August 15, Mary Jo Kunkle Executive Secretary Michigan Public Service Commission 7109 West Saginaw Highway Lansing, Michigan, 48917

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1 Melissa Seymour Regional Executive Central Region Direct Dial: Mary Jo Kunkle Executive Secretary Michigan Public Service Commission 7109 West Saginaw Highway Lansing, Michigan, Re: Midcontinent Independent System Operator, Inc. s Comments to the Michigan Public Service Commission s Investigation into the Electric Supply Reliability Plans of Michigan s Electric Utilities for the Years 2017 through 2021, Case No. U Dear Executive Secretary Kunkle: The Midcontinent Independent System Operator, Inc. ( MISO ) appreciates the opportunity to provide comments on the implementation of resource adequacy processes for the State of Michigan. The Michigan Public Service Commission s ( Michigan PSC ) proactive approach to ensuring Michigan s long-term resource adequacy needs are met is commendable. MISO remains committed to working with Michigan stakeholders as the State of Michigan continues to take an active approach to ensuring long-term reliability. MISO offers comments to provide additional context on its resource adequacy processes, including an overview of MISO s Local Resource Zones ( LRZs ), Planning Reserve Margin Requirements ( PRMR ), and prior efforts to address long-term reliability needs in the State of Michigan. A. Background and Overview MISO is a not-for-profit, member-based organization. MISO ensures the reliable delivery of electricity, at the lowest cost, across high-voltage power lines in fifteen states and the Canadian province of Manitoba. MISO also conducts transmission planning and manages the buying and selling of wholesale electricity in one of the world s largest energy markets. The Energy and Operating Reserves Market includes a Day-Ahead Market, a Real-Time Market, and a Financial Transmission Rights market. MISO recognizes and supports the independent authority of state regulators over generation resource investment and long-term resource adequacy. This longstanding recognition is acknowledged in MISO s resource adequacy processes, which respect the rights of states by allowing regulatory authorities to decide how to best meet long-term resource adequacy Midcontinent Independent Mailing Address: Overnight Deliveries: System Operator, Inc. P. O. Box City Center Drive Carmel, IN Carmel, IN 46032

2 Page 2 requirements. 1 Within MISO, nearly all state and local regulators maintain resource planning authority, and are responsible for establishing retail rates and reviewing the prudency of utility investments. B. Connection with MISO s Resource Adequacy Construct MISO s resource adequacy construct accommodates the roles and responsibilities of the states with respect to state policies and investment planning. States determine long-term resource adequacy, and rely on MISO to ensure continued access to residual resources necessary to serve demand in a cost-effective, efficient manner. State and local regulatory authorities continue to be responsible for reviewing the prudence of resource decisions that are subject to their individual jurisdictions, including investment in generation facilities to meet long-term planning reserve requirements. 1. Regulatory Filings and Implementation of Legislation In late 2016, MISO proposed a new resource adequacy construct, known as the Competitive Retail Solution that addressed needs in states that have competitive retail choice. As part of this proposal, MISO included provisions that allowed for state regulatory bodies to exercise their existing jurisdictional authority to assure long-term resource adequacy. Specifically, a state regulatory authority could identify market participants responsible for providing capacity on behalf of retail choice providers, as well as the rate of compensation for such capacity. By electing this alternative, an Load Serving Entity ( LSE ) would have been responsible for procuring all of its resources three years in advance either through a forward resource auction or a forward fixed resource adequacy plan. In February 2017, the Federal Energy Regulatory Commission ( FERC ) rejected MISO s Competitive Retail Solution proposal. 2 FERC expressed concern that bifurcating MISO s resource adequacy construct into two separate markets could create uncertainty. While FERC did not accept MISO s Competitive Retail Solution proposal, MISO s existing resource adequacy construct including its Local Clearing Requirements ( LCR ) and PRMR that are discussed elsewhere in these comments were not impacted by the order. Following the FERC order regarding MISO s Competitive Retail Solution, MISO supported state processes concerning resource adequacy planning, including assisting states develop long-term resource adequacy requirements. MISO supports the implementation of Michigan s energy legislation that passed in late 2016, and applauds the State of Michigan, its policymakers, the Michigan PSC, and the Michigan Agency for Energy for taking the initiative to ensure long-term reliability objectives are met through resource adequacy requirements. Many of these requirements, including provisions requiring each electric utility or alternative electric supplier to demonstrate that is has sufficient capacity, are similar to those contained in 1 2 Midwest Indep. Transmission Sys. Operator, Inc., 139 FERC 61,199 (2012). Midcontinent Indep. Sys. Operator, Inc., 158 FERC 61,128 (2017).

