New England Power Generators Association President Dan Dolan said Thursday that his group is “a longstanding supporter” of the minimum offer price rule (MOPR) even as the NEPOOL Markets Committee began formal work last week to remove it from the Forward Capacity Market.

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 ISO-NE, the MOPR’s removal could also cause “greater uncertainty” for existing and new unsponsored resources.

That translates to greater financial risk. Left unaddressed, it potentially has two unintended consequences: the 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 pressure from the entry of sponsored resources.

Speaking at the ISO-NE Consumer Liaison Group meeting Thursday, Dolan said the MOPR “is an important element of the marketplace overall,” though “there is a capacity value — that should and must be recognized — in the market of state-contracted resources.” 

When the market evolved, Dolan said, the compromise was the Competitive Auctions with Sponsored Policy Resources (CASPR) mechanism, which has not worked in a “fast-enough manner” to bring sponsored resources into the market, nor has it effectively matched the exit and retirement of some of the existing resources.

Dolan said “two fundamental elements” must be incorporated into the next evolution of the market. 

“The first is an analysis of what is the reliability situation of the market,” he said. “Now, part of that is what happens if MOPR goes away from a price and an operations standpoint? I think it is more pointedly about what are some of the flaws and cracks that exist in the market that the absence of MOPR will shine a brighter spotlight on.” 

Dolan said the reliability analysis that ISO-NE and NEPOOL started last year “has to be sped up fairly dramatically” as market changes “expose those cracks a little bit more directly.” 

He said the second element is to have the market incorporate the fundamental policies “driving the states to push more contracts and more fixed charges on a retail bill right now.” Dolan said decarbonization is the most prominent single policy across New England. 

“While I am a firm believer that putting a meaningful price on carbon is the best, most efficient way to drive that investment in both new and existing resources, it’s not the only one,” Dolan said. “We’re hopeful that as we make this big transition to a post-MOPR world, it provides further acceleration and momentum to also better link and incorporate the state policies into the market.” 

Dolan said that would create a sustainable market design that supports investment in new technologies while maintaining reliability and a stable investment environment. 

Graceful Retirements

Pete Fuller of Autumn Lane Energy Consulting said when the ISO-NE markets were set up, “nobody outside of a very small minority” thought of carbon emissions, climate change or other environmental aspects. 

“The markets were set up based on the technologies we understood at the time, with a goal of maintaining reliability at lowest practical costs,” Fuller said. “Now we have a new objective that the states are injecting into the energy equation.” 

The markets have not caught up, and nobody has figured out whether a carbon price or another mechanism will help the markets, Fuller said, adding that it is not simply a technical problem. 

“There’s a lot of legal and political aspects to this because FERC has appropriate and, I think, pretty clear authority over liability and costs, but not so clear authority or ability to do anything on the emissions side. That’s been the realm of the states.” 

That leads to many questions in the “gray area,” Fuller said, such as whether ISO-NE and NEPOOL stakeholders can create a consolidated market or set of markets that maintain reliability at the lowest cost and meet emissions targets. As states accelerate their renewable energy objectives, it creates a different investment path, which created tension with the MOPR, he said. Fuller said the structure should “perpetuate itself” on a trajectory toward “a decarbonized decentralized system that really does meet the cost and reliability goals.”

Erin Camp of Synapse Energy Economics said some in the industry assume that removing the MOPR will further deflate capacity prices. He noted that, at its June 9 meeting, the Markets Committee held a discussion about improving the retirement signal.

At that meeting, FirstLight’s Tom Kaslow highlighted that restoring a meaningful retirement signal is fundamental to efficient market function and achieving state policy goals. The benefits 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 the balancing resources required to integrate them. 

“Right now, we have more supply than we currently need, and that keeps capacity prices at a record-low level,” Camp said. “Interestingly, despite those record-low levels, we haven’t seen the retirements that we should be.” 

Camp said there might not be a need for a new mechanism to replace the MOPR but a way to enable and improve the way existing resources can retire. 

“It’s hard to be a complete predictor of the future, but the markets are fairly uncertain, and we won’t know exactly the impact of removing MOPR until we get there,” Camp said. “We could take the same stance as we did with CASPR. We let it sit. We let it operate as it was designed for a few years to see if it would do what it intended to do before we decided to take further action. That is an approach that could make sense here to see what happens after you remove the MOPR, combined with the enabling resources to be able to exit the market successfully.”