MSC: Proposal to Update VOLL and ORDC (MSC-2019-1) (20240229)

DTE appreciates the opportunity to provide feedback on MISO’s Proposal to Update Value of Lost Load (VOLL) and Operating Reserve Demand Curve (ORDC) out of the MSC. 

DTE agrees it is prudent to raise the VOLL so that it may function more accurately as an administrative price cap for all the reasons MISO outlines in their presentation, however DTE is curious how MISO calculated the new proposed value of 10k. DTE would prefer consistent methodology with calculation of the VOLL and lean toward using the $13,640/MWh value calculated using the original VOLL methodology from 2007, using updated 2023 values (slide 21). 

DTE supports the proposed improvements to the ORDC curve and agrees with MISO on the lower/upper bounds of the curve, including the LOLP curve scaling.  

Re: MSC Proposal to Update VOLL and ORDC (MSC-2019-1)

Great River Energy (GRE) appreciates the opportunity to provide feedback on MISO’s proposal to update Value of Loss Load (VOLL) and Operating Reserve Demand Curve (ORDC) values (MSC-2019-1). As discussed below, GRE opposes increasing the VOLL to $10,000/MWh and increasing the ORDC upper bound to $6,000/MWh.  GRE believes such increases could result in an unwarranted windfall to some suppliers at the expense of load-serving entities and their customers.  In the event the VOLL is increased notwithstanding such concerns, any increase should be implemented with a “VOLL Circuit Breaker” that minimizes adverse financial impacts to load serving entities.

An Increase in the VOLL and ORDC is not warranted.

Extreme VOLL prices represent an unreasonable cost burden for retail electric consumers and are contrary to MISO’s stated value proposition of providing “…access to reliable, least-cost electricity 24/7/365”, especially when other reasonable and viable alternatives exist to support reliability.  GRE opposes the proposed increases to the VOLL pricing and the ORDC upper bound for the following reasons:

• Increasing the VOLL price would effectively make the energy markets a game of chance on the most critical days where the compensation structure may be based more on good luck than on good planning. In particular, the price cap in the Day Ahead energy markets should be significantly lower than the proposed VOLL ceiling to protect electric consumers and incent load serving entities to bid all load in the day-ahead market.
• The proposed VOLL price of $10,000/MWh is unreasonable because it does not reflect the actual energy production costs of generation interconnected to the MISO system. The current VOLL price of $3,500/MWh already provides an exceptional incentive for load to act where and when it is feasible.  It may simply be unsafe to shed load during extreme cold events, especially residential loads, and extreme VOLL prices cease to be an effective or fair tool under such conditions.
• For the ORDC proposal: GRE is not opposed to adjusting the Tier 1 and Tier 2 Emergency Offer Floors as proposed, but is opposed to increasing the upper bound to $6,000/MWh. The higher ceiling is a derivative of the proposed VOLL price and does not reflect actual generation costs.
• Increasing VOLL and ORDC may increase the likelihood of disputes, litigation, rate shocks, and after-market settlements; as experienced in ERCOT during winter storm URI, and in PJM during winter storm Elliot. Load serving entities that exceed all MISO resource adequacy planning requirements and use good utility practice for generation asset management could still face severe financial risks resulting from an extended VOLL event. For cooperative electric associations, such costs would directly impact the member-consumers they serve.
• MISO has stated that a primary objective of this VOLL effort is, “To encourage behavior that helps avoid scarcity conditions…”. GRE encourages MISO to address such Emergency Event concerns through stronger planning incentives in the seasonal capacity construct and/or changes to market structures (i.e., multi-day commitment or increased ancillary/reserve products). As an example, MISO could increase the conduct threshold for offers in the annual planning resource auction and allow generation and load modifying resources to offer capacity up to the Cost of New Entry each season. This would encourage retention and development of generation and demand response assets that could be dispatched by MISO in daily energy markets to reduce potential scarcity price events and the need to shed load.

Any Increase in the VOLL should be mitigated by a VOLL Circuit Breaker.

In the event that MISO nevertheless moves forward with an increase in the VOLL, GRE strongly supports the development and implementation of a “VOLL Circuit Breaker” that reduces the risk and duration of potential extended VOLL pricing events to protect electric consumers from the costs of such extreme market prices. Such a circuit breaker should provide:

• Day Ahead energy market prices that can never be set at the VOLL price cap.
• Real Time energy market prices at VOLL being limited in duration each day to the lesser of: a) the number of hours established by MISO for load modifying resources to obtain resource adequacy eligibility (e.g. 4 hours), or b) the actual hours of MISO-directed load shedding on such day.
• A meaningful de-escalation of energy market prices for other hours in the day. For example, once a circuit breaker threshold is reached for a day, all other hours would be limited to no more than 25% of VOLL.

