FERC rejects generators' challenges to ISO-NE's New Entry Pricing rule

On January 30, 2015, the Federal Energy Regulatory Committee rejected complaints from Exelon Corporation and Calpine Corporation that alleged ISO-NE's New Entry Pricing Rule was  "unjust, unreasonable, and unduly discriminatory."

In a released document, FERC and ISO-NE dismissed the complainants, stating that they did not adequately demonstrate that the rule was unjust and unreasonable.

​Calpine and Exelon's complaint echoes PJM price lock debate
According to RTO Insider, the ISO-NE New Entry Pricing Rule requires new generation resources to lock in the price at which the resource clears in its first Forward Capacity Auction for up to six delivery years after the auction.

On November 28, 2014, Calpine and Exelon filed a joint complaint to FERC regarding the fairness of the New Entry Pricing Rule, Restructuring Today reported. The two firms argued that the rule keeps prices artificially low for existing generation while new resources that want to come online in later years can enter the equivalent of zero-price offers in the six years the first FCA.

The news source noted that Calpine and Exelon did not seek to alter the treatment of new resources under the rule. Rather, they sought to curtail its punitive impact on existing generators by changing how the bids are taken in capacity auctions going forward.

The two generators cited FERC's previous actions regarding a similar rule in the PJM ISO, in which the regulatory body agreed that a price lock-in would keep prices artificially suppressed for existing resources. Therefore, they argued, FERC should reach a similar conclusion in the case of ISO-NE's price lock in.

Exelon and Calpine argued that the ISO-NE's price lock in was unjust, but the ISO and FERC were not convinced.

FERC upholds original New Entry Pricing ruling
ISO-NE responded to these complaints by stating the alleged price suppression that would occur as a result of the zero-offer bids in subsequent FCAs, saying that instead, the Commission understands that the zero-price offer requirement could lower clearing prices, but that doesn't necessarily mean that prices are being unfairly suppressed.

The ISO granted that while possible price suppression could theoretically cause market inefficiencies, it is unlikely to occur because new resources are generally more efficient and aren't likely to submit a de-list bid at a price higher than the auction clearing price during its first seven years of operation.

FERC concurred with ISO-NE's response, stating the Exelon and Calpine had not convincingly argued that price suppression would occur as a result of the ruling, thus creating an unfair market for new generation.

"ISO-NE's treatment of those resources simply reflects the design and efficiency advantages that a resource that recently cleared an FCA as a new resource would be expected to have over the rest of the New England fleet. In fact, even if such a resource does not have a price lock-in, it would typically submit a zero-price offer in the ISO-NE market, consistent with its low going-forward costs and in order to ensure that it is taken in the auction," the Commission concluded.

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