Co-op, muni, clean energy groups target capacity reforms in FERC letter
Dive Brief:
- A coalition of groups representing utilities, renewable energy providers and environmentalists sent a letter to the Federal Energy Regulatory Commission on Monday outlining principles for wholesale electricity market reforms.
- The groups outlined five priorities for market reform, saying policies should be technology-neutral, respect state energy policies, allow for bilateral contracts, value reliability and resilience attributes, and minimize uncertainty and barriers to entry. Current constructs, particularly in capacity markets, do not meet these standards, they argued.
- The letter comes as concerns mount over ongoing price reforms at FERC and regional grid operators that some observers fear could be used to overrule state clean energy policies or keep uneconomic generators online. The letter will be filed in FERC’s ongoing grid resilience and state policy proceedings.
Dive Insight:
As FERC and regional grid operators prepare for a hard look at wholesale market rules in 2018, a broad group of energy interests this week laid out their issues with current capacity market constructs, as well as their priorities for reform.
Today, groups wrote, capacity markets in some electricity markets “include design features that may limit choice, create conflicts with state and local policy objectives, over-procure or unnecessarily retain capacity, and raise costs for customers.”
Any reforms to those models must ensure that there is a “clear responsibility for resource adequacy,” they wrote, but also prevent “costly over-procurement.”
The signatories to the letter include the National Rural Electric Cooperative Association, American Public Power Association, American Wind Energy Association, Solar Energy Industries Association, and Natural Resources Defense Council, as well as groups representing energy consumers and other clean energy associations.
The letter echoes concerns from some market watchers in the Eastern Interconnect, who worry that proposed reforms to capacity markets in ISO-New England and the PJM Interconnection could incentivize the deployment of more generation in already oversupplied markets. ISO-NE currently has a two-part capacity market reform before FERC, while PJM last month said it would submit two competing capacity market proposals and allow the commission to pick.
“The policy call [on capacity repricing] should be made by the regulator, not by us,” PJM CEO Andy Ott told Utility Dive in an interview last week.
The capacity market reforms would both separate capacity auctions into two parts — a first auction for all resources and a second one where subsidies are removed. The intent is to prevent subsidized renewables and nuclear from depressing market prices, but some observers worry they will exacerbate oversupply issues.
“The cure to low [wholesale market] revenue is to remedy the extreme oversupply situation in PJM by letting unneeded capacity retire,” said Robbie Orvis, director of energy policy design at Energy Innovation, “not to pay all plants more and encourage new entry.”
Dive Brief:
- State regulators and market participants are divided over ISO-New England’s proposal to enact two-part capacity market auctions to better integrate state energy policies into its market construct.
- State regulators from Massachusetts, Maine and New Hampshire filed comments at the Federal Energy Regulatory Commission in support to ISO-NE’s Competitive Auctions with Sponsored Policy Resources (CASPR) proposal, while Vermont, Rhode Island and Connecticut opposed it.
- Power generators also filed comments in support of the proposal, while renewable energy and consumer advocate interests pushed for changes or rejection.
Dive Insight:
ISO-NE unveiled its two-part capacity auction in April 2017 after a series of stakeholder meetings over how to better integrate state energy policies into its wholesale market construct.
The concern is that resources supported by state energy policies — like renewable energy mandates or nuclear credits — will push down capacity market prices as they proliferate, forcing unsubsidized resources out of the market and potentially threatening reliability.
To fix that, ISO-NE proposes to split its capacity markets in two. The first round of capacity auction would work much like the current one, with resources subject to existing minimum pricing rules and other obligations.
Then, in a second auction, retiring resources that earn capacity supply obligations in the capacity market could transfer those obligations to new, subisidized resources that do not have the obligation. The existing resource — like a coal plant — would then retire and pay the subsidized resource — such as wind or solar — for meeting the obligation.
The price for those resources would be determined by this “substitution auction” in a manner similar to the settlement process that occurs today between the real-time and day-ahead energy markets.
“Because no [minimum pricing rule] is applied in the substitution auction, sponsored new resources seeking [capacity supply obligations] can offer at, and the substitution auction will tend to clear at, a lower price than the primary auction,” ISO-NE wrote in its proposal at FERC. “Accordingly, existing resources that clear as demand in the substitution auction are generally able to shed their obligations at a lower price than they receive in the primary auction.”
The proposal drew mixed reviews from ISO-NE players, even splitting stakeholders from the same state, RTO Insider notes. Massachusetts Attorney General Maura Healey opposed the measure, writing in comments that it would make consumers “pay twice for the same capacity.” The state Department of Public Utilities, however, wrote that it supported the plan because it would “prevent direct harm to Massachusetts ratepayers and the inefficient development of more generation resources than the region requires.”
Power generators — largely gas- and oil-fired plants in ISO-NE — stand to gain from higher capacity prices as a result of the plan. The New England Power Generators Association asked FERC to approve the plan as a “reasonable compromise between maintaining competitive pricing in the Forward Capacity Auction and allowing otherwise uneconomic, subsidized renewable, clean and alternative resources to acquire Capacity Supply Obligations.”
Consumer and environmental groups pushed back on the proposal, asking ISO-NE to preserve existing exemptions to minimum pricing rules that leave out subsidized renewables. Similar pricing reforms have been proposed in PJM, and debate over the market changes are likely to be a focus at FERC in 2018 after the commission rejected a Department of Energy proposal to subsidize coal and nuclear plants.