Centralized Capacity Markets in Regional Transmission Organizations and Independent System Operators; Notice Allowing Post-Technical Conference Comments, 65632-65634 [2013-26090]

Agencies

• DEPARTMENT OF ENERGY
• Federal Energy Regulatory Commission

[Federal Register Volume 78, Number 212 (Friday, November 1, 2013)]
[Notices]
[Pages 65632-65634]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-26090]


-----------------------------------------------------------------------

DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. AD13-7-000]


Centralized Capacity Markets in Regional Transmission 
Organizations and Independent System Operators; Notice Allowing Post-
Technical Conference Comments

    On September 25, 2013, the Federal Energy Regulatory Commission 
(Commission) conducted a technical conference to consider how current 
centralized capacity market rules and structures in the regions served 
by ISO New England Inc. (ISO-NE), New York Independent System Operator, 
Inc. (NYISO), and PJM Interconnection, L.L.C. (PJM) are supporting the 
procurement and retention of resources necessary to meet future 
reliability and operational needs.\1\
---------------------------------------------------------------------------

    \1\ While the Commission recognizes that other regions are 
considering similar issues, the technical conference focused solely 
on the centralized capacity markets in the ISO-NE, NYISO and PJM 
regions. Thus, post-technical conference comments should be focused 
on those three regions as well.
---------------------------------------------------------------------------

    All interested persons are invited to file post-technical 
conference comments on any or all of the questions listed in the 
attachment to this Notice. Commenters need not address every question. 
Commenters are also invited to rely on or cite to testimony that was 
previously filed in this docket and the technical conference transcript 
in their comments. These comments must be filed with the Commission no 
later than 5:00 p.m. Eastern Standard Time (EST) on Monday, December 9, 
2013.
    For more information about this Notice, please contact:

Shiv Mani (Technical Information), Office of Energy Policy and 
Innovation, Federal Energy Regulatory Commission, 888 First Street NE., 
Washington, DC 20426, (202) 502-8240, Shiv.Mani@ferc.govmailto:
Kate Hoke (Legal Information), Office of the General Counsel, Federal 
Energy Regulatory Commission, 888 First Street NE., Washington, DC 
20426, (202) 502-8404, Katheryn.Hoke@ferc.gov.

    Dated: October 25, 2013.
Nathaniel J. Davis, Sr.,
Deputy Secretary.

Post-Technical Conference Questions for Comment

1. Role of Capacity Markets and Definition of the Capacity Product

    Panelists discussed the definition of the capacity product and, in 
particular, the relationship between the capacity and energy and 
ancillary services markets, both today and in the future as electric 
system needs change. In particular, panelists addressed the importance 
of properly defining the capacity product, and whether additional 
capacity products should be defined to recognize future system 
operational needs. Some favored retention of the current design, 
procuring a single capacity product focused on meeting basic resource 
adequacy requirements, with any operational attributes needed to meet 
system requirements procured in the energy and ancillary services 
markets. Others favored an approach that would procure differentiated 
products in capacity markets, incorporating attributes that meet 
specific operational needs. In addition, panelists discussed how 
different categories of resources (traditional generation, new 
resources vs. existing resources, demand response, energy efficiency, 
distributed generation, etc.) should be valued and accounted for in 
centralized capacity markets.
     When procuring a single capacity product, as under current 
market designs, are there certain fundamental performance standards 
that capacity resources should be required to meet in the delivery year 
to ensure resource adequacy? Should any such requirement change 
depending on the type of resource (traditional generation, new 
resources vs. existing resources, demand response, energy efficiency, 
distributed generation, etc.)?
     Should existing capacity products be modified to reflect 
various operational characteristics needed to meet system needs? If 
there is a need for additional capacity products, how should those 
products be defined and procured in light of the current one day in ten 
year resource adequacy approach?
     Alternatively, if it is more appropriate to rely on energy 
and ancillary services markets to obtain needed operational 
characteristics, how can market participants and regulators be 
confident that resources capable of providing such ancillary services 
will be available in future periods? To what extent are the existing 
categories of ancillary services adequate to meet current and future 
operational needs without a forward market?
     What improvements are needed in how centralized capacity 
markets determine qualification as a capacity resource? Do the 
requirements to participate in the centralized capacity markets 
accommodate all resources (whether supply-side, demand-side, or 
imports) that are technically capable of providing the traditional 
forward capacity product?
     As changes in technology and markets drive new system 
needs, are modifications needed to existing methods for determining 
resource adequacy requirements (i.e., the reserve margins centralized 
capacity markets are designed to procure)?
     What is the role(s) of centralized capacity markets? 
Should the centralized capacity markets function as a mandatory market 
for procuring capacity or a residual market that entities only need to 
use to meet their resource adequacy obligations that they cannot 
otherwise meet through self-supply?

