With power producers already dropping out of the ISO New England forward capacity market, the Federal Energy Regulatory Commission needs to order ISO-NE to fix the parts of its rules that discourage market participation, said the Electric Power Supply Association (EPSA).
The association on Nov. 27 filed comments with FERC in support of the Oct. 31 complaint submitted by the New England Power Generators Association (NEPGA) against ISO-NE. NEPGA requested that FERC find that the existing pricing mechanisms in the ISO-NE market for Inadequate Supply, Insufficient Competition, and the Capacity Carry Forward Rules are unjust, unreasonable, and unduly discriminatory.
“EPSA supports NEPGA’s complaint and encourages the Commission to find the existing rules and mechanisms unjust and unreasonable and find the proposals set forth by NEPGA to be just and reasonable,” EPSA said in its Nov. 27 arguments.
ISO-NE is scheduled to hold its next Forward Capacity Auction (FCA), the eighth since implementing the FCA approach, on Feb. 3, 2014. Recently, in advance of that auction, several existing capacity resources have announced their intention to exit the ISO-NE market prior to the auction.
“Among the issues market participants face in the ISO-NE market that are spurring these departures from the market are severe levels of price discrimination between new and existing resources in the ISO-NE capacity market,” EPSA wrote. “The extreme price discrimination is the result of several market pricing mechanisms and rules currently in place in the ISO-NE tariff that permits ISO-NE to administratively set prices when the ISO determines that an FCA is not sufficiently competitive.
“Specifically, when the ISO determines that the FCA experiences Inadequate Supply or Insufficient Competition, the tariff allows for existing capacity suppliers to be paid 1.1 times the last competitive capacity auction’s clearing price. Additionally, under the tariff, when the ISO acquires capacity from a new resource and that capacity exceeds the amount of capacity required in a particular zone, such circumstances trigger the Capacity Carry Forward Rule, which results in the price paid to the existing capacity suppliers to be the lesser of either (1) $0.01 below the price at which the last New Capacity Resource withdrew from the FCA or (2) the Offer Review Trigger Price for a combustion turbine.”
These rules and mechanisms result in prices for existing capacity resources that are suppressed at a level well below those for new resources and are therefore unduly discriminatory, EPSA said. In addition, they do not reflect competitive market outcomes of prices needed to retain existing economic capacity resources and support new entry as necessary. “In fact, as demonstrated by the recent announcement of capacity suppliers to exit the market, many existing capacity resources may be forced into premature retirement even thought they would be economic save for the disparate pricing treatment under the ISO rules,” EPSA added.
Generally, NEPGA’s complaint raises two specific situations where the ISO-NE capacity market rules do not function properly and will fail to produce a pricing result that will give enough incentive to encourage sufficient new and existing resources so as to ensure resource adequacy in ISO-NE in the long run, EPSA said. NEPGA also proposes fixes to these market rule failures that will result in just and reasonable rates and thereby ensure price signals that will incent appropriate resource adequacy in ISO-NE.
The commission recently embarked on an effort to review the efficacy of organized capacity markets including that in ISO-NE. EPSA said it fully supports the commission in this effort, adding that it is critical that capacity markets function properly to establish just and reasonable prices or the key purpose of capacity markets, assuring resource adequacy, will not be served. Consistent with its ongoing effort to consider capacity markets overall, the commission must also ensure that individual RTO/ISO capacity market rules function properly, EPSA noted.
New England committee opposes NEPGA in this case
The New England States Committee on Electricity (NESCOE) was on the other side of the aisle in its Nov. 27 comments on the NEPGA complaint.
“The Commission should reject NEPGA’s last minute attempt to impose on consumers new and unjust and unreasonable administrative pricing provisions on the eve of the next Forward Capacity Auction (‘FCA’),” the committee said. “Pursuant to the Commission’s directives, the upcoming eighth FCA (‘FCA 8’) is the first auction in which the administratively-set price floor will be removed. Through this proceeding, NEPGA would have the Commission order a new suite of administrative pricing revisions at the same time the capacity market is to move away from a long-standing administrative pricing construct. Further, it would have the Commission do so under a Fast-Track process that would allow states, stakeholders and the Commission an unreasonably short time frame to analyze and understand the full implications of changes that could result in billions of dollars in additional costs to consumers in FCA 8 alone.”
The commission accepted changes to the pricing provisions that are the subject of the complaint less than one year ago. NEPGA did not seek rehearing of that order, the committee added.
“Yet, NEPGA now asks the Commission to expedite its decision-making process so that pricing rules that are materially more advantageous to capacity resources, and materially more burdensome to New England consumers, are in place before the next auction,” it wrote. “The Commission should deny the Complaint. NEPGA has made no showing that the pricing provisions have failed to work as intended and that they are unjust and unreasonable. Additionally, NEPGA has not shown changed circumstances since the Commission’s approval of the pricing provisions at issue less than a year ago, and its Complaint seeking changes to rules that have not had the opportunity to be triggered in a single auction constitutes a collateral attack on the Commission’s order approving the rules.”