Thursday, April 19, 2018

ISO-NE Two-Tier Auction Proposal Gets FERC Airing

By Rich Heidorn Jr.

WASHINGTON — ISO-NE presented its proposal for a two-tiered capacity auction at last week’s FERC technical conference, saying it would incorporate state-mandated renewable generation while preventing oversupply and addressing objections to a regional carbon tax.

The RTO released a 33-page description of the Competitive Auctions with Subsidized Policy Resources (CASPR) proposal a week before the conference.

The proposal, developed with Market Monitor David Patton, would provide financial incentives for existing, high-cost capacity resources to transfer their capacity obligations to subsidized new resources and permanently exit the capacity market through a two-stage, two-settlement process. The RTO said it could be in place for Forward Capacity Auction 13 in February 2019.

LaFleur | © RTO Insider

Although it is not the only short-term proposal being considered by policymakers in New England, it appears to be the clear front-runner. It survived the technical conference without coming under attack and is the “farthest along” among the stakeholder initiatives in the three Eastern grids, said acting FERC Chair Cheryl LaFleur at the close of the two-day conference (AD17-11).

Kaslow | © RTO Insider

Although the New England Power Pool has not taken a position on the proposal as a group, Participants Committee Chair Tom Kaslow in January presented a similar “paired retirement election” concept on behalf of his company, FirstLight Power Resources.

The proposal arose out of NEPOOL’s Integrating Markets and Public Policy (IMAPP) initiative, launched last August in response to state officials’ concerns that consumers could end up facing excessive costs for meeting state renewable procurement mandates and to generators’ fears that out-of-market resources will suppress capacity prices.

nameplate clean energy ferc iso-ne

Bentz | © RTO Insider

The CASPR proposal was designed to address the concern that consumers would end up “paying twice” for capacity — once for resources that clear in the FCA, and a second time for subsidized state-mandated renewables that could be prevented from clearing by the minimum offer price rule.

Failing to coordinate ISO-NE’s capacity market with state renewable procurements would lead to a “train wreck … [that] would probably be the end of the markets as we know them today,” said Jeffrey W. Bentz, director of analysis for the New England States Committee on Electricity.

Drivers and Goals

New England states are set to procure more than 3,600 MW of nameplate renewable generation:

  • Connecticut is negotiating out-of-market contracts for 375 MW of nameplate clean energy capacity.
  • State regulators in Massachusetts, Connecticut and Rhode Island are considering out-of-market contracts for 460 MW of nameplate clean energy capacity resulting from their three-state solicitation.
  • Massachusetts’ 2016 energy bill required its utilities to purchase about 1,200 MW of new renewables, including onshore wind and hydropower and 1,600 MW of offshore wind. The state issued its first solicitation March 31; a second is expected by June 30.

‘Cash for Clunkers’

ISO-NE said it developed its proposal with a goal of avoiding excessive capacity spending and cross-state cost shifts while continuing its Forward Capacity Market and minimizing the price-suppressive effect of out-of-market subsidies.

In the first stage, ISO-NE would clear the auction as it does today, applying the MOPR to new capacity offers to prevent price suppression. In the new second “substitution” auction, generators with retirement bids that cleared in the primary auction would transfer their obligations to subsidized new resources that did not clear because of the MOPR.

Because the substitution auction will not use the MOPR, it will clear at lower prices than the primary auction, enabling existing resources to buy out their obligations at a lower cost in return for retiring.

The savings would in effect be a “severance payment” to the retiring resources, ISO-NE said. “The substitution auction might reasonably be viewed as an auction-based ‘cash for clunkers’ secondary market,” the RTO said, referring to the Obama administration’s 2009 program to encourage the retirement of older, gas-guzzling autos.

ISO-NE said it believes it can implement the proposal before March 2018, when the retirement window opens for FCA 13, which will acquire capacity for the delivery year beginning June 2022. “This timing is important given the anticipated schedule for substantial new state-sponsored resources to enter service in 2022,” the RTO said.

Questions about CASPR

CASPR attracted little opposition at the technical conference.

New Hampshire Public Utilities Commissioner Robert Scott said pointedly in his written testimony that he was taking no position on the proposal. “What I want is not to pay for Massachusetts’ and Connecticut’s policies,” he told FERC during live testimony.

nameplate clean energy ferc iso-ne

Chairman Angela O’Connor, Massachusetts Department of Public Utilities (left) and Scott | © RTO Insider

CASPR was based on an idea submitted by NRG Energy last October, one of two two-tier proposals that consultant James Wilson evaluated for NESCOE. Wilson said that NRG’s proposal was an improvement on one submitted by public power representatives that he concluded would result in excessive costs and distort the incentives to submit competitive offers.

Wilson said the NRG proposal addressed the problem with public power’s handling of “tweener” resources — those that don’t clear because their offer prices fall between stage 1 and 2 clearing prices. But he said that comes at a cost: The scaling of capacity awards means all resources, including competitive and self-supply resources, receive reduced awards. Because of the reduction, “resource owners that need a certain minimum revenue may be inclined to raise their offer prices to make up for the pro rata quantity reduction,” Wilson said.

