ISO-NE pitches market rule changes for FCA 13

Washington (Platts)--11 Jan 2018 621 pm EST/2321 GMT

ISO New England pitched a two-stage capacity auction process this week aimed at better accommodating states' out-of-market actions as the region upped its efforts to reduce greenhouse gas emissions through the procurement of more renewable resources.

Up to 1,200 MW of state-sponsored clean energy generation procured pursuant to a 2016 Massachusetts law could be ripe for participation in ISO-NE's 13th forward capacity auction scheduled to be held in February 2019 for the 2022-23 delivery year.

But without market rule changes, the grid operator told the Federal Energy Regulatory Commission in a tariff filing Monday that these resources are unlikely to clear the auction because ISO-NE's minimum offer price rule requires them to bid into the market at their unsubsidized cost. This is expected to force electricity ratepayers to pay both for the new state-sponsored resources and for the cost of additional capacity procured through the forward capacity market.

ISO-NE's proposed competitive auctions with sponsored policy resources rules attempt to accommodate the entry of sponsored new resources while prioritizing the preservation of competitive prices in the capacity market, the grid operator said.

Tariff changes pitched Monday would provide a financial incentive for existing resources that clear the auction to transfer their capacity supply obligation to state-sponsored resources and permanently exit the market. This would avoid "a potentially significant overbuild of the system -- against the backdrop of a New England power system that already has substantially more capacity than required," ISO-NE said.

Specifically, under CASPR, ISO-NE would hold a primary auction as the first stage of the process that runs very much like current FCAs, with new resources subject to the MOPR and priced retirement bids below the clearing price being awarded CSOs. SUBSTITUTION AUCTION FACILITATES CSO TRANSFERS

That would immediately be followed by the second phase: a new, voluntary secondary market referred to as the substitution auction. At that time, existing resources that obtained CSOs in the primary auction but are willing to exit the market can bid the highest price they are willing to pay to shed their CSOs.

State-sponsored resources that did not clear the primary auction can take into account their out-of-market revenues, as no MOPR is applied in the substitution auction, to make offers at the lowest price they are willing to accept CSOs. The substitution auction then matches these voluntary bids and offers.

Sponsored resources that clear the substitution auction "are treated as existing resources [in future years' FCAs] and therefore not subject to the MOPR provisions," ISO-NE said. The sponsored resources that do not clear may participate as new resources again the following year.

The existing resources that clear the substitution auction "are generally able to shed their obligations at a lower price than they receive in the primary auction, and retain a one-time net payment equal to the difference between the (higher) FCA clearing price and the (lower) substitution auction clearing price (much like a severance payment for permanently retiring)," ISO-NE added. LOWER DE-LIST BID THRESHOLD PROPOSED

Separately, ISO-NE also proposed tariff changes Monday updating the threshold to be used for FCA 13 to determine which bids to withdraw existing capacity from the market require review by the grid operator's internal market monitor for the potential exercise of seller-side market power.

The dynamic de-list bid threshold must be updated at least once every three years under ISO-NE's tariff.

The current DDBT, used since FCA 10, is $5.50/kW-month. Monday's filing proposes decreasing that to $4.30/kW-month for use starting with FCA 13 given the changes in supply and demand dynamics since the DDBT was last set.

Data from FCA 9 used to set the current DDBT signaled a projected capacity shortage of more than 1,600 MW and anticipated 20.4 hours of capacity scarcity conditions. New data for FCA 12 projects a 1,250 MW surplus of capacity and just 4.15 capacity scarcity condition hours, likely leading to lower market clearing prices when the auction is held next month.

The grid operator asked for the majority of its CASPR rules and for the DDBT update to become effective March 9, 2018, to coincide "with the beginning of the approximately year-long auction-administration cycle for [FCA 13] and, specifically, the opening of the window for the submission of retirement bids."

It is seeking a June 1, 2018, effective date for the rest of the CASPR rules that address capacity market settlements "primarily for administrative convenience, given the pending changes already scheduled for June 1, 2018 to reflect the implementation of the pay for performance mechanism and other capacity market changes," the filing with FERC said. -- Jasmin Melvin,

-- Edited by Matt Eversman,

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