MISO, Dynegy defend capacity auction results

©2015 E&E Publishing, LLC
Republished with permission

By Jeffrey Tomich

The Midcontinent Independent System Operator, its independent market monitor and Dyengy Inc. formally challenged allegations that the grid operator’s April capacity auction yielded excessive prices that will needlessly push up electricity bills for southern Illinois consumers.

The filings last week with the Federal Energy Regulatory Commission came in response to complaints last month from Illinois Attorney General Lisa Madigan (D), consumer watchdog Public Citizen and the Southwestern Electric Cooperative that suggested Dynegy’s position in southern Illinois allowed it to manipulate prices during a capacity auction.

Results of the April auction surprised observers because prices for the southern half of Illinois, known as MISO’s Zone 4, were $150 per megawatt-day (MWd). That’s nine times higher than last year’s capacity price and 40 times greater than prices elsewhere throughout MISO’s 15-state footprint.

In its 186-page response, Carmel, Ind.-based MISO said it followed its FERC-approved tariff. And, it said, the resulting capacity price spike “does not establish that the price was unjust and unreasonable; or that the price was the product of any lack of oversight or administration on MISO’s part; or that the price was the product of market manipulation.”

Houston-based Dynegy also defended the auction results and its bidding, which the company said was based on operating costs of its generating units.

Dynegy noted in its filing that the $150-per-MWd price that triggered political backlash and the FERC complaints is less than capacity prices embedded in retail rates elsewhere in MISO. According to the company’s calculation, those price range from $180 to $435 per MWd.

The independent market monitor, Potomac Economics, agreed that Dynegy, with 7,000-plus megawatts of generation, is a pivotal supplier in MISO Zone 4. But pivotal suppliers are common in regional transmission organizations, and RTOs have rules in place to ensure those suppliers don’t use their position to unfairly manipulate prices, Potomac Economics President David Patton said.

In the case of the MISO auction, the $150-per-MWd clearing price was below the established reference level of $155 established by Potomac Economics and the $247 cost of new entry.

Also filing comments with FERC were consumer advocates from Illinois, Indiana, Iowa, Michigan, Minnesota and Wisconsin who said it was appropriate for FERC to investigate the auction.

The complaints filed in May ask FERC to suspend capacity charges in southern Illinois for the 2015-2016 year and investigate the reason for the increase. The complaints also seek refunds of any amount collected if capacity prices are determined to be “unjust and unreasonable.”

The capacity charges took effect June 1 and will translate into an increase of about $131 a year for residential customers in Ameren Illinois’ service area. Big energy users will pay substantially more, with one Illinois employer facing a $1.3 million annual increase in electricity costs.

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