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Grid operators, state officials eye solutions to capacity market shortcomings

Highlights

Grid operators support nixing MOPR

Reforms process seen as five to 10 year journey

Accommodating state policies while still maintaining the objectives of the capacity market to supply reliable power at least cost will require a portfolio of solutions based on stakeholder input and changes to the energy and ancillary services markets as well over a likely five to 10 year period, operators of the Eastern regional transmission organizations said March 23.

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Grid operators, market monitors and state officials, brought together March 23 for a Federal Energy Regulatory Commission technical conference, the first in a series planned to help modernize electricity market design, generally agreed that the capacity markets in the Eastern US were worth saving but in need of substantial reforms to accommodate state energy policies and better reflect the realities of the changing resource mix.

Representatives for ISO New England, New York Independent System Operator and PJM Interconnection were eager to work toward solutions to evolve their capacity markets in a manner that accounts for the increasing effects state policies have on resource entry and exit.

The grid operators said during the conference that they supported doing away with minimum offer price rules, as currently constructed and imposed on their markets, but acknowledged the need for a replacement mechanism to address the resulting reduction in capacity revenues and impact that would have on conventional resources still needed for reliability purposes.

And state officials within those Eastern RTOs used the opportunity to stress that any reimagined resource adequacy solution consider affordability, preserve self-supply options and not hamstring their ability to satisfy state legislative obligations to procure more clean energy, with the caveat that such accommodations will not cause cost shifts between states or RTO regions.

Not just one solution

"When we come down to FERC from New York with solutions to put in front of you, it's not going to be one solution," NYISO President and CEO Richard Dewey said. "It's going to be a portfolio of five or six or seven solutions that will incorporate changes to the requirements in the capacity market; it's going to be variations to the level of compensation that each of the resources and the appropriate attributes are entitled to; it's going to be looking at it in concert and in tandem with what we need to do to the energy and ancillary service markets to offset some of those resource shifts."

Dewey said NYISO was taking a holistic approach to wholesale power market reform, "recognizing that there's going to be no one lever, no one piece that's going to allow us to get the level of reliability that we absolutely need" while accommodating state-mandated entry of new resources and appropriately valuing existing fossil generation for the duration of time that it remains necessary for grid reliability.

ISO-NE President and CEO Gordon van Welie said it would likely be a five to 10 year journey to make the necessary changes to all of the major market components, including capacity, ancillary services and energy.

"I don't see the patience to wait while we figure out elaborate new ancillary services markets and therefore do nothing about the [MOPR]," he said. "If we tackle the [MOPR] first, that's going to require some calibration of all the various parameters ... in the capacity market to deal with the consequences of removing the MOPR. That will just buy us some time, maybe five years, to continue to work on all the other elements," such as a forward clean energy market, the feasibility of an integrated clean capacity market, determining what ancillary services markets are needed.

"Once we have specified those additional components, we're going to have to come back to the capacity market again, to see if it's still properly calibrated, given all the changes we made in these other components of the marketplace," van Welie said.

PJM has put forth a recommended path and series of questions to stakeholders that also first deals with the MOPR and shortly thereafter tackles "a package of additional questions," on topics such as the right amount of capacity procurement, performance and qualification of capacity resources, whether to leave room for uncleared capacity in its supply models and the need for additional ancillary services and whether those services should be built into the performance qualification of the capacity market, PJM President and CEO Manu Asthana said.

"We really want to try to get there in a way that brings our stakeholders along with us and actually allows their input to shape the final answer," Asthana said.

Sense of urgency

Katie Dykes, a commissioner for the Connecticut Department of Energy and Environmental Protection, urged the grid operators and FERC to avoid implementing more short-term fixes and patches.

"The to-do list is quite long, but the longer that we take to tackle this in a holistic and comprehensive way, the harder it's going to get to solve this problem," she said. "So there's a great urgency for us to ensure that whether it's through the ISO markets or through state policies, that we're investing in the right resources that we need to achieve a reliable and affordable grid."

Dykes recommended prioritizing and moving "quickly on addressing ancillary services and energy enhancements and carefully scrutinizing the capacity market product itself."

Stefanie Brand, director of the New Jersey Division of Rate Counsel, added that FERC and the grid operators also need to build back some consumer confidence.

"Texas brought a lot of this to the attention of regular people, and I think customers are a little concerned right now about not understanding how this all works and feeling as though they're not sure that it really does work," Brand said. "It's important that we move forward ... and develop a solution that the public can feel confident in."

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