The Federal Energy Regulatory Commission approved an overhaul of performance penalties for demand-side resources in the Midcontinent Independent System Operator region, strengthening financial consequences and participation restrictions for resources that fail to respond during emergencies.
FERC accepted MISO's tariff revisions (ER26-1882) on Oct. 23, subject to conditions, effective June 1, 2027, for the 2027/2028 planning year. The reforms retain an existing real-time penalty, add a seasonal charge tied to capacity-market prices and expand circumstances under which resources can be excluded from future capacity auctions. MISO must submit a compliance filing within 30 days.
The rules apply to load-modifying resources, or LMRs, including demand response programs and behind-the-meter generation paid to reduce grid demand during emergencies. MISO considers them a key reliability backstop before involuntary power cuts. Together, they supplied slightly less than 10% of MISO's planning resources in the 2025/2026 planning year.
The centerpiece is an auction clearing price (ACP) penalty assessed after each season. The charge reflects a resource's largest performance shortfall and capacity-market value, with successful deployments reducing exposure. Two complete failures in one season trigger an enhanced formula, adding daily cost of new entry. The seasonal formulas are alternatives, but either can apply alongside the existing real-time penalty for replacing resources that are not delivered.
Performance within the applicable tolerance counts as full performance. Outside that tolerance, a resource that falls short but delivers at least 25% of its required response has a partial failure; delivering less than 25% constitutes a complete failure. FERC agreed with MISO that the threshold helps distinguish meaningful response from normal load fluctuations.
The reforms also strengthen participation restrictions. A complete failure disqualifies an LMR for the remainder of the planning year unless it has fully met at least one deployment instruction that season. MISO may exclude a resource from the following year's auction after one complete failure; two in one season require exclusion. Resources disqualified twice within three years face a ban for three additional planning years.
Disqualified resources that fail to replace committed capacity can also face a capacity-replacement charge after notice of disqualification.
For behind-the-meter generation, the rules provide no general forced-outage exemption but allow qualifying planned maintenance during spring and fall windows. After one complete failure, a behind-the-meter resource can avoid a second by initiating replacement of its committed capacity within three business days and subsequently completing the replacement.
MISO argued existing penalties were too small to deter poor performance and fraudulent registrations. It pointed to a Jan. 24 emergency deployment in which more than 100 megawatts of behind-the-meter generation underperformed or were reported unavailable. The grid operator estimated those resources would have faced roughly $1 million in penalties under the new framework while retaining about $7 million in auction revenues.
The Michigan Public Power Agency countered that the shortfall represented only about 2.5% of behind-the-meter generation. It said other MISO generation resources experienced 44 gigawatts of unplanned outages and reductions in available capacity during the same event.
Utilities argued that capacity accreditation already accounts for forced-outage risk and that added penalties could discourage participation. FERC said accreditation evaluates expected availability, while penalties address actual performance. It rejected claims of undue discrimination, finding that LMRs' emergency-only commitments differ from other generators' market obligations.
FERC nevertheless required MISO to clarify that resources reporting unexcused unavailability remain subject to the ACP penalty, but not a real-time penalty when no deployment instruction is issued. MISO must also include performance-ratio rules in the tariff to distinguish resources available but not selected from those unavailable without an accepted excuse.
MISO initially sought implementation for the 2026/2027 planning year. After objections over retroactive ratemaking and notice, and a FERC deficiency letter, it moved the effective date to June 1, 2027. The commission said the delay balances reliability objectives with market participants' need to prepare.
Commissioners Judy Chang and David Rosner supported the reforms in a joint concurrence but urged MISO and stakeholders to monitor their cumulative impact. They warned that excessive penalties could drive otherwise reliable resources from the market and raise capacity costs. They said they expect MISO to adjust its rules if burdensome penalties cause well-performing LMRs to exit.
MISO did not immediately respond to a request for comment on Oct. 26.