2. Accommodating State Policies and Self-Supply by Load Serving 
Entities

    As discussed at the technical conference, States have policies to 
maintain resource adequacy and procure specific resources to meet 
environmental objectives. In addition, load serving entities are often 
interested in supplying their own resource adequacy requirements; some 
load serving entities (LSEs) have suggested that current centralized 
capacity market designs do not allow them to do so effectively. 
Incorporating States' policies and LSE preferences in the design of 
capacity markets has raised challenges for the Commission in ensuring 
the integrity of its wholesale markets.
     In what ways do the current centralized capacity market 
designs facilitate, or hinder, the ability of market participants to 
enter into arrangements to supply their own resource adequacy 
requirements? Should the Commission consider changes to the current 
capacity market designs to facilitate these arrangements? How would any 
potential changes impact capacity market prices paid by LSEs and the 
price signals provided to capacity resources?
     Some panelists suggested other potential modifications to 
the existing centralized capacity markets to accommodate self-supply 
and/or state policies, including limited or resource

[[Page 65633]]

class-specific exemptions from buyer-side mitigation rules, or 
offsetting reductions in the amount of capacity procured in the 
centralized capacity market. What are the advantages or disadvantages 
of such changes? Are there additional potential changes to particular 
design elements that should be considered to accommodate self-supply 
and/or state policies? How would any potential changes accommodate the 
long-term price signals that several panelists argued are necessary for 
capacity investment?
     PJM offers LSEs the alternative to opt out of its capacity 
auction by using the Fixed Resource Requirement (FRR) option. Should 
such an alternative be offered in other eastern Regional Transmission 
Organization (RTO)/Independent System Operator (ISO) centralized 
capacity markets? Given that the FRR option was originally developed to 
address a narrow set of circumstances facing the PJM region and its 
market participants at that time, would modifications to this 
alternative be appropriate to meet the needs of regions and market 
participants today? For example, are there changes to the current FRR 
option that could be adopted to allow increased flexibility for 
entities looking to partially self-supply their capacity requirements 
while preventing adverse impacts on the competitiveness of the market?

