J. Michael Evans Chairman of the Board John Bear
President and CEO A Message from
John R. Bear, President and CEO
J. Michael Evans, Chairman of the Board of Directors
MISO prides itself on continually fostering a transparent, effective stakeholder process in which all voices are heard. Not only do we perform well every day, we sustain our high levels of performance and then set the bar even higher to deliver lowest-cost energy to consumers. Our stakeholders’ input and feedback drives our achievements in lowest-cost delivered energy – a direct result of our mission to drive value creation through efficient reliability / market operations, planning and innovation.
Our strategic plan provides the direction for the company for years to come and is a direct reflection of the ongoing input from our stakeholder community. While we certainly acknowledge differing stakeholder opinions on strategic priorities, we see general accord with the directions discussed in this refreshed strategic plan. This plan provides the foundation for development of detailed operating plans and associated budgets. The strategic plan will be reviewed regularly, with particular attention paid to the primary components such as the external factors, underlying assumptions and foundational requirements. The evolution in our strategic direction charts a course to create added value for all stakeholders and, most importantly, the ultimate consumers of the energy delivered through MISO’s wholesale markets.
MISO is an industry success story, providing between $4.3 and $5.7 billion in cumulative savings from 2007 through 2011. We offer our thanks to each of you and to our Board for providing us with the leadership to continue this journey.
The twin pillars of change and uncertainty characterize the electric industry’s
transformation over the last two decades. During these times of change, MISO and other regional transmission organizations have been a key part of that transformation – enabling the transition of the wholesale electric business to a more efficient, regional model. MISO and its stakeholders have added significant value to the region through improved reliability and increased efficiencies of the region’s power plants and transmission assets. Our expertise has earned us several industry awards, including six NERC Examples of Excellence and the highly coveted Franz Edelman Award for Excellence in Operations Research.
Since starting operations in 2001, MISO and its stakeholders have understood the importance of optimal system planning given a rapidly-evolving portfolio. Our platform now encourages wholesale electric competition in the region, and cultivates greater system reliability as well as coordinated, value-based regional planning.
Now, we are addressing significant challenges from a changing resource mix, compliance with environmental
regulations and a paradigm shift in system planning from utilities using transmission as a way to serve their load from their own generation, to transmission being used to enable efficient use of all resources in the region.
In this update to the strategic plan, MISO remains focused on continually finding ways to provide the least-cost delivered energy for all customers through the following Strategic Elements:
1. Facilitate integrated infrastructure investment
2. Continue to deliver and communicate benefits identified in MISO’s Value Proposition 3. Sustain and grow the membership
4. Enhance products and performance
5. Achieve high performance through people, process and technology 6. Expand our role as an independent public policy educator
Introduction
Carmel, IN Control Room
2012-2016 Strategic Plan 5
2012-2016
MISO Strategic Plan
Vision
Drive value cr
eation thr
ough ef
ficient r
eliability/
market operations, planning and innovation
Strategic Elements
Foundational Focuses
Facilitate Integrated Infrastructur e Investment Sustain & Gr ow the MembershipDeliver & Communicate the V
alue Pr
oposition
Enhance Pr
oducts &
Performance
Expand Role as an Independent Public Policy Educator
Achieve High Performance Thr
ough People, Pr
ocess
& T
The electric industry is
undergoing a period of change
and uncertainty. MISO and its
stakeholders are no different.
From MISO’s perspective, the
sources of those changes
have shifted little in the past
few years, but the nature
of the forces has changed
dramatically.
MISO and other regional transmission organizations have been
a key part of the electric industry’s transformation – enabling the
transition of the wholesale electric business to a more efficient,
regional model. But fundamental transformation is still on the
horizon as a troubled economy, aging infrastructure, rising
electric prices, environmental concerns and policy uncertainty
require the industry to reconsider its many elements. The
following is a discussion of many of the business drivers affecting
MISO and its region.
Despite several changes in federal policy affecting generation and transmission, the industry is still awaiting a comprehensive federal energy policy. In the meantime,
the industry is working to comply with new environmental regulations, FERC orders on transmission planning and an increasing focus on compliance from both FERC and NERC. EPA Regulations: The EPA proposed new regulations in 2011. MISO’s analysis of these proposed regulations indicate compliance will affect more than half the generation in the footprint, require billions in capital investment and significantly increase wholesale energy prices. Learn more.
Transmission Planning: FERC Order 1000 will require MISO and the industry to examine transmission planning processes in four areas: regional planning, cost allocation, right of first refusal and interregional planning. The order recognizes that the wholesale electric industry has changed significantly in the last decade, moving from utilities using transmission principally as a way to serve their own load from their own generation, to transmission being used to enable efficient use of all resources across the region.
