FCA #9: New offer review trigger prices (ORTPs) are accepted by FERC

Revised ORTPs went into effect May 13

On May 12, 2014, the Federal Energy Regulatory Commission (FERC) approved several revisions ISO New England proposed to offer review trigger prices (ORTPs) in the Forward Capacity Market (FCM). The new ORTPs are effective May 13, 2014, to ensure that market participants preparing qualification packages for the ninth Forward Capacity Auction (FCA #9) have certainty regarding the applicable ORTPs in advance of the June 17, 2014, qualification deadline.

Defining and Determining ORTPs

ORTPs are developed by the ISO’s Internal Market Monitor (IMM) and used as a tool to screen for new resources offering into the FCA at levels that could inappropriately suppress capacity prices.

• ORTPs establish a competitive cost of new entry representing the net revenue a new resource would need in its first year of operation to be willing to enter the market. This cost can vary by technology type.
• A participant that submits an offer lower than the ORTP is subject to review by the Internal Market Monitor and must provide supporting documentation justifying the requested lower price.
• So as to only trigger an IMM review if offers plainly appear commercially implausible (absent out-of-market revenues), ORTPs are set at the low end of the competitive range of expected offers.
• The IMM must recalculate the ORTPs no less than once every three years.

In December 2012, as part of its Forward Capacity Market Redesign Compliance filing, the ISO committed to considering ORTP updates in time for FCA #9, as well as to developing with stakeholders a mechanism whereby the ORTPs are adjusted to reflect prevailing market conditions in years for which no full recalculation is performed.

After six months of comprehensive stakeholder discussion at the New England Power Pool (NEPOOL) Markets and Participants Committees, the ISO submitted proposed revisions to FERC on December 13, 2013.  On February 11, 2014, FERC issued an order partially accepting the ISO’s proposed tariff revisions. FERC accepted as just and reasonable:

• The proposed ORTPs for combustion turbines, combined-cycle gas turbines, energy efficiency demand resources, and load management demand resources
• The decision to set the offshore wind ORTP to the capacity market auction starting price due to a lack of sufficient cost data to conduct a full ORTP calculation for offshore wind resources
• The proposed indexing mechanism for updating ORTPs for future FCAs in years for which a full ORTP recalculation is not performed

However, certain proposed tariff revisions were not accepted:

• FERC rejected the ISO’s proposed $0.00/kW-month ORTP for onshore wind, noting that some resources participating in FCA #9 may not receive Production Tax Credit revenues. (While Congress has previously renewed the credit, it is currently unavailable to wind projects that did not begin construction prior to December 31, 2013.)
• With regard to distributed generation demand resources, FERC rejected the ISO’s proposal to tie the ORTP for a given resource to the ORTP of its underlying generation technology type.

Accordingly, on March 13, the ISO submitted a filing to strike the rejected ORTPs for on-shore wind resources and demand resources comprised of distributed generation, which FERC accepted by letter order on May 12. On March 13, the ISO also submitted a filing with revised ORTPs, which FERC accepted in a May 12 order.

Updates to onshore wind ORTPs

Future updates to the ORTP for onshore wind resources related to tax credits will be considered during the full ORTP recalculation process, which involves stakeholder input and Commission review, or in a separate ISO filing.

In the May 12, 2014, order, FERC rejected the ISO’s proposal to require the Internal Market Monitor to update the ORTP for onshore wind resources annually based on changes to federal tax law. The ISO will submit a compliance filing to remove the rejected Tariff language within 30 days.