Region’s clean energy transition continues as ISO-NE files proposal to eliminate the MOPR

ISO New England today filed a proposal with the Federal Energy Regulatory Commission (FERC) to remove the minimum offer price rule (MOPR) from the Forward Capacity Market (FCM). The proposal will continue the region’s clean energy transition, while protecting power system reliability.

The ISO’s proposal allows for a graduated removal of the MOPR over a three-year period, with an immediate exemption of the rule for a significant amount of renewable resources during the transition. The MOPR will be removed completely for Forward Capacity Auction (FCA) 19, scheduled for 2025. Once the MOPR is removed, the ISO has proposed a new methodology to measure buyer-side market power, the reason the MOPR was implemented in 2013. This new methodology will maintain market competitiveness, while allowing entry of state-sponsored resources.

The advantages of the transition proposal include:

• Providing a clear path for clean energy
• Broad stakeholder support
• Mitigating the risk of inefficient retirements
• Allowing more time for work on related projects

A clear path for clean energy

The renewable resource exemption provides a clear path for projects that are ready to enter the FCM over the next two years. The exemption is for 300 megawatts (MW) of qualified capacity in FCA 17 and 400 MW of qualified capacity in FCA 18. Over the two auction periods, this is the equivalent of up to 2,000 MW in nameplate capacity, which is how most of these resources are considered outside of power system operations.

This exemption is in addition to other avenues for renewable resources to enter the market, either through the substitution auction process or through clearing in the initial auction. In fact, 100% of the new generation that cleared the more recent capacity auction were solar and battery resources.

Given their individual development timelines, many sponsored resources are still not ready to enter the capacity market, which carries financial penalties for those resources not able to meet their obligation. The renewable exemption in the transition proposal is intended for those resources ready to enter the capacity market over the next two-auction period before the MOPR is completely eliminated.

Broad stakeholder support

The transition proposal received broad stakeholder support at the New England Power Pool (NEPOOL) Participants Committee in February, garnering support within each of the committee’s sectors. NEPOOL joined ISO New England in filing the proposal. In addition, five of the six New England states, through the New England States Committee on Electricity (NESCOE), have indicated that they do not oppose the transition proposal.

Mitigating the risk of inefficient retirements

The ISO views that major changes to the FCM are best implemented in a phased, transitioned manner. The MOPR-removal transition proposal follows in this vein and will create less risk to the region than an immediate market change could evoke.

A phased exemption for specific quantities of sponsored resources ahead of a full removal provides more certainty around the quantity and timing of sponsored resources entering the market, lessening the potential for inefficient retirements and the ensuing reliability risk.

Inefficient retirements pose two main risks to the region:

• A sudden and permanent shift could occur between entering and exiting resources that may impact system reliability in the commitment period; and
• Inefficient retirements, even if they achieve nominal resource adequacy goals, can still exacerbate energy security reliability risks, particularly in winter if an intermittent sponsored resource replaces existing generation that is able to operate in extended cold conditions.

More time for related work

The transition proposal will also allow the ISO and stakeholders to focus on completing related wholesale market projects, both intended to ensure a reliable power system going forward as the resource mix and regional energy demand evolve. One project is resource capacity accreditation, which looks to accurately reflect resource contributions to resource adequacy in the capacity market. Another, day-ahead ancillary service improvements, aims to create pricing incentives for specific energy and reserve capabilities.

The goal is to have this work finished and in place to coincide with the MOPR removal in FCA 19, but the MOPR removal is not tied to this work being completed.

A long-term plan to maintain market competitiveness

Following the transition, the ISO is proposing to introduce a new process to protect against buyer-side market power, which could drive up costs and lead to inefficient retirements. The concern with buyer-side market power is that a capacity buyer could pay a small amount outside of the market to subsidize the cost of the new resource, with the goal of lowering overall capacity costs in a way that more than covers the cost of the subsidy at the expense of other resources competing in the market. This could lead to the inefficient retirement of resources and, ultimately, higher costs for consumers.

Referred to in the filing as the buyer-side market power review (BSMPR) reforms, the new process will retain the core philosophy behind this protection, while eliminating the offer review trigger price structure that exists today and excluding from any review some resources, including those receiving revenues as part of a state renewable, clean, decarbonization, net-zero carbon or alternative energy program.

For new capacity resources that are not excluded from buyer-side review and mitigation, offers from such resources must undergo a review to determine whether their offers reflect out-of-market revenues, similar to current buyer-side review.

History of the MOPR

Implemented in 2013 to comply with a FERC directive, the MOPR has since been at the center of a confounding challenge—how to protect the market and, more particularly, the investors in the generation resources that provide capacity in the markets and the consumers that pay its costs, from competing inefficiencies.

Over the past decade, the New England states have sought to reduce greenhouse gas emissions and meet climate goals through various pricing mechanisms outside of the region’s competitive wholesale markets, including mandates that state-regulated utilities enter into long-term contracts with renewable resource developers. These actions have consequences for the FCM; specifically, resources that can offer into the FCM at reduced levels because of out-of-market contract revenue can depress market prices for many years, thereby altering the market’s ability to retain or attract all resources needed for reliability.

To address these issues, the current FCM rules subject new capacity resources to the MOPR, which requires these sponsored assets to bid into the FCM at their unsubsidized cost. The result is that the MOPR precludes some of these resources from obtaining capacity supply obligations (CSOs) in the annual auctions. However, the contracts that fund the construction of these resources mean they will be built anyway, at expense to consumers. As a result, consumers are forced to pay the cost for unneeded capacity in what is known as the “inefficient overbuild” problem. While there is no evidence that this potential inefficiency has harmed consumers to date, that potential is clearly looming as state procurements ramp up.

To mitigate these inefficiencies, the ISO implemented the Competitive Auctions with Sponsored Policy Resources (CASPR) rules four years ago. These rules include a secondary auction in which would-be retiring resources trade their CSO with a new, sponsored resource looking to enter the market. However, in the four auctions with the CASPR rules, only 54 MW of obligations traded hands, leaving the region in need of a different solution and leading to today’s filing.

Next steps

ISO New England has asked FERC to rule on both the transition proposal and longer-term tariff changes within 60 days.