Competitive Retail Solution
for Resource Adequacy
Resource Adequacy Subcommittee
May 17, 2016
Background
• March 2015 - MISO Issue Statement on Resource
Adequacy Issues
• October 2015 - MISO Issues Statement on Resource
Adequacy for Load in Retail Choice States
• November 2015 - Competitive Retail Solution Task
Team Formed
• December 2015 through April 2016 – Competitive
Retail Solution Task Team meetings
• April & May 2016 – Resource Adequacy Subcommittee
meetings
2
Two Potential Options for
Forward Procurement
Option 1 –
Full Forward
Procurement
Option 2 Prompt Only
Procurement
3
Evaluating Forward Procurement Against
Design Principles
Price
Formation
•Efficiency (Diminishing LCR &
Overwhelming of Demand)
•Market Monitoring
•Allocation of Access to Transmission
•Contestability
(Existing/New/Local/External)
•Simultaneous Optimization
Timing
• Forward Price Certainty
• Additional Time for Market to React
Preserve
Existing
Construct
• Impact on PRA
• Comparable Footing Across Regulatory
Structures
4
MISO Proposes Adding Full Forward Capacity Procurement
for Retail Choice Load, Separate from Existing PRA Process
• Two structurally separate auctions
– A new 3-year Forward Resource Auction (FRA) to procure full capacity
needs of retail choice load where state or local planning processes are
absent
– Forward auction will send timely and efficient investment signals using
sloped demand curve pricing method
– Forward procurement will be scheduled into Planning Resource Auction
(PRA) similar to resources procured by regulated LSEs
– Maintains existing PRA and Fixed Resource Adequacy Plan (FRAP) option
for non-retail choice load
• Different Demand Curves Serve Different Needs
– FRA will use a “target reliability range” (TRR; downward sloping demand
curve) to produce efficient price signals reflecting the value of capacity
– PRA continues to use a vertical demand curve to meet the balancing
needs of LSEs through FRAP and auction clearing for non-retail choice
load
5
Stakeholder Feedback Informed Final Design
•
MISO final design utilizes previously FERC-approved demand curve construct
(PJM) as basis for auction design
– IMM and multiple stakeholder solution proposals called for use of downwardsloping demand curve to improve capacity auction price formation for retail
choice regions.
•
MISO final design procures full capacity requirements for retail choice loads in
a forward auction with no sloped demand curve in prompt auction
– Initial MISO design used hybrid procurement with a sloped demand curve used
for both partial forward AND residual prompt auctions
– Non-retail choice states raised concerns about “spill-over” when using sloped
demand curve in prompt auction alongside non-retail choice loads even when
used exclusively for retail choice loads
– Advice from stakeholders and IMM raised price formation concerns related to
partial forward procurement
6
Design Achieves Resource Adequacy
Desired Business Outcomes
Only a forward and structurally separate solution can realize
desired business outcomes
– MISO and stakeholder confidence that Resource Adequacy will be
achieved in all time horizons
– MISO has provided sufficient transparency and market mechanisms to
stakeholders to allow for mitigation of potential short falls
FRA achieves desired business outcomes through leveraging of
design principles
– Price Formation: Efficient and stable representation of demand
– Timing: Additional certainty in commitment period and time for supply
to respond to market signals
– Preserving Existing Construct: Maintaining the existing PRA including
use of vertical demand representation and transmission allocation
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MISO’s Competitive Retail Solution Proposal
Participation
Bright-Line Test for
Demand
Demand
Representation
Forward Auction
Supply
Participation
Advanced
procurement of
capacity
Integration into
existing PRA
Materiality Clause
Safe Harbor
Full Requirements
Self-schedule into
PRA
Opt-Out
Mechanism
Existing Module D
Transmission
Modeling
Residual
Procurement
Voluntary
Participation
No ‘MOPR’
Sloped demand
curve for
Participating
Demand
Vertical curve for
Non-Participating
Demand
Infeasibility Cost
Allocation
Added Element
Refined Element
Eliminated Element
8
Load Participation – Bright-Line Test
• Bright Light Line Test for Demand
– Demand subject to competitive retail access will be required to
participate in CRS (subject to evaluation for materiality)
• Materiality Clause
– Revised test to be based on PRMR (Planning Reserve Margin
Requirement) instead of LCR (Local Clearing Requirement)
• Potential Participating Demand’s PRMR must be less than 0.5% of
the total system wide PRMR
• Threshold will be based on having a negligible impact to the
system-wide loss of load expectation
– Demand evaluated for materiality year over year
– Demand that is identified as material will be subject to
participation obligations of the Forward Resource Auction and
Forward Fixed Resource Adequacy Plan
9
Load Participation – Bright-Line Test cont’d
• Elimination of Opt-In Mechanism
– The bright-line test is the sole determinant of demand
participation in CRS
• Opt-Out Mechanism (Forward FRAP)
– Fixed requirement
– Requires 4 year notification to opt into FRA
– Ability for states to establish a compensation mechanism similar
