On December 21, 2017, FERC issued an order accepting a proposal from the Midcontinent Independent System Operator, Inc. (“MISO”) to revise its Open Access Transmission, Energy, and Operating Reserve Markets Tariff (“Tariff”) and establish Dynamic Narrow Constrained Areas (“Dynamic NCAs”). FERC found that MISO’s proposal would strengthen existing market power mitigation measures in MISO and help ensure that the potential exercise of market power during such transitory conditions would be properly mitigated.

MISO’s existing Tariff applies mitigation measures to curb market power that may arise due to transmission congestion at two types of locations on its transmission system. The first such congestion area is the Narrow Constrained Area (“NCA”), which is defined as, among other things, an area having binding transmission constraints for at least 500 hours during a 12-month period. The second type of congestion area is called the Broad Constrained Are (“BCA”), which is a transmission area that otherwise facilitates sufficient competition, but in which discrete transmission or reserve constraints can occur, causing significant locational market power under certain market or operating conditions. MISO’s Market Monitor applies various conduct and impact tests to energy and ancillary services offers in NCAs and BCAs, and any resource that fails both tests may be subject to mitigation.

Recognizing that severe transitory congestion can occur in areas that are not currently accounted for in the BCA and NCA market power mitigation provisions, on July 14, 2017, MISO submitted its proposal to establish a third category, Dynamic NCAs. In general, MISO’s proposal would designate a new Dynamic NCA when, among other things, (1) transmission constraints into the electrical area are bound for at least 15 percent of the hours during the last five days or conditions occur that had created such transmission congestion in the past, and (2) when one or more resources in the electrical area pass the Market Monitor’s tests. Under the proposal, the Dynamic NCA would be terminated essentially when either the conditions creating the Dynamic NCA have been resolved or no mitigation has occurred in the Dynamic NCA in the past 30 days.

As part of the proposal, MISO sought to institute a $25/MWh threshold for Dynamic NCAs for so-called “economic withholding,” or uneconomic incremental energy and minimum generation offers that can signal market power in some cases. MISO stated that was at the low end of the current corresponding NCA thresholds.

Numerous parties, such as Midwest TDUs intervened to support the proposal and the $25/MWh threshold, arguing that the proposal was a reasonable approach to mitigating transmission constrains not otherwise addressed in MISO’s Tariff. Other parties, such as NRG Companies, argued against the threshold for various reasons, including that the Dynamic NCAs and accompanying threshold were unsupported and did not address the underlying congestion causes in MISO.

FERC found MISO’s proposal to be just and reasonable and accepted the Tariff changes to be effective January 4, 2018. As FERC stated, MISO’s proposal would provide an additional means to limit the exercise of market power during periods of transient but severe congestion. FERC was particularly persuaded by the Market Monitor’s explanation that severe congestion associated with transitory transmission constraints in locations outside of existing NCAs may provide opportunities for the exercise of market power that the market power mitigation thresholds applicable within BCAs were not designed to address. FERC rejected the challenges to the $25/MWh threshold, concluding that such arguments did not undermine its just and reasonable finding. FERC also stated that NRG Companies’ broader concerns about MISO’s congestion management were outside the scope of the proceeding.

A copy of FERC’s order can be found here.