Wolverine appreciates the opportunity to provide feedback on MISO’s February 29, 2024 presentation and proposed changes to the Value of Lost Load (VOLL) price. Further, Wolverine appreciates and supports MISO’s prior efforts to identify the specific situations for which VOLL is the appropriate tool to use and make changes when it is not (e.g., transmission outages). That said, MISO must continue to ensure that application of VOLL pricing and ORDC remains limited (i.e., not used broadly). The limited application is vital because a broad or extended application is fraught with significant financial impacts, particularly when increasing the price from $3,500/MWh to $10,000/MWh, limited value to reliability. As a result, a circuit breaker is needed to address unintended consequences of potential extended periods of ORDC or VOLL pricing. Additionally, while the VOLL pricing tool is being triggered by a capacity deficiency (i.e., resource/energy adequacy), it is an operational tool intended and used for a short-term situation. VOLL pricing is not a planning tool and therefore cannot be a replacement for long-term resource planning processes.

More specifically, Wolverine offers the following feedback regarding the ORDC changes and the increase in VOLL pricing.

• During the February presentation, the presenter often analogized that VOLL is designed like an electric fence for cattle - provide a short-duration shock when needed and train the cows not to touch it. In other words, VOLL is a stick and if designed correctly then it should encourage investment to maintain reliability and reduce the number of high price excursions. Wolverine disagrees with the objective that VOLL pricing is the proper planning tool to incent/encourage investment. To show the disconnect between risk versus reward, here are a few scenarios.
  1. Energy Markets - Rather than being a small shock, a price of $10,000/MWh is a shock that could kill the cow. A penalty this high, if left unbounded, would expose load to extremely high prices and potentially bankrupt generation owners. This exact scenario was realized in ERCOT during Winter Storm Uri. Further, this scenario is possible even for units that are highly available – they have high performance, have invested in their units to be prepared for all types of weather, and even paid extra for firm transport – yet the units are still susceptible to events completely outside of their control (e.g., force majeure by a gas supply pipeline). During a force majeure event causing the unit to not be available, a single 100 MW unit would face nearly $25,000,000 million in penalties for just a single, 24-hour event,
  2. Capacity Markets - Using the same theoretical 100 MW unit above, an auction clearing at CONE would create about $12,500,000 in revenue for the entire year. All of this revenue could be lost after only 12 hours of VOLL pricing. Again, if the goal is to encourage investment and improve reliability, this should be achieved through tools that support resource planning (e.g., capacity market reform), not VOLL pricing. Providing the carrot of revenue certainty from the capacity market is a much more effective way of incentivizing investment than the stick of potential VOLL penalties. Generation owners need guaranteed cost recovery, not the uncertainty of penalties.
  3. Lastly, MISO’s neighboring RTOs are also currently reviewing changes to their VOLL prices. Due to the interconnected nature of the grid, it is reasonable and prudent that RTOs coordinate on their efforts. Without coordination, a disconnect could exist whereby substantial pricing differences would impact imports and exports between regions and could result in additional congestion. This congestion would then be a result of administratively set prices (VOLL) rather than actual market costs.

• During the February presentation, MISO stated that “the only ones who are exposed are the ones who are not following their Day Ahead commitments” and that “multi-day events are unlikely.” Wolverine disagrees since events are capable of and do exist for multiple days (e.g., Winter Storm Uri and Winter Storm Elliott).
  1. Similar to Item 1.a above, MISO’s perspective fails to acknowledge the circumstances that arise during extreme events, including gas curtailments and other force majeure events, where the impacts are exacerbated if VOLL pricing continues for multiple days.
  2. During a multi-day event, Day Ahead prices can go to VOLL, not just Real Time prices, therefore it is shortsighted to say a multi-day extreme event is “unlikely” and should not be considered. Although Wolverine recognizes these multi-day events may have lower probability, multi-day events have occurred and are the exact type of tail risk events MISO should be contemplating for VOLL pricing. Non-resource specific market price calculation tools such as ORDC and VOLL pose significant financial impact and bankruptcy within the RTO (with little complementary improvement to reliability in the long run), Wolverine strongly supports and stresses the implementation of a circuit breaker to prevent market failures as witnessed most recently in ERCOT and PJM.
     1. ERCOT during Winter Storm Uri and PJM during Winter Storm Elliott could have benefited from a circuit breaker as both markets experienced several days at extremely elevated prices and both markets resulted in litigation, after market settlement adjustments, consumer rate increases, and market participant bankruptcies in the wake of those events.
     2. Wolverine supports the circuit breaker even for the current $3,500/MWh price.
• While it was not discussed during the February 29 presentation, if MISO increases the VOLL pricing then MISO should also review the credit requirements to ensure market participants are capable of paying should VOLL pricing be applied.
• The proposed $10,000/MWh price is based on a weighted average for 1-hour in the summer between residential and C&I costs associated with load shed, see table below. Wolverine requests MISO utilize a different methodology and implement changes to its energy market construct that more efficiently and cost effectively maintains reliability.

The study showed residential load shed costs are significantly lower than C&I and projected costs imply that most households are willing to go without electricity at a price that is significantly lower than a business. If this implication is true, it would be most economic for residential customers to register in the energy market as a demand response product at $4,337/MWh, which is less than $10,000/MWh. If load is not choosing to register as DR, even after the economics clearly identify that they should, then MISO needs to pursue energy market reforms to incent registration, instead of increasing the administratively set price for VOLL – again, use a carrot instead of stick to achieve the intended outcome.

