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FERC Orders Changes to MISO Auction Rules, Customer Refunds Expected

January 13, 2016 By Cheryl Kaften

The Federal Energy Regulatory Commission (FERC) issued an order on December 31 (Docket No. EL15-70-000, et al) to correct “market manipulation” by the Midcontinent Independent System Operator (MISO) in connection with its 2015-2016 Planning Research Auction. The commission ordered MISO to file rule changes before its next auction, scheduled for April, which will set prices beginning June 1.

The decision came after complaints were filed with FERC at the end of May by Illinois Attorney General (AG) Lisa Madigan; as well as the Southwestern Electric Cooperative; the Washington, D.C.-based think tank Public Citizen; and the advocacy group, Illinois Industrial Energy Consumers, regarding a sharp price hike in costs for capacity that was passed on to customers in MISO Zone 4, in southern Illinois.

In its finding, the commission agreed with the petitioners, commenting that the rules governing the 2015-2016 auction had not been “just and reasonable.”

How it happened

MISO conducts an annual auction during the first ten business days in April to determine the “capacity price” of electricity for a portion of 15 states, including all of Illinois except the northern part of the state. In that auction, generation suppliers submit offers to MISO that represent a commitment to stand ready to supply energy during an established delivery year. The costs for capacity established in the auction are assigned to electricity distributors – and then passed through to residential, commercial, and industrial customers. The results are posted approximately six weeks prior to the Planning Year, which begins on June 1 and ends on May 31 of the following year.

Previously, the commission found, the auction has experienced little or no price separation among the zones: the 2013/-2014 Auction cleared at $1.05/MW-day for each zone, and the 2014-2015 Auction cleared at $3.29/MW-day for Zone 1, $16.75/MW-day for Zones 2 through 7, and $16.44/MW-day for Zones 8 and 9.

However, in the 2015-2016 auction, held last April, there was substantial price separation between Zone 4 and the rest of the zones: Zones 1 through 3, and 5 through 7, cleared at $3.48/ megawatt (MW)-day, Zones 8 and 9 cleared at $3.29/MW-day. But the price of capacity in southern Illinois rose from $16.75/MW day for the 2014-2015 delivery year to $150/MW day for 2015-2016.

In her filing, AG Madigan asserted that, “As a result of the flawed auction in April 2015, electricity prices for Ameren consumers in the MISO territory unnecessarily increased by close to 900 percent from the previous year’s auction. This resulted in an annual increase of $131 for an average residential Ameren customer.”

Madigan’s asked FERC to fix the auction rules and create new rules moving forward. The complaint also requested that consumers receive refunds for prices that unnecessarily increased as a result of the flawed auction rules. FERC has not yet issued a decision on potential refunds.

Mandated changes

FERC’s decision calls for two major changes to the capacity auction rules.

  • First, MISO cannot rely on prices set for the PJM Interconnection power system, another regional entity that oversees transmission for mainly East Coast states and northern Illinois with different auction rules and different prices. MISO erred in setting the maximum bid price to $155 when it should be $25.
  • Second, MISO did not correctly account for certain power exports, and must now increase the amount of electricity that is available to the Illinois market, potentially reducing the price.

MISO has not commented on the findings yet, except to say, “As we review the order, we will work with stakeholders to better understand the changes directed by the commission and how they would be implemented for the upcoming auction,” as reported by the Belleville News-Democrat.

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