FERC Orders Inquiry on Alleged Manipulation of MISO Auction
The Federal Energy Regulatory Commission (FERC) has ordered its Office of Enforcement to conduct a non-public, formal investigation (Docket No. IN15-10-000), with subpoena authority, regarding a possible energy market manipulation by the Midcontinent Independent System Operator (MISO) in connection with its 2015-2016 Planning Research Auction. .
The inquiry comes after complaints were filed with the commission by Illinois Attorney General Lisa Madigan (EL15-71-000), Public Citizen (EL15-70-000), and the advocacy group, Illinois Industrial Energy Consumers (EL15-82-000) regarding a sharp price hike that resulted from the 2015-2016 auction.
MISO conducts an annual auction to determine the “capacity price” of electricity for a portion of 15 states, including all of Illinois outside of 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 these costs are then passed through to customers. The price of capacity rose from $16.75 per megawatt day for the 2014-2015 delivery year to $150 per megawatt day for 2015-2016.
Specifically, the complainants allege that one provider, Houston-based Dynegy, is such a heavy hitter in the southern part of the state that it is capable of manipulating capacity prices. For its part, Dynegy denies any improper activity in connection with the auction – as does MISO.
As reported in E&E Daily, MISO officials said the sharp rise in prices from $16.75 per MW-day to $150 for the 12 months starting June 1 reflected the fact that more capacity was procured through the auction instead of private negotiations, for which prices aren’t made public.
The case originally was referred to FERC by the Illinois Commerce Commission (ICC) in July, with the recommendation that the federal agency should re-examine the effectiveness of MISO’s current method for calculating the generators’ “reference level.” The reference level is a threshold upon which MISO heavily relies to protect against the exercise of market power. So long as the generators’ offer prices to supply capacity are under the threshold, or reference level, they are neither investigated nor mitigated – but the ICC submits that this practice does not necessarily prevent the exercise of seller market power.
In association with its investigation, FERC plans to hold a technical conference on October 20, at which, the commission said, “Staff will lead a discussion to obtain information on the current market power mitigation procedures, including Initial Reference Levels, the transmission availability from MISO to PJM Interconnection, PJM’s market for Docket No. EL15-70-000, et al, replacement capacity, opportunity costs, and the Conduct Threshold for capacity market offer mitigation.”
Following the technical conference, the commission will consider post-technical conference comments submitted on or before November 4.
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