Federal regulators on Dec. 20 accepted a proposal to nix the ISO New England's role in deciding whether a new power plant will be operational in time to meet its capacity supply obligation and instead impose a penalty on resources that cannot prove they will be ready to provide capacity.
The change is significant because it aims to protect the grid operator's capacity market. "We recognize that it is important to provide a market signal for resource owners to cover or fulfill their [capacity supply obligations, or CSOs] and preserve the integrity of the ISO-NE capacity market and regional reliability," the Federal Energy Regulatory Commission said.
Under the ISO-NE's rules, a resource that is unable to satisfy its CSO is expected to cover that obligation by transferring it to another resource through annual or monthly reconfiguration auctions or bilateral deals.
In October, the ISO-NE proposed to change the rules that apply in such situations by ending a requirement for the grid operator to determine whether a plant will be unable to start operations in time and replacement capacity therefore is needed. Instead, that decision will be up to the capacity supplier, which will be subject to a failure-to-cover charge on resources that do not prove their ability to meet their full CSO.
The ISO-NE said the change is an improvement because resource owners are in the best position to determine whether they will be ready to provide capacity. And the new failure-to-cover charge is needed because the existing rules only penalize non-performing capacity resources during defined capacity scarcity conditions that may not occur, the grid operator said.
To avoid the penalties, a plant will have to either demonstrate its ability to satisfy its full CSO or cover the portion of its obligation that it cannot satisfy. The new rules go into effect December 24, 2018, and will first apply to the capacity commitment period that begins June 1, 2019.
Several subsidiaries of the Public Service Enterprise Group Inc. had sought a grace period for the change, arguing that the new rules could impose unexpected costs on resources that obtained CSOs under the existing rules. PSEG said PSEG Power Connecticut LLC's gas-fired Bridgeport Harbor 5 plant in Connecticut, which has an expected commercial operation date of June 1, 2019, is the largest resource affected by the change.
And arguing that the proposal would allow nonperforming resources to profit inappropriately when they find other generators to cover their capacity obligations at a lower price, the Northeast Massachusetts Consumer-Owned Systems had asked FERC to require the ISO-NE to revise its proposal to ensure that credits to load-serving entities offset any arbitrage margins realized by non-performing resources.
But FERC in its Dec. 20 order rejected both of those concerns. The benefits of the rules outweigh the alleged harm of implementing them right away, FERC said in response to the issues raised by PSEG. As for the utilities' arbitrage concerns, the commission found that they are outside the scope of the proceeding. (FERC docket ER19-169)
Kate Winston is a reporter for S&P Global Platts, which, like S&P Global Market Intelligence, is owned by S&P Global Inc.