When Markets Fail

Deck: 

New England grapples with excess capacity and rock-bottom prices.

Fortnightly Magazine - May 2010
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Corrosive.” “Seriously flawed.” On the “brink of market failure.”That’s what critics say about New England’s forward capacity market (FCM), whereby ISO New England conducts auctions to solicit offers from project developers to make electric capacity available three years into the future to meet anticipated regional demand.

The reason? Too many offers—way more than New England needs to meet its ICR, or installed capacity requirement. All that excess capacity has forced prices down to the market floor—to $2.95 per kilowatt-month in the third forward capacity auction (FCA-3), held last October for delivery in June 2012—with surplus capacity left over, apparently willing to offer at even lower prices, if auction rules had so permitted.

And no one today expects the surplus or the low prices will disappear any time soon.

Dr. Miles Bidwell, a consultant and critic of New England’s auction market who represents Boston Generating LLC in the FERC proceeding now pending on FCM reform, argues that excess supply “will hang over the FCAs for at least the next seven years and will continue to keep the FCA price at much less than the competitive market outcome.”

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