Dive Brief:
- State regulators and market participants are divided over ISO-New England's proposal to enact two-part capacity market auctions to better integrate state energy policies into its market construct.
- State regulators from Massachusetts, Maine and New Hampshire filed comments at the Federal Energy Regulatory Commission in support to ISO-NE's Competitive Auctions with Sponsored Policy Resources (CASPR) proposal, while Vermont, Rhode Island and Connecticut opposed it.
- Power generators also filed comments in support of the proposal, while renewable energy and consumer advocate interests pushed for changes or rejection.
Dive Insight:
ISO-NE unveiled its two-part capacity auction in April 2017 after a series of stakeholder meetings over how to better integrate state energy policies into its wholesale market construct.
The concern is that resources supported by state energy policies — like renewable energy mandates or nuclear credits — will push down capacity market prices as they proliferate, forcing unsubsidized resources out of the market and potentially threatening reliability.
To fix that, ISO-NE proposes to split its capacity markets in two. The first round of capacity auction would work much like the current one, with resources subject to existing minimum pricing rules and other obligations.
Then, in a second auction, retiring resources that earn capacity supply obligations in the capacity market could transfer those obligations to new, subisidized resources that do not have the obligation. The existing resource — like a coal plant — would then retire and pay the subsidized resource — such as wind or solar — for meeting the obligation.
The price for those resources would be determined by this "substitution auction" in a manner similar to the settlement process that occurs today between the real-time and day-ahead energy markets.
"Because no [minimum pricing rule] is applied in the substitution auction, sponsored new resources seeking [capacity supply obligations] can offer at, and the substitution auction will tend to clear at, a lower price than the primary auction," ISO-NE wrote in its proposal at FERC. "Accordingly, existing resources that clear as demand in the substitution auction are generally able to shed their obligations at a lower price than they receive in the primary auction."
The proposal drew mixed reviews from ISO-NE players, even splitting stakeholders from the same state, RTO Insider notes. Massachusetts Attorney General Maura Healey opposed the measure, writing in comments that it would make consumers "pay twice for the same capacity." The state Department of Public Utilities, however, wrote that it supported the plan because it would "prevent direct harm to Massachusetts ratepayers and the inefficient development of more generation resources than the region requires."
Power generators — largely gas- and oil-fired plants in ISO-NE — stand to gain from higher capacity prices as a result of the plan. The New England Power Generators Association asked FERC to approve the plan as a "reasonable compromise between maintaining competitive pricing in the Forward Capacity Auction and allowing otherwise uneconomic, subsidized renewable, clean and alternative resources to acquire Capacity Supply Obligations."
Consumer and environmental groups pushed back on the proposal, asking ISO-NE to preserve existing exemptions to minimum pricing rules that leave out subsidized renewables. Similar pricing reforms have been proposed in PJM, and debate over the market changes are likely to be a focus at FERC in 2018 after the commission rejected a Department of Energy proposal to subsidize coal and nuclear plants.
