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FERC Dismisses Generators' Petition to Eliminate Clawback in Capacity Market

February 2, 2015

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Copyright 2010-15 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

FERC has dismissed a complaint from the New England Power Generators Association that had asked FERC to eliminate the Peak Energy Rent (PER) Adjustment in the ISO New England market, and to adjust the mechanism for capacity periods for which auctions have already been run.

The PER Adjustment is essentially a clawback to load of excessive revenues in the energy market earned by resources receiving a capacity payment, and obligates capacity suppliers to rebate a portion of their capacity revenues based on real-time energy prices. The PER Adjustment is designed to approximate the additional revenues that a hypothetical proxy peaking unit (the PER Proxy Unit) would earn in the real-time energy market during the highest-priced hours reflecting scarcity.

Generators had argued that new higher Reserve Constraint Penalty Factors, which would raise real-time prices during scarcity, would enlarge the PER clawback, but said that most capacity suppliers do not receive these higher real-time revenues since they sell day-ahead.

FERC dismissed the complaint as speculative and unsupported.

"NEPGA has failed to meet its burden under section 206 to demonstrate that ISO-NE's existing tariff provisions governing the PER Adjustment are unjust and unreasonable," FERC said.

FERC noted that generators, in alleging higher PER clawbacks would lead to insufficient capacity prices, failed to account for the existence of a price floor in the capacity market

"NEPGA fails to discuss whether the increased PER deduction would be greater than the amount of above-market revenues due to the price floor, and thus whether the net revenues received by capacity resources after accounting for the PER deduction would fall below market-clearing levels," FERC said.

"We also note that NEPGA does not address the goals of the PER Adjustment – namely, to provide load with a hedge against high energy prices and to discourage market manipulation in the energy market – and set forth how its proposed alternative will continue to accomplish those goals," FERC said.

While dismissing the complaint, FERC was ready to consider changes to the clawback if evidence were presented supporting NEPGA's arguments.

"If, at a future point in time, NEPGA or any other party is able to provide specific evidence that the interaction between the new Reserve Constraint Penalty Factors and the existing PER Adjustment mechanism has rendered the capacity rates for CCPs 5 through 8 unjust and unreasonable, the Commission will consider any such complaints at that time. At this point, however, the overall result of that interaction is a matter of speculation, and the Commission will not grant relief on that basis," FERC said.

Docket No. EL15-25

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