MSC: EDR Offer Cap Options and VOLL Circuit Breaker Approaches (MSC-2019-1) (20240418)

WPPI Energy offers the following feedback on the questions posed re the Emergency Demand Response Offer Cap and Value Of Lost Load Circuit Breaker (MSC, 4/18/2024):

• (1.) EDR Offer Cap: MISO proposes setting the EDR Offer Cap to a fixed $3,500/MWh if the VOLL is changed (slide 21). Does your organization support this change, or some another alternative?
  • WPPI finds it reasonable to maintain the current EDR Offer Cap of $3500/MWh.
• (2.) VOLL Circuit Breaker: Do you support the need of VOLL Circuit Breaker in MISO? If so, please describe the scenario(s) that necessitate a VOLL Circuit Breaker in MISO.
  • WPPI is open to a VOLL Circuit Breaker. For WPPI, the question is do we (a) chance what WPPI suspects is the low probability of an extended application of VOLL (developing a VOLL Circuit Breaker only after an applicable event for the next such event) or (b) spend time/resources now to develop a VOLL Circuit Breaker?
• (3.) VOLL Circuit Breaker: Would the ERCOT or PJM-proposed methodology be more appropriate for MISO? Alternative approaches may be suggested.
  • At this early stage, WPPI would lean toward ERCOT’s methodology vs. PJM’s. Specifically, ERCOT’s Emergency Pricing Program, under which during emergency conditions, the System Wide Offer Cap is reduced to the Low System Wide Offer Cap ($2K) when the system-wide energy price has been at the High System Wide Offer Cap for 12 hours of a rolling 12-hour period.
  • In part, WPPI leans toward ERCOT’s methodology vs. PJM’s because ERCOT’s circuit breaker kicks in after 12 hours, whereas it takes much longer for PJM’s circuit braker to kick in, 48 hours.
  • MISO notes in its presentation (20240118 MSC Item 08 Continued Reforms to Improve Scarcity Pricing and Price Formation, 4/18/2024) that it would have to demonstrate reduced prices would not significantly impact reliability. It seems the factors PJM identified for review prior to invoking their proposed circuit breaker provide a useful starting point for developing the factors MISO must review prior to invoking a circuit breaker.

American Municipal Power (AMP) appreciates the opportunity to provide feedback on Emergency Demand Response (EDR) Offer Cap options and VOLL Circuit Breaker approaches and offers the following comments:

EDR Offer Cap

• AMP is generally supportive of retaining the existing EDR infrastructure and setting the EDR Offer Cap to a fixed value or utilizing the same offer validation process as for other resources established by FERC Order 831. EDR is important for encouraging price responsive demand to reduce prior to involuntary load shed. MISO’s goal should be to encourage load participation that helps MISO operations.
• For the longer-term, AMP encourages MISO to work with stakeholders to improve how additional demand response can effectively be offered/utilized during emergency scarcity conditions.

VOLL Circuit Breaker

• AMP supports the need for a VOLL Circuit Breaker if price signals are not actionable. If high market prices are no longer enhancing reliability because no further actions can be taken, a VOLL Circuit Breaker is needed. If price signals are not actionable, why have the price signal?
• It is critical, however, to determine under what scenario a VOLL Circuit Breaker would be “reset” and market pricing would return to normal, perhaps a certain amount of time, such as 48 hours. AMP encourages further stakeholder discussion on this to determine the appropriate exit strategy after a VOLL Circuit Breaker has been triggered.
• If the VOLL is increased to $10,000/MWh, as previously proposed by MISO, AMP supports retaining the current VOLL of $3,500 as the amount for the VOLL Circuit Breaker.
• AMP does not support the PJM-proposed methodology because it allows for discretion by PJM, which raises the concern that a Circuit Breaker could be implemented at times when it is not anticipated by market participants, or not implemented when market participants are expecting the Circuit Breaker to be triggered.
• AMP does not support the ERCOT methodology because ERCOT, unlike MISO, does not have a capacity construct designed to send price signals to generators to build or retire.

Michigan Public Power Agency (MPPA) does not support MISO changing its Value of Lost Load (VOLL) to $10,000/MWh, as it has not been demonstrated by MISO that such a drastic change would have a positive reliability impact during an emergency that exceeded the obvious costs. In light of MPPA’s VOLL position, MPPA supports creation of a VOLL Circuit Breaker (VCB) to prevent colossal shifts of wealth that serve no discernable purpose. Rather than place the onus on Market Participants to present specific scenarios where the VCB would apply, MISO should acknowledge there could be scenarios as yet neither experienced nor anticipated that occur in the future. I find the last bullet point on slide 28—"MISO would have to demonstrate that lowered prices would not significantly impact reliability”—to be ironic since MISO has not demonstrated nearly tripling VOLL would significantly impact reliability, and MISO acknowledges that there have only been nine 5-minute intervals with an Operating Reserve (OR) shortage and a Marginal Energy Component (of LMP, MEC) = $3,500 ever, so even the reliability impact of the current VOLL is untested. We would support the VCB activating after 12 hours of VOLL pricing without further subjective criteria.

