Comments have poured in to the Federal Energy Regulatory Commission on an innovative ISO New England plan to establish a two-part forward capacity auction aimed at accommodating state energy policies by allowing newer generation to replace aging assets willing to retire early in exchange for what essentially would be a severance payment.
The ISO-NE's proposal to implement the two-stage process — dubbed "Competitive Auctions with Sponsored Policy Resources," or CASPR — was filed to prevent "substantially more capacity than required" from being constructed amid state-driven procurements of ever-larger amounts of cleaner energy resources, such as hydropower and intermittent renewable resources, outside of the capacity market. CASPR first emerged from the stakeholder process of the New England Power Pool, but the proposal failed to gain the approval of 60% of NEPOOL participants that is required for the group to endorse a proposal.
Under CASPR, the ISO-NE would follow up its usual forward capacity auction by holding a so-called "substitution" auction in which an existing resource that cleared the primary auction but is willing to permanently retire can offer to transfer its capacity supply obligations to a new resource through a sealed-bid process at the lowest price at which the existing plant is willing to leave the market.
The divided opinions over the proposal were reflected in the comments submitted to FERC. The ISO-NE's external market monitor, Potomac Economics, asked FERC to reject the proposal outright, arguing that it would allow existing generation to be replaced with more expensive resources. The market monitor warned that this inherent "serious design flaw" would cause the forward capacity market to produce inefficient investment and retirement decisions and, over the long-term, lead to consumers bearing even higher costs than they already do.
Potomac Economics said the "inefficient" replacement of resources that otherwise would have stayed in operation will particularly harm units that rely heavily on energy market net revenues to cover going-forward costs by depressing New England's energy prices. The market monitor also said the flaw will harm the states that sponsor resources because available revenues for those resources will be reduced as well.
Representing the governors of the six-state ISO-NE region, the New England States Committee on Electricity, or NESCOE, backed the CASPR proposal as an attempt to strike a balance between the requirements of state laws and competitive wholesale markets, but only if the ISO-NE is committed to monitoring the two-part auction and promptly remedying any flaws in the process as they are discovered.
"ISO-NE must revise CASPR if it falls short of its intent to accommodate the participation of state-sponsored resources or if it proves inflexible to the execution of state laws, which are not static," NESCOE said. "Indeed, should CASPR not accommodate the entry of state-sponsored resources, NESCOE expects that ISO-NE would act expeditiously, in collaboration with states and stakeholders, to develop and file revised market rules with the commission — including interim rules as necessary — to protect against excessive consumer costs."
CASPR also received support from the New England Power Generators Association, which requested what it called a "relatively minor" add-on to allow existing capacity resources to participate in substitution auctions at prices indexed off the clearing price of the forward capacity market. "This additional offer flexibility will allow an existing capacity resource to more accurately and efficiently reflect its willingness to retire, which in turn will further promote one of the primary goals of the CASPR design, to efficiently transfer capacity supply obligations from retiring resources to subsidized new resources," according to the New England Power Generators Association, which represents competitive power producers.
Dominion Energy Inc. found the CASPR proposal to be a "preferable intermediate approach" to accommodating state-sponsored resources in the forward capacity markets until a long-term market design can be crafted to provide "appropriate price signals" for market entry of state-sponsored energy resources. Dominion particularly welcomed the end of New England's exemption of 200 MW of state-sponsored renewable technology resources from a minimum offer price rule that requires new capacity resources to bid at their unsubsidized costs.
In contrast, Massachusetts Attorney General Maura Healey protested the phasing out of the renewable technology resource exemption under the CASPR proposal without including a "backstop provision" to allow up to 200 MW a year of state-sponsored resources to participate in the forward capacity market regardless of whether corresponding retirements are available to offset their entry. Healey further urged FERC to reject the proposal because it would force consumers to pay twice "for the same capacity" and "will allow only uncertain and sporadic integration of a small portion" of state-procured energy resources into the wholesale power market.
The NEPOOL Participants Committee reported that its ongoing stakeholder process still is working on the issues that caused the proposal to be voted down. The group therefore urged FERC to focus on proposed tariff changes that would take effect for the next forward capacity auction, which is set to begin in March, with longer-term concerns to be addressed in future filings. (FERC Docket ER18-619)
