FERC accepts MISO's seasonal construct despite major concerns

(Image by Couleur from Pixabay)

On August 31, the Federal Energy Regulatory Commission (FERC) accepted Midcontinent Independent System Operator’s (MISO) seasonal resource adequacy proposal. After 3 years of stakeholder deliberations, MISO filed this proposal at FERC on November 30, 2021.

MISO has defined a new set of capacity resources – Schedule 53 resources- moving from an annual auction to seasonal auctions. Schedule 53 resources are accredited based on a two-tiered weighting method that transitions to 20% weight for non-risky hours and 80% weight for risky hours in the 2025/26 Planning Year.

Industrial customers and clean energy advocates are not happy with MISO’s seasonal proposal elements. FERC Commissioner Allison Clements’ dissent could lead to a rehearing request at FERC. Meanwhile, MISO must prepare for seasonal auctions starting with the summer season in the 2023/2024 Planning Year.

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Renewable developers should note the essential elements of MISO’s seasonal proposal

Renewable developers should note that specific aspects such as the deliverability of resources and the generator verification testing capacity (GVTC) procedure for verifying capacity have not changed in this seasonal construct.

1. Seasonal Accredited Capacity (SAC) – Schedule 53 resources

MISO is moving to a two-tiered weighting structure to calculate Seasonal Accredited Capacity (SAC) for Schedule 53 resources. Schedule 53 resources are defined as capacity resources that are Demand Response Resources or Generation Resources, but not Dispatchable Intermittent Resources, Electric Storage Resources, External Resources, or Use Limited Resources. If a resource is not designated to satisfy Resource Adequacy Requirements (RAR), then it is not a Schedule 53 resource.

MISO proposes giving these Schedule 53 resources a capacity credit based on their seasonal availability during all hours besides RA hours (Tier 1 hours) and RA hours (Tier 2 hours). MISO proposed to transition this two-tiered weighting in the next 3 planning years as follows:

1. In the 1st year, 2023/24: 40% weight for Tier 1 and 60% for Tier 2
2. In the 2nd year, 2024/25: 30% weight for Tier 1 and 70% for Tier 2
3. In the 3rd year, 2025/26: 20% weight for Tier 1 and 80% for Tier 2

As MISO said in the 68-page Q&A document: “The first tier will determine each resource’s real-time offered availability during non-tight operating condition hours and the second tier will determine each resource’s real-time offered availability during hours with the tightest operating conditions, including declared MaxGens. The second tier will be more heavily weighted so that the majority of a Resource’s accreditation will be based on its availability during times of need.”

Outage exemptions for planned outages will be factored into calculating the tiers of a Schedule 53 Resource’s SAC because MISO modified its outage procedures and established new requirements for resources to replace capacity during outages under certain conditions. MISO has ensured in this seasonal proposal that resource owners have incentives to reduce the length of potentially long outages to avoid the Capacity Replacement Non-Compliance Charge.

Since most new solar resources are waiting to be studied in the generator interconnection queue, they won’t have historical data to calculate SAC. For these new resources, MISO said, “will have a SAC based on the Class Average SAC to ICAP Ratio for its Resource type.” MISO has not filed its blending approach of accrediting capacity for non-thermal resources at FERC.

2. Intermediate Seasonal Accredited Capacity (ISAC) conversion to SAC

Recognizing that Tier 2 RA hours might vary during individual seasons under certain conditions, MISO proposed “to accredit the capacity of a Schedule 53 Resource based on its Intermediate Seasonal Accredited Capacity (ISAC) determined based on its Real-Time offered availability (capped at the resource’s GVTC value) during seasonal RA Hours and Non-RA Hours.”

To convert a Schedule 53 Resource ISAC to SAC, MISO first calculates the ratio of (the sum of all Schedule 53 Resource’s fleet-wide Unforced Capacity) to (the sum of all Schedule 53 Resource’s fleet-wide ISAC). To calculate SAC for a Schedule 53 Resource, the ISAC of that resource is multiplied by this fleet-wide UCAP/ISAC ratio.

3. RA Hours

MISO has defined RA Hours as 65 hours in any season during which the capacity is tight. Sixty-five is the top 3% of the total hours (2190, 8760 divided by 4) in any given season. MISO has defined these RA hours separately for MISO North and South regions because the “North/Central region may not always be tight when the South region is tight or vice versa.”

4. Seasonal auctions and replacement capacity

Under the plan, MISO will conduct four auctions, one for each season, compared to an annual auction in April. Commissioner Clements noted in her dissent that New York ISO (NYISO) is the only ISO conducting seasonal auctions. FERC was satisfied with MISO’s answers to a March data request that contained 41 questions. Specifically, MISO said it expects twice the amount of un-cleared Zonal Resource Credits in non-summer seasons, providing liquidity for replacement capacity. MISO asserted there is very little bilateral trading for replacement capacity in the current annual construct. Hence, it took steps to increase this bilateral trading in the seasonal construct.

