC's November 2017 Order, including whether: (1) the offer cap reforms apply to "Proxy Offers of Fast-Start Resources"; and (2) FERC's directives in the November 2017 Order intended to alter MISO's Extended Location Marginal Pricing ("ELMP") mechanism.  In response to MISO's first request for clarification, FERC granted partial clarification and noted that the November 2017 Order intended to apply the offer cap reforms to adjusted energy offers of Fast-Start Resources generated by MISO's ELMP framework, but did not intend to expand the definition of "Proxy Offers."  However, FERC denied MISO's request that FERC clarify that its directives in the November 2017 Order apply to only Proxy Offers of Fast-Start Resources used during Emergency operating procedures.  In its reasoning, FERC stated, "[We] direct MISO to apply the offer cap reforms to incremental energy offers and the adjusted energy offers of Fast-Start Resources in circumstances when such offers are used to calculate LMPs."

FERC rejected MISO's second request for clarification or rehearing, and directed MISO to apply the offer cap reforms to adjusted energy offers of Fast-Start Resources associated with MISO's ELMP framework.  FERC disagreed with MISO that these reforms would be difficult to incorporate into its ELMP framework and emphasized that Order No. 831 requires both incremental energy offers and adjusted energy offers of Fast-Start Resources "be capped at $2,000/MWh when establishing LMPs for purpose of market clearing."

The March 28 Order also addressed MISO's second compliance filing, which was filed on January 8, 2018 and amended on January 29, 2018.  Regarding the offer cap structure, MISO provided revised tariff language allowing incremental energy offers to exceed $2,000/MWh, but stated such offers would not be permitted to set or influence market prices.  FERC approved this clarified tariff language; however, FERC also noted that several sections of the revised tariff language contained incorrect references to a new defined term, which FERC directed MISO to revise in a further compliance filing.  FERC further stated that MISO must still apply the hard cap to adjusted energy offers from fast-start resources.  FERC concluded that MISO failed to comply with the Order No. 831 directives when applying the offer cap reforms to the adjusted energy offers of Fast-Start Resources.  FERC directed MISO to submit further tariff revisions in a subsequent compliance filing to apply the offer cap reforms to adjusted energy offers of Fast-Start Resources when they are used to calculate LMPs.

With respect to the cost verification plan, FERC accepted MISO's proposal to use its Independent Market Monitor to verify incremental energy offer costs above $1,000/MWh that cannot be verified prior to the market clearing process.  However, FERC stated that MISO's proposal lacked sufficient detail to describe the verification process for when the Independent Market Monitor verifies the prices and revises reference levels, and when a market participant can dispute revenue sufficiency guarantee make-whole payments.  FERC directed MISO "to propose Tariff language describing how the amount of the make-whole payment will be determined." FERC directed MISO to clarify its proposed tariff language to address how MISO's cost verification process and its existing Reference Level process are connected.  Additionally, FERC noted there were certain inconsistencies in MISO's proposed tariff language that should be address in MISO's further compliance filing.

Regarding the fuel cost uncertainty adder, MISO resubmitted the definition it proposed in its first, May 8, 2017 compliance filing.  FERC found that MISO did not comply with its directives in the November 2017 Order to "explain the difference between the 'legitimate risk adder' and the proposed Fuel Cost Uncertainty Adder."  Instead, MISO described "outage risk" in its revisions but did not clarify whether it was the same as the "legitimate risk" component of a Reference Level.  FERC therefore directed MISO to clarify whether both terms are the same or different in a later compliance filing.  Additionally, FERC went on to note that, "[By] resubmitting the same proposal, MISO does not comply with the Commission's directives in the [November 2017] Order and continues to fail to limit the cap on all adders above cost included in cost-based energy offers above $1,000/MWh to $100/MWh, as required by Order No. 831."  Thus, FERC directed MISO to make this revision in its further compliance filing.

FERC's order directed MISO to make all necessary tariff revisions through a further compliance filing, to be filed within 60 days of FERC's March 28, 2018 order.  FERC's order can be found here.

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Christopher Zentz
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