POWER July 2017 - 43

ENERGY MARKETS
and wind.
In Bear's analysis, solar won't play a big
role in the next few years. The region is not
bathed in sunshine. Because MISO's electric
prices are low, solar remains uncompetitive.
That's in contrast to sunny California, where
energy prices are so high that solar can grab
market share.
Capacity Markets
Other large competitive wholesale markets
have lately been consumed by controversy-particularly
in the Mid-Atlantic and
Northeast where state actions to subsidize
uncompetitive nuclear capacity in the wholesale
markets threaten the viability of the
RTO/ISO concept (see sidebar). MISO has
largely been able to dodge those policy and
economic bullets.
Because of its structure, MISO has eschewed
the hard-capacity markets that characterize
RTOs such as PJM Interconnection
and ISO-New England (ISO-NE). " We don't
have a capacity market, " Bear said. In the
MISO system, most of the states' utilities
continue to be vertically integrated monopolies,
with the responsibility for providing adequate
generation to meet retail distribution
load. That's unlike the prevailing model to
the east, where generation and distribution
are separate entities and the ISOs determine
resource adequacy.
" States have jurisdiction over resource
adequacy " in most of MISO, Bear said. So
MISO doesn't have to conduct forward capacity
auctions to buy reserve generation at
competitive wholesale prices from generating
entities. That appears to be working.
MISO has been able to reduce its generation
reserve margin and still remain confident that
it can meet future loads.
MISO conducts what it calls a " fixed resource
adequacy plan, " (FRAP), a short-term
alternative to the long-term capacity auctions
in PJM and ISO-NE. A 2015 analysis by the
consulting firm ICF International said, " The
[MISO] capacity auction is prompt rather
than forward-looking like the ISO-New England
(ISO-NE) and PJM markets, meaning
that capacity for the June-May annual planning
period is procured in April of that same
year. "
While MISO brags that it does not have
a capacity market, its independent market
monitor, David Patton of Potomac Economics,
is critical of the ISO's approach to capacity.
Last year, Patton told stakeholders, as
reported by Platts, that while MISO's energy
market is working well, its approach to capacity
has not provided " efficient economic
signals to facilitate investment, retirement
and capacity import/export decisions. "
MISO last fall moved to adjust an aspect
July 2017 | POWER
The Future of Competitive Wholesale Electric Markets
The federally-created-and-governed regional,
competitive wholesale markets
are under attack by state regulators and
utilities with special needs, such as keeping
uneconomic nuclear plants in the
wholesale markets or boosting renewable
generation. So far, only the Midcontinent
Independent System Operator among the
multistate regional transmission organizations
appears to be immune from the
controversy. That could change.
Illinois and New York have adopted
plans to put a thumb on the scales of the
wholesale markets' pricing to keep favored
nukes in the capacity queue. Connecticut
and Ohio appear ready to follow suit, and
New Jersey may also get in line.
Proponents of the nuclear plant bailouts
argue that competitive wholesale markets
don't recognize the value of nuclear
power's zero-carbon emissions. To address
the alleged discrepancy, both Illinois and
New York created zero-emissions credits
(ZECs), which subsidize nuclear power by
recognizing the value of its carbon-free
generation. In New York, the value of
ZECs from rescued nuclear plants does not
equate to a value for the emissions from
the politically challenged Indian Point
nuclear facility, much nearer Manhattan,
which Gov. Andrew Cuomo persuaded Entergy
to close.
The move by states to influence the
wholesale markets' auctions has caused
heartburn at the Federal Energy Regulatory
Commission (FERC), overseer of
of its hands-off approach to long-term capacity,
dealing with Michigan and southern Illinois
decisions to restructure into separate
generating and transmission regimes. MISO
came up with a plan for a bifurcated approach
to capacity, which it called the " competitive
retail solution. " It would have continued
the existing short-term auction for most of
its business, while adding a new three-year
forward auction for the restructured systems
in Michigan and Illinois. In early February,
FERC rejected the MISO plan for two different
market-clearing processes, arguing that it
could introduce unnecessary price volatility.
In one of the last decisions before losing
its quorum, FERC said it would like MISO
to implement a more conventional capacity
auction mechanism, arguing that " an auctionbased
marketwide clearing mechanism for
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wholesale electricity. At a panel discussion
hosted by the Federalist Society
in April, as reported by SNL, several
panelists questioned whether the FERCregulated
markets could survive. Larry
Gasteiger, federal regulatory policy maven
at New Jersey's major utility Public
Service Enterprise Group, said, " Time for
action in the wholesale markets is simply
running out when it comes to nuclear
generation. I'm real concerned about the
lack of urgency. This issue has been discussed
for years. I don't think we have
years more to go. "
In early May, the quorum-less FERC held
a two-day technical conference on the future
of wholesale markets in the face of
state moves to favor nuclear generating
technologies, often for political reasons
such as jobs, tax base, and the like. At
that meeting, acting FERC chair Cheryl
LaFleur said, " It's no secret I'm a strong
supporter of wholesale competitive markets.
... Centralized capacity markets are
designed to signal new entry and exit into
the markets, rather than through the integrated
resource planning used in the
vertically integrated markets. "
During the May FERC conference and
the earlier Federalist Society meeting,
LaFleur laid out three avenues to solve
the tension between the states and the
feds: negotiation, litigation, or capitulation-federal
deference to the states to
make their own resource adequacy decisions.
That third option looks like MISO.
capacity simultaneously co-optimizes zonal
capacity requirements subject to zonal transmission
capability constraints and economic
supply offers at the time of the auction. "
Translated from FERC-speak, the commission
effectively said a systemwide competitive
auction better matches supply, demand,
and delivery than relying on state utility systems'
judgment of resource adequacy.
Responding to the FERC rejection, MISO
said it is going back to its stakeholders to try
to come up with a solution. Power Markets
Today reported that MISO said its initial review
of FERC's order " will be complicated
by the lack of detail contained in the order
concerning the reasons our proposal was rejected-or
guidance that would allow MISO
to better determine alternative paths to ensure
reliability in competitive retail areas. "
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