Massachusetts Declines to Order Utilities to Enter Into Long-Term Capacity Contracts

The Massachusetts DPU has declined to order the electric distribution utilities to enter long-term contracts at this time, despite finding a need for new capacity in the NEMA/Boston zone in the next 10 years absent the construction of Footprint Power's 674 MW generating plant.

The Department found that, absent Footprint, there is a need for additional capacity resources in NEMA/Boston in the next ten years.

"However, the Department is concerned that ordering local distribution companies to enter into long-term contracts under Section 40 would unnecessarily and unduly disrupt the wholesale marketplace and shift the risks associated with generation development from developers, who are best positioned to manage such risks, back to consumers," the DPU said.

"The Department should only take the extraordinary step of ordering such contracts with definitive proof of a market failure and imminent reliability concerns, which does not exist at this time," the DPU said, declining to order the long-term contracting.

The DPU noted that the FCA #7 results show that Footprint cleared at essentially the FCM price cap of $15/kW-month for new resources, and that ISO-NE also reported that Footprint elected to maintain its Capacity Supply Obligation and Capacity Clearing Price for a total of five years. This five-year price provision was implemented by FERC with the expectation that the five-year commitment is sufficient to enable projects to be financed, the DPU said.

"In light of these factors, the Department agrees with the vast majority of the commenters that it is premature to order distribution companies to solicit long-term contracts for electric generating capacity for generating resources in NEMA/Boston under Section 40. Installed capacity is a product bought and sold in the regional wholesale electricity market. The Restructuring Act contemplated that electricity-related products would typically be purchased from the competitive market. Requiring distribution companies to enter into long-term contracts with generators under Section 40 would be proper only if there were convincing evidence that the competitive market had failed and that there were imminent reliability concerns. The evidence indicates that the FCA #7 process has worked as designed, notwithstanding that Footprint is correct that the FCM has suffered problems that ISO-NE and stakeholders continue to address," the DPU said.

"Although we assume for the purposes of finding need under Section 40 that Footprint will not be built, it would be premature for the Department to conclude that Footprint will in fact not be built absent a long-term contract. Indeed, a decision under Section 40 to order local distribution companies to seek long-term contracts with generators now would seem to ensure that the FCM market process will not be sufficient because, among other reasons, the financial community would likely wait for the Department's long-term contract proceeding to conclude before making its investment decisions," the DPU said.