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Commissioner Richard Glick Statement
January 29, 2019

Docket No. ER19-444-000
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Dissent in Part on ISO New England Inc. and New England Power Pool Participants Committee

ISO-NE’s Competitive Auctions with Sponsored Policy Resources (CASPR) construct attempts to strike a tenuous balance between states’ authority over generation facilities and ISO-NE’s preferred market design. At least in theory, CASPR provides a mechanism for facilitating the orderly entry into the capacity construct of the generation resources needed to meet the ambitious environmental goals established by several New England states. The heart of the CASPR construct is its substitution auction, which provides an opportunity for state-sponsored resources that are subject to a minimum offer price rule (MOPR) to, in essence, purchase a capacity supply obligation (CSO)—and the associated revenue stream—from a resource that then retires from the market.1

Although I dissented from much of the rationale in the order accepting CASPR, I concluded that ISO-NE met its burden under section 205 of the Federal Power Act2 (FPA), largely because the proposal “addresse[d] aspects of the [then-]current ISO-NE MOPR that could frustrate state clean energy programs in New England.”3 Nevertheless, I explained that CASPR’s viability would ultimately depend on whether it adequately facilitated the entry of state-sponsored resources.4 If, in practice, it became evident that the construct will hamper or impede state policies intended to change the generation mix, CASPR’s tenuous balance would be upset. After all, a construct that forces consumers to pay twice for capacity—because it ignores capacity that will exist regardless whether it secures a CSO—would not be just and reasonable.

Viewed with that perspective, the ten months since the Commission accepted CASPR have not been encouraging. In several instances, the ISO has taken steps that will likely hinder CASPR’s ability to incorporate state-sponsored resources. For example, in the various proceedings involving Exelon’s Mystic facility,5 the ISO (supported by a majority of the Commission) has exhibited what can fairly be described as a preference for retaining traditional generation resources rather than exploring other approaches that might more effectively address the ISO’s fuel security concerns.6 That preference is at odds with the several New England states that have made clear that their resource mix must evolve toward an increasingly low-carbon portfolio. If ISO-NE’s capacity construct, including CASPR, is to a play a role in that evolution, the ISO cannot freeze in place sizable components of the current resource mix. Doing so deprives the substitution auction of resources that could be replaced by state-sponsored resources, impairing the auction’s ability to incorporate state-sponsored resources effectively.

In addition, in a determination that ISO-NE7 proposes to belatedly address in this filing, ISO-NE adopted what can only be described as a confounding interpretation of what qualifies as a state-sponsored resource.8 Specifically, the ISO concluded that an offshore wind facility that is procured pursuant to a state-mandated solicitation and that is electrically located in that state does not qualify as a state-sponsored resource for the purpose of the renewable technology resource exemption (RTR) to the MOPR, which CASPR retained as a transition mechanism to the fully fledged substitution auction.9 The ISO’s interpretation of tariff provisions nominally designed to facilitate the integration of state-sponsored resources is discouraging and raises an unnecessary to barrier the type of resources that CASPR was supposed to accommodate.10

On top of those decisions, the ISO now proposes to bar from the substitution auction resources that “bid shade”—i.e., that elect to offer their capacity below the ISO’s assessment of their going forward costs—even if those resources clear the capacity construct and receive a CSO.11 The unambiguous result of this change will be to again tilt the scales in favor of retaining traditional resources and against the incorporation of state-sponsored resources. As a result of this proposal, a resource that might otherwise retire through the substitution auction will instead remain in the market, holding a CSO that it could have sold to a state-sponsored resource. If there is an insufficient number of buyers in the substitution auction (i.e., resources seeking to potentially retire), then this proposal will make consumers pay twice for capacity—exactly the result that would suggest that CASPR is no longer just and reasonable.

ISO-NE, however, makes little effort to justify the proposal’s potential to impair the substitution auction and undermine CASPR’s ability to incorporate state-sponsored resources. To the contrary, the ISO’s filing makes clear that concerns about bid shading are theoretical (since the ISO has not conducted even one auction with CASPR) and, in any case, that the potential impact of bid shading is “limited” due to several aspects of the capacity construct’s design.12 Given the proposal’s potential to hinder the substitution auction, ISO-NE must do more to show that its proposal is just and reasonable. In particular, the ISO must demonstrate that any adverse impact on the number of resources able to participate in the substitution auction is outweighed by the benefits that its proposal will have on the market. Because there is no such showing in this record, it ought to be rejected.

