The split ruling may have broader implications for FERC’s stance toward state-sponsored resources.

By Michael J. Gergen, Tyler Brown, and Peter R. Viola

The Federal Energy Regulatory Commission (FERC) has approved ISO New England Inc.’s (ISO-NE’s) two-stage capacity market proposal, Competitive Auctions with Sponsored Policy Resources (CASPR), by a 3-2 vote, with Chairman Kevin McIntyre and Commissioners Cheryl LaFleur and Neil Chatterjee voting in support, and Commissioners Robert Powelson and Richard Glick voting against. FERC issued an order (CASPR Order) on March 9, 2018, accepting ISO-NE’s proposed tariff revisions largely unchanged. The bulk of the revisions took effect on March 9, 2018 and the remainder will take effect on June 1, 2018.

ISO-NE originally released CASPR as a set of proposed changes to its Transmission, Markets, and Services Tariff in April 2017. (Additional details can be found in this Latham blog post.) Following a series of stakeholder meetings, ISO-NE filed its proposed tariff revisions with FERC in January 2018 pursuant to section 205 of the Federal Power Act (FPA), arguing that the proposed revisions were just and reasonable and not unduly discriminatory. ISO-NE designed CASPR to balance competitive pricing in the organization’s three-year Forward Capacity Market (FCM) with the entry of state-sponsored renewable electric energy resources into the FCM.

Commissioner LaFleur wrote a concurrence to the CASPR Order in which she noted her strong support for ISO-NE’s proposal, finding it just and reasonable under the FPA. However, she took issue with the language in Paragraph 22 of the Order referring to a Minimum Offer Price Rule (MOPR) as a “standard solution” to address the impacts of state policies on the wholesale capacity markets. The MOPR is a market mitigation mechanism requiring subsidized generation resources to bid into forward capacity auctions at their unsubsidized cost. MOPRs are used in a number of wholesale markets administered by Regional Transmission Organizations and Independent System Operators (RTOs/ISOs), including those administered by ISO-NE, the New York Independent System Operator (NYISO), and PJM Interconnection LLC (PJM). Calling the MOPR a “blunt instrument,” LaFleur cautioned that different MOPR constructs, or different market design constructs altogether, such as carbon pricing, may be necessary in different situations to prevent out-of-market subsidies from undermining the wholesale capacity markets.

Despite expressing support for ISO-NE’s proposal, Commissioner Glick voted against it because of his opposition to the use of a MOPR as characterized in Paragraph 22 of the CASPR Order.  He stated that such use of the MOPR  “usurps the authority over generation resource decisions that Congress left to the states when it enacted” the FPA. He added that FERC and RTOs/ISOs should “stop using the MOPR to interfere with state policies” and apply it in only limited circumstances to prevent the exercise of buyer-side market power. Glick went further, questioning the soundness of FERC’s underlying policy rationale for “picking and choosing which types of government support should implicate the MOPR” and declaring FERC’s selective application of the MOPR to clean energy procurements to be “arbitrary and capricious.”

Commissioner Powelson voted against the proposal and wrote in dissent that the ISO-NE’s dual objectives — which aim to accommodate state policies favoring renewable resources while protecting competitive pricing in the FCM — are well-intentioned, yet are “fundamentally in conflict and cannot coexist in one market.” While not speaking to the merits of the use of a MOPR to address out of market subsidies for state-sponsored resources, Powelson cautioned that, in his view, CASPR’s two-stage capacity auction will only “delay,” not prevent, state-sponsored resources from suppressing prices in the FCM, thereby failing to send “clear price signals” to investors reflecting state-sponsored resources’ true costs.

Although FERC’s split decision allows ISO-NE’s tariff revisions to move forward, it may have broader implications for the potential application of the MOPR to other state subsidy policies, such as zero-emission credits (ZECs) for nuclear power. Given that at least two Commissioners appear to oppose the MOPR’s broad application, it remains unclear whether FERC will extend the MOPR in other pending or future cases before the Commission. These cases include two pending MOPR-related complaints involving ZEC programs in states within the footprints of the wholesale markets administered by NYISO and PJM (FERC Docket Nos. EL16-92 and EL16-49, respectively).