Additionally, electricity is an essential service, which becomes most critical for residential customers during extreme weather events. For example, in the winter months when temperatures are below freezing, electricity is essential for heat sources. Failure to have electricity in this instance can result in potential cold-temperature related health issues and/or financial impacts due to frozen weather pipes. In this situation, residential customers are unlikely to respond to VOLL pricing at any level. To be clear, Wolverine is not insinuating a higher VOLL should be implemented but instead reiterate that MISO must focus on reforms that in practice will incent better resource planning to reduce the risk of VOLL pricing.

• While Wolverine appreciates the concept of a sloped Operating Reserve Demand Curve (ORDC) and the intent to incrementally incentivize generation as reserves get tight, increasing VOLL and building the curve based on the VOLL will not likely incentivize additional generation. When ORDC or VOLL prices kick in there is unlikely going to be any generation available to be dispatched, as all economic resources should already be deployed. If prices are above $2,000/MWh, the current offer price cap, every generator that can be turned online will already be online. Increasing the price further will only result in a financial burden and no reliability benefit.

In summary, Wolverine believes VOLL pricing is the wrong tool to incent additional resource dispatch and planning, instead increasing its price will only serve to financially burden customers and generation resources while not improving reliability. Therefore, Wolverine requests MISO focus its attention on capacity, energy, and ancillary service market improvements that support reliability and encourage resource planning and demand response participation using rewards rather than penalties. Additionally, Wolverine strongly supports a circuit breaker be implemented to ensure the integrity of the market and its participants is upheld.

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 February 29th Market Subcommittee (MSC) meeting. Vistra supports MISO’s recommended adjustments to the “lower bounds” of the ORDC, which includes establishing an initial step of $600 on the ORDC curve, along with the $1,100 step when reserves fall below the Most Severe Single Contingency (MSSC).

Vistra looks forward to additional discussions on the ORDC during future MSC meetings.

Mississippi Public Service Commission (“MPSC”) Response to Feedback Request

MSC: Proposal to Update VOLL and ORDC (MSC-2019-1) (20240229)

In the February 29, 2024, meeting of the Market Subcommittee (MSC), stakeholders were invited to review and submit feedback on the following elements of its Proposal to Update Value of Lost Load (VOLL) and Operating Reserve Demand Curve (ORDC) (MSC-2019-1) by Thursday, March 21, 2024.

• Increasing VOLL to $10,000/MWh, for use as a price cap and as an administrative price during MISO-directed load-shedding (EEA3)
• Redesign of Operating Reserve Demand Curve, including
• Lower bounds of $600/$1100/MWh
• Upper bound of $6,000/MWh
• Loss of Load Probability (LOLP) curve scaled by $35,000/MWh Operating Reserve Target Cost

Feedback

With respect to both the potential adoption of a new VOLL value as an administrative price and cap, and the proposed redesign of the ORDC, the MPSC emphasizes that MISO must ensure – and demonstrate – that higher prices imposed on ratepayers will not exceed a level that incentivizes needed supply and demand behavior.  To date, MISO has not done this.

MISO has presented what appears to be an analytical basis for a new VOLL value and a new ORDC curve, but this is misleading.  The basis and value of VOLL proposed by MISO are so uncertain and unreliable that the selection of the $10,000/MWh magnitude is ultimately arbitrary.  MISO weights class VOLL estimates that range from $4,337/MWh for residential to more than $80,000/MWh for small commercial and industrial (C&I), which means that a $10,000/MWh VOLL would represent a much higher cost relative to value for residential customers, and a much lower cost relative to value for small C&I customers.  Since a $10,000/MWh VOLL is evidently wrong for many MISO customers, the critical concern should instead be: what price levels are needed during shortage and/or emergency conditions to induce needed behavior from supply and demand?  MISO has not provided data or analysis that would adequately address this, and the MPSC requests that MISO do so. 

Similarly, the derivation of the proposed ORDC curve from an “operating reserve shortage target cost” of $35,000/MWh linked to system VOLL, weighted by estimated loss of load probabilities, has the veneer of science, but is no more reliable than the $10,000/MWh VOLL, and again distracts from the key question: what prices are necessary and sufficient to incentivize behavior?  No matter the basis for shortage or emergency price levels, prices higher than would plausibly benefit system reliability during the operations time horizon, or longer-term, would impose unnecessary costs on customers.  Therefore, MISO should shift its attention from establishing a supposedly analytical basis for VOLL and the ORDC to evaluating the expected benefit – short-term and longer-term – of new shortage and emergency pricing.   

Even granting the possibility that VOLL could be measured accurately and meaningfully, its application for administrative pricing is problematic.  It implies that better estimates of VOLL must be pursued and incorporated over time.  What constitutes “better”?  How much effort should MISO assign to estimating VOLL?  How often should it be updated?  It would be better for MISO to acknowledge that shortage and emergency pricing might be informed by rough VOLL estimates, but are not defined by VOLL.   

The proposed ORDC redesign also points to a dynamic problem.  MISO establishes the ORDC shape based on the modeled probability of load shed for each quantity of reserve shortage.  But if the new ORDC is justified because it would improve reliability – i.e., decrease the probability of load shed – then the basis for the ORDC shape would change over time. 

