One aspect of New England’s capacity market rules “will have a catastrophic impact on clearing prices” in an upcoming auction according to a recent complaint filed at FERC by the New England Power Generators Association (NEPGA). The auction-based wholesale electricity capacity market operated by ISO New England secures one-year commitments to supply electricity three years ahead of time.
Of concern here is that a relatively large (1,500 MW) generating plant that has been participating in the capacity market is now too costly to participate in the next auction and wants to leave the market. The ISO determined, however, that the plant is needed to keep the lights on and will pay the plant’s costs to remain available without participating in the auction. According to the complaint, under the market rules, the plant will be counted towards the capacity to be secured in the auction and included in the auction as if it were a price-taker. According to the complaint, this treatment effectively moves this relatively large high-cost resource to the bottom of the supply curve, thereby shifting the supply curve to the right, and will lower the clearing price in the auction by displacing what would otherwise be the marginal, price-setting resource.
NEPGA argues that capacity prices will be artificially low, which distorts the price signal intended to encourage new entry and discourage the premature exit of needed existing generation. And, according to the complaint, the impact of the price suppression could be substantial. NEPGA’s consultant estimates an impact between $74 million and $446 million in the next auction and in only one geographic zone of the market.
NEPGA wants the rule changed so that the capacity at issue is not counted toward the capacity to be procured in the auction. ISO New England already plans to change the rule in time for the auction to be held in 2015 but NEPGA wants the rule changed in time for this year’s auction, scheduled to be held in February.
FERC has an ongoing proceeding to consider how the capacity markets in the northeast U.S. are performing. Accordingly, FERC’s response to the NEPGA complaint will be closely watched.
Interventions both in opposition to and in support of the complaint must be filed with FERC by January 21.