On April 12, 2016, FERC conditionally accepted ISO New England Inc.'s ("ISO-NE") proposed revisions to its Transmission, Markets, and Services Tariff ("Tariff") relating to new pricing and market power rules for the retirement of existing resources. Specifically, the conditionally-accepted revisions are intended to (i) create a means for capacity suppliers in ISO-NE's Forward Capacity Market ("FCM") to price the potential retirement of existing resources, and (ii) incorporate new market rules designed to mitigate the potential exercise of market power associated with the retirement of existing resources.
In ISO-NE's FCM, suppliers may submit "de-list" bids which identify the price below which a supplier does not wish to provide capacity from an existing resource, and will automatically remove that resource from participating in the annual Forward Capacity Auction ("FCA") if the supplier does not receive a price above the specified point. In doing so, suppliers may submit a Static De-List Bid (a one year exit from the capacity market) or a Permanent De-List Bid (a permanent exit from the capacity market) by June, approximately eight months prior to the FCA. If a supplier wants to permanently retire an existing resource without regard to price, it may submit a Non-Price Retirement Request as late as two months prior to the FCA.
On December 17, 2015, ISO-NE filed its proposed revisions that: (i) replaced the Non-Price Retirement Request with a new "Retirement De-List Bid" option that allows suppliers to price the retirement of an existing resource from all ISO-NE markets; (ii) aligned the deadlines for submitting Static De-List Bids and Permanent De-List Bids with the new Retirement De-List Bid option; and (iii) proposed new rules designed to mitigate instances in which suppliers could exercise market power through the premature retirement of an economic resource in order to artifically increase capacity prices above competitive levels. Notably, the proposed market rules included a requirement that ISO-NE's Independent Market Monitor ("IMM") review all proposed "Retirement Bids"—a term that includes both Permanent De-List Bids and Retirement De-List Bids—to assess the reasonableness of the supplier's cost assumptions, and if necessary, mitigate the originally-submitted Retirement Bid.
In its April 12, 2016 order, the Commission largely approved ISO-NE's proposed Tariff revisions. However, the Commission noted that while ISO-NE's new market rules required that all supplemental information provided by a supplier in support of its Retirement Bid be reviewed by the IMM, the proposed rules did not "explain the degree to which the IMM will accept differences in expectations, risk tolerances, and methodologies that may result in a Retirement Bid greater than what the IMM would calculate for that unit." The Commission found that the IMM's "broad discretion" in determining whether or not to mitigate a Retirement Bid, based on the IMM's own assumptions and methodologies, "could result in inaccurate mitigation." Accordingly, the Commission ordered ISO-NE to submit, within 30 days, a compliance filing that established a materiality threshold for determining whether or not a mitigated Retirement Bid will replace an originally-submitted Retirement Bid. According to the Commission, such a threshold would provide "a reasonable limit on the spread between the IMM's derived Retirement Bid and the supplier's originally proposed bid, due to such differences in assumptions and methodologies, while still allowing mitigation in instances where an exercise of market power is likely."
A copy of the Commission's order can be found here.
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