Learn more.
Increased Compliance Focus: Both FERC and NERC have expressly increased industry-wide compliance efforts due to a heightened focus on processes, auditing and record keeping. Since 2008, FERC has increased staff by 47% and budget by 42%. In the same timeframe, NERC made significant increases in its staff (115% increase) and budget (147% increase) as well. Learn more.
Federal Policy
In the absence of a comprehensive federal energy policy, states in the MISO region work to pursue and shape their own energy policies. The challenge for MISO is to work collaboratively with the states in its region to craft processes and rules that create synergies among the different jurisdictions.
Renewable portfolio standards continue to take hold across the MISO region, driving substantial increases in intermittent generation sources, primarily wind.
Policymaker and regulator turnover also continues to be very high across the MISO region. In 2011, new governors were elected in seven states, including five changes in party. Fifteen state regulatory commissioners also changed in 2011. This level of turnover demands a continual educational process to keep policymakers informed of the industry issues facing the region.
State Policy
The generation fleet in the MISO region will undergo significant change in the coming years. In 2012, the region has surplus generation, with actual reserve margins well above requirements. However, the fleet is heavily coal based and aging. The average baseload unit in the region is 45 years old.
The proposed EPA rules will also have significant impacts on the region. MISO studies in 2011-2012 indicate 274 coal generation units with an aggregate capacity of 56.7 GW will require replacement or modification. Capital expenditures in the billions are expected. The fuel switching and operational costs of the new environmental equipment are expected to drive an increase in wholesale energy prices of $1 to $5 per MWh. In addition, approximately 10 GW of new resources will be required by 2016 to maintain the region’s planning reserve margin.
Construction of wind generation is expected to continue, driven by state renewable portfolio standards. However, while this intermittent resource provides low-cost energy to the region, its low capacity value means other resources must be available to meet customer demand requirements.
Opportunities for behind-the-meter resources to participate in the wholesale market have been enabled but have been slow to develop in the region. The emergence of a period of capacity construction is likely to drive renewed interest in demand side resources as a means to temper the construction needs. Enabling these resources would require policymakers, regulators and utilities to craft solutions that allow retail customers access to the wholesale markets – directly or indirectly. Learn more.
Resource Development
The last couple of years have seen landmark changes related to transmission development.
Policymakers are engaged in the conversations as FERC drives policy on both an intraregional level (FERC Order 890) and an interregional level (FERC Order 1000). Meanwhile, the MISO region continues with its transmission planning processes and cost allocation methodologies, including the adoption of the Multi-Value Project methodology which allows sharing of transmission costs commensurate with benefits. The first portfolio of Multi-Value Projects in the MISO Transmission Expansion Plan received approval in 2011. While the region is still fully engaged in planning activities, focus is shifting towards
actual construction-related work. The state approval and siting processes have begun. Equipment and material acquisition will lead to actual construction work in the near term.
Learn more.
Transmission Development
MISO’s ability to facilitate change in its business model and market design is affected by our
continuing performance as well as the performance
of other regional transmission organizations. Actual performance is critical, but how policymakers and the industry perceive MISO’s performance is also very important.
MISO’s real and perceived performance has been excellent in recent years. Generally, other RTOs have also performed very well with the exception of some reliability events in Texas and California.
Compliance risk is also a significant driver for the industry in general and for RTOs in particular. RTOs continue to be very focused on meeting all compliance standards and requirements. However, the steep increase in record keeping requirements, coupled with the expansion in audit staff and budgets by FERC and NERC, have greatly increased the likelihood of record keeping errors that could impact the public perception of RTO performance, even if reliability is not impacted.
Differing business drivers also alter the public perception of RTOs. MISO’s focus on reliably delivering the lowest-cost wholesale energy to the region is a very end-use consumer view of its mission. Other RTOs are focused on increasing value for transmission or generation owners. Some RTOs are focused on solving single state issues, while others have multi-state needs to meet. These differences can be confusing to the public and can potentially affect how RTOs are perceived.
RTO Performance
MISO measures its performance in several ways. Two of the most important are the MISO Value Proposition and an annual satisfaction survey. The MISO Value Proposition objectively measures, across several dimensions, the value MISO provides to its region. The satisfaction survey subjectively measures whether MISO is meeting the needs of its diverse stakeholders.