In its presentations to the MSC, MISO has shown that it is possible to devise methods to set VOLL and design the ORDC, but MISO has not demonstrated what effects are expected from resulting prices.  MISO should evaluate and present expected reliability benefits from new pricing under its proposals, including: increased resource availability during extreme system conditions, increased system support from imports, and increased capacity investment over time.  Such assessments should account specifically for incremental effects from proposed administrative pricing changes.  For instance, the improved resource availability that MISO has described from seasonal accreditation and outage scheduling improvements should be accounted for separately. 

A potential ‘circuit-breaker’ mechanism would not resolve the MPSC’s concerns about appropriate pricing.  It is far more important to get prices right in the first place – and specifically to establish that higher shortage pricing would produce cost-effective benefits to ratepayers – than to spend time on crafting a circuit-breaker mechanism at this time.      

WPPI’s feedback on MISO’s proposed new Value of Lost Load and redesigned Operating Reserve Demand Curve is as follows:

• VOLL: MISO’s proposal to increase VOLL from $3500 to $10K/MWh seems reasonable.
  • The updated estimates of the willingness of retail customers to pay not to have their electric service interrupted support the increase in VOLL and using it as the administrative price when shedding firm load during a Market Capacity Emergency.
  • Also, $10K/MWh as a price cap is high enough to avoid truncating valid prices, which occurs under the current price cap of $3500/MWh.
• ORDC: MISO’s proposed redesigned ORDC seems reasonable.
  • The proposed ORDC’s first two steps, $600 and $1100/MWh, respectively, are based on the Tier 1 and Tier 2 Emergency Offer Floors plus $100/MWh Contingency Reserve Offer Cap.
    • As a result, if MISO is in an Emergency and short reserves, the proposed ORDC accommodates emergency pricing.
    • Also, if MISO is not in an Emergency but short reserves, the proposed ORDC accommodates actions that cost up to $600 or $1100/MWh, depending on the size of the shortage.
  • The proposed ORDC’s maximum price, $6K/MWh.
    • It is appropriate that the ORDC’s max price is less than the proposed new VOLL ($10K) because prices shouldn’t be at VOLL unless firm load is being shed (or imminent).
    • An ORDC max price of $6K/MWh leaves room for other contributors to the Marginal Energy Component and Locational Marginal Prices, before LMP is capped at VOLL.
  • The proposed ORDC between the 2^nd step and maximum price is the Loss of Load Probability times $35K/MWh, where $35K reflects the willingness across retail customer segments to pay not to have their electric service interrupted (1 hour/summer/off-peak, which are the estimate parameters associated with residential customers highest willingness to pay).
    • The proposed first two steps and max price go a long way to establishing the ORDC, and finishing the curve using the LOLP times an estimate of the value of LOL is a logical approach.

The Environmental Sector appreciates the opportunity to respond to MISO’s February 29, 2024 MSC feedback request concerning MSC-2019-1, due on March 21, 2024. At the outset, we appreciate the depth of information that MISO provided in its February 29, 2024 presentation.

VOLL Administrative Price Cap

To the extent $10,000/MWh is high enough to incent any remaining energy resource to run or respond, we agree with this administrative price cap. We believe it balances the need for proper incentivization of market participants to supply energy to the market during load shed events with the avoidance of punitive pricing at shorter time scales (see our comments below regarding a circuit breaker for longer times scales) that could serve to ultimately punish customers. We also believe that a $10,000/MWh price cap provides sufficient headroom to incentivize weatherization of generating assets, which will also aid in ensuring a more reliable system.

Maintaining VOLL and ORDC Price Relevance

However, a one-time increase in the VOLL to a modern $/MWh price is not enough. In order to ensure the continued relevance of the VOLL and ORDC, we ask MISO to commit to updating the Loss of Load Probability (LOLP) curve every set number of years. An update to the LOLP curve would include an update of the administrative price cap for VOLL along with the ORDC curve shape to reflect the new price levels that correspond with the updated LOLP curve. For example, to the extent the value of the currently proposed $1,100 ORDC step is linked to the percent Operating Reserve (OR) requirement reflected by the Most Severe Single Contingency (MSSC) (currently ~88 percent of total OR requirement), then such $1,100 ORDC step value should be updated to link with the value corresponding to the MSSC point on the updated LOLP curve. For the sake of clarity, an update to the LOLP curve would necessarily include an updated LBL meta-analysis.

ORDC Bounds

In terms of the redesign of the ORDC, including the: i) Lower bounds of $600/$1100/MWh; ii) Upper bound of $6,000/MWh; and iii) Loss of Load Probability (LOLP) curve scaled by $35,000/MWh Operating Reserve Target Cost, we provide our feedback for each in turn:

i) We agree with the reasoning behind MISO’s proposed readjustment of the lower bounds of the ORDC to $600/MWh and $1,100/MWh, respectively. In addition to benefits MISO provided with respect to this readjustment, it appears that such a readjustment will result in a more efficient price outcome as this reduces the area (surplus) between the LOLP curve and the ORDC at times when these lower bounds are active.

