Final Capacity Auction Results: Surplus Resources Available for 2013–2014

HOLYOKE, Mass.--(BUSINESS WIRE)--New England procured 37,501 megawatts (MW) of generation and demand-side resources to meet the region’s need for 32,127 MW of capacity in 2013–2014, according to finalized results of the fourth Forward Capacity Market (FCM) auction filed today with the Federal Energy Regulatory Commission (FERC) by ISO New England Inc.

Under FCM, ISO New England projects the needs of the power system three years in advance and then holds an annual auction to purchase the power resources that will satisfy future regional requirements. While several existing power plants and demand resources were allowed to withdraw from the auction because surplus capacity is available, Entergy’s 600-megawatt Vermont Yankee station and the 580 megawatts of Dominion’s Salem Harbor Unit 3 and Unit 4 were unable to withdraw from the auction for resources needed in 2013–2014 due to system reliability concerns. These generators support power grid reliability in Vermont and northeast Massachusetts, as well as reliability for the entire region’s power system.

Notice Required to Withdraw from Auction

The FCM rules require all existing resources to participate in the annual capacity auction. If the owner of an existing resource wants to leave the capacity market, the ISO must be notified either before or during the annual auction. Any request to withdraw from the auction is called a “delist” bid. There are several types of delist bids, including “static delist” bids, which must be submitted approximately eight months before the auction, and “dynamic delist” bids, which can be submitted during the course of the auction itself.

As the region’s system operator, ISO New England must operate the region’s grid based on mandatory reliability standards required by Congress and established by the North American Electric Reliability Corporation. When a resource seeks to delist, ISO New England is required to analyze whether the resource can leave the capacity market for that auction year or must be retained to meet reliability requirements. Resources allowed to leave the capacity market may still participate in the region’s wholesale energy and ancillary services markets.

If the ISO’s reliability analysis shows that the resource is needed, it is not allowed to withdraw from the capacity market. At that point, the ISO begins working with regional stakeholders to find solutions that could allow the resource to withdraw as requested. Potential solutions must meet reliability requirements and be able to be implemented within the required timeframe. If no alternative is available, compensation is made to retain the resource.

Decisions that prevent resources from withdrawing from the capacity market in order to maintain a reliable power system are continuously evaluated up to one year before the capacity year when the resource is obligated to be available. For this auction, the deadline is June 1, 2012. Compensation for resources that are retained for reliability purposes is subject to FERC review and approval and would not begin until 2013.

Vermont Yankee

Entergy’s request to withdraw Vermont Yankee from the auction occurred during the auction as a dynamic delist and was the first notification from Entergy that it was seeking to withdraw the plant from the 2013–2014 capacity market. Studies for future system needs in Vermont and New Hampshire have been ongoing for more than a year and are being updated to reflect the possibility of a Vermont Yankee shutdown in order to identify impacts on the regional power system.

The studies completed so far have shown that with or without Vermont Yankee, the system in Vermont has reliability issues that must be addressed; without Vermont Yankee in service, those issues are more severe and could affect neighboring areas. The potential reliability issues could include thermal overloads on high-voltage transmission lines and voltage instability, either of which could damage equipment, compromise grid stability, or cause uncontrolled outages.

ISO New England does not have authority to require Vermont Yankee to operate without the appropriate permits and licenses, but it does have the responsibility to ensure a reliable power system. This responsibility requires the ISO to develop alternative solutions that will ensure reliability in the area of the power system that includes parts of Vermont, New Hampshire, and western and central Massachusetts beginning as early as March 2012 if Vermont Yankee can no longer operate.

These alternatives could include interim solutions such as emergency generation brought into Vermont temporarily, more expensive generation from outside Vermont, and demand-side resources. Long-term solutions would include transmission line upgrades as well as other possible solutions, such as private development of new generation, increased energy efficiency, and new sources of imported power. All these options will come at an additional cost. Vermont has little in-state generation apart from Vermont Yankee, which represents more than half of the generating capacity in the state. In 2009, Vermont’s peak consumer demand was 985 MW.

Salem Harbor Units 3 and 4

Engineering and planning studies conducted by the ISO over the past year with local transmission owners have shown that Salem Harbor is also needed to ensure power system reliability in northeast Massachusetts and for the New England grid as a whole. In the case of Salem Harbor, ISO studies have shown that thermal overloads could occur in some situations, leading to potential violations of federal reliability standards.

Dominion’s request to delist Salem Harbor Units 3 and 4 was made as a static delist bid and was reported in the ISO’s informational filing to FERC in May.

Last year, Dominion’s request to withdraw Salem Harbor Units 3 and 4 was not accepted for the third FCA (2012–2013) because the ISO’s analysis showed a reliability need for those units. Similarly for the fourth FCA (2013–2014), units 3 and 4 were retained for reliability. The ISO is studying potential solutions to ensure continued reliability of the northeast Massachusetts and greater Boston zone, with results expected in early 2011. The ISO can release units that are no longer needed for reliability up to one year before the start of the relevant capacity period.

Forward Capacity Market Auction No. 4 – Final Results

The Forward Capacity Market has spurred investment in power system resources and encouraged significant growth of demand resources. The chart below shows that each auction concluded at the floor price with surplus capacity. The result has been lower, prorated capacity prices as well as the assurance that the region will have sufficient resources to meet demand.

Today’s filing with FERC reports that New England procured the 32,127 MW needed for reliability in the 2013 to 2014 timeframe. The auction started at a price of nearly $9.84 per kilowatt-month (kW-month). The auction concluded at the floor price set for this auction of $2.95 per kW-month. Results show 32,247 MW of generating resources cleared the auction along with 3,261 MW of demand resources. These amounts include 144 MW of new generation and 515 MW of new demand-side resources. Approximately 5,374 MW of excess supply was remaining.

The Forward Capacity Market was developed by ISO New England, the six New England states, and industry stakeholders to promote investment in demand- and supply-side resources. New England’s capacity market design continues to be developed and enhanced; ISO New England expects to file briefs with FERC in September.

AUCTION¹	Total Qualified (MW)	Cleared Genrtn (MW)	Cleared Demand Resources² (MW)	Cleared Imports (MW)	Total Capacity Acquired (MW)	Capacity Required (MW)	Floor Price³		Excess Supply (MW)	Prorated Price⁴
FCA 1 (2010–11)	39,165	30,865	2,279	933	34,077	32,305	$	4.50	1,772	$	4.25
FCA 2 (2011–12)	42,777	32,207	2,778	2,298	37,283	32,528	$	3.60	4,755	$	3.12
FCA 3 (2012–13)	42,745	32,228	2,867	1,901	36,996	31,965	$	2.95	5,031	$	2.54(5	)
FCA 4 (2013–14)	40,412	32,247	3,261	1,993	37,501	32,127	$	2.95	5,374	$	2.52(6	)