Immediately following the completion of the primary annual auction for the Forward Capacity Market (FCM), a substitution auction will be held. The substitution auction enables eligible new capacity resources that receive revenue from state or municipal governments outside of the markets—sponsored policy resources (SPRs)—to buy out the capacity supply obligations (CSOs) held by eligible existing capacity resources that wish to retire. The substitution auction is a transparent, market-based mechanism that accommodates the entry of SPRs into the FCM, while also protecting the FCM’s competitive pricing mechanisms and helping to avoid cost shifts.
Eligible resources participate in the substitution auction as supply or demand, and demand bids and supply offers are entered into the auction system as sealed bids. The auction clearing price and quantity are determined by the intersection of the supply and demand curves.
Supply |
Demand |
|
| Resource |
Supply consists of FCM-qualified SPRs that did not acquire CSOs in the primary auction. |
Demand consists of existing generating or existing import capacity resources associated with an FCM commercial elective transmission upgrade that acquired a CSO in the primary auction but are willing to retire. Demand capacity resources are not eligible to participate as demand in the substitution auction. |
| Offers and Bids |
These resources submit supply offers that represent the lowest price at which they would willingly sell capacity. In contrast to the primary auction, a supply offer in the substitution auction can reflect out-of-market revenues. |
These resources submit demand bids that represent the highest price they would willingly pay to shed their CSO. |
| Cleared |
Supply (i.e., new SPRs) that clears in the substitution auction takes on a CSO. |
Demand (i.e., existing resources) that clears in the substitution auction sheds its CSO and retires from the wholesale markets. |
| Payments and Charges |
Once the capacity commitment period (CCP) starts, resources that cleared will receive capacity payments based on the substitution auction’s clearing price. |
Once the CCP starts, these resources will receive charges based on the substitution auction’s clearing price. The difference between the higher capacity payments obtained in the primary auction and the substitution auction’s lower charges is a profit akin to a severance payment for retiring. |
|
Not Cleared |
New SPRs that do not clear are free to participate as new capacity resources in the next FCA (primary or substitution auction). |
Existing resources that do not clear retain their CSO from the primary auction and may participate in the next FCA (primary and substitution auctions). |
(See details on supply participation or demand participation).
The general timeline for substitution auction events is shown below. Specific dates can be found in the FCA calendars.