5/9/24         

Mississippi Public Service Commission’s Feedback Response re MSC: EDR Offer Cap Options and VOLL Circuit Breaker Approaches (MSC-2019-1) (20240418)

In the April 18, 2024, meeting of the Market Subcommittee (MSC) stakeholders were invited to review and submit feedback on EDR Offer Cap Options and VOLL Circuit Breaker approaches (MSC-2019-1).

Please provide feedback on the following:

1. MISO proposes setting the EDR Offer Cap to a fixed $3,500/MWh if the VOLL is changed (slide 21). Does your organization support this change, or some another alternative
2. MISO discussed VOLL Circuit Breaker considerations

• Do you support the need of VOLL Circuit Breaker in MISO? If so, please describe the scenario(s) that necessitate a VOLL Circuit Breaker in MISO.
• Would the ERCOT or PJM-proposed methodology be more appropriate for MISO? Alternative approaches may be suggested.

Please provide feedback by May 9, 2024.

Feedback

The Mississippi Public Service Commission (MPSC) responds as follows:

1. The MPSC opposes raising VOLL to $10,000/MWH, and generally, the concept of VOLL. In a vertically integrated environment (that’s all of MISO South), utilities plan their resources to serve their load through an Integrated Resource Planning process (IRP). These utilities already have an incentive to ensure sufficient resources are constructed or purchased bilaterally, and the cost for these investments are recovered from retail customers. Imposing penalty pricing on an LSE that is capacity/energy-short sends no price signal because the utility, upon receipt of the invoice, will pass that cost through to retail customers. And, because the penalty is imposed pursuant to a FERC-accepted tariff, a State commission is pre-empted from modifying or preventing the pass through of these penalties to retail customers. So ultimately, the retail customer, who has no ability to take any action (short of installing a backup generator), who is already paying the capital and operating costs for the utility’s generation, ends up paying the penalties.

The vast majority of states in MISO have jurisdiction over resource adequacy planning in their footprint.  Insufficient resource planning can be addressed by the state in its IRP process and through retail rate making. A one-size-fits-all MISO economic approach will do nothing more than impose unreasonable penalties on retail customers.

The MPSC recommends that each state be given the option to opt into VOLL price setting.  Those states that believe it would be beneficial (e.g., because they lack authority to direct utilities to build resources) can agree to implement MISO’s proposal.

2. For any state whose retail customers are subject to VOLL penalty pricing, a cap on the price and the duration that price is imposed on load (circuit breaker) is mandatory. The circuit breaker recognizes the point (demarcation) that imposing penalty pricing will not send a useful price signal, but will continue to penalize retail customers for circumstances outside their control.

Because the MPSC does not believe that VOLL penalty pricing is useful, the shortest possible time (e.g., one hour after imposition) should trip the breaker to relieve the financial overload on retail customers.

The MPSC supports PJM’s $2,000/MWH LMP cap, but NOT a 48 hour-period with VOLL pricing.

The MPSC does not agree with the ERCOT approach because it imposes unreasonably high costs on retail customers.  It may work in a control area that is no longer vertically integrated or where the state lacks authority to direct resource construction. It is unnecessary in a control area subject to state resource adequacy jurisdiction.

Vistra Corp. (“Vistra”) appreciates MISO providing parties with the opportunity to submit feedback on the “Continued Reforms to Improve Scarcity Pricing and Price Formation” presentation that Staff shared during the April Market Subcommittee (MSC) meeting. Below are Vistra’s responses to the questions posed by MISO.

• Do you support the need of VOLL Circuit Breaker in MISO? If so, please describe the scenario(s) that necessitate a VOLL Circuit Breaker in MISO.
  • Vistra is supportive of a VOLL Circuit Breaker in MISO. A VOLL Circuit Breaker is a critical policy improvement that could help mitigate the risks of cascading defaults and associated uplift, similar to what occurred during Winter Storm Uri and could take place in future extreme weather events that temporarily stress the ability of the market to efficiently allocate resources. Absent a VOLL Circuit Breaker, these extreme weather events may ultimately result in higher costs for customers, LSEs, and resources.
    
