FERC Approves ISO-New England’s Competitive Auction with Sponsored Policy Resources

Last Friday, FERC issued a divided opinion approving ISO-New England’s (ISO-NE) proposed Competitive Auction with Sponsored Policy Resources (CASPR).  CASPR is ISO-NE’s effort to better accommodate recent actions taken by states, outside of the wholesale markets, to promote new, preferred generation resources.

Before CASPR, resources that received out-of-market state support were prohibited by the Minimum Offer Price Rule (MOPR) from reflecting that support through lower priced bids in ISO-NE’s Forward Capacity Auction.  CASPR creates a second stage to the auction, or a “substitution auction,” in which resources that successfully bid on capacity obligations in the primary auction can offer those obligations to state sponsored resources, who would not be subject to the MOPR in this substitution auction.  If an offer clears the substitution market, the existing resource would agree to permanently exit all ISO-NE markets and receive a one-time payment for the difference between the clearing price of the primary auction and the clearing price of the substitution auction.  The state supported resource would assume the same capacity obligations as the entity that received them through the primary auction, and in future years it will be treated as an existing resource and not bound by the MOPR.

FERC’s decision consists of two main parts.  The first is its decision to approve the specific CASPR plan proposed by ISO-NE.  All of the Commissioners, except for Commissioner Powelson, agreed that ISO-NE had demonstrated that its proposal was just and reasonable and not unduly discriminatory.  Commissioner Powelson, in contrast, wrote that CASPR fails to solve the fundamental incompatibility between supporting state policies and protecting the viability of the Forward Capacity Market.  In his view, states cannot be in control of what resources generate electricity in their states while still relying on the wholesale market to provide resource adequacy and reliability.

The other, more contentious, part of the order addressed FERC’s overall approach to state policy efforts and capacity markets.  Chairman McIntyre and Commissioners LaFleur and Chatterjee agreed on a description of “first principles of capacity markets” and that “[w]here participation of resources receiving out-of-market state revenues undermines those principles, it is our duty under the [Federal Power Act] to take actions necessary to assure just and reasonable rates.”

The order also indicates that FERC intends to use the MOPR as the “standard solution,” but not necessarily the exclusive solution, to manage the impacts of state policies on capacity markets, but this statement was supported only by Chairman McIntyre and Commissioner Chatterjee.  Commissioner LaFleur issued a separate concurring statement that specifically disagreed with this one paragraph of the order, stating that FERC should be open to various region-specific solutions rather than try to impose a one-size-fits-all approach.  Commissioner Glick went even further, writing that FERC policy should not merely “accommodate” state policies or attempt to create electricity markets free from governmental programs designed to advance legitimate policy considerations, such as environmental concerns.  He also disagreed with the order’s inclusion of ensuring “investor confidence” as part of the “first principles of capacity markets.”

This order highlights the lack of consensus among the Commissioners on how FERC should approach the interaction between state policies and FERC-regulated capacity markets.  This issue is at the forefront of a number of upcoming matters at FERC, including its Grid Resiliency in Regional Transmission Organizations and Independent System Operators proceeding.

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