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Consumer-owned utilities oppose ISO-NE's 'pay for performance' plan to reform capacity market

From the February 21, 2014 issue of Public Power Daily

Originally published February 21, 2014

By Robert Varela
Editorial Director
ISO New England’s "pay for performance" proposal for reforming its capacity market "sounds—and is—too good to be true," said the Connecticut Municipal Electric Energy Cooperative, Massachusetts Municipal Wholesale Electric Co., New Hampshire Electric Cooperative, Vermont Public Power Supply Authority and Vermont Electric Cooperative. They urged the Federal Energy Regulatory Commission to reject the ISO’s plan and instead approve an alternative proposal by the New England Power Pool (NEPOOL).

The ISO proposal would impose hefty payment obligations on generators who participate in the capacity market but fail to perform when called upon, regardless of the reason for non-performance.

The "pay for performance" title "is a misnomer, as even resources that ‘perform’ in complete compliance with ISO dispatch or other instructions may find themselves substantially penalized rather than ‘paid,'" the consumer-owned utilities said in a Feb. 12 filing. The strict liability imposed under ISO-NE’s proposal "abandons any notion of cost causation." 

The proposal would wrongly put the ISO "in the role of a resource planner seeking to satisfy only one qualitative criterion: finding resources most likely to provide energy or reserves during five-minute interval ‘scarcity’ conditions three years in the future," they said. It is neither prudent nor sensible for the entire installed capacity requirement to consist of such resources (baseload plants and fast-start resources), they told FERC.

The ISO’s plan would "lead to higher consumer costs, as inflated capacity market bids are submitted to reflect new risks that are difficult to quantify and impossible to hedge (as well as newly imposed financial assurance requirements)," the consumer-owned utilities said. "At the same time, ISO compounds this impact by proposing to relax its market monitoring regimen, raising grave concerns about the ability to police bid behavior under the new regimen."

NEPOOL participants strongly support addressing performance concerns with more of a carrot, the consumer-owned utilities said. Under the NEPOOL proposal, the reserve-price cap used during scarcity periods would be increased, allowing real-time prices to reflect system conditions more accurately, inducing generators to provide energy and encouraging load-serving entities to hedge their price risk by participating more effectively in day-ahead markets, they said.

NEPOOL stakeholders "are overwhelmingly aligned in their opposition" to the ISO’s plan, while the NEPOOL proposal "enjoys strong support by a broad range of market participants across the voting sectors—including IOUs, generators, consumer-owned entities, and states," they said. 


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Senior Vice President, Publishing 
Jeanne Wickline LaBella

Editorial Director
Robert Varela

Editor, Public Power Daily
Jeannine Anderson

Communications Assistant
Fallon W. Forbush

Manager, Integrated Media 
David L. Blaylock

Integrated Media Editor 
Laura D’Alessandro