Ultimately, CASPR’s success requires a good-faith effort to ensure that it adequately facilitates the entry of state-sponsored resources. That means that the ISO must explain and support why changes that could hinder the entry of new resources are, in fact, just and reasonable. Because neither ISO-NE’s filing nor the Commission’s order meets that standard, I cannot conclude that the bid shading component of the filing has been shown to be just and reasonable. Accordingly, I dissent from those aspects of today’s that accept the bid shading proposal.

For these reasons, I respectfully dissent in part.

                                               

    1 See ISO New England Inc., 162 FERC ¶ 61,205, at P 7 (2018) (CASPR Order).
    2 16 U.S.C. § 824d (2012).
    3 CASPR Order, 162 FERC ¶ 61,205 at 6 (Glick, Comm’r, dissenting).
    4 Id. at 6-7.
    5 See Constellation Mystic Power, LLC, 165 FERC ¶ 61,267 (2018); ISO New England Inc., 165 FERC ¶ 61,202 (2018); Constellation Mystic Power, LLC, 164 FERC ¶ 61,022 (2018); ISO New England Inc., 164 FERC ¶ 61,003 (2018).
    6 See, e.g., ISO New England Inc., 164 FERC ¶ 61,003, at 4-5 (2018) (Glick, Comm’r, dissenting) (discussing alternatives that might more effectively address ISO-NE’s fuel security concerns than the proposal to provide the Mystic facility with a cost-of-service agreement); see also Constellation Mystic Power, LLC, 164 FERC ¶ 61,022, at 3-5 (2018) (Powelson, Comm’r, dissenting) (discussing additional alternatives that might more effectively address potential fuel security concerns than the Mystic cost-of-service agreement).
    7 Although the filing was made by both ISO-NE and the New England Power Pool Participants Committee, ISO New England, Inc., 166 FERC ¶ 61,061, at P 1 (2019), for brevity, I will refer to the filing as ISO-NE’s.
    8 ISO New England, Inc., 166 FERC ¶ 61,061 at P 7.
    9 The tariff language in question provided that to be eligible to participate as a buyer in the substitution auction, “[t]he resource must qualify as a renewable or alternative energy generating resource in the state in which it is geographically located.” Tariff, § III.13.1.1.1.7(b) (57.0.0) (emphasis added). The implication of the italicized definitive article would appear to be that a resource must be located in a state, with the tariff apparently not contemplating what to do about a resource that is located in federal waters rather than a particular state. In the face of that ambiguity—and what appears to have been the uniformly shared opinion that the RTR exemption was intended to cover offshore wind, see, for example, NESCOE Comments at 2 & n.5; ISO New England, Inc., 166 FERC ¶ 61,061 at P 7—the more appropriate application of the tariff to this factual circumstance would have been to look to where the offshore wind resource is electrically connected to the grid, as ISO-NE now proposes to do in this filing.
    10 I note that Vineyard Wind LLC, the offshore wind resource excluded from the RTR exemption as a result of the ISO’s interpretation, filed a request for waiver of certain tariff provisions in order to overcome that interpretation. See Vineyard Wind LLC, Docket No. ER19-570-000.
    11 ISO New England, Inc., 166 FERC ¶ 61,061 at PP 13-19.
    12 Id. at P 15 (explaining that “ISO-NE did not propose a mechanism to address the bid-shading risk in the original CASPR filing largely because of the limited risk that bid-shading poses”); id. (“the use of sloped demand curves in the primary auction tends to reduce the price impact associated with bid-shading”); id. (bid-shading is financially risky for the market participant”); see also ISO-NE transmittal at 21 (explaining that, even if bid shading occurred, it would affect the clearing price “only if the resource in question would be either marginal or extra-marginal in the primary auction if it offered consistent with its true break-even price,” but infra-marginal at the lower price).
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