Additionally, as stated further above, we believe that the ORDC should be readjusted every set number of years based on a reanalysis of the LOLP curve. When conducting such readjustment, MISO should ensure that the lowest lower bound (currently proposed at $600/MWh) never falls below the LOLP curve where it intersects with the MSSC. Related to this concern, please confirm that the lower bound price of $600/MWh is not below the LOLP curve price at that ~88 percent MSSC point under MISO’s current proposal.

ii) We believe that the upper bound of the ORDC should complement the administrative cap of the VOLL, and to the extent the administrative cap of the VOLL is set at $10,000/MWh, an upper bound of $6,000/MWh is appropriate. As with the lower bounds of the ORDC, we again reiterate our belief that the upper bound should be readjusted along with the rest of the ORDC shape when MISO revisits the LOLP curve every set number of years.

iii) We agree with MISO’s proposal to base its ORDC shape on a LOLP curve scaled at $35,000/MWh. But again, as stated above, we believe that MISO should commit to revisit the LOLP curve every set number of years in order to maintain the relevance of both the VOLL and the ORDC.

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 load shed 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.

MISO Market Subcommittee Feedback

Hoosier Energy Rural Electric Cooperative

Southern Illinois Power Cooperative

Big Rivers Electric Corporation

March 21, 2024

Hoosier Energy Rural Electric Cooperative (“Hoosier”), Southern Illinois Power Cooperative (“SIPC”), and Big Rivers Electric Corporation (“BREC”), collectively (“the Respondents”), thank MISO for the opportunity to provide feedback on the MISO’s proposal to Update Value of Lost Load (“VOLL”) and Operating Reserve Demand Curve (“ORDC”) presented at the February 29th Market Subcommittee (“MSC”). MISO requested feedback on two items:

1. Increasing VOLL to $10,000/MWh, for use as a price cap and as an administrative price during MISO-directed load-shedding (EEA3)
2. Redesign of Operating Reserve Demand Curve, including lower bounds of $600/1,100/MWh, upper bound of $6,000/MWh, and a Loss of Load Probability (“LOLP”) Curve scaled by $35,000/MWh Operating Reserve Target Cost.

While the Respondents understand that MISO’s current VOLL of $3,500/MWh has been in place since the market start in 2007, we’re concerned that MISO may be taking too large a step in increasing the VOLL to the proposed $10,000/MWh, a nearly 3x increase. The Respondents are all member-owned Generation and Transmission cooperative who are very sensitive to prices their members pay for electric service. An increase in the VOLL of this magnitude would introduce substantially higher levels of risk for our members and could have a dramatic impact on the prices they pay for service. Winter Storm Uri in ERCOT gave us an example of the dramatic impact prices of this magnitude can have when active for extended periods of time by driving financially stable utilities into bankruptcy. MISO stated at the MSC that VOLL pricing would only impact deviations from a Market Participant’s Day-Ahead position, which is true for the first day, but as shown in ERCOT during Winter Storm Uri, if the issues experienced in Real-Time persist they can have a very large impact on Day-Ahead prices in the subsequent days. Under MISO’s proposal, Day-Ahead prices could also approach and reach the new $10,000/MWh VOLL cap. While MISO stated that the likelihood of a multi-day event is low, if we were to experience a prolonged event such as Uri, the prices in Day Ahead could be catastrophic when often during extreme events actions outside of the Market Participant's control can impact availability of generation such as gas pipeline and force majeure provisions. While the Respondents always take steps to ensure their forecasts are accurate and generating resources are ready when MISO needs them, we fear VOLL pricing of this magnitude could have drastic unintended consequences like it did in ERCOT if MISO runs into supply constraints that generators have no control over that persist for more than a few hours.

One of the reasons MISO put forth is that the current VOLL of $3,500/MWh is lower than the proposed VOLL of neighbors in PJM and other RTOs. While we recognize the value that external support provides to MISO during extreme events, the Respondents are skeptical that if MISO, PJM and SPP were all in tight conditions that external support would be dramatically diminished without this change. The Respondents would like to see an analysis of how much additional response MISO would receive with a $10,000/MWh VOLL compared to the current $3,500/MWh VOLL during extreme events to help justify this proposal. Are there so many high-priced resources on neighboring systems that wouldn’t help us at $3,500/MWh compared to $10,000/MWh? Or some other price below $10,000/MWh? A more incremental step change of the VOLL would be more palatable unless analyses show that a justifiable increase in reliability is expected from this change.

Should MISO move forward with this proposal, then the Respondents are strongly in favor of MISO having a circuit breaker mechanism in place to limit the exposure Market Participants will have to VOLL pricing. At this juncture, the Respondents do not have a strong stance as to how that mechanism should be structured, but we feel that without it being in place, a multi-day event such as Winter Storm Uri could drive major insolvency in the MISO footprint. Perhaps a link to the Cost of New Entry in the Planning Resource Auction or a maximum number of intervals in which VOLL pricing could be applied in each day is a good place to start. Market Participants need some way to help quantify the risk associated with VOLL exposure for the duration set forth in the circuit breaker mechanism, otherwise a multi-day event could have dire consequences. Without a circuit breaker, the Respondents would be strongly opposed to the magnitude of the increase in VOLL in MISO’s proposal.