    
• Would the ERCOT or PJM-proposed methodology be more appropriate for MISO? Alternative approaches may be suggested.
  • Vistra supports a VOLL Circuit Breaker structure similar to ERCOT’s proposed Emergency Pricing Program (EPP) methodology. There are four key components to an effective VOLL Circuit Breaker: (1) limited and temporary use in only the most extreme scenarios; (2) automatic, rule-based implementation and wind-down; (3) ensure that resources are made fully whole for their verifiable operating costs not covered by market revenues while the VOLL Circuit Breaker is in effect; and (4) coordinate with the Day-Ahead Market (“DAM”) for implementation and wind-down of the VOLL Circuit Breaker.
    
    
  • Importantly, there are two key criteria that MISO should consider for determining when the VOLL Circuit Breaker should cease: (1) when the rolling 24-hour count of hours with maximum shortage pricing drops below 12; and (2) coordination with Day-Ahead Market (DAM) timing, taking into account the ability of DAM participants to incorporate VOLL Circuit Breaker cessation into their bids and offers. In addition, it is critical that these conditions be observable and automatic, so that market participants have clear expectations for the pending changes.
    
    
    • (1) Similar to ERCOT’s EPP, MISO should maintain a rolling count of hours, over the previous 24-hour window, for which maximum shortage pricing has been triggered. This should be an automated process and can be utilized to objectively determine when the VOLL Circuit Breaker is no longer necessary using a criterion of - 12 hours in a 24-hour period after initially experiencing maximum shortage pricing. Once the rolling 24-hour count of prices reaching the threshold have dropped below the 12-hour trigger point, the VOLL Circuit Breaker is no longer necessary (unless the count were to rise again above the 12-hour trigger point).
      
      
    • (2) The second criterion is necessary to avoid disincentives to DAM participation and risk management during periods when the VOLL Circuit Breaker is in effect. Once the trigger for the VOLL Circuit Breaker has receded, it should remain in effect until the start of the next operating day when the removal of the Circuit Breaker can be taken into account in DAM pricing. Any impending change to the pricing structure for the next operating day- due to the removal of the Circuit Breaker- should afford DAM participants some advanced notice before the DAM submission deadline.

Joint Comments

of

Association of Businesses Advocating Tariff Equity (ABATE)

Illinois Industrial Energy Consumers (IIEC)

Louisiana Energy Users Group (LEUG)

Texas Industrial Energy Consumers (TIEC)

Coalition of MISO Transmission Customers (CMTC)

Midwest Industrial Customers (MIC)

Midwest Large Energy Consumers (MLEC)

NIPSCO Large Customer Group (NLCG)

Regarding

MISO Market Subcommittee

EDR Offer Cap Options and VOLL Circuit Breaker Approaches

(MSC-2019-1)

May 9, 2024

Introduction and Summary of Comments

ABATE, CMTC, IIEC, LEUG, MIC, MLEC, NLCG and TIEC appreciate the opportunity to provide comments to MISO regarding Emergency Demand Response (EDR) offer cap options and Value of Lost Load (VOLL) circuit breaker approaches, as discussed by MISO during the April 18, 2024 Market Subcommittee (MSC)  meeting. 

With respect to EDR service, we support MISO’s proposal to maintain the EDR offer cap at its current level of $3,500 per MWh if the VOLL is increased, pending further stakeholder discussions regarding the future of EDR.  MISO’s approach would essentially preserve the status quo with respect to EDR until a longer-term approach can be developed in consultation with stakeholders.  We believe that this approach is reasonable because it would continue EDR service as a demand response option available to MISO, while allowing additional time to consider reforms to the EDR product in conjunction with stakeholders.  Such reforms could make EDR service more valuable to MISO’s operations in the long term.

With regard to VOLL, MISO should implement a VOLL circuit breaker mechanism to limit cost exposure to customers, particularly if MISO increases the VOLL.  Such a mechanism would restrict the duration of VOLL pricing in order to limit the cost exposure to loads resulting from a VOLL pricing event.  A good example of such a circuit breaker mechanism is the Electric Reliability Council of Texas (ERCOT) Emergency Pricing Program (EPP).   MISO should propose a conceptually similar VOLL circuit breaker mechanism as ERCOT’s EPP for MISO, potentially with a longer duration, in order to reduce the risk exposure to loads of VOLL pricing and maintain market stability.

Background

During the April 18, 2024 MSC meeting, MISO presented certain options for stakeholder consideration with respect to a VOLL circuit breaker mechanism and with regard to the continuation of EDR service. 