The general public’s perception of MISO is often driven by perceived performance,
whereas stakeholders who are actively involved in MISO have more focused needs. Their satisfaction is usually driven by whether MISO is providing them with fair opportunities to participate in the wholesale market and giving them a voice in how the market is designed. This is a challenging standard given the wide range of business model differences
represented in the MISO region:
• Traditionally regulated utilities / utilities in retail choice areas
• Independent power producers / vertically integrated utilities / independent transmission companies
• Public companies / private companies
• Utilities with generation positions that are long or short
MISO’s market design must consider the diverse interests and views of each of these stakeholder groups and craft solutions that account for these interests while still reliably delivering the lowest-cost wholesale energy to end-use customers in the region. MISO’s satisfaction ratings continue to be strong.
Advancing its mission to “Drive
value creation through efficient
reliability / market operations,
planning and innovation,”
MISO has adopted six
Strategic Elements. Each
Element responds to specific
challenges while creating
business and stakeholder
value.
1
Strategic Element One:
MISO will facilitate
integrated infrastructure
Background:
Infrastructure investment in the MISO region continues to lag behind projected
needs due to aging equipment, new and proposed environmental regulations,
evolving public policy initiatives and transmission constraints that limit economic
flows. Without new infrastructure investment, energy demand will overtake supply,
causing wholesale costs to rise higher than they otherwise would and potentially
resulting in energy shortages.
The MISO region has made significant progress in supporting integrated
infrastructure investment, including the implementation of comprehensive planning
processes, transmission cost allocation methodologies and resource adequacy
mechanisms, each accounting for the unique needs of the MISO region.
However, many new and continuing obstacles face the MISO region:
• Transmission constraints limit economic flows
• Baseload generation units are aging
• Environmental regulations that will force significant unit retirements and
retrofits requiring substantial capital investments; and
• The economy is struggling to recover.
Learn more.
MISO Commitment:
MISO will support infrastructure investment in transmission, generation, demand
response and other technologies through continuing enhancements in planning,
regulatory support, market design and operations.
To address these challenges, MISO will:
• Continue to build on its transmission planning success – on both an
interregional and intraregional basis;
Increase its “advisory” role in the planning areas of supply and load
(generation and demand response, respectively)
While not usurping the power of states
• Expand MISO’s current consulting and educational role
• Assist asset owners and regulators in getting assets sited and built.
2
Strategic Element Two:
MISO will deliver and
communicate the Value
Background:
MISO’s well-established Value Proposition describes many of the qualitative and
quantitative benefits provided to its region. Since 2007, MISO has developed its
Value Proposition in concert with stakeholders. The Value Proposition has been
well received by stakeholders and the industry. New quantifiable areas of value
have been added over the years and will continue to be developed. The Value
Proposition is an effective tool for communication with stakeholders and groups
seeking information about MISO, including potential new members.
MISO’s Value Proposition must remain accurate in its depiction of the value being
provided to the region. It measures economic value created versus business as
usual without the existence of MISO.
Learn more.
MISO Commitment:
MISO will continue to provide the benefits identified in the Value Proposition, protect
against benefits erosion and look to increase benefits as appropriate. MISO will
continue to document, quantify and communicate its value to stakeholders and
industry observers through appropriate messaging. As the industry enters a rising
cost era – driven by fuel costs and infrastructure investment – it will become even
more critical to optimize the use of assets and to communicate the results of that
optimization.
MISO will also use the Value Proposition framework to evaluate new efforts and
initiatives such as transmission expansion plans, new products and services,
footprint expansion or other market improvements.
3
Strategic Element Three:
MISO will sustain and grow
the membership
Background:
MISO’s infrastructure and operations are highly scalable upward at little incremental
cost. The addition of load through new member integration results in a reduction to
the administrative costs paid by existing members. More importantly, the addition
of load through new members also serves to increase the Value Proposition for both
new and existing members.
Conversely, the loss of load from a member departure results in a reduction in
the Value Proposition for remaining members. Therefore, to maximize the Value
Proposition for members and end-use customers, it is prudent to both retain
existing membership and to add new load serving members.
Learn more.
MISO Commitment:
MISO will continue to emphasize and enhance the value of MISO membership,
accommodate different business and regulatory models and eliminate seams.
MISO will strive to better understand the impacts it has on its membership and will:
• Develop a better understanding of our members’ business models
;
• Focus on the impact of MISO’s tariff and business practices on member
business objectives; and
• Broaden the number and depth of relationships with key decision makers
within our membership.
I
nformation gained and lessons learned by developing an improved understanding
of our members’ business models and MISO’s impact on those business models
will be applied to retain and recruit members and evaluate market design options.
