By Rich Heidorn Jr.

FERC approved ISO-NE’s two-stage capacity auction to accommodate state renewable energy procurements, with Commissioner Robert Powelson dissenting and Commissioners Cheryl LaFleur and Richard Glick leveling new criticism on the minimum offer price rule (MOPR) (ER18-619).

ISO-NE proposed the Competitive Auctions with Sponsored Policy Resources (CASPR) construct in January to address state regulators’ concerns about ratepayer costs for policy-driven resources and generators’ fears that out-of-market procurements would suppress capacity prices.

Under CASPR, ISO-NE will clear the Forward Capacity Auction as it does today, applying the MOPR to new capacity offers to prevent price suppression. In the second Substitution Auction (SA), generators with retirement bids that cleared in the primary auction would transfer their obligations to subsidized new resources that did not clear because of the MOPR. The RTO will phase out the renewable technology resource (RTR) exemption, which has allowed it to clear 200 MW of renewable generation in its capacity auction annually (to a maximum of 600 MW) without regard for the MOPR.

CASPR failed to win a 60% supermajority among stakeholders, and the RTO’s filing was opposed by its External Market Monitor, Massachusetts Attorney General Maura Healey, municipal utilities, Connecticut, the Natural Gas Supply Association, a coalition of environmental groups, the New England Power Generators Association and several merchant generators. (See ISO-NE Defends CASPR Against Protests.)

The opponents challenged the definition of sponsored-policy resources (SPRs) eligible for the SA; the cut-off date of Jan. 1, 2018; restrictions on interzonal transfers; and the phase-out of the RTR exemption without a “backstop” to ensure SPRs receive capacity obligations. They also expressed fears that “fictitious” resources would enter the auction to collect revenues from SPRs and that the construct would worsen the region’s fuel security concerns.

The commission rejected all the protestors’ concerns, approving CASPR as proposed. The commission did acknowledge concern over potential anticompetitive bidding, urging ISO-NE “to work with its stakeholders to pursue market enhancements” to strengthen market mitigation rules.

Powelson Dissent

Powelson, however, wrote a dissent calling the construct “a complicated, patchwork solution that will neither accommodate the desires of the states, nor send proper price signals to market participants.”

“The two goals that CASPR tries to achieve are fundamentally in conflict and cannot coexist in one market,” he wrote. “By trying to both accommodate state policies and protect the [Forward Capacity Market], CASPR will likely only accomplish one goal at the expense of the other. Today’s decision threatens the viability of the FCM to serve as a mechanism to ensure resource adequacy in ISO-NE, and therefore, it is unjust and unreasonable and should be rejected.”

Powelson said he shared the states’ concern that their ratepayers do not “pay twice” for capacity, as would happen if state-sponsored resources failed to win capacity commitments. “However, the states had the opportunity to foresee this ‘double-payment’ problem when they made the decision to support resources outside the market. … So unless the states are willing to reassume complete responsibility for resource adequacy, they must accept that the commission is required to take action to ensure the viability of the capacity markets.”

Powelson said CASPR will not prevent state-sponsored resources from suppressing prices, because they are exempted from the MOPR after their first year and thus permitted to offer into the market at a lower price that reflects their out-of-market revenues. “Instead of incentivizing developers to compete for market revenues, the message the commission is sending to market participants is that the best way to ensure the future viability of a particular resource is to seek state support,” he said.

In addition to suppressing prices, Powelson said CASPR also may fail to accommodate state-supported resources. “The FCM has been clearing at lower prices over the past few years, making it unlikely — if this trend continues — that a resource near retirement (i.e., one with high going-forward costs) would clear in the primary auction. As a result, there may be few or no resources eligible to swap capacity supply obligations with eligible state-supported resources.”

Glick: MOPR Rationale ‘Ill-Conceived’

Glick took the opposing view in supporting CASPR, but he dissented over the order’s “suggestion” that state-sponsored resources must either be subject to MOPR or some alternative mechanism for ensuring state policies don’t interfere with the capacity market. “That rationale — which is not adopted by a majority of the commissioners that support the order — is ill-conceived, misguided and a serious threat to consumers, the environment and, in fact, the long-term viability of the commission’s capacity market construct,” Glick said.

Instead, Glick wrote, the commission should “stop using the MOPR to interfere with state public policies and, instead, apply the MOPR in only the limited circumstance for which it was originally intended: to prevent the exercise of buyer-side market power.”

Glick contends FERC has misinterpreted the Federal Power Act, failing to respect “that states, not the commission, are the entities primarily responsible for shaping the generation mix.”

“The fact that state policies are affecting matters within the commission’s jurisdiction is not necessarily a problem for the commission to ‘solve’ but rather the natural consequence of congressional intent.

“I do not believe that it is — or should be — the commission’s mission to create an electricity market free from governmental programs aimed at legitimate policy considerations, such as clean air and combatting climate change,” he continued. “Nevertheless, today’s order appears to suggest that it is appropriate for the commission to insert itself into the states’ domain.”

Glick said the commission’s goal of ensuring “investor confidence” in the capacity market will result in over-procurement; with significant excess capacity, ISO-NE’s auction should send price signals inducing high-cost resources to retire. “There is nothing in the record that supports the conclusion that, to ensure resource adequacy in New England, the commission must act to ensure that investors in all forms of generation — both existing and new — remain confident that they will recover their costs,” he said.

Glick also said his support for CASPR is predicated on whether it facilitates the entry of state-supported resources into the FCM.

“To the extent that, as implemented, the CASPR proposal does not facilitate the entry of state-sponsored resources, it may render ISO-NE’s tariff unjust and unreasonable,” he concluded.

(Editor’s Note: Although Glick supported CASPR, his office said he was recorded as a no vote, making the tally 3-2. An earlier version of this article reported the vote as 4-1.)

LaFleur: MOPR ‘A Blunt Instrument’

LaFleur also supported CASPR but issued a concurring statement joining Glick in disagreeing with paragraph 22 of the order, which she said suggested MOPR should be the “standard solution” against the impacts of all state policies.

LaFleur said MOPR is “a blunt instrument” and that other constructs, such as carbon pricing, can also achieve state objectives within the market.

“I acknowledge that these issues are not easy, as evidenced by the split commission decision today. I also believe that these issues do not lend themselves to a cookie-cutter solution to be broadly applied across all regions,” she wrote. “I therefore hope we receive market design proposals developed by other RTO/ISOs and their stakeholders. Without prejudging any specific proposal, I believe we should be open to region-specific solutions of different types.”