ISO-NE presses FERC to approve capacity market reform

Dive Brief:

ISO-New England on Wednesday asked the Federal Energy Regulatory Commission to dismiss challenges to a plan to reform its capacity market and split it into two parts and approve the proposal.
ISO-NE argued that FERC is obligated only to judge whether its proposal is just and reasonable under the Federal Power Act — not whether existing rules are unjust — rendering "certain stakeholders’ preference for the status quo" irrelevant.
The filing comes the same week PJM Interconnection is expected to send its own capacity repricing proposal to FERC for consideration. Clean energy advocates are skeptical of both programs, worried they will raise prices for fossil generators without benefiting market operations.

Dive Insight:

ISO-NE unve iled its Competitive Auctions with Sponsored Policy Resources (CASPR) proposal 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 under subsidies and mandates — like renewable energy standards or nuclear credits — will push down capacity market prices, 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 auctions of would work much like the current model, with resources subject to existing minimum pricing rules and other obligations.

Then, in a second auction, retiring resources that earn capacity supply obligations could transfer those obligations to new, subisidized resources that do not have the obligation. The existing resource 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 a second auction, labeled the "substitution auction," in a manner similar to the settlement process that occurs today between the real-time and day-ahead energy markets.

The proposal split ISO-NE stakeholders. State regulators from Massachusetts, Maine and New Hampshire filed comments to support the 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.

In a Wednesday filing at FERC, ISO-NE argued critiques of the proposal are not relevant to the Commission's consideration.

"At the end of the day, the Commission is tasked with determining whether the CASPR proposal is just and reasonable pursuant to the standards of section 205 of the Federal Power Act," ISO-NE wrote. "This role does not require the Commission to find that the ISO’s existing Tariff is unjust and unreasonable; accordingly, certain stakeholders’ preference for the status quo ... is not relevant."

The grid operator took special aim at the desire among some renewable energy advocates to preserve the Renewable Technology Resources (RTR) exemption, which allows up to 200 MW/year of subsidized renewables to bid into the capacity market without being subject to the minimum offer price rule (MOPR).

ISO-NE wants to phase out the RTR exemption over three years, but some stakeholders want to preserve it, arguing the exemption helps prevent the overbuild of generation. ISO-NE, however, argues that the two cannot coexist.

"The continuation of the RTR exemption (or a backstop) would undermine CASPR because no sponsored policy resource would elect to sell capacity at a low price in the substitution auction when it could instead receive the higher primary auction price through the exemption," the ISO argued.

Other critics worried that the ISO-NE proposal could make the region overreliant on natural gas, which ISO-NE acknowledges is the "region's primary fuel concern." But the structure of the CSAPR, the grid operator argued, will ensure that older oil-fired generators will be "replaced with other non-gas resources."

"Accordingly, these one-for-one replacements of older oil and coal units with renewable qualified capacity do not exacerbate the region’s dependence on constrained natural gas supplies," ISO-NE wrote.

The grid operator also noted that it will be addressing a number of issues related to complaints of CASPR critics, including FERC's resilience proceeding and the ISO's fuel security study.

"Changes requested by stakeholders must be considered in the broader context of these initiatives, including the reliability issues and market improvements associated therewith, particularly given the many constraints facing the regional power system and electricity markets," the grid operator urged.

ISO-NE's filing means FERC can now either approve, deny or ask the grid operator for changes on its proposal. The filing came the same day a vote at the PJM Board of Managers on that grid operator's controversial capacity proposal, but details on that decision have not been released.