The NEPOOL Markets Committee (MC) voted March 12 to approve an additional two-year delay of ISO-NE’s Forward Capacity Auction (FCA) 19 to develop and implement a new prompt and seasonal capacity auction. FCA 19 applies to the 2028/29 capacity commitment period (CCP).  

ISO-NE has proposed to shift its forward capacity market, which is held about three-and-a-half years prior to the CCP, to a “prompt/seasonal” market held several months before the CCP, while procuring capacity separately for different seasonal periods. (See ISO-NE Moving Forward with Prompt, Seasonal Capacity Market Design.) 

The specifics of an eventual prompt and seasonal market have yet to be determined. The approved proposal would establish a backstop interim schedule that “shifts all FCA 19 activities back by another two years (three years total),” while implementing “a 10-month schedule over many auction cycles to return to three-year forward schedule,” said Chris Geissler of ISO-NE.  

ISO-NE intends for the backstop provisions to be ultimately overwritten by the final market design, which will be developed during the delay.  

Also during the delay, ISO-NE will prioritize developing a “market constraint approach” to accrediting gas resources once the two-year delay is approved by FERC, Geissler said. The RTO previously indicated this is its preferred gas accreditation approach but said it would not have time to develop this approach for FCA 19 with just a one-year delay. (See NEPOOL Markets Committee Briefs: Feb. 6, 2024.) 

If FERC accepts the additional delay, ISO-NE is planning to pause stakeholder discussions on its ongoing Resource Capacity Accreditation (RCA) project “and develop a work plan for a combined accreditation design with a prompt/seasonal capacity market to implement for CCP 19.” 

If the proposal is rejected by FERC, ISO-NE will proceed with the RCA project and target a filing in the fourth quarter of 2024. ISO-NE has not decided whether to pursue expedited treatment from FERC on the filing.  

Internal, External Monitors Offer Support

David Naughton, executive director of the RTO’s Internal Market Monitor (IMM), expressed support for the proposal, calling it a “a more cost-effective and efficient means of procuring capacity compared to the current forward market framework.” 

Naughton said a prompt and seasonal market would help reduce uncertainty related to projecting supply and demand about four years into the future, especially amid significant changes associated with the clean energy transition. 

Stakeholders have expressed concerns that the changes could reduce the forward notice of resource retirements, which are currently tied to the FCA process. ISO-NE has said the retirement process could be separated from the capacity auction to preserve this advanced retirement signal in a prompt format.  

“Under a prompt procurement time frame, the solution space for addressing reliability issues becomes constrained; there may be limited time and scope for transmission solutions or a market response to capacity exits,” Naughton wrote in a memo. 

“Therefore, it is likely beneficial for the retirement process to commence well in advance of the prompt time frame, with details to be developed regarding notification timing, irrevocability of the notification, market power assessments and auction treatment,” Naughton said.  

Potomac Economics, ISO-NE’s External Market Monitor, also expressed support for the move to a prompt and seasonal capacity market, as well as the additional two-year delay to achieve this design.  

Pallas LeeVanSchaick of Potomac Economics noted that the current FCM was initially designed to provide enough advance warning to enable investments in new gas capacity if the projected power supply did not match demand.  

However, the FCA has failed to incentivize these new investments “because developers receive only one year of guaranteed revenue for resources with much longer economic lives and it can create inefficient risk for developers related to the required in-service date,” LeeVanSchaick said. 

LeeVanSchaick added that recent out-of-market reliability mechanisms like the Mystic Cost-of-Service Agreement and the Inventoried Energy Program indicate that the current FCM is not adequately ensuring winter reliability.  

“The most common reason resources are retained out-of-market is that the market does not fully reflect the reliability need the resource is satisfying,” LeeVanSchaick said. He downplayed concerns raised by some stakeholders that a prompt market would increase risk of out-of-market retentions by reducing the advanced notice of resource retirements.  

“When a capacity market (regardless of whether it is a prompt or forward market) is designed to set prices efficiently at each location and all reliability needs are reflected in its requirements and resource accreditation, the need to retain resources out-of-market will be very limited,” LeeVanSchaick said.  

“If the capacity market compensates resources efficiently, retirement-driven reliability needs are usually so localized that a transmission solution can be completed in time to allow the generator to retire rather than be retained out-of-market or to be retained for a relatively short duration,” he added. 

LeeVanSchaick also disagreed with some concerns raised by stakeholders that a prompt market could increase capacity market volatility, arguing that a prompt market would instead lead to more stable prices by providing more flexibility to suppliers and eliminating the “phantom new entry” of delayed generation projects with capacity commitments, “which has led to significant price suppression in some FCAs.” 

The proposal now heads to a Participants Committee vote in early April.