By William Opalka
After more than two contentious years of ordering ISO-NE and the New England Power Pool to design sloped zonal demand curves for its constrained zones, FERC last week accepted a compliance filing that does that and also modifies the systemwide demand curve.
The changes will be effective for February’s 11th Forward Capacity Auction for delivery year 2020/21 (ER16-1434).
The RTO and NEPOOL filed Tariff revisions April 15 in response to a commission order Dec. 28, which said the use of vertical demand curves in constrained zones failed to address concerns over price volatility and market power.
The commission had approved the RTO’s systemwide sloped demand curve in May 2014, conditioned on its promise to develop sloped zonal curves in time for FCA 10 in February 2016. The commission granted extensions as the RTO, NEPOOL and stakeholders attempted to reach consensus. But it grew tired of the delays after the RTO said last year that it would be unable to institute sloped zonal curves for the 2016 auction. (See FERC Orders Sloped Zonal Curves for FCA 11.)
The April 15 filing asked the commission to approve both the zonal curves and changes to the systemwide demand curve.
The parties said the new demand curves will significantly improve the performance of the Forward Capacity Market by setting prices that more accurately reflect the locational marginal reliability impact of capacity — how an increment of increased capacity affects the risk of falling short of demand, as measured in hours per year.
The new design relies on two steps: an assessment of the reliability improvement from procuring incremental capacity for each possible capacity level in each zone, and establishment of the prices for each demand curve proportional to the improvement.
Generators opposed the introduction of the systemwide change, arguing it was beyond the scope of the proceeding. They also said that frequent changes in the FCM, including the Pay-for-Performance program that begins in 2018, introduced uncertainty.
“We appreciate desire for certainty of market design as expressed by” generators, the commission wrote. “We balance it with our stated concerns regarding the potential exercise of market power and unnecessary price volatility, while also meeting ISO-NE’s own objectives to achieve reliability, sustainability and cost-effectiveness in its capacity procurement.”
FERC also said that even if the proposed Tariff changes were found to be outside the scope of the proceeding and filed separately, they would have been accepted.