ISO-NE files proposal to harmonize competitive markets and state-sponsored resources

ISO New England today filed proposed tariff changes with the Federal Energy Regulatory Commission (FERC) designed to help accommodate the entry of state-sponsored renewable resources into the Forward Capacity Market (FCM) over time, while protecting the competitive pricing mechanisms that enable the market to work as designed. The ISO’s proposal, Competitive Auctions with Sponsored Policy Resources (CASPR), was developed following the New England Power Pool’s (NEPOOL) Integrating Markets and Public Policy (IMAPP) process, a stakeholder forum aimed at identifying and discussing potential wholesale market design changes that would enable competitive markets to better accommodate state public policy objectives in New England.

Over the past decade, the New England states have sought to reduce greenhouse gas emissions and meet climate goals through various mechanisms outside of region’s competitive wholesale markets, including mandates that state-regulated utilities enter into long-term contracts with renewable resource developers. In recent years, these efforts have accelerated.  These actions have consequences for the FCM; specifically, resources that reflect their out-of-market contract revenue in their FCM offers can depress market prices for many years, thereby altering the market’s ability to attract new, competitively-compensated resources and – if competitive new entry does occur – potentially raising its cost substantially.

To address these issues, the current FCM rules subject new capacity resources to a Minimum Offer Price Rule (MOPR), which requires these sponsored assets to bid into FCM at their unsubsidized cost. The result is that the MOPR precludes many of these resources from obtaining capacity supply obligations (CSOs) in the annual Forward Capacity Auctions (FCAs).  The exclusion of these resources from FCM can lead to over-building of the system, where consumers pay both for these out-of-market policy resources and the capacity procured through FCM. A few years ago, in response to this problem, the region adopted a Renewable Technology Resource (RTR) exemption, which allows policy resources to bid into the FCM without the application of the MOPR. CASPR is intended to replace this RTR exemption, and improve on it by better protecting FCM prices. 

The CASPR proposal involves conducting the region’s FCA in two stages. The first stage features a primary auction that functions similar to today, with new resources subject to the auction’s MOPR. The second stage, which immediately follows the primary auction, features a new, voluntary secondary auction known as a substitution auction. In this substitution auction, existing capacity resources that retained capacity supply obligations (CSOs) in the primary auction and are willing to permanently exit the market are able to transfer their CSO to a sponsored resource that did not acquire a CSO in the primary auction. The MOPR would not apply in this secondary auction, and sponsored resources obtaining CSOs in a secondary auction would be considered existing resources in future years.  Through the substitution auction, the retiring existing resource and the new policy resource agree to split the FCM revenues, resulting in a severance payment to the retiring resource and compensation to the sponsored resource (albeit at a lower level than if it cleared through the primary auction).

The ISO is requesting that the CASPR rules become effective on March 9, 2018, to coincide with the start of the approximately year-long auction-administration cycle for the 13th FCA.  That auction will be administered by the ISO in February 2019 for the 2022-2023 Capacity Commitment Period, and coincides with the potential introduction into the markets of up to 1,200 MW of clean resources procured by Massachusetts pursuant to its 2016 Energy Diversity Act.

For more information, read the ISO’s filing to the Federal Energy Regulation Commission.

Industry News & Developments
forward capacity market, market development, new england states, renewable resources, wholesale markets