4
Strategic Element Four:
MISO will enhance products
and performance
Background:
The utility industry has seen significant changes and continues to evolve. Some of
the change drivers include:
• FERC orders 888 and 889 and the emergence of RTOs drove a more
regionalized approach to utility operations;
• FERC orders 890 and 1000 are driving a broader perspective on
transmission planning; and
• Recent and pending environmental actions, coupled with an aging
infrastructure, are likely to drive significant changes in the generation
portfolio.
MISO continues to play an integral role in this industry evolution. It is important that
MISO work with stakeholders to identify how to best add value to the industry – what
products and services enable this evolution and allow for efficient industry operations.
Learn more.
MISO Commitment:
MISO, in consultation with stakeholders, the Independent Market Monitor and other
industry experts, will regularly evaluate market designs and performance to identify
areas where MISO can increase value to the region. Potential enhancements
will be evaluated to determine feasibility, benefits and costs. Once evaluated
and approved, MISO will work with stakeholders to determine the appropriate
sequencing of enhancement implementation.
For this element the principal areas of improvement are:
• Evaluation of MISO’s market design, products and performance against
other national and international electricity markets: look for the
class designs that MISO can learn from.
• Prioritization of market and process enhancements: focus on the highest
value enhancements and new products.
• Efficient market enhancements lifecycle: enhance formal processes to plan,
implement and track high priority projects through the development life
cycle.
5
Strategic Element Five:
MISO will achieve high
performance through people,
process and technology
Background:
In addition to looking at new opportunities, MISO seeks continuous improvement
in the provision of current services. The region’s economy is still struggling as are
several of MISO’s members. MISO must internalize those struggles and find ways
to improve its performance economically, reliably and efficiently. Over the last three
years MISO has maintained a flat budget while increasing its product and service
offerings. While this is a good start, it is not enough. MISO must continue to look at
ways to improve its performance.
MISO Commitment:
MISO will seek continuous improvement across three dimensions:
• People – MISO understands that its people are the key to continuing
success. MISO will focus on internal talent development by providing
educational and advancement opportunities to its employees. As
individuals develop, MISO will provide them with opportunities to increase
their responsibilities to prepare themselves for expanded roles.
• Process – MISO will focus on achieving positive business outcomes
through formalized, documented and efficient processes. MISO will
leverage and challenge existing processes to:
Consistently achieve appropriate business outcomes;
Ensure quality and compliance; and
Drive efficiency within services provided.
• Technology – MISO will incorporate technology into processes where it
economically improves efficiency, reduces risks and/or improves compliance.
6
Strategic Element Six:
MISO will expand its role as
an independent public policy
Background:
MISO’s role in the region and the industry has evolved significantly over the last few
years, from the unproven “new kid on the block” to:
• Proven market operator providing recognized value;
• Platform provider for policy implementation (e.g., renewable standards and
transmission construction); and
• Independent public policy advisor.
As an independent, non-profit industry leader with broad and deep knowledge
of the electric utility industry in our region, MISO is uniquely positioned to be an
educator / advisor to public policymakers.
Learn more.
MISO Commitment:
MISO will respect its unique position by being an objective resource that proactively
educates stakeholders and policymakers by providing information and analysis
necessary to understand the impacts policy decisions will have on the industry and
consumers in the MISO region.
MISO will fulfill this role while being impartial to the various business models and
positions of its membership. MISO will be visibly active in key industry forums,
and remain cognizant of its role as an educator and efficient facilitator of policy
implementation, not as a policymaker.
MISO will be a voice of factual stability to public policymakers in the region and
the nation. MISO must maintain its independence while also being mindful of
its members’ needs. This will often mean leading from behind – bringing
well-reasoned, fact-based, independent analysis and studies at appropriate times to
help policymakers understand the ramifications of decisions they are considering.
Once policy decisions are made, MISO will work to implement those decisions in an
efficient manner while ensuring that reliability is maintained.
Each employee at MISO is
challenged to conduct their
ongoing efforts reflecting
customer service, effective
communication and operational
excellence – MISO’s cornerstones.
Our foundational focus items
describe areas of success and
improvement for employees.
Cor
Each employee at MISO is challenged to conduct
his or her ongoing efforts with three cornerstones
in mind. The cornerstones are not individual
projects or activities, but rather attributes that
should characterize all aspects of what MISO does.
