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Illinois Commerce Commission: Design Elements of MISO Auction Need Re-examining

July 1, 2015 By Cheryl Kaften

The Illinois Commerce Commission (ICC) approved comments on June 29, set to be filed with the Federal Energy Regulatory Commission (FERC) in three separate complaint cases regarding the Midcontinent Independent System Operator’s 2015-2016 Planning Resource Auction. The complaints were filed by the advocacy group Public Citizen, the Illinois Attorney General; and the Southwestern Electrical Cooperative, an electric distribution cooperative serving over 17,000 members in southwestern Illinois..

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. MISO is regulated by FERC.

The ICC deems that the results of the 2015-2016 auction demonstrate that “certain design elements of MISO’s capacity auction process need to be re-examined.” The ICC submits that FERC should direct MISO to work with its stakeholders to re-examine these design elements before the next auction and submit changes, if necessary, to ensure just and reasonable capacity prices in the future. “FERC must ensure that MISO constructs the design elements of the auction correctly to ensure transparency and to protect consumers against the potential for any market power abuse, says ICC.

Specifically, the ICC stated, FERC 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.

The ICC also expressed concern that MISO’s local clearing requirement effectively excluded importation of lower-priced capacity from outside Zone 4. “Had MISO fully included those energy imports in the auction design, the auction price may have been significantly less than $150 per megawatt day,” the ICC stated.

Finally, the ICC believes that the zones should be configured to reflect the need for an adequate amount of planning resources for each zone, given the physical constraints on the system and the demand for electricity.  Zones that are too small can increase the ability of pivotal suppliers to exercise their market power. ICC submits that FERC should properly configure the zones within the MISO region and consolidate Zones 4 and 5 to dilute the ability of a pivotal supplier to exercise its market power.

The Illinois Commerce Commission is not a party to the complaints; it submits its comments as an intervener in these FERC cases.  The ICC’s comments can be viewed in their entirety on the ICC website at www.icc.illinois.gov.

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