The Minnesota Public Utilities Commission last December asked for comments on whether or not aggregators of retail customers, known as ARCs, should be allowed.
Some commenters suggest that utilities, in their role as a load serving entity (LSE), will have to replace the capacity lost to ARCs in order to meet their reserve requirements. This replacement capacity argument is not true. A description of how the Planning Resource Auction (PRA) works when ARCs are allowed in a MISO state like Minnesota shows that the Commission has no cause for concern.
When ARCs are allowed, the responsibility of serving load for resource adequacy stays with the LSE, and the electric distribution company remains responsible for the distribution system. What’s more, the ARC capacity physically stays inside the Zone. As a result, the LSE capacity requirements remain the same even when ARCs are allowed. Hence, no need exists for replacement capacity.
To understand why, let’s look at the issue more closely.
What happens without ARCs?
Two processes operate in parallel in a rate-regulated state like Minnesota for resource adequacy (RA) purposes. The first is Minnesota’s Integrated Resource Planning (IRP) process. A utility like Xcel Energy submits its IRP to the Commission. Once it gains regulatory approval, the capacity becomes what is known at MISO as a Fixed Resource Adequacy Plan (FRAP). If there are demand response programs in this FRAP, then they qualify as capacity resources in MISO’s process.
The second RA process happens at the MISO in the form of an annual auction, which is conducted in April. Before the PRA is run, MISO publishes by November 1 of the previous year the Planning Reserve Margin Requirement (PRMR). The PRMR is set at the Local Resource Zone (LRZ) level. From the Zonal level, each LSE’s requirements are calculated.
This six-month period allows Xcel as an LSE to prepare those FRAP resources to meet its reserve margin.
Three options exist for LSEs to meet their load obligations in the PRA, and Xcel prefers the first option, the FRAP process. If we look at data from 2022/23 PRA, only Minnesota and Wisconsin utilities are deploying FRAP, for the most part.
Most MISO utilities use the second option, self-scheduling. Self-scheduling entails the utility specifying to MISO which resource serves which load in the PRA without leaving it up to the auction. According to MISO rules, all self-scheduling offers clear at $0 per megawatt. Hence, these self-scheduled resources are the cheapest in the auction. Utilities in Michigan, Missouri, Iowa, and Illinois use this self-scheduling option.
The third option in the MISO RA process is the auction itself. Some utilities bid resources in the PRA, and after the auction clears, these utilities know how much they must pay to meet their PRMR. While used less often, utilities in Indiana and Illinois use the auction more than other MISO utilities.
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Zonal Resource Credits without ARCs
MISO’s PRA aims to create Zonal Resource Credits (ZRCs). These can be traded by LSEs that have excess capacity with LSEs that need capacity. In the last auction, Xcel had excess ZRCs–after FRAP-ing–for other LSEs to buy. But those excess ZRCs did not rise to the percentage levels seen from Indiana and Illinois utilities based on MISO data.
When ARCs are allowed, the ZRCs created by converting the Load Modifying Resources (LMRs) as capacity resources will be available for other market participants, including external LSEs, to buy in the auction.
MISO recognizes two ways to reduce or modify demand. First, by curtailing demand at a location, which is called demand response or LMR-DR. Second, by increasing behind-the-meter-generation such that demand at that location is served by a local generator, hence the abbreviation LMR-BTMG. Both LMR-DR and LMR-BTMG qualify as capacity resources in the PRA. As a result, both programs create ZRCs.
We focus on LMR-DR because ARCs aggregate retail loads, not behind-the-meter-generation.
MISO realizes an additional benefit from these LMRs in that they would qualify as Emergency Demand Response (EDR) resources, if they choose to participate. This means that 500 MW in aggregate of Xcel’s retail residential and commercial programs like AC Savers Switch could be triggered as EDR if MISO were to experience a transmission and capacity emergency event.
When ARCs are allowed
In cases in which ARCs are allowed, they aggregate retail load for capacity purposes, which is LSE’s load. That means that this capacity ownership moves from LSE to the ARC in the Module E Capacity Tracking (MECT) tool. The which tracks all these capacity transactions in PRA, but physically the capacity is not going anywhere.
ARCs can only register LMRs if both LSE and Local Balancing Authorities (LBAs) verify the customer account, the physical location, and the curtailed demand megawatts. Since Michigan removed the ban on ARCs in December for commercial and industrial customers with greater than 1 MW demand, MISO must have checked for the possibility of double counting LMRs before the 2023/24 auction starts.
When ARCs are allowed, the LSE still has the load obligation because ARCs provide a supply resource, not a demand bid. In turn, this does not affect the capacity resources required to serve that load. The LSEs must procure the capacity to serve this load behind the ARC asset. The responsibility to provide MISO with peak load forecast stays with LSE. MISO checks these coincident peak demand forecasts by March 1 of each year before the Auction starts.
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Zonal Resource Credits with ARCs
When ARCs are bidding LMR-DR capacity in MISO PRA, and if those bids are cleared, ZRCs are created just like when there are no ARCs. These ZRCs are available for LSEs, including Xcel, to buy if needed. Alternatively, an ARC can enter into a bilateral contract with LSE outside the Auction.
Multiple LSEs are within an LRZ. Some major Minnesota LSEs like Xcel, Minnesota Power, and Otter Tail Power are also LBAs. So, the responsibility to balance their transmission system does not change for the LBAs if ARCs are allowed: The ARC capacity is not changing boundaries.
MISO rules say ARCs can aggregate retail loads only within an LBA and an LSE. Aggregating multiple retail loads across LSEs is not allowed at MISO. Hence, the capacity need not be replaced if ARCs are allowed.
