FERC Largely Accepts ISO-NE Capacity Offer Floor Compliance Filing, Denies Complaint from States

FERC largely accepted a compliance filing from ISO New England concerning implementation of offer floors in the Forward Capacity Market, and denied a related complaint from state regulators concerning the offer floors.

Specifically, FERC rejected a complaint from the New England States Committee on Electricity, which had sought an exemption from the buyer-side mitigation rules for state-sponsored public policy resources (EL13-34).

Separately, FERC largely accepted a compliance filing from ISO-NE regarding the offer floors, accepting ISO-NE's proposals as filed concerning the offer floor trigger prices, the unit specific review process, and import rules. FERC denied protests which had sought to exclude self-supply resources from the offer mitigation measures and which sought an exemption for renewable resources.

FERC, however, did reject ISO-NE's request for a waiver of the Commission's prior directive that ISO-NE model eight zones for FCA 8, finding that the request was not supported. "We note, however, that this does not preclude ISO-NE from making an additional filing providing adequate support for the modeling of fewer than eight zones in FCA 8," FERC said.

ISO-NE had asserted that, subsequent to the Commission's acceptance of ISO-NE's proposal to model eight zones, ISO-NE's system had changed due to the addition of new transmission and generation. ISO-NE said that its system is now largely free of binding constraints, and will be entirely free of constraints within a few years, and thus a strict application of the obligation to model the eight capacity zones whose boundaries are the same as the eight energy zones is no longer just and reasonable.

"We recognize that the reduction in constraints ... may justify future zonal modeling with fewer than eight zones. Alternatively, binding constraints and local reliability problems that prove intractable, or that are not present now but arise in the future, may dictate an even larger number of zones," FERC said.

Additionally, FERC rejected ISO-NE's proposed methodology for reducing the offer floor of an uncleared resource that has already achieved commercial operation at the time of an FCA, and directed ISO-NE to submit a revised proposal.

FERC said that: "In calculating trigger prices, it is necessary to spread the resource's total investment costs over its estimated useful life. ISO-NE proposes to do so using the real levelization method, and we find that method just and reasonable. The trigger price is set equal to the real levelized costs in the first year of operation. Under real levelization, the nominal dollar cost of a resource increases with each passing year by the inflation rate. And in a recent case addressing buyer-side mitigation in NYISO's capacity market, we concluded that a resource's offer floor should increase over time by the rate of inflation for as long as the resource continued to be subject to an offer floor, in order for the offer cap to reflect entry costs over time. By contrast, under ISO-NE's proposal, a resource that has not yet cleared in an FCA would be allowed an offer floor that was lower than its first-year levelized cost, because its total investment cost would be reduced by the amount of accumulated straight-line depreciation. We conclude that this aspect of ISO-NE's filing is not just and reasonable, because it would establish an offer floor that is below the entry cost of the resource. We do not agree with ISO-NE that its proposal provides a reasonable balance between no mitigation and full mitigation in perpetuity. Rather, as we concluded in the NYISO order, a resource should be subject to an offer floor until it has demonstrated that it is needed by the market. Otherwise, it could circumvent effective buyer-side mitigation by entering the market at a time when it is not needed, and then becoming subject to an offer floor below its entry costs."

Docket: ER12-953