With respect to EDR service, MISO had previously suggested that it could either discontinue the EDR product or reduce the EDR offer cap from its current level of $3,500 per MWh.  As a short-term solution, MISO now proposes to preserve the status quo by continuing the EDR product and maintaining the EDR offer cap at the current level of $3,500 per MWh, even if the VOLL is increased.  This would essentially keep the EDR offer cap at its current level, while eliminating the direct linkage between the EDR offer cap and VOLL.  In the longer term, MISO indicated that it intends to work with stakeholders to explore how additional demand response can effectively be offered and utilized during emergency conditions.

With regard to VOLL, MISO addressed the issues surrounding the implementation of a VOLL circuit breaker mechanism to limit customer exposure to extended periods of VOLL pricing.  MISO also discussed the parameters of the VOLL circuit breaker mechanisms implemented in ERCOT and the VOLL circuit breaker mechanism that was formulated by PJM but not adopted.

MISO requested stakeholder feedback regarding its updated EDR proposal and regarding the VOLL circuit breaker mechanism.  MISO posed the following specific questions for stakeholder feedback:

1. MISO proposes setting the EDR Offer Cap to a fixed $3,500/MWh if the VOLL is changed. Does your organization support this change, or some another alternative?
2. Do you support the need of a VOLL circuit breaker in MISO? If so, please describe the scenario(s) that necessitate a VOLL circuit breaker in MISO.
3. Would the ERCOT or PJM-proposed methodology be more appropriate for MISO? Alternative approaches may be suggested.

The balance of these comments provides the feedback of the End-Use Customer Sector in response to the questions posed by MISO.

Comments Regarding MISO’s EDR Proposal

MISO proposes setting the EDR Offer Cap to a fixed $3,500/MWh if the VOLL is changed. Does your organization support this change, or some another alternative?

As discussed in our February 8, 2024 comments to MISO on the topic of EDR service, the End Use Customer Sector supports the retention of the current EDR product, but with appropriate reforms if needed to make the product more valuable to MISO during system emergencies.  Members of the End Use Customer Sector participate in EDR and see value in the EDR product.  We are opposed to discontinuing the EDR product because such an action would remove one option that is currently available to address system needs during emergencies.  Rather than discontinuing EDR, it would be more appropriate for MISO to retain this product and to work with demand response aggregators and customers to explore ways to reform the product to make it more useful to MISO’s operators under emergency conditions.  The system is better off with more optionality during system emergencies, not less.  Consequently, EDR should be retained with appropriate reforms to enhance its functionality if MISO’s operators currently find it difficult to timely dispatch EDR during emergencies.

MISO’s updated proposal to continue the EDR product, but with a fixed offer cap of $3,500 per MWh, would preserve the EDR product and maintain the status quo with respect to EDR service, pending further discussions with stakeholders regarding potential reforms to make EDR service more useful to MISO’s operators.  MISO’s proposal is consistent with our position regarding EDR service.  Consequently, we support MISO’s current EDR proposal, as presented by MISO during the April 18, 2024 MSC meeting

Comments Regarding the VOLL Circuit Breaker Mechanism

Do you support the need of a VOLL circuit breaker in MISO? If so, please describe the scenario(s) that necessitate a VOLL circuit breaker in MISO.

As we discussed in our March 21, 2024 comments to MISO regarding VOLL, the End Use Customer Sector supports the implementation of a VOLL circuit breaker mechanism to limit cost exposure to customers from extended periods of VOLL pricing.  Such a mechanism would restrict the duration of VOLL pricing in order to limit the cost exposure to loads of an extended VOLL pricing event, such as the event that occurred in ERCOT during Winter Storm Uri.  During that extreme weather event, ERCOT held prices at the then-effective VOLL of $9,000 per MWh for multiple consecutive days, which led to massive financial losses for market participants with exposure to the real-time market.  Essentially, a VOLL circuit breaker is necessary for situations where the market cannot effectively respond to prices or “behave its way out” of an event due to forces outside of market participants’ reasonable control.  In situations with extreme weather and corresponding extreme demand and high forced outage rates, continuing to set prices at the VOLL will not elicit meaningful additional behavioral response.  If designed effectively, a VOLL circuit breaker will serve to mitigate the impact of emergency conditions on consumers while maintaining adequate performance incentives during and after operational events. 

While MISO asserts that such periods of extended VOLL pricing are not likely to occur, it only takes one event of extended VOLL pricing to cause significant financial damage to market participants in the absence of a VOLL circuit breaker mechanism.  Therefore, the implementation of a VOLL circuit breaker mechanism provides a valuable protection for customers that limits their cost exposure to extended periods of VOLL pricing during extreme weather events.  The need for such a protective mechanism is heightened by MISO’s proposal to increase the VOLL.