MISO should not essentially triple the Value of Lost Load (VOLL, from $3.5k/MWh to $10k/MWh). MPPA supports WPPI’s previous feedback, and as such does not see a compelling reason to change the current $3,500 VOLL.

American Municipal Power (AMP) appreciates the opportunity to provide feedback on MISO’s proposal to update VOLL and ORDC and offers the following comments.

The usefulness of scarcity pricing depends on market participants’ willingness and ability to count on it for settlements, especially with regard to resources not already committed to MISO for capacity.

MISO needs to explain, and stakeholders need to better understand how market participants respond to price signals. The price signal has to be actionable. Under most electric tariffs, there is no mechanism for the actual consumer to respond to these prices. For changes in VOLL to be effective, there needs to be a scarcity price mechanism in place that allows demand to be responsive.

Regarding the ORDC, please provide details of simulations on the impacts for varying contingency reserve levels. It would be helpful for MISO to show how these new curves would have impacted settlements. Also, referencing slide 26 of MISO’s presentation, please provide the $/MWh for the category of 88-100% cleared OR.

And finally, AMP encourages MISO to delay further discussions and a FERC filing on this issue until after such time as FERC issues an order on MISO’s recent Reliability Based Demand Curve filing.

The Entergy Operating Companies ("EOCs")^[1] appreciate the opportunity to provide feedback on the Updates to Value of Lost Load (VOLL). The EOCs urge MISO to focus first on the potential effectiveness of a higher pricing threshold, beyond the current $3500 benchmark.  

Entergy acknowledges the potential for increased availability, but as an LSE, Entergy has concerns about a higher VOLL overshadowing the benefits by negatively impacting customers who would have to pay for higher load/generation costs due to the increase in VOLL. Is there an estimate MISO can provide to show that the change will lead to additional generation to be built or DRR/LMRs to enter the market? It’s important to the EOCs that before we move to a higher VOLL, we should have a reasonable estimate of the quantitative benefit over hypothetical qualitative estimates.  

The tripling of the current VOLL figure raises considerable apprehensions among EOCs, particularly regarding its impact on customers. The EOCs question the rationale of such a substantive change happening concurrently with changes in the capacity market as well. The EOCs would propose a phased approach—from $3500 to something closer to $6000 and eventually to $10,000—this would provide a structured pathway for assessing the benefits of such an increase, particularly when wholesale supply prices rise above the $3500 level. Notably, the divergence in approach between MISO and other Regional Transmission Organizations (RTOs), such as ERCOT, where VOLL values have been lowered, accentuates the need for clarity on MISO's rationale behind the upward adjustment. 

Entergy, as a Load Serving Entity (LSE), voices apprehensions regarding the downstream impact of a higher VOLL on customers. The concern revolves around the possibility of customers bearing the brunt of elevated load costs resulting from an increased VOLL.    

Should MISO proceed with the proposed increase, EOCs advocate for the development of a "Circuit Breaker" mechanism that moderates the VOLL in proportion to the duration of the outage. Meaning, as the outage persists, VOLL would decrease. This is consistent with the very same VOLL studies that MISO used to derive their pricing conclusions. This approach aims to safeguard customers from potential financial distress, which a sudden increase to $10,000 for VOLL could precipitate.  

In conclusion, EOCs call upon MISO to provide stakeholders with comprehensive information explaining how they balance the benefit of potential additional supply against risks associated with heightened market volatility. Presenting both sides of the equation is paramount for informed decision-making and ensuring that the interests of all stakeholders, including customers, are duly considered. 

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

Email attachment sent to Stakeholder Relations.  

Cleco Power appreciates the opportunity to comment on MISO's Proposal to Update Value of Lost Load (VOLL) and Operating Reserve Demand Curve (ORDC). We strongly recommend MISO to give stakeholders more information regarding the TCDC. MISO should not file anything at FERC until the TCDC update is finalized. Changes to the price cap, ORDC, and TCDC should all be evaluated together given their interactive effects.  

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)

NIPSCO Large Customer Group (NLCG)[1]

Regarding

MISO Market Subcommittee

Proposal to Update VOLL and ORDC

(MSC-2019-1)

March 21, 2024

I. Introduction and Summary of Comments

ABATE, CMTC, IIEC, LEUG, MIC, NLCG and TIEC appreciate the opportunity to provide comments to MISO regarding MISO’s proposals to reset the Value of Lost Load (VOLL) and to adjust the Operating Reserve Demand Curve (ORDC).

MISO’s proposal to increase the VOLL to $10,000 per MWh lacks proper analytical support to demonstrate that the higher proposed VOLL would be set at the appropriate level needed to incent no more than the required amount of incremental resource offers to resolve scarcity conditions through market price signals.  MISO should perform additional analysis to justify its specific VOLL proposal before it essentially triples the current VOLL, as discussed in more detail in these comments.

Further, MISO should implement a VOLL circuit breaker mechanism to limit cost exposure to customers, particularly if MISO increases the VOLL to $10,000 per MWh.  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. 

