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FERC signs off on new market mitigation measures for MISO

FERC on Dec. 21 approved revisions to the Midcontinent ISO's market power mitigation measures, finding that they will help limit the exercise of market power during short-lived periods of severe congestion.

MISO's current provisions apply mitigation measures to address locational market power resulting from transmission congestion that can occur in areas expected to experience binding constraints for at least 500 hours during a 12-month period and contain at least one pivotal supplier, referred to as narrow constrained areas, or NCAs.

The mitigation measures also are applied to areas that usually are sufficiently competition even when one or more binding constraints exist but under certain market or operating conditions those constraints can still result in substantial locational market power, referred to as broad constrained areas, or BCAs.

MISO in July proposed to add a third type of constrained area, called a Dynamic NCA, to address situations of severe transitory congestion that are not accounted for by the existing market power mitigation provisions for BCAs or NCAs.

That proposal is very technical, but MISO's market monitor determined that if it had been applied to real-time energy market outcomes in MISO during 2015 and 2016, transmission constraints would have resulted in 25 Dynamic NCA designations lasting an average of 9 days. Average locational marginal pricing, or LMP, impacts during those periods would have ranged from $6.50/MWh to $424/MWh, and maximum LMP impacts would have ranged from $105/MWh to $1,400/MWh.

Two NRG Energy Inc. subsidiaries, NRG Power Marketing LLC and GenOn Energy Management LLC, protested the $25/MWh thresholds MISO proposed to use for Dynamic NCAs in both MISO's northern and southern regions for identifying economic withholding conduct and LMP impacts. They argued that it fails to account for the significant differences between the sub-regions and may not allow suppliers to recover the costs that are incurred to relieve binding constraints.

The NRG companies further urged FERC to direct MISO to address the underlying causes of congestion on MISO's system, especially in MISO South, which they claimed is severely congested.

FERC was not convinced by the NRG companies' arguments and approved the proposal.

"As the market monitor explains, severe congestion associated with transitory transmission constraints in locations outside of existing NCAs may provide opportunities for the exercise of market power that the market power mitigation thresholds ... were not designed to address," FERC said. "MISO's Dynamic NCA proposal will ... ensure that the potential exercise of market power during such transitory conditions is properly mitigated."

As for the NRG companies' argument that MISO should modify its generation and transmission outage coordination process to address the underlying cause of transitory congestion, FERC found it to be outside the scope of the proceeding. The agency also shot down the NRG companies' assertion that the proposed $25/MWh Dynamic NCA thresholds are not just and reasonable because of differences between MISO's southern and northern regions.

"NRG companies' arguments regarding the cohesiveness of MISO as a whole is not germane to this proceeding; rather, MISO's proposal focuses on mitigating market power that may arise due to transitory congestion," FERC said.

The agency also faulted the NRG companies for failing to demonstrate how distinctions between MISO North and MISO South "could manifest as lower market power risks within Dynamic NCAs in MISO South or otherwise necessitate the application of higher Dynamic NCA mitigation thresholds in MISO South."

While the NRG companies argued that the proposed thresholds are too low for MISO South, FERC noted that those thresholds still allow a resource to submit incremental energy and minimum generation offers that exceed its applicable reference level by up to $25/MWh and to impact LMPs by up to $25/MWh.

"We do not find that these $25/MWh conduct and impact thresholds are unreasonably low in a competitive market where resources are expected to submit offers equal to their short-run marginal costs," FERC concluded. (FERC docket ER17-2097)