As explained in our March 21, 2024 comments to MISO, the ERCOT circuit breaker mechanism lowers the market offer cap from the High Offer Cap (HCAP) of $5,000 per MWh to the Low Offer Cap (LCAP) of $2,000 per MWh if emergency conditions are declared and the market price remains at the HCAP level for 12 hours within a rolling 24-hour period.  This approach ensures that the market price is allowed to rise to VOLL under scarcity conditions in order to provide price signals to incent additional generation and demand response offers when market conditions are extremely tight.  At the same time, the ERCOT mechanism reduces the VOLL to protect customers from extreme cost impacts when the market price remains at VOLL for 50% of the hours in a 24-hour period.  We believe that the ERCOT trigger mechanism is reasonable.  The same or similar trigger threshold should also apply to a VOLL circuit breaker mechanism in MISO.     

Would the ERCOT or PJM-proposed methodology be more appropriate for MISO?  Alternative approaches may be suggested.

For the reasons set forth above and in our March 21, 2024 comments to MISO, the ERCOT circuit breaker mechanism provides a suitable model for MISO to follow.  Under the ERCOT approach, the circuit breaker is triggered when the system-wide energy price has been set at the high offer cap of $5,000 per MWh for 12 hours of a rolling 24-hour period.  In ERCOT, the lower circuit breaker offer cap of $2,000 per MWh remains in effect for at least 24 hours, or 24 hours after exiting emergency conditions (whichever is later).

As we understand it, the PJM circuit breaker mechanism would be triggered in real-time if the system remains under Energy Emergency Alert (EEA) 3 conditions for 48 hours.  The PJM circuit breaker mechanism would discontinue the lower circuit breaker price cap of $2,000 per MWh after the system exits EEA2 / EEA3 emergency conditions.

The ERCOT circuit breaker mechanism is triggered after 12 hours of VOLL pricing, while the PJM mechanism would only be triggered after 48 hours of VOLL pricing.  Therefore, the ERCOT mechanism is triggered more promptly than the PJM mechanism.  Moreover, the ERCOT circuit breaker mechanism remains in effect for as long as 24 hours after exiting emergency conditions, while the PJM mechanism would be discontinued as soon as the system exits emergency conditions.  It’s important that any VOLL circuit breaker remains in effect for the entire duration of any event to ensure prices remain stable and predictable until the system has returned to normal.  ERCOT’s mechanism was specifically designed to handle situations where fluctuating supply and demand may cause multiple EEAs during the same “emergency event.”  For example, there may be an EEA event one morning, which ends as temperatures increase during the day and conditions stabilize, but on a subsequent morning, conditions may once again deteriorate and cause EEA conditions.  ERCOT’s circuit breaker mechanism is designed to continue through such extended emergency events with multiple EEAs.  Thus, the ERCOT mechanism provides better protection to customers by ensuring that the circuit breaker mechanism is only suspended when it is demonstrated that the market has returned to normal operations for a sustained time period. Alternatively, MISO could consider setting a duration for the circuit breaker mechanism such that it terminates at the later of 72 hours or at the end of 24 hours after MISO exits emergency operations.   For these reasons, the End Use Customer Sector believes a mechanism similar to the ERCOT circuit breaker provides better protection to customers from extended VOLL pricing events.  Therefore, the ERCOT methodology is more appropriate for MISO.

Thank you for giving us the opportunity to provide this feedback.  If MISO has any questions or concerns with respect to these comments, please do not hesitate to contact the following:

Jim Dauphinais

Brubaker & Associates, Inc.

(Consultants to ABATE, IIEC, LEUG, NLCG and TIEC)

(636) 898-6725

jdauphinais@consultbai.com

Ali Al-Jabir

Brubaker & Associates, Inc.

(Consultants to ABATE, IIEC, LEUG, NLCG and TIEC)

(361) 994-1767

aaljabir@consultbai.com

Ken Stark

McNees Wallace & Nurick LLC (for CMTC)

(717) 237-5378

kstark@mcneeslaw.com

Kavita Maini

KM Energy Consulting, LLC (Consultants to MIC and MLEC)

(262) 646-3981

kmaini@wi.rr.com

Voltus Comments to MSC on “MSC: EDR Offer Cap Options and VOLL Circuit Breaker Approaches (MSC-2019-1) (20240418)”

May 9, 2024

Voltus appreciates the opportunity to comment on updates to the EDR offer cap related to updates to the Value of Lost Load (VOLL).