Cornerstones
Customer Service
• Actively listen to all stakeholders and understand their needs
• Respond in an appropriate manner
• Execute on commitments
Effective Communication
• Provide correct and timely information
• Consider the targeted audiences
• Demonstrate and communicate MISO’s Value Proposition to all stakeholders
Operational Excellence
• Continually strive to provide value while controlling costs and eliminating surprises
• Look for ways to improve ongoing operations and enhance the reliability of the power grid • Provide the best platform for providing the most economical wholesale power market for the benefit of society
• Invest in tools and disciplines that will deliver superior business management
MISO’s foundational focus items describe areas
in which MISO currently performs well and
must continue to excel and improve on a daily
basis. Achieving and maintaining excellence
in these areas is imperative to the continued
success of MISO. Each of these areas
contains multiple dimensions and is integral to
the success of MISO as an industry leader.
Foundational Focus
The cornerstones discuss Operational Excellence as a mindset and an approach to work.
It is equally important that MISO’s daily work execution results in outcomes that provide value to our stakeholders, including the end-use consumer of electricity. The standards against which MISO measures its execution and outcomes must be high. That bar will continue to rise as MISO and its market participants gain experience.
Areas for measuring execution include:
• Reliable and efficient unit commitment, dispatch and balancing; • Market operations that result in the appropriate level of market-wide/allocated charges; and • Compliance with all applicable regulatory requirements and reliability standards.
Execution
2012-2016 Strategic Plan 26Market Design/Model
MISO must provide a market characterized by the following attributes:
Confidence in the market structure and operation is gained through continuous internal and independent external monitoring of market performance to ensure that it is operating efficiently and effectively in accordance with the approved design. Learn more.
• Reliable and efficient unit commitment and dispatch
• Controlled by equitable rules including limits on market power
• Provides appropriate price signals
• Efficient transaction platform • Wide participation
• Transparent operation • Accurate settlements Although MISO has a complete portfolio of core products
and services, as defined by FERC Orders 2000 and 890, MISO continues to look at opportunities to improve upon
the design and delivery of that portfolio. The criteria for changes and additions are clear: will that change provide value to electric consumers in the MISO footprint.
Product Portfolio
MISO has a diverse stakeholder base, each with its own business model, regulatory compact, location, and
infrastructure. Each stakeholder’s unique set of attributes influence the stakeholder’s position on policy and operational issues with MISO.
To maintain positive relationships with each stakeholder, it is important that MISO:
confidential information on an open, unbiased basis;
• Seeks to understand stakeholders’ issues, based on their unique attributes and understands the impacts of decisions on their businesses;
• Maintains an effective interface with stakeholders characterized by clear, open, honest communications and a consultative approach; and
• Continues to foster relationships and interactions with industry associations.
Learn more.
Stakeholder Relationships
To meet its obligations, MISO must attract, develop and retain an effective workforce with the requisite skills and abilities to carry the business
forward. The workforce must clearly understand the business drivers and the results required to meet the ongoing obligations of MISO. A knowledgeable, effective workforce that continually challenges itself to improve is critical to MISO’s continuing success.
Learn more.
Effective Workforce
MISO must maintain and expand a culture focused on value creation for our stakeholders, including the end-use consumer of electricity.
In addition, all areas of the business must further develop the capability to clearly evaluate and communicate the value they are creating. That communication must be supported by both qualitative examples and empirical data.
This effort keeps our personnel focused on value creation while also developing a wealth of information from which to enhance our Value Proposition communications.
Learn more.
Benefits Demonstration
MISO and its stakeholders operate in highly regulated environments. Those environments are evolving such that MISO is expected to not only comply with tariffs, regulations and standards, but also to provide evidence that it is in compliance.
To meet this evolving expectation, MISO must focus on:
Compliance
• Shaping external compliance
requirements, particularly those promoting the reliability of the electrical system. Learn more.
• Conforming to requirements
• Monitoring operational procedures to ensure ongoing compliance
• Documenting and reporting on compliance results
• Maintaining and enhancing a corporate culture that demands compliance and encourages self-disclosure. Learn more.
MISO will continue to focus efforts on three separate areas that drive costs to its member organizations: • Administrative Costs – MISO expects to maintain an administrative cost structure at or below industry norms for a comparable portfolio of products or services. These costs will be managed through rigorous internal processes.
• Market-Wide Charges – MISO expects to maintain market-wide charges to the minimum amount possible under the current market rules while ensuring reliable grid operations. MISO will also continue to work with stakeholders to improve market rules that drive these costs.
• Allocated Costs – MISO will continue to work with stakeholders to improve cost allocation methodologies to best allocate costs to those parties causing the costs and/or benefiting from the costs.
Cost Management
Carmel Office P.O. Box 4202
Carmel, IN 46082-4202 Phone: 317.249.5400 St. Paul Office 1125 Energy Park Drive St. Paul, MN 55108 Phone: 651.632.8400 www.misoenergy.org
