ISO-NE Seeks to Change Capacity Market Rules Because Current Regs Have Yet to Require Capacity Resources to Perform

ISO New England has sought changes to the forward capacity market design because the current rules have never actually required capacity resources to meet performance obligations.

Specifically, the ISO filed tariff revisions at FERC to modify the definition of Shortage Event in the Forward Capacity Market.

Shortage Events are periods when the performance of resources with Capacity Supply Obligations is measured to determine whether availability penalties should be assessed against capacity payments in the FCM.

Currently, a Shortage Event can only be triggered when the system has been deficient of ten-minute reserves for at least thirty contiguous minutes.

"Since the beginning of the first Capacity Commitment Period on June 1, 2010, however, there have been no Shortage Events," the ISO said.

However, that doesn't mean the grid hasn't faced reliability challenges. As previously noted, the ISO faced numerous reliability challenges last winter. Indeed, despite its mandated reserve margin, which load is fully paying for, ISO-NE previously, "concluded that New England could face a reliability gap of approximately 1.1 – 1.5 million MWh," this upcoming winter.

The ISO told FERC that it has encountered periods of thirty-minute reserve shortages when the system was "genuinely stressed."

But due to the current narrow definition of Shortage Event, these periods did not trigger any performance obligations for capacity suppliers.

The ISO submitted a proposed change to the definition of Shortage Event as well as an alternative offered by NEPOOL.

Specifically, under both the ISO and the NEPOOL proposals, the definition of Shortage Event is being expanded so that, in addition to the current trigger, a Shortage Event will also be declared in any Capacity Zone when the thirty-minute operating reserve requirement has not been satisfied for thirty or more contiguous minutes. The Tariff changes also contain modifications to the Shortage Event trigger specific to import-constrained Capacity Zones.

Where the two versions differ is in the implementation date for the changes.

Specifically, under the ISO proposal, the new definition of Shortage Event will apply beginning on November 3, 2013. On the other hand, under the NEPOOL proposal, the new definition of Shortage Event will apply beginning on June 1, 2017 (i.e. the beginning of the Capacity Commitment Period associated with the eighth Forward Capacity Auction, which will be conducted in February 2014).