Energy Consultants Release Report on Forward Capacity Markets in New England

September 24, 2013

An Analysis Group team led by Vice Presidents Todd Schatzki and Paul Hibbard performed an impact assessment of changes proposed by the New England Independent System Operator (ISO-NE) to the region's forward capacity market (FCM). FCM is a mechanism by which ISO-NE uses auctions to ensure that there are enough resources to maintain reliable operations of the power grid. ISO-NE is seeking to modify current market rules to include performance incentives for participating resource suppliers. Such incentives could help address both immediate and long-run concerns about reliability, according to ISO-NE, by boosting revenues to the units that supply power (or reduce demand) when the system is most in need (in the winter, in particular).

In their impact assessment, the Analysis Group consultants evaluated the potential benefits of the change, the associated costs, the potential effects on consumer payments, and other changes relevant to policy goals. They modeled bidding in the forward capacity auction for the 2018-2019 commitment period, and they analyzed projected outcomes. Their results suggest that the introduction of performance incentives would likely result in many changes to facility operations and to resources in the region's generation fleet, thereby improving reliability. The study also found that while capacity market prices would likely be higher in the near term, those same prices could also be lower in the long term.

"Impact assessments can provide valuable information to the region's stakeholders," Dr. Schatzki says. "Our ability to quantify benefits, costs, and changes in prices can help ISO-NE achieve its goal of increasing the quantity and quality of information available to market participants about proposed rule changes. This is consistent with Federal Energy Regulatory Commission requirements."

Read the paper, "Assessment of the Impact of ISO-NE's Proposed Forward Capacity Market Performance Initiative"