We support MISO’s proposal to reduce the two lower ORDC pricing steps relative to the status quo.  Under MISO’s proposal, these lower ORDC steps would be reduced to $600 per MWh and $1,100 per MWh, respectively.  MISO’s proposal would reduce ORDC prices for over 90% of operating reserve shortages, and it is also expected to reduce the overall ORDC cost to the market relative to the current ORDC design.  Moreover, MISO’s ORDC proposal appropriately coordinates with the emergency offer floors and the other new pricing tools that MISO now has in place to address scarcity conditions.

While MISO’s proposal to raise the upper bound of the ORDC from $3,500 per MWh to $6,000 per MWh is a significant increase relative to the status quo, we agree with MISO’s conceptual approach of setting the upper bound of the ORDC at less than MISO’s proposed VOLL of $10,000 per MWh.  The $6,000 per MWh upper bound for the ORDC appropriately allows for additional resource contributions to address scarcity conditions before reaching the VOLL price cap.

II. Background

During the February 29, 2024 Market Subcommittee (MSC) meeting, MISO presented its proposals to reset the VOLL and to adjust the ORDC.  MISO is proposing to Increase VOLL from $3,500 per MWh to $10,000 per MWh.  The higher VOLL would be used as an energy market price cap and as an administrative price during MISO-directed load-shedding (EEA3 events).  

MISO is also proposing to redesign its Operating Reserve Demand Curve (ORDC).  Specifically, MISO is proposing to adjust each of the three ORDC pricing steps.  First, MISO is proposing to raise the upper bound of the ORDC from $3,500 per MWh to $6,000 per MWh to partially reflect its proposed increase in VOLL.  MISO is also proposing to reduce the two lower steps in the ORDC curve to $600 per MWh and $1,100 per MWh, respectively.  Currently, the lower ORDC steps are set at $1,100 per MWh and $2,100 per MWh.

During the February 29 MSC meeting, MISO requested stakeholder feedback regarding its VOLL and ORDC proposals.  The balance of these comments provide the feedback of the End-Use Customer Sector regarding these topics.

III. Comments Regarding MISO’s VOLL Proposal

Scarcity pricing can play a valuable role in enhancing market efficiency by inducing incremental generation availability under scarcity conditions.  Scarcity pricing can also enhance efficiency by providing appropriate incentives for loads to hedge their exposure to the real-time market.   However, MISO’s proposal to increase the VOLL to $10,000 per MWh lacks proper analytical support to demonstrate that the higher proposed VOLL would be set at a level no higher than the level needed to incent the required amount of incremental resource availability to resolve scarcity conditions.  MISO should perform additional analysis to justify its specific VOLL proposal before it essentially triples the current VOLL.

During prior MSC meetings, MISO indicated that the current VOLL has restricted generation availability by truncating valid market offers.  However, MISO has not provided any analysis to identify the frequency of these truncated offers, the amount of economic, incremental resource supply that was not provided to the market as a result of the current VOLL, or the appropriate level of VOLL that would have permitted a sufficient amount of valid incremental offers to clear the market in order to resolve the scarcity condition.  Would a lower VOLL level than MISO’s proposed level of $10,000 per MWh have been sufficient to avoid truncating valid market offers and to resolve emergency system conditions?  MISO’s VOLL proposal does not address this question. 

MISO essentially assumes that a higher VOLL is desirable because it will theoretically induce incremental supply, but it has not undertaken any analysis to support an optimal VOLL level to balance the market under scarcity conditions.  MISO should undertake such an analysis to ensure that a higher VOLL would not impose unnecessary costs on loads and would not unduly reward generators who would have been able to cover their costs and clear their offers at a VOLL level of less than $10,000 per MWh.  MISO’s analysis should also consider that for some generators, a higher VOLL may not induce significantly higher generation availability during system emergencies due to extreme weather conditions, emissions limitations or other operating restrictions that limit generation availability under emergency conditions, irrespective of the market price. 

Moreover, MISO has not evaluated whether the incremental cost to loads associated with a VOLL of $10,000 per MWh would be lower than the cost that loads incur to pay for out-of-merit redispatch of generation or other out-of-market operator actions to resolve system scarcity.   MISO should undertake such an evaluation to assess whether its VOLL proposal would provide net benefits to loads.  Absent this type of analysis, customers have no analytical basis to assess whether a specific higher VOLL level would be beneficial relative to the status quo of relying on out-of-market actions to ensure adequate generation availability during periods of power supply scarcity.  A higher VOLL is only a more efficient outcome, from the customer perspective, if the higher scarcity pricing induces incremental generation availability through the market at a cost that is lower to customers than the cost of directing the out-of-merit redispatch of generation to balance the system.  It is important that MISO assess the merits of implementing a higher VOLL from this perspective.  Ignoring this perspective will result in unnecessarily raising costs to customers, without a corresponding benefit.

In evaluating the risks of increasing the VOLL to $10,000 per MWh, MISO should also consider the adverse impacts of this proposal on industrial customers who, for safety and security reasons, are not likely to respond to the pricing signals associated with a higher VOLL.  Such customers with limited price elasticity of demand could experience a large increase in costs in a short period of time under MISO’s proposed VOLL, to the extent that they are exposed to the real-time market.  Therefore, MISO’s VOLL proposal can be particularly harmful to large industrial customers who cannot shut off their operations due to operational or other considerations, irrespective of the prevailing power price.