Voltus supports maintaining the cap on EDR offers at $3,500/MWh as a default. However, MISO should recognize that setting this cap lower than the proposed VOLL of $10k will exclude from EDR participation certain high-value commercial and industrial customers who may be willing to curtail load at high prices that are still below VOLL. In response to this, MISO should develop an exception mechanism whereby customers may set their EDR offer price up to VOLL after receiving IMM approval of their offer based on curtailment costs. In this way, those high-value C&I loads will be able to participate as EDRs and provide relief to MISO’s system at costs lower than VOLL during system emergencies. 

Respectfully submitted,

Sean Shafer

Senior Energy Markets Analyst

Voltus, Inc

sshafer@voltus.co

The Entergy Operating Companies ("EOCs") appreciate the opportunity to provide feedback on MISO’s request for the VOLL Circuit Breaker.

MISO should absolutely implement a circuit breaker

MISO’s presentation on this topic seems to suggest that a circuit breaker is both unnecessary and economically inappropriate.  The EOCs disagree with both suggestions.  A circuit breaker is necessary to mitigate the risk of severe and harmful financial distress that would arise if there were a prolonged scarcity event and economically appropriate because VOLL declines with the duration of an event.

First, a circuit breaker is necessary to address the risk of severe and harmful financial distress that would arise if there were a prolonged scarcity event.  Prolonged scarcity events are possible, and it would be disingenuous for MISO to suggest otherwise given its frequent and ongoing reminders of the grave risks to reliability.[1]  Of course, MISO and stakeholders are familiar with the myriad risk factors – generator deactivations, environmental regulations, load growth, supply chains, interconnection queues, etc. – and there is no need to elaborate upon them here.

While MISO’s presentation acknowledges that these factors increase the risk of short-duration scarcity events, it does not acknowledge the possibility of prolonged scarcity events.  Indeed, the presentation seems to suggest that prolonged scarcity events are not “realistic” because they have not occurred in MISO and because MISO is interconnected to its neighbors.  Yet, other RTOs have recently experienced prolonged scarcity events, including RTOs that were seemingly flush with capacity and interconnected to their neighbors.  ERCOT, for example, shed load for four days during Winter Storm Uri in 2021.  And PJM – an RTO with interconnections to neighboring RTOs that are as extensive as MISO’s and with a reserve margin exceeding MISO’s – experienced scarcity for 277 dispatch intervals (23 hours) over two days during Winter Storm Elliot in 2022.

With the changes taking place in the industry, there is certainly a possibility of a prolonged scarcity event in MISO.  And if one were to occur with $10,000/MWh pricing, it could cause severe and harmful financial distress.  For example, if a 1,000 MW unit were to trip and be forced to buy back its position at RT prices of $10,000/MWh over 24 hours, the cost of such purchases would be $240 million. Suffice to say, this would be a problem.  And so could numerous other scenarios that do not require much imagination – a cooperative caught between the retirement of an aging coal unit and the construction of its replacement, a wind farm that “hedged” with a block contract and then froze, etc.

While there is certainly room for disagreement about the likelihood of a prolonged scarcity event, there can be no disagreement that such an event could occur and could cause severe financial distress and harm.  Given that risk and the potential for harm, MISO should absolutely create a circuit breaker.  And further, it should do so now, before the event occurs.  Otherwise, MISO may have no choice when it is eventually faced with a prolonged event, except to implement the $10,000/MWh pricing called for by its Tariff, despite the associated financial distress and harm.

Second, a circuit breaker is appropriate because VOLL declines with the duration of an event.

The basis for MISO’s proposed price cap are estimates of VOLL derived from Lawrence Berkley National Laboratory analyses.  More specifically, MISO’s proposed price cap is based on estimates of VOLL for one-hour events.[2]  Yet, the estimates of VOLL decline rapidly with increasing outage duration.  For example, the data that MISO has presented shows a one-hour VOLL for residential customers of $4,337/MW and a two-hour VOLL of $4,840/MW, which implies that VOLL for the second hour is only $403/MWh.   Therefore, it would be inconsistent for MISO to set VOLL for a multi-hour period based on estimates of VOLL for one-hour events because the LBNL study supports the notion that VOLL declines with the duration of an event.  The EOCs encourage MISO to consider a “circuit breaker” in which VOLL declines with duration as an alternative to the PJM and ERCOT circuit breaker approaches.

There are other factors to consider than VOLL

The implementation of a prolonged VOLL may not result in any or only modest additional reliability benefits to the system as even the highest-cost resources and imports would have already been committed/scheduled.  Yet, a prolonged period of VOLL pricing would cause considerable financial distress.   The EOCs encourage MISO to weigh the cost of financial distress from maintaining a very high price cap during prolonged scarcity events against the reliability benefits of doing so.  The EOCs note that MISO has not demonstrated any reliability benefits of raising the price cap for a prolonged period of time and question whether there are any such benefits for the reason described above – i.e., that everything that could be helpful will already have been committed/scheduled at prices much lower than $10,000/MWh.

