ISO-NE, stakeholders and the New England states formally started work on eliminating the minimum offer price rule (MOPR) from the Forward Capacity Market (FCM) at a two-day meeting of the NEPOOL Market Committee last week.
States want to remove the MOPR to eliminate what they see as a barrier to participate in the capacity market for their subsidized resources. But according to a presentation from the RTO, it could also cause “greater uncertainty” for both existing and new unsponsored resources. The uncertainty translates into greater financial risk and, if left unaddressed, potentially have two unintended consequences, it said: failure of the wholesale market to clear new entry when required; and inefficient retirements if capacity prices from markets structured to be competitive are subject to persistent downward price pressure from sponsored resource entry.
In terms of the potential failure to clear new entry, the RTO said to accommodate greater financial risk, “new entry offers will be higher than the cost we have estimated to date for new, unsponsored merchant resource entry.” For example, if the sloped demand curve does not adjust accordingly, the market would procure fewer new resources — and possibly at a higher price — while falling short of the one-in-10 resource adequacy requirement. ISO-NE added that this problem is unlikely to self-correct in the capacity market and would require further interventions.
As for the potential for inefficient retirements, the RTO said the implications of such an outcome are magnified if the resources choosing to shut down permanently are necessary to maintain reliability through an extended clean energy transition. ISO-NE said it is essential to work toward the dual objective of accommodating the entry of state-sponsored resources into the FCM while maintaining competitive capacity market pricing.
In a memo to stakeholders, the New England Conference of Public Utilities Commissioners (NECPUC) and the New England States Committee on Electricity (NESCOE), ISO-NE COO Vamsi Chadalavada said that David Patton of Potomac Economics, the RTO’s External Market Monitor, will help provide “a framework to assess and quantify the uncertainty and accompanying risk that capital markets may impose on new or existing resources in a market without a MOPR when merchant resource investment is necessary.” Chadalavada said Patton would have preliminary recommendations ready by the end of next month.
FirstLight Power, New England Power Generators Association (NEPGA) and Sigma Consultants were among a group that offered initial “conceptual approaches” from the stakeholders’ perspective.
NEPGA’s Bruce Anderson presented that removing the MOPR “without any substitute to evaluate non-competitive offers leaves the FCM at risk of producing unjust rates due to buyer-side market power.” NEPGA wants to develop a buyer-side market power screening tool “that satisfies the legal requirement that market-based rates must be free of the influence of market power to be just and reasonable.”
FirstLight’s Tom Kaslow highlighted that restoring a meaningful retirement signal is fundamental to efficient market function and achieving state policy goals. The benefits of that include climate-aligned reliability where market rules encourage efficient retirements to support outcomes that attract and retain resources needed to meet state policy objectives and balancing resources required to integrate them.
Sigma’s Bill Fowler offered a series of primarily standalone concepts, and while adopting all of them “would be ideal, that is not necessary to achieve much of the benefit.” These include eliminating the retirement track rule, delaying the retirement schedule for later submission, or allowing bids to be updated or withdrawn before auction within constraints set by an Internal Market Monitor review of workbooks.
Brian Forshaw of the Connecticut Municipal Electric Energy Cooperative submitted a white paper proposing replacing MOPR with a minimum balancing resource constraint in the FCM. In addition, Forshaw said New England should consider changing from a “Descending Clock” auction to a “Sealed Bid” structure for settling Forward Capacity Auctions. This approach also avoids challenges of integrating any Forward Clean Energy Market (FCEM) revenues into the FCM, to the extent that the region decides to pursue such that mechanism.
ISO-NE aims to file a proposal to eliminate the MOPR with FERC in the first quarter of 2022 so that changes are in place for FCA 17, scheduled for February 2023.