wholesale capacity markets

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The regional transmission organization’s proposal seeks to reconcile the increasing deployment of state-sponsored subsidized clean energy resources with competitive forward auctions.

By Michael Gergen and Tyler Brown

Proposed New Auction Process in New England

energy pylonThe ISO New England Inc. (ISO-NE), the regional transmission organization serving Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont has filed proposed changes to its Transmission, Markets and Services Tariff with the Federal Energy Regulatory Commission (FERC).  The proposal would create a two-stage capacity auction designed to balance competitive pricing in its three-year Forward Capacity Market (FCM) with the entry of state-sponsored renewable electric energy resources into the FCM. ISO-NE’s proposal, known as Competitive Auctions with Sponsored Policy Resources (CASPR), emerged from the New England Power Pool (NEPOOL)’s Integrating Markets and Public Policy (IMAPP) initiative. IMAPP sought to reconcile states’ efforts to deploy new generation with existing generators’ concerns that resources receiving out-of-market revenues will suppress capacity prices. ISO-NE filed the CASPR proposal on January 8, 2018 even though it fell short of the support it needed to win endorsement by a vote of the ISO’s Participants Committee on December 8, 2017. Stakeholders have until January 29, 2018 to submit comments.

ISO-NE’s existing FCM rules subject new capacity resources to a Minimum Offer Price Rule (MOPR), which requires that subsidized generation resources bid into the FCM’s Forward Capacity Auction (FCA) at their unsubsidized cost. The FCM contains a Renewable Technology Resource (RTR) exemption to the MOPR, which allows for up to 200 MW per year of certain renewable resources to bid into the FCA at their subsidized (i.e., below market) cost. New England state regulators have argued that the MOPR can cause electricity consumers to “pay twice”: once for the cost of capacity that clears in the FCA, and a second time for additional capacity from subsidized resources that did not clear in the FCA (because those subsidized resources were required to bid at their unsubsidized cost).

By Michael J. Gergen and Miles B. Farmer

On May 23, 2014, the U.S. Court of Appeals for the D.C. Circuit Court issued a decision in Electric Power Supply Association v. FERC (“EPSA”) vacating and remanding FERC’s Order No. 745, which provides compensation for demand response resources that participate in the energy markets administered by Regional Transmission Organizations (“RTOs”) and Independent System Operators (“ISOs”).  The decision holds that the Federal Energy Regulatory Commission (“FERC” or “Commission”) did not have jurisdiction under the Federal Power Act (“FPA”) to issue Order No. 745 because demand response is part of the retail market, which is exclusively within the states’ jurisdiction to regulate.  Furthermore, the court holds that even if FERC did have jurisdiction under the FPA to issue Order No. 745, the Order would still fail as arbitrary and capricious because FERC failed to properly consider concerns of the petitioner and other parties that Order No. 745 would result in unjust and unreasonable rates because it would overcompensate demand response resources.