A fractured Federal Energy Regulatory Commission late Friday approved a plan from Independent System Operator-New England for a dual capacity market to accommodate state-mandated policy goals for renewable energy.
The notational vote (not done at a public meeting but through the passage of paper among the commissioners) was 4-1, with Commissioner Robert Powelson dissenting, Commissioner Richard Glick dissenting in part and concurring in part, and Commissioner Cheryl LaFleur concurring, but raising issues about the implications of the order.
Chairman Kevin McIntyre and Commissioner Neil Chatterjee voted for the order without elaborating.
At issue was a proposal, filed in January from ISO-NE to deal with state mandates and subsidies for renewable energy generation, Those state-mandated subsidies were distorting the region’s federally-regulated competitive wholesale market. A broader issue is subsidies for uneconomic nuclear generation bidding into the PJM and New York ISO markets, which FERC will face later.
POWER magazine outlined the issue late last year:
“While ISO-NE has not faced the issue of subsidized nuclear units bidding into the market, as in PJM and the New York ISO (NYISO), New England states are subsidizing wind and solar generation, distorting the competitive market. ISO-NE’s proposed solution, drafted earlier this year and unveiled prior to a FERC technical conference in May, is a two-part auction process.
“The first stage would be a capacity auction run just as it is today, including a ‘minimum offer price rule’ (MOPR). The minimum price rule would likely mean that the subsidized generation wouldn’t clear the market and get capacity payments. A second, ‘substitution’ auction would then follow, run without the MOPR. Winners in the first auction that are open to retirement could pair up with subsidized resources not selected in the first auction.” Some have dubbed it “cash for clunkers.”
FERC signed off on the ISO-NE plan, which the ISO called the “Competitive Auction with Sponsored Policy Resources” or CASPR.
Powelson, in dissent, wrote, “The two goals that CASPR tries to achieve are fundamentally in conflict and cannot coexist in one market. By trying to both accommodate state policies and protect the [forward capacity market], CASPR will likely only accomplish one goal at the expense of the other. Today’s decision threatens the viability of the [forward capacity market] to serve as a mechanism to ensure resource adequacy in ISO-NE, and therefore, it is unjust and unreasonable and should be rejected.”
In a scathing partial dissent, Glick attacked the idea that federal policy must accommodate state actions through the MOPR mechanism, although he supported the ISO-NE order. Suggesting that the commission will have to again face the issue with the nuclear subsidies facing the New York ISO and PJM, Glick wrote that the FERC order “is ill-conceived, misguided, and a serious threat to consumers, the environment and, in fact, the long-term viability of the commission’s capacity market construct. The suggestion in today’s order that the commission will rely on MOPRs—or something similar—to mitigate the impacts of state public policies will eventually come to rank as a historically serious misstep.
LaFleur, the senior FERC commissioner, said she disagrees “with the generic guidance set forth in the order regarding how the commission should address the interplay of state policies and the wholesale markets,” although that disagreement “has no bearing on my determination to approve CASPR.” She added, “I am a strong supporter of wholesale capacity markets, which I believe have delivered substantial benefits to customers through regional resource selection and deployment, protecting reliability at least cost, and promoting innovation and efficiency. At the same time, I recognize that these markets exist due to the decisions of the states to change the structure of their regulated utilities, leading the regions to rely upon mandatory centralized capacity markets to sustain resource adequacy and reliability.”
The ISO-NE order is the first that confronts FERC with difficult decisions about state policies to influence wholesale market prices. Filings by PJM and the NY-ISO will present the commission with even more difficult issues.
Veteran FERC reporter Glen Boshart wrote in S&P Global on Saturday, “If an order issued late March 9 is any indication, the newly constituted Federal Energy Regulatory Commission is not going to have an easy time tackling the pressing issue of addressing the impact of state policies and generation choices on competitive wholesale markets.”
— Kennedy Maize