Senators Slam ISO-NE "Inaccurate" Capacity Market Parameters Which Led To Drastic Price Increases
March 16,2016
Garbage in, garbage out.
That's apparently what contributed, in part, to drastic capacity price increases in ISO New England, members of the New England Congressional delegation charged in a letter to FERC.
Unlike a real market, where the interaction of buyers and sellers determine the quantities sold and price for each, ISO-NE's Forward Capacity Auction, like all mandatory capacity markets, relies on unelected bureaucrats to establish key price-driving parameters of the auction.
Get these parameters "wrong," and customers end up paying big time.
And according to the New England Congressional delegation, that's what happened in the last two ISO-NE capacity auctions, as the delegation said the ISO has admitted that that ISO's Installed Capacity Requirement (ICR) for both FCA8 and FCA9 was inaccurate or incomplete
These errors, "arguably created the shortfall in both auctions that resulted in drastic price increases," the delegation said
Citing a recent ISO-NE filing at FERC, "ISO-NE concludes that based on newly acquired data, the initial ICR for both FCA8 and FCA9 were too high due to a failure to account for an increase in behind-the-meter solar and improvements to the transmission system, respectively," the delegation said
"The shortfalls that occurred in both FCA8 and FCA9 are now a capacity surplus without any actual change to the amount of generation resources participating in the capacity market. While that does mean new generation will not be necessary, it also means New England ratepayers will pay potentially billions of dollars more than they otherwise would have paid had the initial ICR targets been more accurate," the delegation said
Additionally, the delegation said that in another recent filing by ISO-NE submitted to FERC, "the ISO indicates the existing possibility for undue market power to increase costs on ratepayers."
"This is at least the second time the ISO itself has acknowledged this potential [which stems from retirement rules]. Yet, unfortunately, these retirement reforms are only now being implemented," the delegation said
"It is the obligation of FERC and the ISO to work together, along with the many other stakeholders involved in the process, to achieve electric reliability at just and reasonable rates. We do not believe the current forward capacity market in New England can be characterized as a functional, competitive energy market that meets these goals and protects consumers. Implementing incremental changes on a yearly basis as a byproduct of a transitioning energy sector do not justify drastic capacity rate increases. We also continue to question what exactly ratepayers are getting in return for these massive costs and whether capacity markets are the best construct to maintain electric reliability at just and reasonable costs all while achieving local, state, and regional energy policy goals," the delegation said
Signing the letter to FERC were, among others, Senators Bernie Sanders and Elizabeth Warren