Capacity market turmoil has states eyeing the exit as grid operators seek solutions

Washington — State frustrations with recent Federal Energy Regulatory Commission actions in the capacity markets spilled over to an energy storage forum, leading one grid operator official to ask for more time to smooth things out before states jump ship.

FERC in December directed sweeping changes to PJM Interconnection's capacity market (EL16-49, EL18-178) and in 2018 approved ISO New England's competitive auctions with sponsored policy resources, or CASPR, rules creating a two-stage capacity auction process (ER18-619). Both efforts were aimed to address states' out-of-market resource procurement actions through a minimum-offer-price rule that administratively raises the bids of resources receiving state subsidies.

The new market rules in both regions have drawn criticism for purportedly disadvantaging renewable energy resources and frustrating state clean energy policies. As such, several states have put leaving the capacity market, or even the entire regional transmission organization, as an option on the table to ensure their decarbonization goals can be achieved.

'CONNEXIT'

"In Connecticut, we are the exact opposite of bullish about the market's ability to do anything for the clean energy policies of the state," Connecticut Public Utilities Regulatory Authority Chairman Marissa Gillett said Wednesday at the Energy Storage Association's annual policy forum.

The term "Connexit" has been floated in regards to the potential for Connecticut to exit ISO-NE's capacity market, she said. The state's Department of Energy and Environmental Protection sent the grid operator a letter last month, seeking guidance on doing just that, asserting that "FERC has indicated that, as state policy ambitions grow, FERC's efforts to mitigate those policies will increase."

Gillett said the region's latest capacity auction results for the 2023-24 delivery year did little to ease tensions as no capacity supply obligations were traded through CASPR's substitution auction intended to give state-sponsored resources a better opportunity to enter the forward capacity market.

An ISO-NE statement noted that 317 MW of new resources, including solar, wind, and generation paired with storage, cleared the primary auction under a renewable technology resource designation that exempts a limited amount of renewable resources from the MOPR. Only 19 MW remain under that exemption for next year's capacity auction, which will be the last to include the RTR designation.

Gillett said while her state planned to "continue to try to engage in a constructive dialogue, ... we are taking the approach where we don't feel like we can sit back and wait for this process to play out at [the New England Power Pool] or anywhere else."

"We are looking seriously at what it means to take back resource adequacy for the state ... and we think any state that is serious about their clean energy goals has to at least consider this conversation if we're going to head in the [federal policy] direction of the MOPR and CASPR," Gillett said.

Illinois, Maryland and New Jersey, all in PJM, are among other states that have hinted at leaving the capacity market.

'A LITTLE BIT OF TIME'

In a later panel, Michael DeSocio, New York Independent System Operator's director of market design, said, "What we're really looking for is a little bit of time, and I say that in all seriousness."

"These are complicated issues," he continued. "We formed these markets because it was in the best interest of the consumers, and the markets have been very, very successful because of that."

He noted the level of transparency the markets created, giving new entrants like storage resources a "fair shake" and clear parameters for securing revenue streams that otherwise wouldn't have been available.

"I would really hate to see that [transparency] go away," he said. "So we're working hard to see if we can come up with a solution for those [state] concerns."

NYISO stakeholders have expressed concern that FERC could impose a stringent MOPR on the region and upset the state's plan to usher in a carbon-free power system by 2040 and achieve net-zero greenhouse gas emissions by 2050.

A review is underway by the New York Public Service Commission that could see the state take back resource adequacy responsibility from NYISO over perceived compatibility challenges between the current wholesale capacity market and the state's renewable energy and GHG reduction targets.