ISO New England on Dec. 17 filed with the Federal Energy Regulatory Commission revisions to the ISO Tariff that revise the Forward Capacity Market (FCM) rules to provide a means for capacity suppliers to price the potential retirement of existing resources and to address market power issues that can be associated with the retirement of existing resources in certain circumstances.
These reforms include three significant and important improvements to the capacity market rules.
- First, they provide that capacity suppliers with existing resources will be required to submit a price for the retirement of a resource rather than using the existing Non-Price Retirement Request process. The use of priced retirements, rather than a non-priced administrative process, will improve the economic efficiency of the capacity market. In addition, capacity suppliers retain the right to retire a resource regardless of price (called an “unconditional retirement”) and also have the option to take on a Capacity Supply Obligation only if the auction clears above their originally submitted retirement bid (called “conditional treatment”).
- Second, the reforms remove the potential for a capacity supplier to exercise market power in the form of physical withholding by unconditionally retiring a resource that is still economically viable or, if the conditional treatment option is elected, in the form of economic withholding by submitting a priced retirement bid at a level that is not economically justified. The reforms address this issue by using a commission-approved Proxy De-List Bid to ensure that capacity prices cannot be artificially inflated above competitive levels by the uneconomic retirement of a resource or when a capacity supplier has elected conditional treatment.
- Third, the reforms require that a capacity supplier that may retire a resource give notice of the potential retirement and submit the proposed retirement price prior to the commencement of the qualification process for new resources for the upcoming Forward Capacity Auction (FCA) in order to enhance the opportunity for new resources to meet the region’s capacity needs.
The NEPOOL Participants Committee’s vote on these reforms garnered 48.17% support, which is short of the 60% vote needed to support the Market Rule changes and the 66-2/3% vote needed to support the other ISO Tariff changes. The New England States Committee on Electricity, representing the collective position of the six states in regional electricity matters, has indicated its support for the reforms.
In support of the reforms, the ISO submitted the joint testimony of Mark G. Karl, Vice President, Market Development and Andrew G. Gillespie, Principal Analyst, Market Development, and also the testimony of Jeffrey D. McDonald, Vice President, Market Monitoring.
The ISO requested that the reforms become effective on February 16, 2016 (61 days after filing). Their implementation on the requested effective date means that the new rules will be applicable after the completion of FCA 10 and before the qualification process begins for FCA 11.
Assuming the reforms are accepted, the Feb. 16, 2016, effective date will mean that the ISO would not open the “show of interest” window for new resources under the existing rules that otherwise would open on Feb. 16, 2016, and close on March 18, 2016. The Feb. 16 effective date also ensures that there will be some lead time between the issuance of the commission’s order in this proceeding and the opening of the new retirement bid submission window under the new rules, which will be scheduled to open on March 7 and close on March 18. The requested effective date also precedes other FCA 11 events that begin to occur during this period.
The filing noted: “Over the past several years the previous excess supply of capacity in New England has effectively disappeared and the ISO and both its internal and external market monitors have identified the need to develop market rules to explicitly address the potential for the uneconomic retirement of an existing capacity resource in order to ensure that the Forward Capacity Market remains workably competitive.”