Stakeholders in the ISO New England have asked the Federal Energy Regulatory Commission to give them first crack at fixing proposed revisions to capacity market rules for accommodating state-subsidized resources if the agency finds the proposal cannot be squared with a recent appeals court decision.
The proceeding is one of several in which generators have raised concerns that the ISO-NE's rules could lower capacity prices. Generators worry that the ISO-NE's processes give the market monitor's mitigated bids and prices a better chance of being approved at FERC than higher-priced generator bids and prices.
At issue is a Nov. 30, 2018, proposal (FERC docket ER19-444) by the ISO-NE to tweak its so-called competitive auctions with sponsored policy resources, or CASPR, rules. CASPR created a two-stage forward capacity auction that gives an existing resource that cleared the primary auction but is willing to retire the chance to transfer its capacity supply obligatio to a state-subsidized resource that did not clear the primary auction.
One proposed change to the CASPR rules would create a test price to minimize the incentive for a resource to bid below its competitive price in the primary auction in an effort to get a severance payment in the substitution auction.
Under the proposal, if a resource receives a capacity supply obligation at more than 10% below its test price — which is an estimate of the resource's competitive, break-even price — then the resource cannot participate in the substitution auction. A market participants would submit its test price, and the independent market monitor, or IMM, would review that price and then set a test price for submission to FERC.
On Dec. 28, 2018, the U.S. Court of Appeals for the District of Columbia Circuit remanded a separate ISO-NE rule (FERC docket ER16-551) to FERC. The dispute in that case, Exelon v. FERC (17-1275), was whether ISO-NE could submit the IMM's mitigated de-list bid instead of the market participant's de-list bid for FERC approval. A de-list bid is the price that a generator must receive for its capacity to remain in the ISO-NE markets.
Exelon argued that by submitting the IMM's mitigated de-list bid to FERC, that bid has better chance at FERC approval even if the generator's higher bid also is just and reasonable. The D.C. Circuit found that FERC and Exelon did not actually seem to disagree on this point, and the court remanded the rules back to the agency for clarification.
A week before that court opinion came out, the New England Power Generator's Association filed a protest to the CASPR-related changes. NEPGA argued that the plan violates market participants' rights to file their rates with FERC. Citing in a footnote the then-pending D.C. Circuit de-list bid case, NEPGA said FERC should revise the CASPR-related changes so that the market participants' test price — rather than the IMM test price — is submitted to FERC for approval.
The ISO-NE's stakeholders responded to NEPGA's protest and the D.C. Circuit's ruling in a Jan. 7 filing at FERC. The test price mechanism in the CASPR-related changes leverages off the mitigation construct applied to retirement de-list bids in the remand, the New England Power Pool Participants Committee said. If the court's remand requires changes to the CASPR test-price mechanism, FERC should accept the CASPR-related changes for the upcoming FCA and direct that further changes for the following year's FCA be considered first in the stakeholder process, NEPOOL said.
Kate Winston is a reporter for S&P Global Platts, which, like S&P Global Market Intelligence, is owned by S&P Global Inc.