to PJM’s Fixed Resource Requirements, or FRR
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Participation - Supply
• Market Power Monitoring and Mitigation
– Resources physically located within an LRZ with Participating
Demand will be subject to existing Module D provisions for the
FRA
– Resources physically located outside an LRZ(s) with
Participating Demand may elect to participate
– MISO will work with IMM to identify and develop additional
mechanisms as necessary
• Cleared resource must offer requirement
• Ability of distant resources to ‘price in’ risk premium to compensate
for the potential of being infeasible
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Participation – Supply cont’d
• Safe Harbor
– LSEs serving non-Participating Demand that have resources in
an LRZ with Participating Demand may exempt those resources
from evaluation for physical withholding
– Up to the most recent PRMR from the last cleared PRA
– Requires attestation from an officer of the company
– Includes a process to account for adjustments due to new
resource exit and increases in forecasted demand
– Adjustments are subject to review by MISO
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Forward Resource Auction
• Procurement of Participating Demand’s full
requirements
• Transmission System
– All transfer limits for LRZs and Sub-regions will be modeled
• Projected Planning Years' CIL, CEL, Sub-Regional Export and
Import Constraints
• 100% of limits are modeled, no pro-rata allocation
– Modeling of limits ensure a reasonable commitment
– Does not guarantee access to the Transmission System
(resources could be identified as simultaneously infeasible in the
Planning Resource auction)
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Forward Resource Auction cont’d
• Cleared supply will be “self-scheduled” into Planning Resource
Auction (PRA)
– Cleared supply will be represented in the PRA as a price-taker offer
– Cleared demand will be represented as a vertical demand curve in the
PRA
• Cleared supply will be subject to simultaneous feasibility
testing in PRA
– Supply cleared in FRA that is found to partially or fully infeasible during
the PRA will be obligated to procure replacement capacity in the PRA
– Replacement capacity costs will be based on any positive price
difference between the relevant Planning Year’s FRA clearing price and
the LRZ clearing price in the subsequent higher-priced PRA
14
Demand Representation
• Forward Resource Auction
– Sloped demand curve will only be used in Forward Resource
Auction
– Demand curves calibrated using projected Planning Year’s LOLE
Parameters and Participating Demand
• System requirements calibrated using PRMR
• Local requirements calibrated around Participating Demand’s load
share ratio of the Local Clearing Requirement
– Demand curve will be designed to achieve one-in-ten standard
• Planning Resource Auction
– All demand will be modeled using vertical demand curve
– Maintains PRA as a residual imbalance trading platform
15
Demand Representation cont’d
• Shape of sloped demand curve
– Shape will be designed to achieve 1 in 10 standard in similar
fashion to both PJM and ISO-NE
– Engaged consultant to evaluate shape
– Based on PJM’s demand curve
– Shape will be provided to stakeholder ahead of tariff filing
• Coordinates (price quantity pairs)
• Performance
16
Next Steps
• Publish revised Competitive Retail Solution MISO Staff Proposal
paper
• Tariff language under active development
– Available for stakeholder review and feedback in June
• FERC Filing targeted for July
– Evaluating filing alignment with seasonality and locational issues
currently under stakeholder review
• Evaluation of implementation timing underway
– New forward auction in place as early as Spring 2017
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Appendix
Market Design Principles
Price
Formation
• Address the potential for substantial yearto-year volatility
• Efficiently recognize the marginal
reliability value of incremental capacity
resources
Timing
• Facilitate competitive alternatives that
may be offered by new entrants
• Ensure resources are available in time for
planning year delivery
Preserve
Existing
Construct
• Preserve the methods and processes that
have supported most MISO Load-Serving
Entities’ approach to resource adequacy
planning
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Application of Materiality Clause
Materiality Threshold:
• PRMR x 0.5% = Materiality Threshold
• 136,000MW x .005 = 650MW
• Based on impact to system-wide LOLE
• Data from most recently cleared PRA
Example: Bright Line Test for LRZ A
• 400MW of coincident peak demand reported by EDC
• 7% Planning Reserve Margin
• PRMR = 428MW
Application of materiality test:
Is 428 greater than or equal to 650MW: No
LRZ will not have demand represented in FRA
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Forward Resource Auction with Sloped Demand Curve
Meets Design Principles
Price Formation
•
•
Addresses volatility
Rational market outcome –
prices rise, demand goes down;
prices decrease, demand goes
up
Timing
•
Addresses potential impacts of
uncertainty in forward
procurement
Preserve Existing Construct
•
Demand curve applied only to
competitive retail demand in the
Forward Resource Auction
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