ISO-NE and stakeholders kicked off a two-day NEPOOL Markets Committee meeting Wednesday with a session strictly devoted to discussing removing the minimum offer price rule (MOPR) from the RTO’s capacity market.

The RTO presented its current thinking about the elimination of the MOPR and addressed stakeholders who sought clarity on two key issues discussed at the June 8-9 MC meeting: the rationale for proposing to eliminate the rule, and regional risk-related concerns with its removal. It 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.

Regarding the first issue, ISO-NE cited undercounting contributions to resource adequacy. High-cost resources developed to meet states’ policy objectives do not clear the Forward Capacity Auction when the MOPR is applied, which is inefficient over time and results in excess regional investment, absent any reform, it said.

It is a different situation from when the MOPR was developed a decade ago, according to ISO-NE. The original rationale for the rule was its ability to deter the development of high-cost, uneconomic resources.

As for the risk-related worries, the RTO said there is uncertainty for future capacity prices and the potential for inefficient retirements.

Investors in new and existing resources making capital expenditures face greater risk over future capacity prices without the MOPR. ISO-NE said that Potomac Economics, its External Market Monitor, will address this issue at the next MC meeting in August.

Imprecise measurement of technologies’ actual contributions to resource adequacy in the qualification processes and low-offer supplies without a MOPR could push premature retirement of resources whose flexibility, dependability and/or sustainability may be more valuable with high renewable penetration. ISO-NE said reliability risks are challenging to quantify. While addressable with new energy and ancillary service market designs, the RTO’s present concerns remain as inefficient retirements are irreversible.

The RTO is evaluating using the FCA market-clearing engine to simulate potential clearing impacts of the MOPR’s elimination and expects to have more specifics for stakeholder input in August to provide preliminary results for review in September.

Stakeholders Offer Ideas

Calpine and Vistra offered their initial conceptual approaches dealing with the removal of the MOPR.

Brett Kruse of Calpine discussed changing the market rule for capacity supply obligations (CSOs) by reducing capacity resources’ combined notification, start-up and minimum run and down times to 24 hours from 72 hours. Kruse said that regardless of what happens with the MOPR, ISO-NE should revise the rules for CSOs to reflect system needs better.

Kruse said CSOs are a tariff provision from the original Forward Capacity Market settlement in 2005 in which ISO-NE wanted to ensure that several limited generation resources exited the market. However, the requirement is administrative, and there was no analysis used to support it, he said. In 2005, the RTO wanted more flexible resources, because they are inherently more valuable. The need for flexible resources is more pronounced now than in 2005, and Kruse said that 24 hours is better for system reliability than 72 hours.

He added that the EMM reinforces a similar resource reliability assessment of the resources that may be affected by this potential rule change in its 2020 state of the market report.

Vistra’s Andrew Weinstein said that the capacity market must better accommodate state policy goals. While narrowing the MOPR is inevitable, durable capacity market design requires buyer- and seller-side market power mitigation. Weinstein said that eliminating the MOPR without replacement buyer-side market power mitigation is risky given FERC and court precedent.

Weinstein said that a Competitive Auctions with Sponsored Policy Resources (CASPR) transition that substantially accommodates state-subsidized resources while preserving investor confidence and avoiding cost shifts could be appealing as a permanent solution. He added that tying renewable technology resource exemption amounts to CASPR’s success will ensure the design is focused on material participation in the FCA by subsidized resources.

It would also give ISO-NE time to develop a durable market design, including effective load-carrying capability, a carbon solution and the required buyer-side mitigation rules that would need to be much narrower and more targeted than existing ones.