ISO’s proposed market design changes, such as Forward Capacity Market Performance Incentives (FCM PI) and ISO’s recent exigent filing on the administrative pricing rules, contained within part of the tariff that address Insufficient Supply/Inadequate Competition in the Forward Capacity Auction (FCA), could lead to FCA clearing prices for FCA8 and beyond that are more than twice the current rates.
FCM PI design looks to incent generators and other capacity resources to increase both availability and performance through an incentive structure that would charge under-performing and pay over-performing resources up to $5,455 MW-hr during times the bulk power system is in stress. FCM PI would lead to risk premiums added to FCA Offers putting upward pressure on capacity prices. Risk premiums would be in large part a reflection of the risk the varied vintages and technology types, which make up capacity supply resources, would face under the penalty structure. The risk premiums will also reflect a company’s low tolerance to risk (loss of money) even for very flexible resources, in essence valuing the downside risk heavier than any potential gains.
FCM PI has been through both the Markets and Participants Committee voting process garnering only 10.26% support from the New England Market Participants. An alternate proposal from NRG Marketing which does away with ISO’s FCM PI received 80.33% support. Under the “Jump Ball” provision of the Participants Agreement ISO must file both its FCM PI and NRG’s proposal without prejudice with FERC. ISO will make the “Jump Ball” filing with FERC on January 10, 2014.
ISO’s exigent filing on administrative pricing is in response to the New England Power Generator Association’s (NEPGA) FERC filed complaint on administrative pricing under FCM. If in FCA8 the auction is deemed to have insufficient competition, which is possible based on 3,100 MW of submitted Non-Price Retirements, ISO proposes an administratively set clearing price of $7.025/kW-month. By way of comparison the current Market Rule 1 language would have generated a clearing price of $3.46/kW-month. The NEPGA complaint before FERC would create a clearing price of $11.00/kW month.
The stakes are very high – either the exigent circumstances filing or NEPGA complaint could increase regional rates by 0.9-1.8 ¢/kWh (respectively) in mid-2017. By that time, transmission cost increases will add 0.7 ¢/kWh to customer electric rates. This could lead to substantially more expensive electricity for all New England electric consumers just a few years from now.
In the Reliability and Transmission Committee space ISO has brought forward proposed Tariff language that addresses FERC compliance requirement filings for FCM Capacity Zone definitions beginning with FCA9 and Order 1000 changes which will open the door to transmission projects being developed by non-incumbent transmission developers and implement cost allocation for Public Policy Transmission projects.
Capacity Zone definitions are important to assure resource adequacy needs for an area are identified and when the capacity zone binds in an auction a price signal is sent indicating the value of capacity for that area, ultimately providing investment signals. The methodology for Capacity Zone creation is equally important for ENE and its customers as it is an input to a Forward Capacity Auction. ENE is actively involved in these discussions with the topic coming to the Participants Committee for vote in March of 2014.
ISO and the Transmission Owner’s (TO’s) Order 1000 compliance proposals open the door, not without push back, for non-incumbent transmission developers to have a chance at developing and constructing New England transmission projects which could lead to lower costs and could create business opportunities for Public Power. ISO and the TO’s proposed cost allocation language for Public Policy Requirement transmission projects did not include an exemption for Public Power. Public Power has no state requirements in this space and therefore should not be subjects to such costs. Both the ISO/TO along with MMWEC’s proposal on cost allocation, which included a Public Power Exemption, were both rejected by Market Participants.