6.1a ERMUSR 03-13-2017 - Laserfiche WebLink

Home Browse Search

AMERICAN PUBLiC P� W iil`♦NTM ASSOCIATION Powering Strong Communities ISSUE BRIEF January 2017 RTO Capacity Markets and Their Impacts On Consumers and Public Power What is a capacity market? and are procured close to the period when the capacity will be To serve their customers,electric power utilities provide not needed. only electric power on a continuous basis,but related services, The Midcontinent ISO's(MISO) capacity market is volun- including"capacity."Capacity is the maximum amount of tary and LSEs can choose whether to participate.But MISO electricity that a power plant can produce,usually stated in proposed in November 2016 to develop a capacity market that megawatts(MW). Customers who agree to curtail their use of would be mandatory just for the utilities that have been restruc- electric power when called upon(known as demand response) tured and no longer own generation to serve their customer's also provide capacity. load.Public power and consumer representatives have opposed In the context of wholesale electric markets,a capacity mar- the proposal out of concern that it will lead to a mandatory ca- ket is a mechanism to provide revenue to a power plant owner pacity market in the remainder of MISO.Neither the California to stand ready to supply power when needed.An electric power ISO nor the Southwest Power Pool operates a capacity market. utility or other load-serving entity(LSE')purchases or owns The Electric Reliability Council of Texas(ERCOT),which capacity to ensure a reliable supply of power during peaks in de- functions as an RTO,but is not under FERC's jurisdiction mand(generally the hottest and coldest times of the year).The because of the intrastate nature of its grid,does not operate a LSE would need to have in place sufficient capacity to meet the capacity market. projected peak demand plus a reserve margin,as determined by While RTO markets for capacity are described as"com- regional reliability entities,which help ensure that the regional petitive,"they are highly mechanized,centrally administered grid can"keep the lights on"and adhere to the statutory obliga- constructs governed by thousands of pages of complex rules. tions under the Federal Power Act's Section 215. Transactions in these markets are opaque,with little meaningful In several regions of the country,large bureaucratic,qua- data available to the public.RTO-operated wholesale electric- si-governmental entities,known as regional transmission ity markets are regulated by the Federal Energy Regulatory organizations(RTOs),operate and oversee the bulk power grid Commission(FERC). (See the American Public Power Associa- and operate wholesale markets for energy,capacity,and ancillary tion's(Association or APPA)Issue Brief,"Wholesale Electricity services.Three of the nation's seven RTOs operate mandatory Markets and Regional Transmission Organizations"for more capacity markets. In these mandatory markets,capacity must information.) be bought and sold through the RTO market. Capacity that is owned or contracted for bilaterally still must be offered into What is the alternative to a mandatory capacity and clear the capacity auctions.Also,the price paid for capacity market? purchased through the auction is set by the RTO.The three LSEs in regions without mandatory capacity markets meet their RTOs with mandatory capacity markets are ISO New England reliability requirements through ownership and bilateral con- (ISO-NE),PJM Interconnection(PJM)—covering the mid-At- tracts—and generators recoup the costs of providing capacity lantic states,Ohio,and Northern Illinois,and New York ISO through these mechanisms.In contrast to the RTO-operated (NYISO).PJM and ISO-NE both operate a"forward"market mandatory capacity markets,such long-term contracts are where capacity is procured three years in advance for a one- procured and negotiated through truly competitive processes. year period.The capacity auctions in NYISO are shorter term Procuring capacity through long-term bilateral contracts and ownership is important for maintaining adequate capacity,and 1 A Load Serving Entity(LSE)is an entity that provides electricity to end-users, necessary to obtain financing for new power plants,including including a utility or alternative supplier serving the utility's customers. nuclear and renewable energy projects. PublicPower.org 55 237