MISO is moving towards a blending approach for non-thermal resource accreditation – the “ELCC adjusted by RA hours” method

wind turbines and electric transmission lines located on a farm — Wind turbines and electric transmission lines located on farmland near Lake Benton, Minnesota

MISO is also changing its capacity accreditation for renewable resources – non-Schedule 53 resources. Currently, MISO runs Effective Load Carrying Capability (ELCC) for wind resources to determine their capacity credit at each Commercial Pricing node and provides 50% capacity credit to solar without running ELCC. With the seasonal construct, MISO is proposing to move to a blended approach of relying on ELCC calculations, but for those RA hours deemed “high risk” based on historical data – MISO calls this “ELCC adjusted by RA hours” method.

MISO says its current wind ELCC method of looking at annual 8 peak load hours for unit-level performance and computing a class average ELCC misses portfolio effects and important risk periods. Hence, moving to an “ELCC adjusted by RA hours” method would account for those portfolio effects and incorporate seasonal RA hours.

Historical unit-level data for solar resources from MISO’s previous two annual capacity auctions show a lower capacity value in the winter season but a wide range (15-45%) compared to a higher value in the summer season but a narrow range (40-60%) (slide 42 here).

Industrial Customers protested twice at FERC regarding MISO’s seasonal proposal

Industrial customers (Illinois Industrial Energy Consumers, The Association of Businesses Advocating Tariff Equity, The Indiana Industrial Group, the Louisiana Energy Users Group, the Texas Industrial Energy Consumers, and The Coalition of MISO Transmission Customers) are not in favor of MISO’s seasonal resource adequacy proposal. Specifically, they are concerned about the ability and the cost of industrial end-use customers to participate as Load Modifying Resources – Demand Response resources in MISO’s capacity auction because MISO increased the number of interruptions calls from 10 to 16 per planning year to qualify as a capacity resource.

Previously, MISO gave 100% capacity credit for LMR-DR resources with a cap of 10 interruptions, with 5 of them in summer. But under this new seasonal proposal, MISO proposes an increase to 16 interruptions (5 in summer, 3 in fall, 5 in winter, and 3 in spring). Industrial customers said MISO’s proposal for LMR-DR is not just and reasonable, and FERC should reject MISO’s proposal. In accepting MISO’s proposal, FERC was not convinced by the industrial customers’ arguments.

Clean Energy Coalition’s concerns

Clean Energy Coalition (Clean Grid Alliance, Sierra Club, Natural Resources Defense Council, Sustainable FERC Project, Fresh Energy, GridLab, American Clean Power Association, and Solar Energy Industries Association) raised 4 issues with MISO’s seasonal proposal.

1. MISO’s proposal does not fundamentally address the impacts of maintenance outages on resource adequacy.
2. MISO’s assumption of 65 hours of risk does not consider changing the renewable energy mix in the future.
3. MISO’s seasonal proposal “loosens” the overall performance and commitment requirements.
4. MISO’s proposal could have an unintended consequence on utility Integrated Resource Planning (IRP).

FERC disagreed with most of the Clean Energy Coalition’s concerns. FERC said Clean Energy Coalition had no evidence that the existing accreditation methodologies for non-Schedule 53 Resources such as wind undervalue their resource adequacy contributions. FERC also found that the UCAP/ISAC ratio does not lead to unduly discriminatory treatment (the Coalition argued it did) between Schedule 53 and non-Schedule 53 Resources. FERC also disagreed with the Coalition’s argument that MISO’s proposal does not expressly consider fuel supply risk for coal and gas resources but does consider fuel supply risk for wind and solar resources.

Renewable developers should note Commissioner Clements’s blistering dissent

FERC’s acceptance of MISO’s seasonal proposal is surprising because FERC rejected the previous MISO proposal on resource adequacy. When MISO proposed bifurcating capacity auctions for deregulated states like Illinois with vertically integrated states like Minnesota, FERC rejected that Competitive Resource Solution (CRS) proposal in February 2017. MISO started working on Resource Availability & Need (RAN), which led to this seasonal proposal in early 2019.

In the 170-page FERC decision, Commissioner Clements had an 11-page dissent. Since joining the Commission in December 2020, Commissioner Clements has been digging into the technical details of complex capacity credit calculations, as evident in her dissent on MISO’s seasonal construct.

Specifically, Clements notes that MISO’s Seasonal Accreditation Capacity is misaligned with the Effective Load Carrying Capability (ELCC) methodology of accrediting wind and solar resources. Clements took MISO to task for setting Schedule 53 and non-Schedule 53 resources on different courses.

Next Steps

Commissioner Clement’s dissent in the MISO order points out – SPP’s ELCC proposal and MISO’s Seasonal proposal are reducing the capacity credit for renewable resources while maintaining capacity credit for thermal resources.

Clement’s 3-page dissent in the SPP order was quoted 9 times in Clean Energy Advocates’ rehearing request. Clean Energy Advocates protested thrice in that SPP capacity accreditation docket. To compare, Industrial Customers protested twice in this MISO seasonal docket. Hence it remains to be seen if some organizations would file a request for rehearing at FERC on MISO’s seasonal proposal.

However, MISO must continue to take steps to prepare for implementing the seasonal auctions. MISO’s Resource Adequacy Sub Committee (RASC) is the primary stakeholder forum for additional details. Interestingly PJM just started engaging its stakeholders on seasonal market design.