By Michael Kuser

FERC last week denied requests for rehearing of its April 2016 order that approved capacity market changes to prevent ISO-NE generation owners from retiring resources that are still economic (ER16-551-003).

The new rules changed how retiring generators declare their intention with de-list bids — the minimum capacity price that will keep the plant operating — and gave the RTO the power to keep a unit operating if needed for reliability.

ISO-NE said the changes were needed to prevent suppliers from retiring a generator to increase prices for the remainder of the supplier’s portfolio. It followed an uproar over the closing of the 1,517-MW Brayton Point plant in Massachusetts. (See FERC Approves Changes to ISO-NE Retirement Rules.)

In a July 2016 order, FERC also approved a 10% mitigation threshold allowing ISO-NE to substitute the Internal Market Monitor’s cost estimate in place of the supplier’s de-list bid if the Monitor found the supplier had overstated the operating costs of the plant by 10% or more.

Section 205 Rights

The New England Power Generators Association, Exelon and NextEra Energy Resources asked FERC to reconsider the initial order, saying the rule changes forced them to cede to ISO-NE their Section 205 rights to file rates with the commission.

FERC concluded that although the Tariff changes add steps to the bid review process, they do not fundamentally alter the process in a manner that infringes on the suppliers’ rights to file rates. “The Internal Market Monitor’s mitigation is an input into a market-based capacity auction governed by ISO-NE’s Tariff that generates the Forward Capacity Auction’s clearing price,” the commission said in its Oct. 30 order.

The commission said “this market construct is distinguishable from a supplier’s right to file cost-of-service rates with the commission pursuant to Section 205 of the [Federal Power Act]. We reject petitioners’ implicit contention that ISO-NE does not provide a jurisdictional service and that the Forward Capacity Auction is the suppliers’, instead of ISO-NE’s, rate.”

The commission also disagreed with the generators’ assertion that FERC provided no evidence that ISO-NE’s proposal represented a balance between possible over-mitigation and the need to curb market power.

“On balance, we are persuaded that the need to address possible price distortion due to a retiring supplier potentially exercising market power to impact the market clearing price outweighs the risk of lower capacity prices resulting from possible over-mitigation,” the commission said.

Two-Run Clearing

FERC also rejected the generators’ complaint that the two-run clearing mechanism in the new rules — under which capacity needed to replace a retiring resource could receive a higher price — was discriminatory.

“To the extent that the second run yields a higher price than the first run, this would result from the Internal Market Monitor’s determination that a resource has sought to retire uneconomically,” the commission said. “Therefore, it is necessary to limit suppliers that cleared in the first run to that clearing price to ensure the auction’s competitiveness and protect consumers from the exercise of market power. We find this mechanism is necessary to ensure that non-retiring suppliers themselves are not unduly discriminated against due to a retiring supplier’s exercise of market power.”

The commission dismissed as moot the generators’ request that the mitigation threshold — which FERC’s April 2016 order required the RTO to add — “is in addition to, and not a substitute for, flexibility with respect to forecasts and other inputs of exit bids.”

The commission said its July order approving the threshold had already made that point clear.