Conclusion

The EOCs, therefore, strongly urge MISO to consider a Circuit Breaker that is able to convey the scarcity price signal to the market, but that also limits the financial distress to customers should it persist for prolonged periods of time.  Hence, the EOCs strongly encourage MISO to create circuit breaker mechanism that decreases the price cap price as the length of the scarcity event lengthens in time, mirroring the findings of MISO’s own analysis.

The Entergy Operating Companies are Entergy Arkansas, LLC, Entergy Louisiana, LLC, Entergy Mississippi, LLC, Entergy New Orleans, LLC, and Entergy Texas, Inc.

[1] For example, MISO’s CEO opens the “Reliability Imperative” report as follows: “We have to face some hard realities.  There are immediate and serious challenges to the reliability of our region’s electric grid…”

[2] See Appendix H of MISO’s Scarcity Pricing Whitepaper.

Cedar Falls Utilities supports the feedback submitted by Michigan Public Power Agency on the EDR Offer Cap Options and VOLL Circuit Breaker Approaches presented at the April 18, 2024 Market Subcomittee. 

The Environmental Sector appreciates the opportunity to respond to MISO’s April 18, 2024 MSC feedback request concerning the EDR Offer Cap and VOLL Circuit Breaker, due on May 9, 2024. All references to “the presentation” refer to MISO’s April 18, 2024 MSC presentation, “Continued Reforms to Improve Scarcity Pricing and Price Formation (MSC-2019-1); EDR Offer Cap Options and VOLL Circuit Breaker.”

EDR Offer Cap

The Environmental Sector does not opine on the specifics of MISO’s EDR Offer Cap proposal, but we do support MISO’s proposed EDR direction as presented on slide 21 of the presentation, indicating that in the long term MISO will “[w]ork with stakeholders to improve how additional demand response can effectively be offered/utilized during emergency scarcity conditions.”

VOLL Circuit Breaker

As discussed in our prior feedback to the MSC, submitted on March 21, 2024, the Environmental Sector is supportive of incorporating a VOLL Circuit Breaker at MISO, and we incorporate those comments by reference.

As stated in that prior feedback, the Environmental Sector believes that extreme events that likely qualify as force majeure events such as a prolonged localized outage due to extreme weather potentially necessitate the use of an LMP/VOLL circuit breaker. A circuit breaker is most useful when an administrative price set at VOLL is no longer able to incent the desired behavior necessary to re-establish stable grid conditions–at such a point, market mechanisms no longer work and MISO should look to non-market solutions. Regardless, market mechanisms are powerful tools that MISO should not let go of lightly, and we believe that any circuit breaker should look to reestablish such tools as soon as reasonably possible after the initiation of a VOLL circuit breaker.

Our previous feedback on the VOLL Circuit Breaker, as submitted on March 21, 2024, is provided below for ease of reference:

VOLL Circuit Breaker

While MISO did not ask for feedback on the potential use of a “VOLL circuit breaker,” MISO did invite stakeholders to provide feedback beyond the narrow scope of the feedback request. In principle, the environmental sector supports the use of a circuit breaker in order to prevent prolonged punitive pricing that ultimately serves to harm customers and the rate base, and we look forward to hearing more from MISO regarding any possible circuit breaker proposal.

Extreme events that likely qualify as force majeure events such as a prolonged localized outage due to extreme weather potentially necessitate the use of an LMP/VOLL circuit breaker. With these uniquely unpredictable events, market prices may not serve as an effective tool to ensure or reinstate system reliability. Similarly to how MISO views System Stability in its System Reliability Attributes framework, we believe that during a circuit breaker event MISO should turn away from market tools until such time that the grid returns to stable system conditions.

However, this does not mean that MISO should be insensitive to operating or opportunity costs. In other words, to the extent that a resource is fully able to serve load in a load shed event, if a circuit breaker event sets an administrative price that is lower than that resource's operating cost, there should be an uplift provision that ensures such resource can be made whole.^[1] Likewise, if circuit breaker pricing is anticipated but never activated, MISO needs to consider the opportunity cost that an energy limited resource may face if it was directed to wait and resultantly missed out on higher energy prices that may have been available earlier in an event.

A balance should be struck that appropriately values system reliability–giving market participants enough incentive to quickly bring generation and transmission assets back online–while avoiding punitive impacts to load during an extended period of load shed. MISO should also be cognizant of uplift which is associated with lengthy multi-day outages like that experienced in MISO’s recently documented Hurricane Laura loadshed in MISO South. The design of a circuit breaker should also ensure that it does not erode the price signal that the $10,000/MWh VOLL would otherwise provide to market participants; otherwise a circuit breaker may undermine the effect that the VOLL has in sending the proper investment signals for not only generation and weatherization, but also new transmission investments that increase or harden import capability.

