Following the Federal Energy Regulation Commission’s (FERC) acceptance of the Midcontinent Independent System Operator’s (MISO) reliability-based demand curve, MISO is proposing significant reforms to demand response programs, focusing on registration, testing, and compensation changes.
Starting in the summer of 2025, MISO plans to eliminate emergency demand response and batch load demand response as part of load-modifying resource reforms. These changes, aimed at increasing reliability, could lead to lower demand response program participation and higher capacity prices. While most changes will take effect in the 2028/29 planning year, MISO intends to file these proposals with FERC in early 2025. Notably, energy storage resources are not included in this reform package.
DR participation in the MISO Energy Market
MISO currently has multiple options for demand response to participate in the market. Demand Response Resource categories (DRR Type I and DRR Type II) are programs for DR to participate in the energy market for an economic signal. Utility interruptible load programs are examples of DRR Type I programs. Behind-the-meter generators that can receive MISO operator instructions are examples of DRR Type II programs. A diesel generator is a typical example of a BTMG.
If there is a higher energy price (the economic signal), the Market Participant offers the DRR program. If the offer is accepted, the DRR is deployed and paid the energy price for demand reduction if found to be beneficial to the grid. That final step is called the Net Benefits Price Threshold (NBPT). NBPT is the price at which DR is deemed helpful to the grid by reducing a MW instead of a generator supplying a MW. DR is only paid if the Locational Marginal Price is greater than the NBPT, which is established monthly and released ahead by MISO.
DR participation in the MISO Capacity and Ancillary Services Market
In the capacity market, DR has two options for participating as a supply-side resource: Load Modifying Resources—Demand Response (LMR-DR) and LMR—Behind The Meter Generation (BTMG). LMRs serve dual purposes – they are planning resources because they help the Load Serving Entities meet their planning reserve margin requirements, and they are emergency resources because they can help reduce capacity during capacity emergencies.
According to the Independent Market Monitor (IMM), MISO had 7,695 MW registered as LMR-DR and 4,129 MW registered as LMR-BTMG in 2023. On the other hand, MISO has only 521 MW registered as DRR Type I and 79 MW registered as DRR Type II. However, only 92 MW of total DRR is cross-registered as LMR.
In the ancillary services market, DRR Type II can provide most services, such as regulating reserves, spinning reserves, and supplemental resources, including ramp products. But DRR Type I, because they come in blocks and have no telemetry requirements, cannot provide regulating reserves and ramp products.
Elimination of Emergency Demand Response (EDR) Program
MISO is eliminating the Emergency Demand Response program as part of this LMR reform package. Initially, MISO said LMR reforms, once filed at FERC and if FERC accepts them, will be effective in the 2028/29 planning year. However, MISO has decided to fast-track the elimination of EDR programs in this upcoming 2025/26 planning year, causing some concerns among stakeholders. According to IMM, 883 MW were registered in 2023 as EDRs, and only 552 MWs are cross-registered as LMRs.
The primary reason MISO is fast-tracking EDR elimination is IMM. In a presentation to the MISO Markets Committee of the Board, IMM stated that since 2019, DR resources have received $800 million in capacity payments. Hence, IMM started evaluating the MISO DR programs because MISO relies on a large volume of DRs as LMRs.
IMM’s evaluation found that out of 213 spinning reserve deployments across 22 event days in 2023-24, more than 40% of DRR Type I resources did not perform adequately. IMM is concerned that even if DRRs fail to respond to spinning reserve deployment instructions, there is only a small penalty.
The IMM also found that up to 25% of DR resources submit mock tests instead of real tests, which could raise questions about performance during emergency events. Since nearly 50% of LMRs are cross-registered as EDRs (the IMM might be referring to the latest 2024 values), and EDRs are never called upon by MISO, the IMM is concerned that there is very little incentive for market participants to perform while receiving capacity payments. Another reason MISO cites for eliminating EDRs is that MISO has never called upon EDRs in its history. That might be true, but MISO will be relying primarily on DRRs and LMRs for emergency capacity purposes, and that could have an impact on the number of market participants that participate in these programs and the amount of emergency capacity available starting with the upcoming 2025 planning year.
Elimination of Batch Load Demand Response (BLDR) programs
IMM also found that the worst-performing DR class program is a little-known program called the Batch Load Demand Response (BLDR) program. According to the IMM, the BLDR was introduced in 2020 without any tariff revisions. So, MISO is planning to eliminate these BLDR programs. IMM states that BLDR programs agree not to increase their load rather than curtail their load as traditional DR programs do. The impact of eliminating BLDR is unknown. Stakeholders are concerned that removing BLDR could reduce the flexibility of demand response options, potentially limiting participant incentives.
MISO is moving to LMR – Type I and LMR – Type II programs.
Like DRR Type I and II, MISO is proposing to move to LMR – Type I and II. LMR – Type I will be long lead time LMR programs that require 6 hours of notification time and hence will be deployed during energy emergency alerts and warnings leading up to the emergency event. LMR – Type II will be required to deploy within 30 minutes of notification time during the emergency event. In this proposed design, MISO will be holding back fast-acting LMRs until needed during Energy Emergency Alert Stage 2 and deploying long lead time LMRs before emergencies so that MISO does not end up with non-performing emergency resources.
But the penalty for non-performing LMR Type II is also changing. Previously, the penalty for non-performing LMRs was three times the LMP times the MW shortfall. Now, MISO is proposing a penalty of the Value of Load Load (VOLL) times the MW shortfall. This is significant because MISO recently increased VOLL from $3,500 per MWh to $10,000 per MWh. This change could significantly raise the cost of non-compliance, making reliable performance essential for participants.
Next steps
MISO plans to file the proposed LMR changes with FERC in the first quarter of 2025. With the elimination of EDRs, there will only be two programs for market participants to register—DRRs and LMRs. MISO is also revamping testing requirements per IMM’s evaluation. MISO will initiate testing for all new DRRs and LMRs Type I. For LMR Type II, deployment in response to an emergency event counts as a test. These reforms, coupled with stricter testing and the elimination of some demand response programs, underscore MISO’s focus on reliability but may also reshape the capacity market landscape and increase price pressures.
