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ISO-NE pitches market rule changes for FCA 13

ISO New England pitched a two-stage capacity auction process this weekaimed at better accommodating states' out-of-market actions as the regionupped its efforts to reduce greenhouse gas emissions through theprocurement of more renewable resources.

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Up to 1,200 MW of state-sponsored clean energy generation procuredpursuant to a 2016 Massachusetts law could be ripe for participation inISO-NE's 13th forward capacity auction scheduled to be held in February2019 for the 2022-23 delivery year.

But without market rule changes, the grid operator told the FederalEnergy Regulatory Commission in a tariff filing Monday that these resourcesare unlikely to clear the auction because ISO-NE's minimum offer price rulerequires them to bid into the market at their unsubsidized cost. This isexpected to force electricity ratepayers to pay both for the newstate-sponsored resources and for the cost of additional capacity procuredthrough the forward capacity market.

ISO-NE's proposed competitive auctions with sponsored policy resources rulesattempt to accommodate the entry of sponsored new resources while prioritizingthe preservation of competitive prices in the capacity market, the gridoperator said.

Tariff changes pitched Monday would provide a financial incentive forexisting resources that clear the auction to transfer their capacitysupply obligation to state-sponsored resources and permanently exitthe market. This would avoid "a potentially significant overbuild of thesystem -- against the backdrop of a New England power system that alreadyhas substantially more capacity than required," ISO-NE said.

Specifically, under CASPR, ISO-NE would hold a primary auction as thefirst stage of the process that runs very much like current FCAs, withnew resources subject to the MOPR and priced retirement bids below theclearing price being awarded CSOs. SUBSTITUTION AUCTION FACILITATES CSO TRANSFERS

That would immediately be followed by the second phase: a new, voluntarysecondary market referred to as the substitution auction. At that time,existing resources that obtained CSOs in the primary auction but arewilling to exit the market can bid the highest price they are willing topay to shed their CSOs.

State-sponsored resources that did not clear the primary auction can takeinto account their out-of-market revenues, as no MOPR is applied in thesubstitution auction, to make offers at the lowest price they are willingto accept CSOs. The substitution auction then matches these voluntarybids and offers.

Sponsored resources that clear the substitution auction "are treated asexisting resources [in future years' FCAs] and therefore not subject tothe MOPR provisions," ISO-NE said. The sponsored resources that do notclear may participate as new resources again the following year.

The existing resources that clear the substitution auction "are generallyable to shed their obligations at a lower price than they receive in theprimary auction, and retain a one-time net payment equal to thedifference between the (higher) FCA clearing price and the (lower)substitution auction clearing price (much like a severance payment forpermanently retiring)," ISO-NE added. LOWER DE-LIST BID THRESHOLD PROPOSED

Separately, ISO-NE also proposed tariff changes Monday updating the thresholdto be used for FCA 13 to determine which bids to withdraw existing capacityfrom the market require review by the grid operator's internal market monitorfor the potential exercise of seller-side market power.

The dynamic de-list bid threshold must be updated at least once every threeyears under ISO-NE's tariff.

The current DDBT, used since FCA 10, is $5.50/kW-month. Monday's filingproposes decreasing that to $4.30/kW-month for use starting with FCA 13given the changes in supply and demand dynamics since the DDBT was lastset.

Data from FCA 9 used to set the current DDBT signaled a projectedcapacity shortage of more than 1,600 MW and anticipated 20.4 hours ofcapacity scarcity conditions. New data for FCA 12 projects a 1,250 MWsurplus of capacity and just 4.15 capacity scarcity condition hours,likely leading to lower market clearing prices when the auction is heldnext month.

The grid operator asked for the majority of its CASPR rules and for theDDBT update to become effective March 9, 2018, to coincide "with thebeginning of the approximately year-long auction-administration cycle for[FCA 13] and, specifically, the opening of the window for the submissionof retirement bids."

It is seeking a June 1, 2018, effective date for the rest of the CASPRrules that address capacity market settlements "primarily for administrativeconvenience, given the pending changes already scheduled for June 1, 2018 toreflect the implementation of the pay for performance mechanism and othercapacity market changes," the filing with FERC said. -- Jasmin Melvin,

-- Edited by Matt Eversman,