ISO-NE Proposes Capacity Market Overhaul with ‘Prompt’ Auction Shift

ISO New England (ISO-NE) has put forth a significant proposal to revamp its capacity auction system. This plan, submitted to the Federal Energy Regulatory Commission (FERC) on December 30, aims to shift the auction process from a three-year advance framework to a “prompt” auction conducted just one month prior.

Key Changes in Capacity Auction Process

The proposed prompt capacity auction is set to be implemented in June 2028. This alteration is expected to introduce several advantages for the New England region.

• Improved accuracy in load forecasts and auction parameters.
• Enhanced market efficiency and resource adequacy.
• Focus on existing resources rather than new ones.

ISO-NE emphasizes that the reform addresses uncertainties regarding future resource requirements. Driven by increasing home and vehicle electrification, the grid operator projects a decline in reserve margins—from 15% in 2029 to 8% by 2034. However, they caution that these forecasts may be overly optimistic, particularly after federal tax credits for electric vehicles were abolished with the 2025 budget bill.

Addressing Power Plant Retirements

Another significant aspect of the proposal is the modification of the power plant retirement process. Currently, plant owners must submit a “de-list bid” four years prior to retirement. The new proposal will shorten this notification window to one year.

This change will allow capacity suppliers to make more informed decisions based on updated economic conditions, simplifying the return of deactivated resources to the market when necessary.

Broader Capacity Market Reforms

The proposal has gained broad support from various stakeholders and is part of a larger initiative aimed at overhauling capacity market structures. ISO-NE plans to implement seasonal capacity auctions during winter and summer months, moving away from the current annual system that primarily addresses summer peak demands.

This seasonal approach is designed to provide capacity suppliers with incentives to enhance their readiness for winter demands, including improving fuel supplies and dual fuel capabilities.

Addressing Gas Pipeline Constraints

The proposal also introduces new provisions designed to accommodate New England’s gas pipeline limitations, particularly during winter. The seasonal capacity auction will reflect these constraints, which are expected to significantly influence pricing during winter months.

ISO-NE is requesting that FERC approve this plan to ensure its implementation by March 31. This overhaul promises to enhance the capacity auction process and improve resource reliability in New England.