The significant risk to loads associated with a higher VOLL is highlighted by the experience of the Electric Reliability Council of Texas (ERCOT) during the February 2021 extreme weather event.  The ERCOT grid experienced unprecedented disruptions in electricity and natural gas service during Winter Storm Uri, resulting in widespread prolonged outages throughout the ERCOT region.  During this 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.  Based on this experience, ERCOT subsequently reduced its market offer cap to its current level of $5,000 per MWh.  While ERCOT is currently engaged in a study to update the VOLL, it is not clear that the Public Utility Commission of Texas will ultimately adjust the ERCOT market offer cap based on the study results.  The ERCOT experience demonstrates the risk to loads of setting a high administrative price cap based on a VOLL in the $10,000 per MWh range proposed by MISO and demonstrates the adverse impacts of a high VOLL that resulted in substantive harm to consumers.

Further, the ERCOT experience underscores the need to implement a VOLL circuit breaker mechanism to limit cost exposure to customers.  Such a mechanism would restrict the duration of VOLL pricing in order to limit the cost exposure to loads of a VOLL pricing event. 

A good example of such a circuit breaker mechanism is ERCOT’s Emergency Pricing Program (EPP), which is used to reduce the administrative offer cap to a lower level if scarcity pricing remains in effect for a certain number of hours.  Specifically, the ERCOT program lowers the 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.  Once the LCAP is activated, the LCAP remains in effect for 24 hours after ERCOT exits emergency operations without re-entering emergency operations.  To ensure that valid economic offers are not truncated by the LCAP, ERCOT must reimburse resource entities for any actual marginal costs that they incur in excess of the larger of the offer cap or the real-time energy price for the resource.[2]  MISO should evaluate ERCOT’s EPP and propose a conceptually similar and appropriate VOLL circuit breaker mechanism for MISO in order to reduce the risk exposure to loads of VOLL pricing.

In summary, prior to changing the VOLL, the End Use Customer Sector recommends that MISO provide further evidence to demonstrate the value in raising the VOLL to $10,000 per MWh and incorporate a conceptually similar circuit breaker mechanism as utilized in ERCOT.

IV. Comments Regarding MISO’s ORDC Proposal

We support MISO’s proposal to reduce the two lower ORDC pricing steps relative to the status quo.  Under MISO’s proposal, these lower ORDC steps would be reduced to $600 per MWh and $1,100 per MWh, respectively.  MISO’s analysis shows that approximately 90% of operating reserve shortages occur at the two lower pricing steps on the ORDC.  Therefore, MISO’s proposal to reduce the lower pricing steps in the revised ORDC would reduce prices for over 90% of operating reserve shortages, and it is also expected to reduce the overall ORDC cost to the market relative to the current ORDC design.   

Moreover, MISO’s ORDC proposal appropriately coordinates with the emergency offer floors (EOFs) that MISO currently has in place to address scarcity conditions.   Specifically, the revised lower ORDC intermediate steps of $600 per MWh and $1,100 per MWh are designed to be slightly above the existing Tier I and Tier II EOFs of $500 per MWh and $1,000 per MWh, respectively.  In addition, MISO now has access to 30-minute short-term reserves through its Short-Term Reserves (STR) product.  These scarcity pricing tools were not available to MISO when the current ORDC pricing steps were established.   Therefore, the proposed lower ORDC steps are appropriately set to recognize the impacts of other available scarcity pricing tools such as the EOFs and the STR.  This ORDC design allows MISO to manage moderate operating reserve shortages at a lower price point relative to the status quo.   Therefore, the revised lower ORDC price steps are appropriately designed in recognition of the other available intermediate tools such as the EOFs and the STR that MISO can use to address scarcity conditions prior to invoking ORDC pricing.

While MISO’s proposal to raise the upper bound of the ORDC from $3,500 per MWh to $6,000 per MWh is a significant increase relative to the status quo, we agree with MISO’s conceptual approach of setting the upper bound of the ORDC at less than MISO’s proposed VOLL of $10,000 per MWh.  The proposed $6,000 per MWh upper bound for the ORDC would appropriately allow incremental market resources to address scarcity conditions through higher marginal energy offers above the $6,000 per MWh ORDC cap before MISO’s proposed VOLL price cap is reached. This incremental administrative pricing approach will help to reduce the cost of scarcity pricing mechanisms to loads.   

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)

(614) 719-2844

kstark@mcneeslaw.com

Kavita Maini

KM Energy Consulting, LLC (Consultants to MIC)

(262) 646-3981

kmaini@wi.rr.com

[1] ABATE, IIEC, LEUG, TIEC, CMTC and MIC are all MISO Members in the End-Use Customer Sector.  NLCG is a non-MISO Member stakeholder whose members include large end-use customers within Indiana that are interruptible and/or have cogeneration facilities and that take service under NIPSCO Rate Schedule 831, which allows limited market purchases through NIPSCO.

[2] For additional details regarding the ERCOT program, please refer to Public Utility Commission of Texas Substantive Rule §25.509, which can be found at the following link:

 https://www.puc.texas.gov/agency/rulesnlaws/subrules/electric/25.509/25.509.pdf