United States: ISO-NE Creates New Annual Reconfiguration Transaction In Its Forward Capacity Market

On February 28, 2018, FERC accepted ISO New England Inc.'s ("ISO-NE") and the New England Power Pool Participants Committee's ("NEPOOL") tariff revisions to replace the capacity market's existing bilateral contracting mechanism with a new mechanism, the Annual Reconfiguration Transaction ("ART").  According to ISO-NE, the ART provides an alternative method to achieve the equivalent of a Capacity Supply Obligation ("CSO") Bilateral while also accounting for a resource's impact on reliability. 

Including the new ART, ISO-NE and NEPOOL proposed three separate capacity market changes.  First, the parties proposed to replace the existing bilateral contracting mechanism, known as the CSO Bilateral, with the ART.  According to ISO-NE, the ART mechanism would accommodate capacity exchanges in the same zone or across zone boundaries.  As part of its proposed tariff revisions to implement the ART, ISO-NE also proposed revisions to its Financial Assurance Policy to ensure parties entering into ARTs were providing the appropriate levels of financial assurance.  Second, the parties proposed to revise tariff language related to Marginal Reliability Impact ("MRI")-based demand curves.  These changes, according to ISO-NE and NEPOOL, would eliminate portions of the existing capacity market rules that conflicted with the use of MRI-based demand curves.  Finally, the parties proposed to change the materiality thresholds used to determine whether a resource is expected to be able to meet its CSO.  In particular, the parties proposed decreasing this threshold to 10 MW, or 10 percent (but at least 2 MW), whichever is lower.  ISO-NE noted that the prior materiality thresholds had become "unbalanced, excessive and incongruent."

In its order accepting ISO-NE's revisions, FERC determined that the ART mechanism in ISO-NE's revisions was a just and reasonable replacement for the CSO Bilateral.  FERC also determined that that the proposal "account[ed] for the impact on system reliability from the use of the MRI-Based demand curves."  In addition, FERC reasoned that the ART would allow for even or uneven exchanges, either in the same zone or across constrained zone boundaries, while still accounting for the actual net impact on reliability such that suppliers or customers would not be disadvantaged.  According to FERC, this partial substitutability would provide greater flexibility to resources looking to replace their CSO through a bilateral agreement.

While an intervenor raised concerns with ISO-NE's proposed changes to the materiality thresholds, FERC rejected those arguments.  For example, FERC rejected a request to eliminate the minimum 2 MW floor for the significant decrease threshold because it would unduly discriminate among resources or compromise the integrity of the capacity markets.  Instead, FERC reasoned that, under the proposed 2 MW threshold, "small resources with small absolute sized deficiencies will be exempt from the mandatory demand bid rule," similar to how larger resources with deficiencies are treated, which FERC noted is not unduly discriminatory.  Further, FERC agreed that the proposed rules on materiality thresholds would ease ISO-NE's administrative burden because ISO-NE would have to enter demand bids for fewer entities.

FERC accepted the majority of the Tariff revisions, effective March 1, 2018.  However, ISO-NE's Tariff revisions regarding the ART financial assurance requirements were accepted effective as of June 1, 2018, which coincides with the date that other proposed revisions to these requirements are scheduled to become effective.  A copy of FERC's order can be found here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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