United States: FERC Denies MISO's Request For Limited Waiver To Compensate Entergy Arkansas For Losses From Manually Re-Dispatched Resources

Last Updated: October 6 2016
Article by Adrienne Thompson and Jasmine C. Hites

On September 27, 2016, FERC issued an order denying a request for a limited tariff waiver filed by the Midcontinent Independent System Operator Inc. ("MISO"). MISO filed its request to waive certain eligibility requirements for participation in MISO's price volatility make-whole payment program as part of an attempt to compensate Entergy Arkansas, Inc. ("Entergy Arkansas") for insufficient revenue returns following several manual re-dispatches of two Entergy Arkansas nuclear units in 2014. In its order, FERC rejected MISO's request, indicating that generators are ineligible for the program when their units do not meet the flexibility requirements, and that waiver of such requirements was not appropriate in this case.

At the center of the proceeding is MISO's price volatility make-whole payment program, which FERC conditionally approved in December 2006. As FERC explained in its September order, this program arose to counteract the economic incentive of generators to underbid ramp rates and offer inflexible market bids—effectively raising MISO's real-time market clearing price and increasing the probability of price volatility and system instability. Through the program, MISO provides incentive payments for generators meeting certain criteria and offering bids with sufficient quantity and ramp-rate flexibility to provide MISO with better system reliability management capabilities if economic and manual re-dispatches become necessary. One such program requirement is that participating generators include in their market bids a minimum ramp rate value of 0.5 MW per minute.

On four occasions in 2014, MISO manually re-dispatched two Entergy Arkansas nuclear generating units. According to the utility, because of those units' operating characteristics, including a 0.1 MW per minute ramp rate, it took them a significant amount of time to reach their normal output after the re-dispatches, which resulted in financial harm to the utility. Following the alternative dispute resolution process that ensued, MISO agreed to provide over $1.5 million in compensation to Entergy Arkansas and filed a request for FERC to waive certain Open Access Transmission, Energy, and Operating Reserve Markets Tariff provisions to effectuate the agreement. Specifically, MISO sought waiver of the tariff's minimum ramp rate eligibility requirement for receiving compensation as a manually re-dispatched resource in the price volatility make-whole payment program.

In its request, MISO argued that waiving the 0.5 MW per minute minimum ramp rate requirement for manual re-dispatch payments was appropriate because this situation lacked the type of gaming behavior that, as MISO argued, the make-whole payment program was primarily designed to prevent. Additionally, MISO reiterated a previously-stated precaution from FERC that "parties should not be required to have ramp rates beyond those that are operationally feasible for their units." MISO acknowledged, however, that Entergy Arkansas has since increased the ramp rate value in its market offers from 0.1 MW to 0.5 MW per minute.

FERC rejected MISO's waiver justifications as failing FERC's four-factor test for granting waivers. Specifically, FERC determined that there was no concrete problem to remedy and that requested waiver would result in undesirable consequences. According to FERC, MISO misconstrued the payment program as an anti-gaming "mechanism for responding to dispatch instruction when called upon" rather than an "incentive mechanism to encourage units to offer more flexibility into the market." The distinction is critical because non-participating generators, like Entergy Arkansas, cannot claim flexibility incentive payments when their units are not flexible in, for example, their ramp rate capabilities. To allow otherwise, FERC noted, would contradict the type of flexibility willingness that the program is designed to encourage among MISO generators. Lastly, FERC distinguished its earlier feasibility precaution as referring to economic ramping maximum, not minimum, requirements, but noted that, in either event, no such feasibility problem existed for Entergy Arkansas following its decision to increase the ramp rate value of its market offers.

A copy of FERC's September 27, 2016 order can be found here.

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Adrienne Thompson
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