ISO-NE presented some of the final design details and tariff changes for the first phase of its Capacity Auction Reforms (CAR) project at the summer meeting of the NEPOOL Markets Committee on Aug. 12-14 in preparation for a stakeholder vote in October. 

The first phase of CAR is centered around transitioning ISO-NE’s Forward Capacity Market to a prompt design, with auctions held less than one month before the start of each annual capacity commitment period (CCP). It includes significant changes for resource deactivation and wide-ranging conforming changes to prepare for the new auction format. The RTO aims to file the proposal with FERC before the end of the year. 

After completing the first phase of work, ISO-NE plans to ramp up stakeholder discussions on the second phase of the CAR project, which will focus on resource accreditation and dividing CCPs into distinct seasonal periods. 

As stakeholders near a vote on the first CAR filing, the Massachusetts Attorney General’s Office has called for more quantitative analysis of the impact of the changes. 

In a memo published prior to the MC meeting, the AGO asked ISO-NE to provide “whatever qualitative or quantitative information it can on the impact of the [prompt market proposal] as a standalone market design.” 

The office noted that developing the seasonal and accreditation changes “involves significant design, regulatory and implementation risks, which could potentially delay or otherwise derail” the implementation of the second phase of the CAR project and “leave the auction for capacity commitment period 2028/29 to be conducted under the [prompt] design only.” 

ISO-NE commissioned a preliminary impact analysis in late 2023, which projected a prompt and seasonal capacity market to reduce capacity market costs by about 12% compared to the FCM. The study estimated that a prompt-annual design would reduce costs by 10 to 11% relative to the existing design. (See NEPOOL Markets Committee Briefs: Jan. 11, 2024.) 

Responding to the request, the RTO has said it will wait to conduct a more comprehensive impact assessment once it has completed the bulk of the work on both phases of the project. 

ISO-NE spokesperson Matt Kakley noted that the 2023 analysis “showed numerous benefits to consumers and suppliers, as well as market efficiency gains” and said the RTO “has worked closely with stakeholders to provide additional information about the impacts and efficiency gains associated with the move to a prompt auction.” 

Seller-side Market Power

Also at the MC, ISO-NE economist Andrew Copland provided an update on the RTO’s proposal for mitigating seller-side market power. 

Similar to the current mitigation rules in the FCM, ISO-NE would require capacity resources to submit a cost workbook to the Internal Market Monitor if they offer above a price threshold, which the RTO defines as “the average of two prices: (i) the previous capacity clearing price and (ii) the price on the upcoming auction’s [marginal reliability impact] demand curve corresponding with the previous auction’s total cleared” capacity supply obligation (CSO). 

Resources bidding above this threshold that fail both an IMM pivotal-supplier test and a contact test are subject to a binding price determined by the Monitor. 

Copland said ISO-NE does not plan to change the “underlying cost review threshold methodology” for the threshold but will propose to change the name of the threshold from the “dynamic de-list bid threshold” to the “capacity offer price threshold.” 

Andrew Gillespie, director of governmental and regulatory affairs at Calpine, pushed ISO-NE to update its methodology for calculating the cost review threshold. He said the existing method is “somewhat backward-looking as it relates to changing market conditions” and could lead to the threshold being set at an artificially low level in future auctions. 

Gillespie noted that ISO-NE would determine the threshold for its first prompt auction about five years after the most recent Forward Capacity Auction. He pointed to the multiple significant capacity scarcity events that have occurred since this auction and said high-performance penalty costs incurred during them could put significant upward pressure on capacity prices in future auctions. 

Instead of relying on past auction results, Gillespie recommended that ISO-NE base the threshold on the “common value component,” which is calculated by multiplying the expected number of hours with capacity conditions by the expected balancing ratio and the performance payment rate. 

“The common value component is the lowest competitive bid, and hence the threshold should be no lower than that,” Gillespie said. 

He said this methodology would be more forward looking and would avoid issues associated with adapting historical data to the new prompt-seasonal format. 

The proposal was well received by multiple stakeholders at the meeting, while ISO-NE expressed concern about challenges and complications related to relying on expectations for capacity scarcity hours and the balancing ratio. The RTO reiterated that it does not plan to overhaul the threshold methodology as a part of the CAR project but said more discussion on the threshold will be needed during the second phase of the project to prepare for a seasonal auction design. 

Noncommercial Capacity

Under the new capacity market format, ISO-NE would not differentiate between new and existing capacity resources, and all new resources would have to demonstrate they have reached commercial operations to participate in capacity auctions. 

The RTO previously has allowed noncommercial resources to participate in FCAs, which were held over three years prior to each CCP. Under the FCM rules, new resources are subject to critical path schedule (CPS) monitoring, allowing the RTO to track their progress toward reaching commercial operations. 

At the MC meeting in July, ISO-NE said it plans to continue CPS monitoring until mid-2028 for noncommercial resources that received CSOs in past FCAs. (See NEPOOL Markets Committee Briefs: July 8-9, 2025.) 

The RTO changed its proposal at the MC meeting in August and now plans to continue CPS monitoring “until all projects on monitoring are either completed, withdrawn or terminated,” said Matt Brewster, senior manager of capacity requirement and qualification at ISO-NE. 

Brewster said the approach “seeks to accommodate decisions made by participants under the current rules and facilitate the move to commercial-only participation in the prompt market.” 

He noted that, starting with the 2028/29 period, “capacity on CPS monitoring cannot acquire CSO for any additional CCP until it is commercial.” 

Also at the MC, Brewster discussed ISO-NE’s planned approach toward resource repowering and material modifications. He said qualified capacity would generally be based on a resource’s performance from the past five years, and ISO-NE plans to largely maintain existing processes for “reflecting measurable increases or decreases in capability and changes to technology, characteristics or composition.” 

For resources that can demonstrate increased or decreased capacity compared to the historical data prior to each annual auction, ISO-NE will update the lookback period “to exclude data for periods preceding the change,” he noted. 

In cases of modifications to a resource’s technical characteristics, such as a change to its intermittency, ISO-NE would require resources to submit data on the modification “for the next annual or monthly qualification process,” Brewster said.