3. Market Design Elements

    Throughout the technical conference, comparisons of the RTO/ISO 
capacity markets and market design elements were made, including 
whether there is a need for consistency in the approach to capacity 
markets across the eastern RTOs/ISOs and the interaction of the 
capacity market with other RTO/ISO markets. Panelists suggested that 
consistent approaches with respect to some design elements could 
improve the ability of market participants to participate in multiple 
markets.
     Slope of demand curve. A number of panelists commented 
that a downward-sloping demand curve is preferable to a vertical demand 
curve. What are the advantages and disadvantages of a sloped demand 
curve versus a vertical demand curve? What are the key design criteria 
appropriate to consider in establishing the slope of the demand curve 
in each of the eastern RTO/ISO centralized capacity markets?
     Derivation of Resource Adequacy Requirements. Whether 
using a sloped or vertical demand curve, RTOs/ISOs must attempt to 
accurately assess future capacity needs in order to ensure resource 
adequacy in the delivery year. Are there improvements to the derivation 
of an RTO/ISO's resource adequacy requirement that would improve the 
functioning of its capacity market? How do differences in the 
derivation of resource adequacy requirements across the RTOs/ISOs 
impact the markets? For RTOs/ISOs with three-year forward markets, 
should the RTO/ISO procure 100 percent of its resource adequacy 
requirement three years in advance of the delivery year, or is there a 
portion of the resource adequacy requirement that can be reliably 
procured closer to the delivery year? What are the advantages and 
disadvantages of procuring a portion of the resource adequacy 
requirement closer to the delivery year?
     Derivation of Net Cost of New Entry (CONE). Panelists did 
not focus extensively on the derivation of Net CONE, although it was 
discussed in the staff white paper. Are there improvements to the 
derivation of Net CONE that would improve the functioning of capacity 
markets? How do differences in the derivation of Net CONE across the 
RTOs/ISOs impact the markets?
     Length of forward period. Panelists debated the merits of 
a longer or shorter forward period in centralized capacity markets. 
Some argued that a longer forward period can aid in managing 
retirements; others argued that a shorter forward period facilitates 
bilateral contracting. What are the advantages, disadvantages and 
related considerations that may support longer or shorter forward 
periods? Should the length of the forward period vary for different 
categories of resources (traditional generation, new resources vs. 
existing resources, demand response, energy efficiency, distributed 
generation, etc.)?
     Length of commitment period. Commitment periods also vary 
by RTO/ISO and by resource-type. Is there an ideal length of the 
commitment period? Should the length of commitment period vary for 
different categories of resources (traditional generation, new 
resources vs. existing resources, demand response, energy efficiency, 
distributed generation, etc.)? Does the length of the commitment period 
impact the ability and willingness of buyers and sellers to enter into 
bilateral contracts? How do differences in commitment periods across 
the RTOs/ISOs impact the markets?
     Zones. Some panelists at the technical conference asserted 
that capacity market zones are not sufficiently granular and do not 
change often enough to reflect important market and system changes. Are 
there advantages or disadvantages associated with increasing the 
granularity of capacity zones? If so, what are they? What are the 
challenges, advantages or disadvantages of a dynamic approach to 
establishing capacity zones?
     Coordination of transmission planning and capacity market. 
Price signals in the capacity markets also provide information to 
transmission planners to the extent that transmission may substitute 
for capacity resources. How can investment in capacity and transmission 
planning be better coordinated? Should the capacity market planning 
process and transmission planning process use common assumptions and 
common planning horizons?
     Retirement notice. What role do retirement and mothballing 
decisions and notification play in the operation of the eastern RTO/ISO 
centralized capacity markets? Is there an ideal approach to retirement 
or mothballing notification? What is the impact of different retirement 
or mothballing notice procedures across the eastern RTOs/ISOs on the 
market, resource adequacy and reliability?

4. Regulatory Certainty

    Several panelists stated the importance of regulatory certainty in 
achieving capacity market stability. Regulatory certainty reduces risk 
and thereby lowers barriers to entry in capacity markets. Conversely, 
some panelists identified significant market design issues that, if 
resolved, could improve capacity market efficacy. While recognizing 
that regional differences may be necessary, some panelists suggested 
that a minimum level of best practices across the three eastern RTO/ISO 
centralized capacity markets also would lead to greater regulatory 
certainty and provide inter-regional benefits.
     How should the Commission strike a reasonable balance in 
adopting market rule changes when necessary without creating undue 
regulatory uncertainty?
     What are the advantages and disadvantages of an RTO/ISO 
regularly revisiting certain market design elements, such as NYISO's 
triennial reset of its capacity demand curve?

5. Next Steps

    Conference panelists indicated that further direction from the 
Commission could help to inform the development of appropriate eastern 
RTO/ISO centralized capacity market design elements in the future.
     What Commission action would be an appropriate next step 
with respect to those markets?

[[Page 65634]]

     Are there outstanding issues or questions raised by, but 
not fully discussed at, the conference that should be considered in 
this proceeding?
     Are there other issues that, if addressed, would help the 
centralized capacity markets ensure resource adequacy in a just and 
reasonable and not unduly discriminatory manner (e.g., enhancements to 
the energy and ancillary services markets) that should be considered by 
the Commission in another forum?

[FR Doc. 2013-26090 Filed 10-31-13; 8:45 am]
BILLING CODE 6717-01-P