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FERC Approves Two-Stage Capacity Auction At ISO-NE, Glick Slams MOPR As Propping Up Capacity Prices

March 12,2018

FERC approved as proposed ISO New England's Competitive Auctions with Sponsored Policy Resources (CASPR) two-stage capacity auction mechanism, which is meant to address the impact of resources receiving support from various states

ISO-NE has stated that under CASPR it will conduct the annual FCA in two stages. The first stage, the primary auction, will maintain the current FCA process and its corresponding MOPR.

The second stage, known as the substitution auction, will immediately follow the primary auction. The capacity prices to be paid by ISO-NE loads will be determined in the primary auction. In the second stage, the substitution auction, existing resources that have acquired capacity supply obligations through the primary auction will be permitted to offer a demand bid in the substitution auction, indicating a willingness to permanently retire from all ISO-NE markets at a certain price. In the substitution auction, the supply curve consists of capacity sell offers from Sponsored Policy Resources that did not already obtain a capacity supply obligation in the primary auction. ISO-NE stated that existing resources that clear the substitution auction will transfer their capacity supply obligations to Sponsored Policy Resources and will pay the substitution auction clearing price, which Sponsored Policy Resources obtaining the capacity supply obligations will receive. Accordingly, ISO-NE stated that existing resources that clear in the substitution auction generally will be able to shed their capacity supply obligations at a lower price than they received in the primary auction and retain a one-time net payment equal to the difference between the primary auction clearing price and the substitution auction clearing price, much like a severance payment. In exchange, those existing resources will agree to permanently exit ISO-NE’s wholesale markets through termination of their interconnection rights

Commissioner Richard Glick issued a sharp dissent, in part, stating that, "I disagree strongly with the order’s suggestion that state sponsored resources must either be subject to a Minimum Offer Price Rule (MOPR) or some alternative mechanism for 'accommodating' the effects of state public policies. That rationale -- which is not adopted by a majority of the Commissioners that support the order -- is ill-conceived, misguided, and a serious threat to consumers, the environment and, in fact, the long-term viability of the Commission’s capacity market construct."

"My concerns with the MOPR go beyond its effect on state public policies. By preventing state-sponsored resources from clearing the capacity market, the MOPR has the potential to impose enormous costs on consumers. In particular, by not giving a capacity supply obligation to resources that will be built regardless whether they receive such an obligation, the MOPR will force LSEs to procure more capacity than is needed to maintain resource adequacy, all of which consumers will be required to pay for. In addition, by increasing the market-clearing price in the capacity market, the MOPR increases the cost of every unit of capacity that clears the capacity auction. Indeed, it appears to me that this is precisely the motivation underlying certain generators’ support for applying the MOPR to state policies: propping up their capacity-market revenues in order to address the economic pressure created by, among other things, continued low natural gas prices and increasingly competitive renewable energy technologies," Glick wrote

See FERC's order here

FERC   Capacity Markets   ISO NEW England   ISO-NE  

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