Electricity Markets

FERC OKs ISO-NE auction proposal in a split decision

The Federal Energy Regulatory Commission on March 9 issued an order that approves ISO New England’s Competitive Auctions for State Policy Resources, or CASPR, proposal, which the grid operator says is intended to accommodate state policy resources in ISO-NE’s forward capacity market while maintaining “competitive” capacity prices. 

Commissioner Robert Powelson dissented from the order, while Commissioner Richard Glick dissented in part. Commissioner Cheryl LaFleur issued a separate concurrence expressing certain reservations about the order’s general discussion of FERC’s capacity market policies (Docket No. ER18-619).

Notably, FERC’s order includes a general discussion of the Commission’s capacity market policies, including the use of the minimum offer price rule mechanism, or MOPR.

Details on CASPR

Under CASPR, resources will bid first into a primary capacity auction with new resources subject to ISO-NE’s existing MOPR, followed by a second stage substitution auction in which resources that cleared the first auction and are willing to retire and exit the market, can offer to pay to transfer their capacity obligations to “sponsored policy resources” that did not clear the primary auction, and are willing to sell capacity in the second stage.

But due to last minute changes that occurred in the stakeholder process, sponsored policy resources are limited only to renewable, clean or alternative energy resources subject to state statute or regulation in place as of Jan. 1, 2018.

Numerous parties, including public power representatives, filed comments and protests on ISO-NE’s CASPR filing. 

In comments on the proposal, the American Public Power Association argued that CASPR fails to adequately accommodate public power’s ability to make optimal resource choices.  The Association recommended that, if the Commission accepted the proposed tariff revisions, it should initiate a separate proceeding to address the limitations on public power resource choices in the ISO-NE administered market. 

The Eastern New England Consumer Owned Systems filed a protest, while the Public Systems (New Hampshire Electric Cooperative, Massachusetts Municipal Wholesale Electric Company, Connecticut Municipal Electric Energy Cooperative, and Vermont Public Power Supply Authority) filed comments and a request for relief.

Details on FERC’s order

The Commission begins its discussion of the CASPR proposal by placing it within the context of FERC’s general capacity market principles and requirements. 

Specifically, FERC said that a capacity market “should facilitate robust competition for capacity supply obligations, provide price signals that guide the orderly entry and exit of capacity resources, result in the selection of the least-cost set of resources that possess the attributes sought by the markets, provide price transparency, shift risk as appropriate from customers to private capital, and mitigate market power.”

FERC said that ultimately, the purpose of basing capacity market constructs “on these principles is to produce a level of investor confidence that is sufficient to ensure resource adequacy at just and reasonable rates. Where participation of resources receiving out-of-market state revenues undermines those principles, it is our duty under the FPA to take actions necessary to assure just and reasonable rates.”

It noted that in previous settings of that nature, to address the impact of out-of-market state support on wholesale capacity markets, the Commission has accepted market rules that impose a MOPR on resources receiving such out-of-market support.

In another part of the decision, the Commission generally endorses the use of the MOPR mechanism in capacity markets.

“Absent a showing that a different method would appropriately address particular state policies, we intend to use the MOPR to address the impacts of state policies on the wholesale capacity markets,” FERC said. “However, we acknowledge that there can be more than one valid method of managing such impacts, and that methods may be tailored to the specific challenges posed by the state policies in a given region. Accordingly, while we will use the MOPR as our standard solution, we will consider supplemental or alternative proposals to manage the impact of state policies, provided that those proposals are sufficiently consistent with the above-mentioned principles of capacity markets.”

FERC concluded that the CASPR proposal is consistent with its capacity market policies and requirements, and will allow the forward capacity market “to continue to meet its objective of providing resource adequacy at just and reasonable rates.”

At the same time, the Commission reiterated that its “policies are fuel-neutral” and its approval of the CASPR proposal should not be read as a departure from those policies. 

The order accepts the specific aspects of the CASPR proposal in their entirety. 

With respect to the issue of whether ISO-NE’s proposal was inappropriately limited to renewable, clean or alternative energy resources subject to state statute or regulation in place as of January 1, 2018, FERC determined that CASPR is not unduly discriminatory or preferential. 

The Commission also disagreed with the Association and others’ assertion that more fundamental changes to ISO-NE’s forward capacity market are needed.

Regarding the failure of the proposal to receive a 60 percent vote of support in the NEPOOL Participants Committee, the Commission said that a “lack of stakeholder support does not alone render a section 205 filing unjust and unreasonable.”

Commissioners weigh in

In his dissent, Powelson argued that “by trying to both accommodate state policies and protect the FCM, CASPR will likely only accomplish one goal at the expense of the other.”  

He voiced particular concern that, under the CASPR proposal, greater levels of sponsored policy resources would enter the market, and such resources are not subject to the MOPR after their initial participation in the substitution auction.  He said that this simply “delays the suppressive effect that subsidized resources have on the market clearing price from the first year to subsequent years.”

Glick agreed with the decision to accept the CASPR proposal, but partially dissented from the order. 

He disagreed “strongly with the order’s suggestion that state sponsored resources must either be subject to a [MOPR] or some alternative mechanism for ‘accommodating’ the effects of state public policies.  The better course of action would be for the Commission and the RTOs/ISOs to stop using the MOPR to interfere with state public policies and, instead, apply the MOPR in only the limited circumstance for which it was originally intended:  to prevent the exercise of buyer-side market power.” 

Notably, Glick asserted that, given LaFleur’s concurrence and Powelson’s dissent, paragraph 22 of the order, endorsing MOPR as FERC’s “standard solution,” did not receive votes from a majority of the Commission.

Glick also concludes that “a Commission policy of ‘mitigating,’ rather than facilitating, state public policy preferences places the Commission in a role that Congress never intended it to play.”

He also objected to the order’s suggestion that “investor confidence” is the Commission’s guiding principle for capacity market design.

For her part, LaFleur used her concurrence to express strong support for the approval of CASPR, and agreed that the MOPR is an important tool that the Commission can utilize in certain instances to address the interplay between state policies and our wholesale markets.

But, pointing to paragraph 22 of the order, the Commissioner said that she disagreed “with the generic guidance set forth in the order regarding how the Commission should address the interplay of state policies and the wholesale markets.” 

LaFleur rejected the notion “that we should use the MOPR as a ‘standard solution’ – a blunt instrument – against the impacts of all state policies,” observing “that there are different MOPR constructs that could be developed to protect market pricing in those instances where out-of-market subsidies undermine the goals of the wholesale capacity markets.” 

LaFleur also said that if the affected regional markets “do not adapt their market design to the reality of the growing number of state targets and initiatives, I fear that the result could be gradual, unplanned reregulation, making the transition to clean energy in those regions more expensive than necessary and less reliable for customers.”