FERC Filings
EPSA's Motion to Intervene and Comment on Blementhal's ISO-NE Complaint
Comments
The Commission should dismiss the Complaint and move forward with the approval of a capacity market mechanism (“LICAP”) proposal. The solution to the concerns raised in the Complaint is implementation of a LICAP mechanism, along the general lines of the ALJ Initial Decision in the LICAP proceeding before the Commission. LICAP will send the appropriate signals to incent investment. Price signals must incent investment needed for the addition of capacity and to sustain existing capacity in order to address imminent supply shortages and scarcity. Today, this is not occuring in New England. While the solution to the problem -- LICAP -- has encountered political opposition, particularly from the Connecticut Attorney General’s own office, a LICAP mechanism offers the best approach to resolving this issue and addressing the need to eliminate RMR contracts as the primary means of ensuring sufficient capacity in the state of Connecticut. Thus, EPSA urges the Commission to dismiss the instant Complaint and continue its consideration of a workable, reasonable capacity market mechanism for the ISO-NE market.
In the meantime, the Commission should not be swayed by the Attorney General’s rhetoric. First, there is nothing in the Federal Power Act that requires “all market-based” or “all cost of service” rates. The Commission has authorized, consistent with court precedent, market-based rates where the market is competitive and approved cost-based rates when appropriate, the latter when units are needed for reliability but are not able to recover adequate revenue from the market to justify their continued operation.
Second, while the Connecticut Parties assert that generators want to receive the greater of market or cost-of-service, the Connecticut Parties want the lower of market or cost-of-service. After years of benefiting from lower cost market-based rates for generation, while disregarding and delaying transmission upgrades in Connecticut, the Connecticut Parties want to avoid the financial consequences of disregarding those upgrades -- the prices signals that come with addressing reliability -- and revert to cost-based rates for all generation until those upgrades are complete.
Essentially, the proposed “solution” offered in the Complaint would have generators earn cost-based rates precisely during those times of scarcity and transmission constraints when higher, market-based prices should signal investment. Perhaps, under this scenario, generation would once again be authorized to earn market-based rates once shortages become capacity surpluses and constraints are resolved – conditions under which market prices are likely to provide less than full cost-recovery. However, this solution will simply destroy competition in Connecticut and New England because this is not a sustainable pricing model.
Third, the Connecticut Parties’ Complaint introduces the specter of more harmful interference in wholesale electricity markets, which have brought significant benefits to New England consumers. Quite simply, the requested relief will cause irreparable harm to the Connecticut wholesale electricity market, the NEPOOL wholesale electricity market, and most likely the entire Northeast region as well. This region, while divided into three organized markets, is nonetheless interconnected and functions as a whole. The Connecticut Parties’ Complaint would sever one state from that interconnected market, bifurcating ISO-NE and artificially drawing seams around one state that exists within one regional marketplace.
Fourth, the Connecticut Parties’ draconian “solution” will undermine one of the very arrangements that may bring investment to Connecticut’s constrained markets – bilateral contracts, both existing and prospective. With the reduction in liquidity caused by shutting down the competitive market in the manner proposed, price signals for forward contracting will be dampened and the pricing arrangements in existing contracts will have been gutted.
Finally, the Connecticut Parties insinuate that the Commission will approve both the LICAP mechanism, and then retain a very low bar for demonstrating the need for continued RMR contract reliance. More troubling is the suggestion that there is insufficient Commission oversight. As to the first issue, the need for RMR contracts after LICAP is only conjecture at this time and certainly no reason to grant this Complaint. As to the Commission’s oversight over wholesale electric markets -- oversight that has resulted in billions in cost savings to consumers -- the Commission should exercise its oversight over the market by promptly approving a LICAP proposal, thereby addressing the concerns raised in a more appropriate fashion.