Look at reforming RTO-run capacity markets as part of Quadrennial Energy Review, APPA urges DOE
Originally published April 22, 2014
The Department of Energy needs to recognize the importance of reforming the regional transmission organizations’ markets as one piece of the puzzle in addressing the infrastructure needs facing New England, APPA said in a statement for an April 21 public meeting on DOE’s Quadrennial Energy Review (QER). APPA commended the department for recognizing the contribution of the electricity market structure to the difficulties facing the region in the near future.
DOE should continue to scrutinize the role of the wholesale electricity market structure as it looks at regional infrastructure concerns in New England and elsewhere as part of the QER, APPA said. The RTOs operate complex centrally-administered markets for electricity, capacity and ancillary services that are characterized by an absence of price regulation, complex and frequently changing rules, and high and volatile prices, the association noted.
New England’s investor-owned utilities no longer own generation, so the region "is largely characterized by merchant-owned power plants whose decision-making may be driven by maximizing profits rather than achieving a balanced and economic mix of resources for the region and its consumers," APPA said. That is evidenced by the region’s growing reliance on natural gas for generation without adequate infrastructure to deliver enough gas, either at reasonable prices or at any price in some cases, APPA said.
The capacity market operated by the Independent System Operator-New England "has been unsuccessful in achieving an optimal mix of resources from a cost, environmental and reliability perspective," APPA said. Even more problematic is that owners of existing merchant generation have sought to protect their earnings through changes in the capacity market’s minimum offer price rule (MOPR), the association told DOE. That rule requires certain new resources to offer to sell their capacity only above a certain price floor. This "impedes the development of new supply and unjustly diminishes the role of state and local entities, including public power, in the determination of the resource needs for the region," APPA said.
APPA and others have called for a phase-out of the RTO-run capacity markets in light of their high costs to consumers and inability to address regional resource needs. Under APPA’s proposed Competitive Market Plan, the capacity markets "would be replaced with a system of bilateral contracts, procured through competitive solicitations conducted by state and local entities to achieve the needed resource adequacy and ensure an optimal mix of resources," the association told DOE.
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