Other Proposals

NEPOOL says stakeholders have reviewed more than 17 proposals during the IMAPP sessions, many of them designed to “achieve” state policy in the wholesale market (long-term proposals), and “a few other” proposals such as CASPR to “accommodate” state-sponsored resources while addressing capacity market pricing concerns (near-term proposals).

Aside from the two-tier/paired retirement options, NEPOOL said the proposals fell into three categories:

  • Carbon pricing in the energy market: A carbon adder would be included in energy offers and reflected in clearing prices. The adder would be collected from carbon emitters and redistributed to ratepayers.
  • Carbon-Integrated Forward Capacity Market (FCM-C): A new zero-emission credit market would be integrated with the FCM to incorporate a forward signal for clean/renewable energy into the market.
  • Forward Clean Energy Market (FCEM): A new forward market for commitments to deliver clean energy that would support new or existing clean energy resources.

No to Carbon Pricing

Although New York and the New England states have been participating in the Regional Greenhouse Gas Initiative cap-and-trade carbon market since 2009, the RGGI emissions limits would have to be substantially reduced to make the resources sought by the states economic in the RTO markets, Patton said.

nameplate clean energy ferc iso-ne

NYISO CEO Brad Jones (left) and Patton | © RTO Insider

“We do not believe it is likely that the states will rely on the RGGI market or a carbon tax to achieve their public-policy objectives, although this would likely be the most efficient and effective approach,” Patton said.

Other New England stakeholders agreed with Patton’s prediction.

In an April 7 memo to NEPOOL, NESCOE outlined its opposition to “a FERC-jurisdictional tariff reflecting carbon pricing.”

“These concerns include risks to states’ ability to make their own determination regarding the implementation of their carbon-reduction laws. For example, as illustrated in recent years, a few market participants with an appetite and budget to litigate matters could seek to disrupt a design over which ISO-NE, NESCOE and NEPOOL find agreement.  FERC could also seek to direct changes on its own initiative,” Bentz said.

nameplate clean energy ferc iso-ne

Forshaw | © RTO Insider

“Conceptually, assessing a price for each ton of carbon emitted by an electric generator, and crediting those revenues to load that would be paying higher energy prices, seems simple to understand,” said Brian Forshaw, who appeared at the conference on behalf of public power agencies in Connecticut, New Hampshire and Vermont. “In a practical sense … there are substantial challenges associated with deciding on the initial carbon price and figuring out how to adjust the price over time to achieve desired carbon reduction levels, deciding who will get the rebates and in what form, and legal questions over whether the ISO has the authority to charge generators for carbon emissions.”


Charles River Associates senior consultant Robert Stoddard, who testified on behalf of the Conservation Law Foundation, briefed the commission on his proposed Carbon-Linked Incentive for Policy Resources (CLIPR). Under CLIPR, load-serving entities would pay state “policy” resources an energy price premium that would fluctuate based on the “marginal carbon intensity” (MCI) of the dispatch, “a direct analog to the LMP but computed as lbs-CO2/MWh instead of $/MWh.”

Stoddard | © RTO Insider

Stoddard said the proposal would address most of the problems with the carbon adder, with the clearing price determined by the market, “simultaneously removing administrative discretion and assuring that the prices paid are supporting the particular policy resources demanded.”

The incentive would likely be zero in hours with negative prices because the marginal resource is likely to be zero-emitting. CLIPR delivery rights could be traded bilaterally.

Bentz was intrigued by the idea and said he plans to discuss it in detail with Stoddard.

NextEra Energy and RENEW Northeast, a group of renewable energy companies and environmental interest groups, offered the proposal to create a FCEM.

Kaplan | © RTO Insider

RENEW Chair Seth Kaplan, EDP Renewables’ senior manager for regional government affairs, outlined the group’s proposal to FERC, in which he said the RTO, electric distribution companies and states would cooperatively manage resource procurements.

ISO-NE would study the network upgrades needed to connect renewable generation in the interconnection queue. When there is a competitive clean energy solicitation, EDCs and state regulators could consider competitive transmission solutions to address the network upgrades, agreeing to bear the cost under a public policy designation. The cost allocation would be identified by the opting-in EDCs and filed for FERC approval by the participating transmission owners as a participant-funded project.

In January, public power representatives presented a proposal to amend the FCM to ease bilateral contracting by LSEs with generation assets.

Next Steps

On April 7, NESCOE issued a memo saying that the states needed additional time to further study the long-term proposals presented to date.

NEPOOL said it will consider ISO-NE’s near-term proposal at its regular meetings beginning with the June Markets Committee meeting. In addition, NEPOOL said it expects discussions to continue at events over the next two months:

  • May 17: Next IMAPP
  • June 4-7: New England Conference of Public Utilities Commissioners annual symposium.
  • June 27-29: NEPOOL Participants Committee annual summer meeting.

FERC’s agenda said the technical conference “may address matters at issue” in the following pending dockets:


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