3 Page 3 MISO s filing of its Competitive Retail Solution. These provisions will help the State of Michigan ensure that resource adequacy needs are met across various time horizons. Further, consistent with the Michigan PSC s orders earlier this spring, MISO collaborated with the Michigan PSC s Staff as it developed recommendations on capacity obligations associated with the State Reliability Mechanism ( SRM ). MISO appreciates the thoughtful approach undertaken to tackle these complex issues. MISO remains committed to helping the Michigan PSC, its Staff, and stakeholders as the Michigan SRM continues to be refined. 2. Local Resource Zones In 2010, FERC directed MISO and its stakeholders to take steps to incorporate locational capacity market mechanisms into its resource adequacy construct. 3 In 2012, the Commission accepted MISO s proposal to establish LRZs. Two such LRZs cover the State of Michigan Zone 2 covers the Upper Peninsula of Michigan (as well as Eastern Wisconsin) while Zone 7 covers most of the Lower Peninsula of Michigan. The establishment of LRZs allows MISO to evaluate resource availability and potential transmission on a more granular level. The use of LRZs, which are also utilized by the Staff in its report filed on August 1, helps ensure that local reliability needs are met and provides signals to market participants about where additional capacity may be needed. 4 Once an LRZ is established, MISO conducts a transfer analysis study to determine how much capacity can be imported and exported into an LRZ to establish a Capacity Import Limit ( CIL ) and Capacity Export Limit ( CEL ) for the LRZ. For each LRZ, MISO then establishes Local Clearing Requirements using the applicable CIL. These requirements represent the amount capacity that is physically needed within an LRZ to maintain reliability. More specifically, Local Clearing Requirements consider local resource needs, capacity import capabilities, and resources that are not pseudo-tied out of MISO. 5 Any non-pseudo-tied resources receive local capacity credit based on their physical location and MISO s operational control over the generation unit. The physical location of generation resources is an important consideration in MISO s resource adequacy processes Midwest Indep. Transmission Sys. Operator, Inc., 131 FERC 61,228 (2010) at P 24. The Staff of the Michigan PSC reported on the Locational Requirement in its filing in this docket. Staff Report and Recommendations for Capacity Demonstrations, Public Act 341 Section 6w (August 1, 2017) at 12 ( Staff Recommendations ). A pseudo-tied out resource is one that is physically located in the MISO footprint that a Market Participant defines for MISO Commercial Model and some control purposes as being located outside the MISO footprint.

4 Page 4 3. Planning Reserve Margin Requirements MISO s FERC-approved resource adequacy construct also includes a Planning Reserve Margin ( PRM ) that recognizes (and is complimentary to) the reliability mechanisms of states. 6 On an annual basis, MISO conducts a Loss of Load Expectation ( LOLE ) analysis to measure how many resources should be required to reliably meet any load obligations throughout the year. The results of this study are used to determine a PRM, which reflects the percentage above Coincident Peak Demand that is necessary to meet reliability standards. Based on the PRM, each LSE is given a PRMR that represents the amount of megawatt ( MW ) resources that must be procured by an LSE in order to meet the reliability standard for the MISO system. The actual effective PRMR is determined after the updated LRZ Peak Demand forecasts are submitted on November 1. In addition to the PRMR, a per-unit zonal Local Reliability Requirement ( LRR ) for the planning year is determined for each LRZ. This per unit value is then applied to the peak load for each zone to determine the amount of resources a particular area needs to meet LOLE criteria of 1-in-10 LOLE criteria without the benefit of the CIL. MISO posted draft values for the upcoming planning year for CIL, CEL, LRR, and PRMR for the August 8, 2017 LOLE Working Group. 7 These values, along with corresponding versions for a five-year forward timeframe, will be finalized by November 1, Based on MISO s review of the interpolation/extrapolation recommended in the Staff Recommendations, 8 this methodology seems reasonable based upon LRR and PRMR values being interpolated/extrapolated and CIL values being held constant between calculated values. MISO recommends utilizing the LRR percentage, and applying it against the zonal peak load, instead of the MW value calculated in November. This procedure would increase the accuracy of the Staffdetermined PRMR value. 6 7 Midwest Indep. Transmission Sys. Operator, Inc., 122 FERC 61,283 (2008). Two MISO postings provide the information. For CIL and CEL, see Loss of Load Expectations Working Group, LOLEWG Item CILCEL Values and Study Timeline (August 8, 2017 meeting), available at: For the LRR and PRMR, see Loss of Load Expectations Working Group, LOLEWG Item 03 PRM and LRR Draft Results (August 8, 2017 meeting), available at: 8 See, e.g., Staff Recommendations at 5.

5 Page 5 C. Conclusion MISO values the opportunity to respond to the Michigan PSC s request and looks forward to providing any support as needed in the implementation of Michigan s legislation. Please contact me if you have further inquiries on this topic. Respectfully submitted, /s/ Melissa Seymour Melissa Seymour Executive Director, Customer and Regulatory Affairs Midcontinent Independent System Operator, Inc. 720 City Center Drive Carmel, Indiana Telephone: (317) mseymour@misoenergy.org