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FERC approves ISO-NE's updated new entry costs, use of different reference plant

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FERC approves ISO-NE's updated new entry costs, use of different reference plant

Over the opposition of regional generators, the Federal Energy Regulatory Commission has approved updates to the values ISO New England uses to help establish capacity market clearing prices and to screen for market power. On Jan. 13, the grid operator asked FERC to approve updates to the cost of new entry, or CONE, the Net CONE and the offer review trigger price values that it will use for its 12th forward capacity auction, which will be for the 2021-2022 capacity commitment period.

CONE and Net CONE values are, respectively, estimates of the total and net costs (net of the first-year noncapacity market revenues) of developing the most economically efficient type of new capacity resource in New England. The offer review trigger price, or ORTP, values are technology-specific and are used to screen for new resource offers that merit further review as part of buyer-side market power mitigation rules.

ISO-NE is required under its tariff to re-evaluate the three values at least once every three years, and the process used to develop the latest update was contentious. Some stakeholders, including the New England Power Generators Association, wanted ISO-NE to use a gas-fired combined-cycle resource, or CC, as the reference technology for purposes of determining the CONE and Net CONE. However, ISO-NE took the advice of two consulting companies and decided to use a gas-fired simple-cycle combustion turbine, or CT, as the reference technology for the updated values. As a result, ISO-NE proposed a CONE of $11.35/kW-month, compared to the $15.62/kW-month that would have resulted from the use of CC technology. Net Cone for a CT would be $8.04/kW-month compared with $10/kW-month if CC technology had been used and the $11.08/kW-month value that was established in 2014.

Certain stakeholders also opposed the capacity factor calculation and resulting ORTP value for onshore wind resources, preferring instead the use of a higher capacity factor assumption that would produce a significantly lower ORTP for onshore wind resources.

Changes permitted

In signing off on ISO-NE's proposed CONE and Net CONE values, using CT as the reference technology, FERC noted that ISO-NE's tariff does not detail exactly how the reference technology should be chosen. Instead, it merely requires the regional transmission organization to review the results of the recalculation with stakeholders and file them with FERC before they are applied in a new auction. Since ISO-NE fulfilled those conditions, FERC will allow them to be used for the 12th forward capacity auction.

Moreover, FERC clarified that it never said the reference technology can never change provided a substitute technology meets certain criteria, which CT technology does here.

In particular, the commission agreed that CT technology is both likely to be built in New England and significantly more economically efficient than the next lowest-cost technology, "indicating that the proposed Net CONE value will be high enough to incent new entry into the market, but not so high as to introduce unnecessary costs." FERC noted that the estimated Net CONE for CC capacity is 24% higher than that for CT.

In shooting down other protests, FERC noted that modifying the reference technology used to calculate CONE and Net CONE is appropriate when needed to accommodate technological progress. The agency also said ISO-NE's proposal is a reasonable approach and therefore it does not need to opine on whether it is the only reasonable approach.

Finally, FERC signed off on the new ORTP values. FERC reasoned that since a production tax credit is available to all onshore wind resource developers who begin construction before December 2018, including it in the ORTP calculation is just and reasonable. (FERC docket ER17-795)