As stakeholders and ISO-NE work to eliminate the minimum offer price rule (MOPR) from the Forward Capacity Market (FCM), the NEPOOL Markets Committee discussed multiple proposals centered on potential transitional mechanisms at a meeting last week.
The meeting was a product of four stakeholders — FirstLight Power, Calpine, Vistra (NYSE:VST) and Energy Market Advisors — who agreed to delay their presentations from the Aug. 10-12 MC meeting so that Jeffrey McDonald, the RTO’s vice president of market monitoring, could provide his opinions on the removal of the MOPR.
FirstLight
Changes to the MOPR, along with improved retirement signals and rules, would make reliability aligned with state policy goals, according to a presentation by FirstLight’s Tom Kaslow that highlighted a revised capacity performance payments (CPP) proposal.
Market changes are needed to value the differences in energy call options each capacity seller must provide under its capacity supply obligation (CSO). That is because the value cannot, by definition, be realized through spot energy and operating reserve prices, Kaslow said. The revised CPP design defines a common strike price for all capacity resources enforced in the highest 1% of real-time LMP hours.
Capacity resources with higher strike prices would be required to buy the gap between their strike and the common strike price, with those proceeds used to compensate the resources that made the common strike value possible. Thus, the revised CPP design would complement, not replace, effective load-carrying capability (ELCC).
Calpine
ISO-NE should revise the rules for CSOs to reflect the system’s needs better, regardless of what happens with the MOPR, Calpine’s Brett Kruse said in his presentation. That would be accomplished by reducing capacity resources’ combined notification, start-up and minimum run and down times to 24 hours from 72 hours.
PJM had similar cycling parameters until it changed expectations for its Capacity Performance product. Kruse noted that Calpine is not proposing PJM’s parameter values, only using them to demonstrate what is possible. In addition, parameter changes typically do not require significant capital outlays, just changes in operating practices.
The resource dispatch cycle, Kruse added, would now efficiently mimic ISO-NE’s dispatch cycle, making everything line up within 24 hours. The change should also fit with an upcoming capacity accreditation initiative that would allow even more fine-tuning.
Vistra
Vistra’s Andrew Weinstein floated altering Competitive Auctions with Sponsored Policy Resources (CASPR) for a three-year transition period instead of outright eliminating the MOPR, arguing that doing the latter would not fly with FERC.
The company’s proposal would reinstitute the renewable technology resource (RTR) exemption and allow bilateral transactions.
“A CASPR transition that substantially accommodates state-subsidized resources while preserving investor confidence and avoiding cost shifts could be appealing to all sides of NEPOOL, as well as both Republicans and Democrats at FERC, as a solid path forward towards a permanent solution,” Vistra said.
Calpine has already indicated its support for this proposal, and Weinstein said he anticipates it will become a co-sponsor as the process moves forward.
Energy Market Advisors
Brian Forshaw of Energy Market Advisors said that the rationale for a transition mechanism is “becoming increasingly obvious,” as eliminating the MOPR for Forward Capacity Auction 17 makes it difficult to identify solutions that will not distort long-term price signals or could be implemented in that time frame.
According to Forshaw, the goal should be to allow relaxation or elimination of the MOPR while assuring that FCA clearing prices don’t collapse below the level of recent capacity auctions.
The most straightforward approach would be suspending the MOPR tariff provisions starting with FCA 17 and implementing a temporary price floor, effective with the suspension of the MOPR. If a more durable solution is not in place after two years, he recommended implementing a net cost of new entry (CONE) adder as proposed by Potomac Economics, the RTO’s External Market Monitor, that reflects permanent MOPR elimination and the effects of significant market enhancements.
Forshaw said he would also be willing to consider the Vistra proposal. Still, he would want to explore the potential impact on balancing resources and may need a fallback option at the end of the transition period if a more durable solution is not ready.
Feedback from ISO-NE
ISO-NE offered its feedback on the stakeholders’ proposals, though none amounted to tantamount support.
On FirstLight’s CPP proposal, the RTO outright said it does not support it. CPP create incentives for efficient resources to enter the market under both long and short capacity conditions in a capacity market. Still, the FCA price loses its entry and exit signals. There is also a disincentive to follow the RTO’s dispatch in forecasted critical times, impacting real-time price formation.
ISO-NE also does not support the reduction of cycle-time provisions of the FCM rules, as Calpine proposed. Calpine would limit participation in the FCA based on a single, predetermined operating characteristic. According to the RTO, the ability of a resource to contribute toward meeting the loss-of-load criteria is dependent on many factors, not just cycle-time limits such as single-source contingencies and fuel arrangements, among others.
The RTO’s initial observations of Vistra’s proposal were that such transition mechanisms generally require detailed rules across multiple periods, presenting challenges on an expedited timeline. However, the RTO added that implementation concerns also exist as the conceptual approach would impact many systems.
It had similar concerns with the transition mechanism proposed by Energy Market Advisors, which floated a balancing resource concept. ISO-NE said that such a concept is not feasible for an FCA 17 filing, as many complex rules would need to be defined around the settlement and qualification of those resources. The RTO cannot address complex design elements before the first quarter of 2022 filing with FERC.
ISO-NE did, however, appreciate the resource accreditation aspects of the proposal and said it shares the goal of accurately accounting for contributions toward resource adequacy.