Power market participants mixed on ISO-NE's MOPR transition proposal

ISO New England and the New England Power Pool have filed a proposal with federal regulators to eliminate New England's current minimum offer price rule, or MOPR, in the Forward Capacity Market over a two-year transition period, drawing mixed reactions from market participants.

The groups propose allowing "a substantial quantity of state-sponsored policy resources" to enter the market without buyer-side market power mitigation review during the next two annual forward capacity auctions 17 and 18 that will procure capacity for delivery years 2026/27 and 2027/28, according to the filing that was submitted to the Federal Energy Regulatory Commission on March 31.

Then beginning with FCA 19 that will procure resources for 2028-29, the proposal eliminates the MOPR and replaces it with a reformed buyer-side market power mitigation review construct, the filing said.

The ISO has proposed two sets of tariff revisions with two separate effective dates as part of a single filing under Section 205 of the Federal Power Act. The first set of revisions applies to the transition mechanism for FCA 17 and FCA 18 and the second set concerns the reforms to the tariff's buyer-side market power review and mitigation rules for FCA 19.

ISO-NE and NEPOOL have asked FERC for an effective date of May 30, 2022, for the transition mechanism revisions and an effective date of March 1, 2024, for the buyer-side market power revisions.

Proposal details

The ISO said that the New England region "has struggled" with how to accommodate into the capacity market incremental generation resources that receive "substantial financial support" through state governmental programs aimed at reducing carbon dioxide emissions.

The MOPR was designed to evaluate each offer in the forward capacity auction to determine whether it reflects revenues from sources outside the market, "and to ignore those revenues, thus forcing the new resource to offer at a higher price," with the rationale for the rule being that those "out of market" revenues may lower the clearing price in the auction, according to the filing.

However, when such below-cost offers are mitigated and the sponsored resources are priced out of entering the capacity market, the state decarbonization policies that fund construction of these resources "mean they will be built anyway, at expense to consumers," the filing said.

The ISO has taken various approaches to reconciling this challenge over the past several years, but none of the approaches have been viewed within the region "as being particularly successful in accommodating state-sponsored resource entry into the market," the proposal said.

The region finds itself at a "crossroads" the filing said, with state decarbonization programs expanding and the ISO interconnection queue -- one significant measure of new resource interest -- dominated by renewable and clean-energy resources while all new resources that cleared in the February forward capacity auction (FCA 16) were renewable or clean.

The inefficient overbuilding of state-sponsored resources is poised to grow and "ultimately threatens to overwhelm the capacity market," the filing said.

The proposed fix involves replacing the current MOPR system with a resource-specific review process that would allow a capacity supplier to demonstrate that it lacks an incentive to exercise buyer-side market power. Additionally, the new mechanism would exempt all state-sponsored clean or renewable resources from buyer-side market power review.

The proposal calls for the MOPR mechanism to remain in place for the next two forward capacity auction cycles but exempts from the MOPR as much as 700 MW of state-sponsored resources.

These market design changes "achieve a reasonable balancing of investor and consumer interests, by minimizing the potential over time for an inefficient overbuild of capacity while providing the necessary time for a more orderly transition of the region's resource mix that will protect both reliability and the interests of the investors in those resources," the filing said.

Market participants' reactions

Dan Dolan, president of the New England Power Generators Association, said in an April 5 email that the trade group "believes that the transition is the best path forward in the elimination of MOPR to create the necessary time and space to develop capacity accreditation and reserve enhancements."

"It is our hope that the transition will once and for all settle the MOPR issues and allow the region to focus on needed market enhancements," Dolan said.

However, he added that "it is no secret that NEPGA supports the MOPR as it stands -- and has been clear as well on concerns with removing MOPR." Moving to eliminate MOPR is "far from our first choice," he said.

"Nevertheless, FERC leadership has made their view clear, and it creates the situation we are in," Dolan said.

"The filed proposal represents a reasonable path forward for the region as an overall package, recognizing it does not satisfy the concerns or desires of all. It is in the spirit of seeking a constructive path forward that preserves reliability, necessary market enhancements, and moving to meet state policy needs that NEPGA supports the transition," he said.

However, renewable energy advocates would prefer the immediate removal of MOPR.

"Unreasonable and overly broad mitigation is anticompetitive and increases costs to consumers by financially bolstering uneconomic fossil fuel generators at the expense of low-cost clean energy, which represents the vast majority of new generation in New England," Gabe Tabak, the American Clean Power Association's counsel, said in an April 5 email.

"As states in that region have implemented policies to transition to a cleaner grid, ACP and its members continue to support eliminating the MOPR as rapidly as possible and removing this costly and inefficient barrier to achieving those goals," Tabak added.