Midwest Independent Transmission System Operator, Inc., 121511 FERC, ER08-394-021
|Docket Nº:||ER08-394-021, ER08-394-022|
|Party Name:||Midwest Independent Transmission System Operator, Inc.|
|Judge Panel:||Before Commissioners: Jon Wellinghoff, Chairman; Philip D. Moeller, John R. Norris, and Cheryl A. LaFleur. Nathaniel J. Davis, Sr., Deputy Secretary.|
|Case Date:||December 15, 2011|
|Court:||Federal Energy Regulatory Commission|
ORDER ON REHEARING AND COMPLIANCE
1. This order denies requests for rehearing of the Commission’s April 16, 2009 order (April 16 Order), 1 and conditionally accepts the Midwest Independent Transmission System Operator, Inc.’s (Midwest ISO) June 17, 2009 compliance filing (June Compliance Filing) to become effective June 18, 2009. The Commission’s acceptance of the June Compliance Filing is subject to an additional compliance filing, as set forth below.
2. In October 2008, the Commission generally accepted, subject to a compliance filing, the Midwest ISO’s plan to financially settle its voluntary capacity auction.2 The Commission accepted, in relevant part, the Midwest ISO’s proposal to allow load serving entities (LSE) to secure additional capacity through a voluntary capacity auction. The Commission also approved the Midwest ISO’s plan to assess a financial settlement charge for any deficient LSEs (i.e., those lacking sufficient capacity to meet their resource adequacy obligations). That financial settlement charge would be calculated based on the annual cost of new entry (CONE) for resources. Finally, the Financial Settlements Order addressed the Midwest ISO’s proposal to distribute revenues from the collection of any deficiency charges.
3. As noted above, however, the Commission accepted the revisions subject to further compliance. In particular, the Financial Settlements Order required the Midwest ISO to provide additional justification for its CONE value of $80, 000/MW and to propose a more granular monthly deficiency charge, which should be tailored to deter deficiencies without being excessive on a monthly or cumulative basis.3 The Financial Settlements Order also required the Midwest ISO’s independent market monitor, Potomac Economics, Ltd. (Market Monitor), to explain in further detail how it intended to monitor for market power in the voluntary capacity auction and to describe what mitigation measures it could use to prevent market power.4
4. On November 19, 2008, the Midwest ISO submitted the compliance filing (November 2008 Compliance Filing) in Docket No. ER08-394-007. On that same day, the Market Monitor filed its plan for monitoring the voluntary capacity auction and the types of market mitigation measures that could be used to prevent market power. We addressed both of these filings in the April 16 Order.
5. In the April 16 Order, we found that the Midwest ISO provided sufficient data on compliance to justify its annualized $80, 000/MW initial CONE value for any deficiencies in capacity. We also accepted the Midwest ISO’s plan to assess the total CONE value of $80, 000/MW for the first month’s deficiency, while charging a smaller, incremental amount for violations in subsequent months. This approach, we found, struck the appropriate “balance between deterring deficiencies and avoiding gross incentives to overbuild capacity.”5
6. As for the Market Monitor’s monitoring and mitigation plan, the April 16 Order found that while the filing satisfied the Financial Settlements Order, the Midwest ISO needed to file the plan as part of its Tariff. Accordingly, the April 16 Order required the Midwest ISO to submit a compliance filing that would: (1) set forth Tariff provisions outlining the Market Monitor’s plan to monitor Midwest ISO’s voluntary capacity auction and Midwest ISO’s obligations for mitigating any potential exercise of market power; and (2) address various concerns by market participants regarding the Market Monitor’s plan to monitor the voluntary capacity auction, including how the plan could result in volatile capacity prices.6
7. The Midwest ISO submitted the June Compliance Filing in response to the April 16 Order.
II. Requests for Rehearing
8. The Midwest ISO and Market Monitor filed a joint request for rehearing of the April 16 Order. The Illinois Municipal Electric Agency (Illinois Municipal) also requested rehearing of that order.
III. Notice of the Compliance Filing and Responsive Pleadings
9. Notice of the June Compliance Filing was published in the Federal Register, 74 Fed. Reg. 31, 022 (2009), with interventions and protests due on or before July 8, 2009.
