On August 31, 2022, FERC issued two orders regarding two proposals to revise the Midcontinent Independent System Operator’s (“MISO”) resource adequacy requirements. In the first order, FERC accepted MISO’s proposal to move to seasonal resource adequacy requirements rather than a single requirement based on the summer peak. MISO proposed this seasonal resource adequacy construct to address significant increases in emergency events that occur year-round, driven by factors including generation retirements, reliance on intermittent resources, outages resulting from extreme weather events, and declining excess reserve margin. MISO will implement the new seasonal resource adequacy construct in the next Planning Resource Auction (“Auction”) to be held in April 2023. In the second order, FERC rejected MISO’s proposal to require a Minimum Capacity Obligation (“MCO Proposal”) for participants in MISO’s Auction.
MISO proposed three principal changes to implement a seasonal resource adequacy construct. First, MISO proposed to establish seasonal generation reserve requirements for the summer, fall, winter and spring seasons, the capacity for which will be bid into the Auction. MISO explained that it would continue to conduct the auction annually in the spring preceding the applicable Planning Year, but the Auction will clear the requirements separately for each season. MISO’s proposal included changes to its modeling methodology to study and develop a planning reserve margin for each season of the year. Capacity import and export limits are also expected to change based on seasonal modeling.
Second, MISO proposed to implement seasonal, availability-based accreditation (“SAC”) to establish capacity values for thermal and demand response resources. Rather than using installed capacity values adjusted for forced outage rates, MISO explained that it would use the resource’s average capacity available in times of highest need given resource offers in the Day-Ahead and Real-Time markets. For non-thermal resources (including intermittent and storage resources), MISO proposed to use its current capacity valuation methodologies, adjusted for seasonality and stated its intent to address potential accreditation enhancements for these resources in a future filing. MISO’s proposal also includes a 3-year transition process. Finally, MISO proposed that resources on planned outage or planned derate for more than 31 days in a season in which they clear the Auction will need to find replacement capacity for that season or be subject to a daily non-compliance charge.
In accepting MISO’s proposals, FERC found that MISO demonstrated the new requirements will ensure sufficient resources will be available during the highest risk periods throughout the year, while also ensuring that load-serving entities are not required to procure capacity beyond what is necessary to ensure resource adequacy in a given season. FERC further required MISO to submit an informational report 90 days after the end of the 2025/2026 Planning Year comparing its accreditation with actual resource availability.
MISO’s MCO Proposal would have required Market Participants to obtain at least 50% of their reserve requirements outside and prior to the Auction, either through owned resources or bilateral contracts. The proposal would have imposed charges for failure to meet the obligation. FERC rejected the MCO Proposal after finding that MISO failed to demonstrate that it would address or mitigate resource adequacy concerns. Noting that the Auction is not a multi-year forward construct, FERC reasoned that the minimum capacity obligation is unlikely to facilitate the construction of new capacity. Rather, FERC concluded that any capacity procured in the bilateral market to satisfy the MCO would likely be purchased from the same resource that otherwise would have been offered into the Auction. FERC also found that MISO failed to adequately address the proposal’s potential impact on market power and did not address the medium and long-term impact of the proposal on the role of the annual auction in disciplining the bilateral market. Ultimately, FERC remains concerned about resource adequacy in MISO.
Commissioner Danly concurred in both decisions, noting that this was a “step in the right direction” but that the Commission may need to exercise its 206 authority to address the “ever-decreasing excess reserve margins” in MISO.
Commissioner Clements dissented in the decision accepting the seasonal resource adequacy proposal out of concerns that “capacity may not be accredited consistent with its availability during times of greatest reliability risk,” particularly noting that the SAC methodology does not fairly credit all resource types such as wind and solar. Clements further expressed concern that holding all four seasonal capacity auctions simultaneously could result in capacity sellers exercising market power, thus inflating capacity prices.
Commissioner Christie concurred in both decisions, highlighting that the MISO capacity market is a “purely residual option” and reminding states that they retain primary responsibility for resource adequacy and long-term resource planning.