Conflict with MISO Capacity Planning Year definition and EPA MATS Timeline (5/31/13) A. Issue of Concern: A number of MISO generation owners will be required to retire/suspend their units effective either April 16, 2015 or April 16, 2016 (the later date would be applicable if the generation owner was granted a one‐year waiver by the relevant state environmental agency). This retirement/suspension will be necessary to avoid a violation of the EPA Mercury and Air Toxics Standards (MATS) if those owners choose not to incur the cost to install the equipment needed to comply with MATS. It is expected that much of this capacity will remain operational until the April 16, 2015 (or 2016) MATS compliance date. This would mean that from a MISO capacity perspective, this capacity would be available for all except about the last 6 weeks (mid‐April through the end of May) of the applicable capacity Planning Year (PY). Notably however, this capacity would be available for the remaining 46 weeks of the PY, including the critical summer period. Recognizing the MISO Tariff requires that qualified capacity be available for the full PY (unless the capacity can be replaced by qualifying capacity from within the same Resource Zone for the balance of the PY), the capacity required to shut down for MATS compliance for the last six weeks of the PY would not be able to be qualify for the MISO Capacity Auction for that PY. This places a hardship on any LSE relying on that capacity to meet their Planning Reserve Margin for that PY in that they would be required to pay for replacement capacity. It has long been recognized in capacity markets that the true value of capacity lies within the summer period. There has typically been little concern with maintaining reliability from a capacity sufficiency perspective to cover the lower peak loads outside of the summer period. MISO even acknowledged this point in the May 2013 SAWG meeting presentation on the use of a Generator Maintenance Limit with the statement that: “Past LOLE simulations show that the summer months of June, July, and August are the only months that have historically contributed to the Annual LOLE of 0.1 days/per year” (stated in slide 13, which graphically shows data for 2009 – 2012) A group of the potentially impacted generation owners within MISO (see the list of interested stakeholders in Section D) request that MISO give consideration to this issue and the potential solutions identified below, and request that MISO work with stakeholders to develop a mutually agreeable resolution for this situation. B. Request for Relief: Given the situation explained above, certain generation owners would like to explore alternatives for PY 2014‐2015 and PY 2015‐2016 that would allow them to receive most, if not all, of the capacity credit they would have otherwise been afforded except for the fact their units will not be available for the 1 April 16 to May 31 portion of the PY due to the EPA MATS rule. These generation owners would support any studies that MISO would want to perform associated with this request to verify that some or all of the impacted units can be taken out of service during this brief period while still maintaining the one day in ten year loss of load expectation standard. It is assumed that the Attachment Y process will be followed for the generation in question, and that the issue related to the MATS effective date will apply both for units with a System Support Resource (SSR) Agreement and for those units for which MISO has indicated an SSR agreement is not required. C. Possible Options to Resolve Issue of Concern 1. Unit by Unit Outage Study for Six Week Period of Concern: On a unit by unit basis, MISO would allow the generation owner to declare June 1st as the effective retirement/suspension date. The generation owner would then request MISO approval for a planned outage to occur between April 16 and May 31 of the relevant PY. MISO could then use the same process that would be used for any other generator requesting an outage during this period to verify there would not be a system reliability impact, and (hopefully) would be able to approve the outage request after completing the same analysis as would be done if the unit was not going to be retired/suspended. If the outage request is approved by MISO following the normal outage impact study, then that generator would be deemed to meet the criteria for being “available” for the full Planning Year and would be able to participate in the MISO capacity auction and receive capacity credit for that Planning Year. This alternative seems to be relatively simple to implement, and on the surface it doesn’t seem that this alternative should require a tariff change. If the study indicates a reliability issue would occur as a result of the mid‐April shutdown, then either the generation owner would not participate in the capacity auction or the generation owner could still exercise the option to provide qualifying substitute capacity for the last six weeks of the Planning Year. 2. MISO Seeks Relief for “Emergency Only” Operation of Generation subject to MATS In Docket PL12‐1‐000, on May 17, 2012 FERC issued a policy statement regarding the Commission’s role in the EPA MATS rule. FERC defined an advisory role for the Commission and the Planning Authority in the evaluation of administrative order requests for extension of the MATS deadline. The evaluation would be conducted pursuant to section 307(a) of the FPA, the Commission’s general investigative authority. Given MISO’s role as the Reliability Coordinator and the Planning Authority, MISO should evaluate the impact of the 6‐week gap on the ability to maintain resource adequacy for PY 2014‐2015 and PY 2015‐2016 and potentially seek extension of the MATS compliance deadline from April 16 to June 1. 