FERC takes comments on capacity policy following Sept. 25 conference

The Federal Energy Regulatory Commission is taking comment until Dec. 9 on issues raised at its Sept. 25 technical conference on how current centralized capacity market rules and structures in the ISO New England, New York Independent System Operator and PJM Interconnection regions are supporting the procurement and retention of resources necessary to meet future reliability and operational needs.

Panelists at the Sept. 25 conference discussed the definition of the capacity product and, in particular, the relationship between the capacity and energy and ancillary services markets, both today and in the future as electric system needs change. In particular, panelists offered perspectives on the importance of properly defining the capacity product, and whether additional capacity products should be defined to recognize future system operational needs.

Some favored retention of the current design, procuring a single capacity product focused on meeting basic resource adequacy requirements, with any operational attributes needed to meet system requirements procured in the energy and ancillary services markets, FERC said in an Oct. 25 notice. Others favored an approach that would procure differentiated products in capacity markets, incorporating attributes that meet specific operational needs.

Panelists also discussed how different categories of resources (traditional generation, new resources vs. existing resources, demand response, energy efficiency, distributed generation, etc.) should be valued and accounted for in centralized capacity markets.

Questions FERC would like addressed include:

  • When procuring a single capacity product, as under current market designs, are there certain fundamental performance standards that capacity resources should be required to meet in the delivery year to ensure resource adequacy? Should any such requirement change depending on the type of resource (traditional generation, new resources vs. existing resources, demand response, energy efficiency, distributed generation, etc.)?
  • Should existing capacity products be modified to reflect various operational characteristics needed to meet system needs? If there is a need for additional capacity products, how should those products be defined and procured in light of the current one day in ten year resource adequacy approach?
  • Alternatively, if it is more appropriate to rely on energy and ancillary services markets to obtain needed operational characteristics, how can market participants and regulators be confident that resources capable of providing such ancillary services will be available in future periods? To what extent are the existing categories of ancillary services adequate to meet current and future operational needs without a forward market?
  • What improvements are needed in how centralized capacity markets determine qualification as a capacity resource? Do the requirements to participate in the centralized capacity markets accommodate all resources (whether supply-side, demand-side, or imports) that are technically capable of providing the traditional forward capacity product?

Other questions include:

  • In what ways do the current centralized capacity market designs facilitate, or hinder, the ability of market participants to enter into arrangements to supply their own resource adequacy requirements?
  • Some panelists suggested other potential modifications to the existing centralized capacity markets to accommodate self-supply and/or state policies, including limited or resource class-specific exemptions from buyer-side mitigation rules, or offsetting reductions in the amount of capacity procured in the centralized capacity market. What are the advantages or disadvantages of such changes? Are there other potential changes to particular design elements that should be considered to accommodate self-supply and/or state policies? How would any potential changes accommodate the long-term price signals that several panelists argued are necessary for capacity investment?
About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.