By William Opalka

Its patience strained, FERC has ordered ISO-NE to develop rules for sloped demand curves in constrained areas in time for the 11th Forward Capacity Auction in 2017.

The commission ruled Dec. 28 that the ISO-NE Tariff is unjust and unreasonable because it uses vertical demand curves in constrained zones, “which does not sufficiently address concerns such as price volatility and a susceptibility to the exercise of market power.”

The commission opened a Section 206 proceeding (EL16-15) requiring the RTO to file Tariff revisions by March 31 and implement new rules for FCA 11 (delivery year 2020/21).

The commission had approved the RTO’s system-wide sloped demand curve in May 2014, conditioned on its promise to submit rules for sloped zonal curves by January 2015, in time for FCA 10 next month (ER14-1639). The commission granted extensions as the RTO, the New England Power Pool and stakeholders attempted to reach consensus. (See ISO-NE, NEPOOL Oppose Demand Curve Change.)

But it tired of the delays after the RTO said last May that it would be unable to institute sloped zonal curves for FCA 10. “Now, nearly a year after that [January 2015 deadline] … ISO-NE still has not filed with the commission to incorporate the use of sloped demand curves for the constrained zones,” the commission said.

“The continued delay creates uncertainty for market participants and the continued use of vertical demand curves in constrained zones results in less efficient markets and affects confidence in market outcomes. Accordingly, the general challenges cited by ISO-NE do not justify further delay.”

When vertical demand curves are used, FERC said, even small changes in supply can cause price volatility because a fixed amount of capacity must be procured. “In addition, because a small decrease in supply can lead to a significantly higher price, sellers may have an incentive to withhold certain resources,” it said.

FERC’s previous orders directed the RTO to eliminate the need for administrative pricing in zones that are short of generation resources or suffer from transmission constraints.

The problem of administrative pricing is acute in the Southeast Massachusetts/Rhode Island zone. In FCA 9, inadequate resources were offered in that zone, which forced administrative prices at $17.73/kW-month for 353 MW of new resources and $11.08/kW-month for 6,888 MW of existing resources. The other zones with adequate resources cleared at $9.55/kW-month.

The commission’s latest order also dismissed as moot a June 2015 motion by the New England Power Generators Association that sought to impose a sloped demand curve for FCA 10. (See NEPGA: Order Sloped Demand Curve in FCA 10.)

“NEPGA will have the opportunity to raise concerns when ISO-NE submits its zonal sloped demand curves proposal,” the commission said.