MISO’s Competitive Retail Solution – What it is, Why it’s Needed, How it Works

The Midcontinent Independent System Operator (MISO) is moving forward with a process to ensure that the competitive retail areas of the MISO region—southern Illinois and parts of Michigan—will have enough electricity capacity resources, including generation and demand response, to meet demand on a long-term basis.

MISO’s proposal, known as the “Competitive Retail Solution” (CRS), will be filed with the Federal Energy Regulatory Commission (FERC) on November 1. The proposal comes after nearly two years of meetings, workshops and conversations. It is designed to serve as a catalyst to provide price stability and transparency – two factors necessary for long-term resource adequacy in competitive retail areas of MISO’s footprint.

“This is a critical step forward for long term reliability in our region,” said Richard Doying, MISO’s executive vice president of operations and corporate services. “The Competitive Retail Solution will allow load serving entities within competitive retail areas of the MISO footprint to participate in a Forward Resource Auction (FRA) three years in advance of the delivery Planning Year.”

Why Now?

The most recent resource adequacy survey conducted by the Organization of MISO States (OMS) and MISO identified a potential regional capacity deficit as early as the 2018 Planning Year. The survey found that the risk of a deficit is higher in the retail choice areas of the MISO region, where there is no state regulatory agency or other entity charged with ensuring resource adequacy.

In the past, this was not problematic because load in retail choice areas had access to merchant generation or could purchase excess power from traditionally regulated utilities. But with reserve margins now tightening, competitive retail demand can no longer count on excess capacity to meet their requirements.

“We don’t have a one size fits all footprint,” said Doying. “We need a resource adequacy solution that works for everyone.”

MISO administers a voluntary annual Planning Resource Auction (PRA) that allows utilities and other Load Serving Entities (LSEs) to purchase some or all of the generation capacity they need to demonstrate resource adequacy for the following planning year. But while the PRA has worked well in the traditionally regulated parts of the MISO footprint, it no longer adequately addresses the needs of retail choice jurisdictions. That’s why a forward-looking capacity market that can incent investment several years before it is needed is critical for those areas.

“By creating a new forward-market mechanism, market outcomes will ensure efficient capacity is maintained or added as dictated by the market,” said Jeff Bladen, executive director of market services. “Competitive retail areas will benefit from knowing that future resource adequacy needs will be met.”

The new market mechanism designed for MISO’s competitive retail areas will ensure continued reliability through reduced market volatility, more timely price signals, and more efficient price outcomes.

“Under this proposal, competitive retail areas – and the MISO region as a whole – will benefit from knowing that future resource adequacy needs will be met,” said Bladen. “It is important to emphasize that the proposal in no way changes the current Planning Resource Auction process for traditionally-regulated states and utilities.”

How Does it Work?

The Competitive Retail Solution establishes a Forward Resource Auction (FRA) three years in advance of the delivery Planning Year. It targets the competitive retail areas of the MISO footprint. The purpose is to provide greater assurance of long-term reliability for the region. In addition to the FRA, the Competitive Retail Solution includes alternatives to participating in the auction. These alternatives allow LSEs and states within competitive retail jurisdictions to opt-out of the FRA.

Bladen emphasized that MISO’s proposal is designed to be flexible. Under the proposal, LSEs may elect to not participate in the FRA and may instead secure a Forward Fixed Resource Adequacy Plan (FFRAP). State and local regulatory authorities with jurisdictional authority over LSEs for Competitive Retail Demand may also opt out of the Forward Resource Auction through an election of a Prevailing State Compensation Mechanism, he said.

Bladen also pointed out that the forward auction components are designed to place traditionally regulated and retail choice load on a comparable basis in terms of providing a framework for planning for future resource needs and contributing to reliability in the operational timeframe.

Other Options

During the stakeholder process, MISO’s Independent Market Monitor (IMM) offered an alternative proposal that would have replaced the existing Planning Resource Auction with an entirely new construct. It included a two-stage clearing process that administratively divided merchant and non-merchant supply. MISO asked an independent company, the Brattle Group, to analyze both plans. The Brattle Group recommended adopting MISO’s CRS proposal saying it was more economically sound and demonstrated better performance in both meeting reliability standards in competitive retail areas and in reducing price volatility.

The FERC filing of MISO’s Competitive Retail Solution comes with some controversy. Not all stakeholders felt the final proposal was ready to file. They wanted more time for discussion. Bladen says that is a natural reaction when it comes to a complicated proposal like this.

“A clear majority of our stakeholders agree we need to take action and address the time-sensitive resource adequacy problems that exist in MISO’s competitive retail areas,” said Bladen. “It is unrealistic to expect broad stakeholder consensus on a topic like resource adequacy. After nearly two years of planning and conversations, however, the time has come to submit a proposal to FERC and ensure we are prepared for future reliability needs.”

Read the Competitive Retail Solution one-pager for more information.

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