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Admit: FERC Concedes Capacity Market "[F]orc[es] Consumers to Pay for Capacity Without Receiving Commensurate Reliability Benefits"
ISO New England's current capacity market design, "fails to provide adequate incentives for resource performance, thereby threatening reliable operation of the system and forcing consumers to pay for capacity without receiving commensurate reliability benefits," FERC conceded in an order Friday.
Although customers have been paying for capacity without receiving commensurate reliability benefits for years, customers won't be recompensed for this government-compelled wealth transfer.
However, FERC is ostensibly acting to require greater performance from capacity resources, but whether this actually produces value to customers remains to be seen.
Specifically, FERC, in ruling on dueling plans from ISO-NE and NEPOOL to address non-performance by capacity resources in the existing capacity market, found neither proposal to be just and reasonable on its own, and adopted elements from both proposals.
Despite load paying billions for capacity resources, "the record here shows that resource performance in the region has deteriorated in recent years," FERC said.
"As ISO-NE explains, the overall rate of unplanned outages across the entire New England generating fleet has more than doubled since 2007, and the average response rate for generators dispatched following a contingency is only 71 percent," FERC said.
This is the market design generators want for Texas, remember.
"These conditions evidence that the current market construct has not sufficiently influenced capacity suppliers’ longer-term investment and retirement decisions to ensure that their resources can reliably provide energy and reserves when called upon, particularly during reserve deficiencies. For example, as multiple parties assert, the existing FCM treats many resources as if they are fully available to operate during Shortage Events, and pays them accordingly, even when those resources are unable to deliver energy or reserves at that time."
"These existing payment features of the FCM not only fail to incent resource performance, but also perversely select less reliable resources over more reliable resources because a capacity supplier’s decision to forego investments that would improve resource performance allows it to offer into the FCA at a lower price," FERC concluded [emphasis added] -- something we have constantly emphasized as Texas generators have harped about the danger of relying on 50-year power plants ("clunkers") to meet summer peaks (a problem that would only be perpetuated by the capacity market).
FERC found several discrete problems with the ISO-NE pay-for-performance proposal (which would essentially pay well-performing resources additional monies, funded by deductions in compensation to poor-performing resources), but generally will adopt (subject to a compliance filing via a section 206 proceeding) the proposal over the NEPOOL alternative, which ISO-NE found could actually reward poor-performing resources.
The NEPOOL alternative did not include a specific pay-for-performance design in the capacity market, instead calling for energy and ancillary market changes, as well as creation of a new metric -- Equivalent Peak Period Forced Outage Rate (EFORp).
However, FERC determined that NEPOOL's EFORp metric is, "flawed."
"By measuring a resource’s performance only against its own historical performance, NEPOOL’s proposed EFORp metric may inappropriately reward poorly-performing resources and penalize highly-performing resources, which could further erode reliability in the region," FERC said.
FERC did find appropriate NEPOOL's proposed increases in the Reserve Constraint Penalty Factors, and adopted such changes, along with most of the provisions in ISO-NE’s proposal, with modifications.
Specifically, the Reserve Constraint Penalty Factors is to be increased to $1,000/MWh for 30-minute operating reserves, and to $1,500/MWh for 10-minute non-spinning reserves.
Docket ER14-1050
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June 2, 2014
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Reporting by Paul Ring • ring@energychoicematters.com
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