2 During that 6‐week period, generators subject to MATS would be offered as “emergency only” and only committed during a MISO‐declared capacity deficiency. In this manner, generation subject to MATS is only committed and dispatched if absolutely necessary to avoid adverse impacts to end‐use customers. One difficultly with this approach is with getting all the necessary approvals (both from FERC and the EPA) before each generator owner must make a commitment (in March 2014 for PY 2014‐2015) to participate in the next MISO capacity auction. If this approach is used, a filing would need to be made as soon as possible to overcome all the potential regulatory delays. 3. MISO Tariff Change: Given the narrow and clearly defined nature of this issue, another alternative could be for MISO to make a Section 205 filing to request a tariff change to provide an exception to allow the definition of PY 2014‐2015 and PY 2015‐2016 to specifically exclude the two six week periods starting on April 16th. This seems like a reasonable request in that the dates for which MATS becomes effective was developed totally outside the control of both MISO and the generation owners. To ensure sufficient time to get this tariff change request through the FERC review process before the decision has to be made on the part of the generation owners on whether to offer their MATS impacted capacity into the next MISO Capacity Auction (March 2014), this filing would need to be made as soon as possible. 4. State Regulatory Action: Per the MISO Tariff it is clearly within the purview of each state regulatory entity to specify a Planning Reserve Margin Requirement (PRMR) for their respective state that is lower than the PRMR recommended by MISO. An argument could be made that if the state regulatory entity chooses to do so they could indicate to MISO that they would be willing to accept the reduced PRMR that would result from the unavailability of a particular generator located in their state that would be unavailable for the last six weeks of the PY due to the MATS effective date, and request that MISO allow that unit to receive capacity credit as if the unit was available for the full PY under this stipulation. Alternatively, the state regulatory entity could agree to accept the lower PRMR for the entire year, and an agreement could be made separately between the state regulator and the generator owner that the unit in question would remain in service for all but the last six weeks of the PY. This approach has a particular benefit in that for many utilities the cost of capacity purchases made through the MISO capacity auction is a direct “pass through” to customers under the state regulatory process, subject to a prudency review. The state regulatory entity in essence would make the decision whether the customers in that state should be assessed the extra costs 3 associated with procuring alternative capacity because the capacity affected by MATS would not be available for the full PY under a rigid interpretation of the MISO Tariff. 5. Procure Substitute Capacity for the Balance of the PY: Each LSE owning generation that would expect to be retired/suspended for the last six weeks of the PY could attempt to procure qualifying capacity to cover that six week period. Per the MISO Tariff, that capacity would have to be procured from within the LSE’s local resource zone. The availability of any excess capacity available for this period could be an issue for some LSEs (note that in the May 15 presentation to the Markets Committee, the IMM indicated that the cleared amounts in the recent capacity auction for in Zones 1 (Western MISO) and 7 (Michigan) only slightly exceeded the Local Clearing Requirement). Furthermore, even if there was surplus capacity in the Zone available that did not clear the PY Capacity Auction, obtaining this capacity at a reasonable price would also be of concern. 6. Pay the Deficiency Charge for the Balance of the PY: Another possible solution might be for the generation owner that whose unit is shut down for the last six weeks of the PY to pay the deficiency charge (2.748 times CONE) prorated to only apply for this six week period. This option is not likely to be economic compared to the other alternatives listed above, and would likely require a tariff changes to allow for a “partial” deficiency charge payment, but may be worthy of consideration. D. MISO Market Participants Requesting MISO to Address This Concern: DTE Electric Indianapolis Power & Light Wisconsin Public Service Corp. Consumers Energy Hoosier Energy 4