FERC orders ISO-NE to nix new power suppliers’ ability to ‘lock in’ capacity prices RSS Feed

FERC orders ISO-NE to nix new power suppliers’ ability to ‘lock in’ capacity prices

Washington — The Federal Energy Regulatory Commission has found that ISO New England’s capacity market rules allowing new entrants to “lock in” their initial clearing price for seven years are no longer just and reasonable, and directed the grid operator to remove the price lock and associated zero-price offer provisions from its tariff.

New power suppliers in ISO-NE, since the inception of its forward capacity market, have been able to lock in their first-year forward capacity auction clearing prices and bid into subsequent auctions as price takers, which submit offers at a price of zero, during the lock-in period to ensure they clear. That lock-in period was initially five years but was extended to seven in 2014 to aid with project financing and investor assurance as the region faced potential capacity shortages and a decline in capacity market participation by new resources.

Price-locked generators forego receipt of higher clearing prices in later FCAs but mitigate any downward price risk. The New England Power Generators Association, Exelon and Calpine filed complaints with FERC in 2013 and 2014, arguing that the rules unfairly gave new suppliers a windfall while reducing potential payments to existing suppliers in the entry and post-entry capacity auctions (EL14-7, EL15-23).

Paper hearing
FERC rejected those complaints, but the DC Circuit Court of Appeals ruled in 2018 that FERC failed to adequately explain why it did not order ISO-NE to implement an offer floor for its seven-year price-lock despite previously rejecting PJM Interconnection’s effort to remove the offer floor for its three-year price-lock period (New England Power Generators Association v. FERC, 15-1071, 16-1042).

In a July 1 order on remand, FERC preliminarily found that the new entrant rules were no longer just and reasonable. But given the more than five years since the complaints were filed and substantial changes to the FCM made during that time, the commission opted to provide parties an opportunity to refresh the record.

It launched a paper hearing (EL20-54), which posed questions for parties to address in briefs in an effort to evaluate the continued need for the price lock, the option of retaining the price lock and adding an offer floor and whether to impose an alternative replacement rate.

FERC, in a Dec. 2 order, found that the new entrant rules “result in unreasonable price distortion.”

“Based upon the record, we find that the FCA price assurance that the commission previously found necessary in approving these rules is no longer required to attract new entry,” the order said. “Consequently, the benefits provided by the price certainty afforded by the new entrant rules for new capacity resources no longer outweigh their price suppressive effects.”

Read full article at Platts