On June 30, 2015, FERC approved most of the proposed tariff revisions in a joint proposal from the ISO New England, Inc. (“ISO-NE”) and the New England Power Pool (“NEPOOL”) Participants Committee addressing the ISO-NE’s market monitor rules. Specifically, the proposed revisions are designed to mitigate the potential to exercise market power in the ISO-NE Forward Capacity Auction (“FCA”), which is used to secure capacity in ISO-NE three years in advance of the relevant delivery year. Going forward, the new rules approved by FERC will be implemented in ISO-NE’s next FCA in February 2016.
In general, ISO-NE and NEPOOL’s proposal contained four primary revisions: (1) increasing the dynamic “de-list bid threshold” – the lowest price at which resources are willing to supply capacity – from $3.94/kW-month to $5.50/kW-month; (2) limiting the amount, and flexibility, by which capacity suppliers can modify or withdraw their original static de-list bids after submission; (3) establishing a single pivotal supplier test for both capacity imports and existing capacity supply resources; and (4) revising the rules governing import capacity resources depending on whether the imports are more like existing or new resources. According to the joint filing, the proposed revisions received over 85 percent approval from ISO-NE stakeholders.
Despite general stakeholder approval in ISO-NE, several parties protested a variety of the proposed revisions. For instance, some parties opposed ISO-NE and NEPOOL’s proposal limiting the amount and ways in which a resource supplier can lower or withdraw its static de-list bid after submission. These parties argued that the new restrictions would negatively affect the FCA by limiting resource suppliers’ judgment and requiring existing resources to offer a higher de-list bid then they usually would be willing to accept during the capacity auction. Other parties objected to combining the current pivotal supplier test for existing resources and the pivotal supplier test for new import capacity recourses into a single pivotal supply test. These parties argued that because the combined pivotal supply test fails to account for all offers, including new capacity resources, it does not represent the actual conditions that dictate whether actual market power exists.
FERC accepted three of the four primary revisions proposed, rejecting the proposed changes to the static de-list bid rules. In doing so, FERC stated that the changes were inconsistent with competitive market principles and would prevent resource suppliers from taking actions that would tend to reduce FCA clearing prices. While FERC did acknowledge concerns that the current flexibility to lower or withdraw static de-list bids could be used as a “price exploration exercise,” FERC stated that those concerns did not “outweigh the resulting potential market inefficiencies” that could result when limiting the static de-list bid process. Meanwhile, FERC rejected all remaining protests, including those regarding the proposed single pivotal supply test. FERC generally stated that the single pivotal supply test is an improvement over ISO-NE’s existing tests, and recommended that ISO-NE continue to refine the test to alleviate stakeholder concerns, including how best to incorporate new capacity supply that is being offered competitively in the auction.
As a result of the rejected static de-list bid provision, FERC directed the ISO-NE to submit a compliance filing removing those proposed revisions from its tariff. The remaining, approved provisions were placed into effect as of June 1, 2015, as requested. A copy of the order is available here.