On February 21, 2020, FERC issued an order accepting ISO New England Inc.’s (“ISO-NE”) November 5, 2019 informational filing about the parameters of its fourteenth Forward Capacity Auction (“FCA 14”) for the 2023-24 Capacity Commitment Period (“Informational Filing”). In so doing, FERC rejected arguments from ISO-NE’s External Market Monitor and others that ISO-NE over-mitigated the bids of various energy storage resources by relying on improper assumptions and historical data. FERC’s order sparked a dissent from Commissioner Richard Glick.
Each year, as part of its Forward Capacity Market (“FCM”), ISO-NE administers an FCA where capacity resources compete to provide capacity to the region during the relevant one-year Capacity Commitment Period, which occurs three years after the FCA. ISO-NE is required by FCM rules to submit an informational filing to FERC at least 90 days prior to each FCA that must include, among other things, certain information about the resources accepted or rejected in the qualification process for participation in the FCA. Pursuant to the Tariff, unless FERC issues an order on the Informational Filing within 75 days, the determinations in the Informational Filing are used in the relevant FCA.
ISO-NE reported in the Informational Filing that FCA 14 resulted in 7,314 MW of new capacity resources and 34,905 MW of existing capacity resources competing to meet the ICR of 32,490 MW for the New England Control Area for the 2023-24 Capacity Commitment Period. ISO-NE also qualified 14 demand bids totaling 446 MW and 344 supply offers totaling 749 MW. Additionally, ISO-NE stated that it plans to model four capacity zones in FCA 14: (1) the Southeast New England Capacity Zone, which will be modeled as an import-constrained zone; (2) the Northern New England Capacity Zone, which will be modeled as an export-constrained zone; (3) the Maine Capacity Zone, which will be modeled as an export-constrained zone within the Northern New England Capacity Zone; and (4) the Rest-of-Pool Capacity Zone. Currently, ISO-NE’s Installed Capacity Requirement (ICR) is 33,431 MW, with a net ICR of 32,490 MW to be procured in FCA 14 after accounting for 941 MW of Hydro Quebec Interconnection Capability Credits.
In the Informational Filing, ISO-NE also reported on the resources that were qualified to participate in FCA 14. By way of background, as part of the resource qualification process, ISO-NE’s Internal Market Monitor reviews the prices at which resources propose to offer their capacity into the auction to ensure the resource cannot exercise buyer-side market power. The Internal Market Monitor issues a Qualification Determination Notification to each resource outlining its qualification to participate in the FCA and its offer floor. The Internal Market Monitor may adjust the resource’s requested offer price to a resource type-specific benchmark price, the Offer Review Trigger Price, set at a level that approximates that resource’s cost of new entry level that is consistent with the Internal Market Monitor’s estimated cost of new entry price for that resource type. Where a new resource proposes to submit an offer below the Offer Review Trigger Price, the resource must include in its qualification package financial assumptions and cost projections for the resource so that the Internal Market Monitor can verify its proposed unit-specific offer floor. If the Internal Market Monitor determines, however, that a proposed unit-specific offer price is “clearly inconsistent with the prevailing market conditions” the Internal Market Monitor will adjust the Offer Floor Price to the Offer Review Trigger Price. To ensure fairness, the Tariff requires ISO-NE’s External Market Monitor to review the “quality and appropriateness” of the Internal Market Monitor’s price determinations.
In response to the resource qualification determinations reported in the Informational Filing, the External Market Monitor filed comments arguing the Internal Market Monitor over-mitigated the various energy storage resources by relying on improper assumptions and historical data. It also argued that the Internal Market Monitor’s adjustments were “unreasonably low.” RENEW Northeast, Inc. (“RENEW”) and Able Grid Infrastructure Holding, LLC (“Able Grid”) each protested the Informational Filing. In its filing, RENEW argued that for FCA 15, FERC should require ISO-NE to use more realistic assumptions for how energy storage resources perform and may participate in the regulation market. Able Grid challenged the unit-specific offer floors that the Internal Market Monitor assigned to two of its battery storage projects, and that the Internal Market Monitor failed to properly consider the information Able Grid provided to support its proposed Offer Price Floors for those two projects.
While the Internal Market Monitor defended its methodology for calculating offer floor prices for energy storage resources, it agreed with protestors that it should engage with stakeholders and the External Market Monitor to develop a process for calculating the offer floor prices for energy storage resources.
In the February 21 Order, FERC accepted the Informational Filing, including the Internal Market Monitor’s Offer Floor Prices, finding that the Internal Market Monitor’s method relied on a “careful study” of submitted models and associated assumptions that were conducted within the proper timeframe. FERC found that the Internal Market Monitor created a reasonable model to mitigate Offer Floor Prices in anticipation of FCA 14. FERC also encouraged more open discussion between the Internal Market Monitor and market participants prior to future auctions. Regarding Able Grid’s claims, FERC found, among other things, that the Internal Market Monitor did not abuse its discretion and properly complied with the Tariff in making its determination about Able Grid’s two energy storage projects.
Commissioner Glick dissented, arguing that select energy storage resources are over-mitigated. Commissioner Glick specifically asserted that it is unjust and unreasonable to over-mitigate resources and apply buyer-side market power mitigation rules to resources that are not buyers with market power. He also noted that the friction between the Internal Market Monitor and External Market Monitor is evidence of the “litany of assumptions” made to establish an offer price floor, which he found to be problematic. Commissioner Glick stated his belief that the Commission should instead rely on energy storage market participants’ own expertise and judgment about the revenue that their business model can earn in the market.
Click here to read the Order.