Joint Concurrence of Chairman Glick and Commissioner Clements Regarding ISO New England Inc.

Docket No. ER22-391-000

We concur in today’s order.  We agree that ISO New England’s Internal Market Monitor correctly mitigated the Westover Energy Storage Center (Westover Project)’s capacity offer to the Offer Reserve Trigger Price (ORTP).[1]  While Anbaric Development Partners, LLC (Anbaric) and Massachusetts Municipal Wholesale Electric Company (MMWEC) make a persuasive case that the Internal Market Monitor applied an inappropriate cost of debt to their project, arguing that publicly available data show that 2% is a reasonable cost for an entity with a Fitch AA- credit rating like MMWEC’s, they failed to provide unit-specific supporting documentation with regard to each component of the ORTP calculation, as the Tariff requires.[2]  Because they did not provide sufficient documentation to support their proposed Offer Floor Price for the Westover Project, we agree that mitigating the project’s offer to the ORTP is consistent with the Tariff as it currently stands.[3] 

We write separately to explain our concern that the existing Tariff appears to be unjust and unreasonable.  A minimum offer price rule (MOPR) should be limited to preventing the exercise of buyer-side market power—that is, the submission of an uneconomically low capacity offer by a resource owned by or associated with a net buyer for the purpose of depressing the market-clearing price, thereby benefitting the net-buyer’s net-short position.[4]  In this manner, a MOPR can effectively mitigate anti-competitive efforts to depress the capacity price. 

But an overly broad MOPR does more harm than good.  Where a capacity offer is low for legitimate rather than anti-competitive reasons (i.e., where the resource is not a buyer with market power), artificially raising that offer hurts competition, potentially pushing the resource out of the market and forcing capacity prices above the competitive level.[5]  Moreover, by producing high capacity prices notwithstanding an abundance of low-cost supply, an overly broad MOPR can lead to uneconomic price signals that falsely suggest that new capacity is needed or that existing capacity should be retained.[6]  That result distorts the market-clearing price, and forces customers to pay more than necessary to meet their capacity needs.  In addition, an over-broad MOPR may impose complex administrative burdens on resources even when anti-competitive behavior is not a threat. 

ISO New England’s MOPR regime appears to have these exact effects.  The MOPR applies to all new resources, regardless whether those resources are buyers, much less buyers with market power.[7]  As such, the MOPR appears to act as a barrier to competition, insulating incumbent generators from having to compete with certain new resources that may be able to provide capacity at lower cost.  Such overbroad barriers are the antithesis of market competition, in that they divorce “capacity market clearing prices from the actual net going forward costs of would-be capacity suppliers” and serve “only to prop up capacity prices, protect incumbent generators, and increase the costs of state policies.”[8]  The end result is “is doubly bad for consumers, as they will be forced to pay for more capacity than is actually needed, and to do so at a higher price than they should, because the MOPR will allow a relatively high-cost resource to set the capacity price for the entire set of resources procured through PJM’s capacity market.”[9] 

This case provides further evidence that it is time for ISO New England to “move beyond the MOPR.”[10]  We understand that ISO New England is currently considering proposals to eliminate its MOPR pursuant to section 205 of the FPA.[11]  We think it prudent to give the ISO an opportunity to replace the existing MOPR with a solution of its choosing.  After all, under the FPA, one size need not fit all and different regions of the country may choose different approaches to addressing the problem of actual buyer-side market power.[12] 

But ISO New England must move expeditiously.  We urge ISO New England to promptly put forward a proposal that addresses the foregoing concerns and provides a path to a more durable approach to the issue of buyer-side market power. 

For these reasons, we respectfully concur.