10. The following parties filed comments and protests regarding the June Compliance Filing: American Municipal Power, Inc. (AMP); the Coalition of Midwest Transmission Customers (CMTC); Consumers Energy Company (Consumers Energy); The Detroit Edison Company (Detroit Edison); Duke Energy Corporation (Duke); the Electric Power Supply Association (EPSA); Exelon Corporation (Exelon); FirstEnergy Service Company (FirstEnergy); Integrys Energy Services, Inc. (Integrys); and RRI Energy, Inc. (RRI Energy) (formerly Reliant Energy, Inc.).
11. The Midwest ISO filed a motion to answer and answer to the comments and protests. The CMTC and the Midwest Transmission Dependent Utilities (Midwest TDUs) also filed a joint answer to the comments and protests.
IV. Substantive Matters
A. Procedural Matters
12. Rule 213(a)(2) of the Commission’s Rules of Practice and Procedure7 prohibits an answer to a protest or an answer unless otherwise ordered by the decisional authority. We will accept the answers of Midwest ISO, the CMTC and Midwest TDUs. These answers have provided information that assisted us in our decision-making process.
13. As set forth below, the Commission denies the requests for rehearing and affirms the April 16 Order in all respects.
1. Requirement to File Market Monitoring and Mitigation Plan
14. In the Financial Settlements Order, the Commission directed the Market Monitor to further explain how it intended to monitor the voluntary capacity auction and to determine whether additional mitigation measures were needed. We specifically found that the Midwest ISO proposal, as set forth in section 69.3.5.h of its proposed Tariff, did “not adequately define the scope of the Independent Market Monitor’s role.”8 We directed the Market Monitor to “specify the methods it will use to determine whether market power is being exercised and whether additional mitigation measures are needed, and what additional mitigation measures might look like.”9
15. The Market Monitor responded to this request on November 19, 2008, by submitting its plan for monitoring the voluntary capacity auction. The plan generally explained how the Market Monitor defined physical and economic withholding, how it would screen for such conduct, how it would determine the price impact on the voluntary capacity auction, and how the Midwest ISO could potentially mitigate market power abuses. The Market Monitor noted that “[t]he most effective mitigation for economic and physical withholding is a must-offer provision that requires that capacity be designated to satisfy an LSE’s capacity requirement or offered in the voluntary market at a competitive offer price level.”10 It noted, however, the details of “such an approach would need to be reviewed and approved by the Commission prior to its implementation.”11
16. In a subsequent answer filed by the Market Monitor, it provided additional justifications for its market monitoring plan. The Market Monitor also provided specific examples of when a market participant could rightfully withhold capacity from the voluntary capacity auction. It further explained how it would not only monitor the activities of Capacity Resources in the auction, it would monitor the conduct of LSEs to determine whether they are engaging in conduct that artificially depresses auction prices.
17. The April 16 Order found that the Market Monitor’s filing complied with the Financial Settlements Order. However, we also found that the plan had to be filed as part of a proposed revision to Module D of the Tariff, which sets forth the Midwest ISO’s rules for monitoring and mitigating its markets. The Commission noted that the proposed Tariff revisions “must contain sufficient detail for market participants to understand how the Market Monitor will monitor for withholding, when a market participant will be subject to mitigation, and what mitigation will be applied.”12 We further emphasized that the Tariff provisions must include specific mitigation measures that would be applied by the Midwest ISO.13 We noted that these mitigation measures may include automatic mitigation for economic withholding or sanctions for physical withholding.14
b. Requests for Rehearing
18. The Midwest ISO and the Market Monitor request rehearing of the Commission’s decision requiring the Midwest ISO to develop a mitigation plan for the voluntary capacity auction and to propose Tariff revisions for its plan. The Midwest ISO and the Market Monitor argue that a mitigation plan is unnecessary and premature because market power abuses are unlikely in the voluntary capacity auction. They assert that the Commission has never imposed mitigation measures when market power is unlikely.15They further note that if mitigation was imposed, market participants may be less willing to invest in new resources and suppliers may be less willing to import resources into the Midwest ISO. The possible reduction in capacity in the voluntary capacity auction, according to the Midwest ISO and the Market Monitor, may increase market prices.
19. The Midwest ISO and the Market Monitor also challenge whether it was necessary to consider automatic mitigation measures. They argue that...
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