In terms of timing, one solution may be to administratively reset prices that were struck prior to the initiation of a circuit breaker, but after the declaration of a Maximum Generation Event level, e.g. the declaration of EEA2, and then end the circuit breaker event once a certain state of system stability is achieved, e.g. termination of EEA2.^[2] In terms of how long to wait to initiate the circuit breaker–frankly, we don’t know–but we believe that the examples provided by other RTOs are a good starting point from which to make such a determination.

^[1] Such make-whole provision should not apply to stranded generation and knocked off assets that are not capable of actually supplying load.

^[2] The choice of EEA2 is for illustrative purposes only.

The OMS Markets and Resources Work Groups (OMS WGs) provide these comments to MISO in response to its feedback request on the need for a VOLL Circuit Breaker. This feedback is from OMS work groups and does not represent a position of the OMS Board of Directors. 

The OMS WGs appreciate MISO’s exploration of a circuit breaker mechanism and strongly encourage MISO to include such a provision in its VOLL design. While a VOLL circuit breaker would be rarely invoked, the OMS WGs view it as a critical tool to shield ratepayers from the extreme costs of high impact, low frequency events. The OMS WGs offer feedback on the value at which the circuit breaker would cap energy prices, and in what conditions.  

Circuit Breaker Value

The OMS WGs suggest that MISO select a VOLL circuit breaker value for energy prices – the value at which energy prices would be established after VOLL had been reached for a set amount of time - that would be the minimum value needed to continue to incentivize the short-term market signals needed during emergencies.  

Since both the ERCOT Emergency Pricing Program and proposed PJM circuit breaker are at $2,000/MWh, and since $2,000/MWh is MISO’s hard-offer cap, we encourage MISO to consider that value as a cap when the circuit breaker is implemented. The OMS WGs also recommend that any VOLL circuit breaker mechanism provide an opportunity for resources to be made whole if those resources were needed and their costs exceed the circuit breaker value with verification of costs by the IMM, as is currently allowed with the hard offer cap.  

Circuit Breaker Conditions

The OMS WGs suggest that the circuit breaker would be implemented when the system is in load-shedding emergency conditions, and after MISO has been in those conditions for an established period of time. The OMS WGs suggest that this period of time be related to the reality of load-shedding events in MISO, as determined through examining historical or model-driven expected conditions, or both.

The OMS WGs therefore suggest that MISO consider how many hours MISO is typically in load-shedding emergency conditions during an event (e.g., three hours) as one option for a number of hours to allow VOLL prices to persist before a circuit breaker would be triggered. 

As another option to help define the established period of time after which the circuit breaker would be triggered, the OMS WGs also request that MISO provide data on the distribution of the duration of LOL events produced by the LOLE model. This data may help inform an appropriate threshold at which the circuit breaker would be triggered.

The OMS WGs suggest a value tied to expected conditions would demonstrate to participants that in future emergencies, energy prices could plausibly be at the VOLL for the duration that typical load-shedding emergency conditions during an event in MISO persist. This logically should still incentivize participants to practice the long-term anticipatory actions (e.g., participating in the day-ahead market and purchasing fuel) and preparatory actions (e.g., initiating demand response programs, responsible resource planning) that MISO has flagged as important.  

At the same time, allowing VOLL prices to last only a limited number of hours before triggering the circuit breaker would provide assurance to regulators that ratepayers would not experience excessive costs due to unforeseen and unusual circumstances. Like MISO, regulators wish to encourage utilities to responsibly plan for the long-term to reduce energy costs and lessen the impact of emergencies. However, the threat of long-lasting and excessively high costs to consumers during emergencies may be a less appropriate tool to accomplish that objective relative to reforms that direct market participants toward planning objectives (e.g., through accreditation) or products (e.g., demand response participation options or short-term reserve products) that regulators can support through policy and/or stakeholder discussion.  

Other Provisions 

We further encourage MISO to consider provisions that were discussed in the PJM and ERCOT slides that could help avoid unintended consequences from enacting a circuit breaker such as:  

• Reviewing prices at seams before implementing a circuit breaker and delaying the circuit breaker if needed (e.g., if the circuit breaker were to disincentivize imports)
• Monitoring forecasts and delaying the circuit breaker implementation if needed (e.g., if the circuit breaker were to deter supply)

We also encourage MISO to evaluate how LMR and EDR participation models would coordinate with a circuit breaker provision.