By Tarik Cetin, Senior Utility and Regulatory Policy Specialist
Competitive Energy Services has been following ISO New England’s (ISO-NE) capacity auction reform conversation for several years, and this update continues that ongoing coverage. Back in March 2024, we took a first look at ISONE’s early thinking on reforming the Forward Capacity Market (FCM) and why the traditional three-year-ahead auction was starting to show its limits. Then, in March 2025, we flagged a major development: ISO-NE’s decision to pause the Forward Capacity Auction for a year while a new market framework took shape. While the intricacies of capacity market design may only pique the interest of those of us steeped in this industry, the outcome of this process will have implications for all electricity consumers in the region. Further, the reforms point to the overall direction that the grid of the future is headed, and the challenges it poses for grid operators.
With that context in mind, this post offers a quick check-in on where things stand today, what ISO-NE has now formally filed with the Federal Energy Regulatory Commission (FERC), and what changes are still on the horizon.
The Forward Capacity Market and Why Reform Is Underway
For nearly two decades, ISO-NE has administered the FCM to procure capacity resources intended to meet projected electricity demand. Under this design, capacity auctions have historically been conducted more than three years ahead of the delivery period, establishing capacity obligations and associated payments in advance of system need. All electricity consumers pay for the capacity costs established through this market as part of their retail supply costs, based on their electricity account’s relative contribution to the annual hour of peak electricity demand.
Over time, ISO-NE and stakeholders have identified changes in system conditions that affect how future capacity needs are assessed. These include evolving load forecasts, shifts in the regional resource mix, the timing of resource availability and retirements, and growing attention to seasonal reliability considerations – particularly winter reliability challenges associated with fuel availability and resource performance during cold weather periods. These developments have prompted discussion about whether the existing auction timeline and structure continue to align with planning and operational considerations.
In response, ISO-NE initiated the Capacity Auction Reforms (CAR) process, a multiphase stakeholder effort conducted through the New England Power Pool (NEPOOL). The CAR initiative is focused on evaluating alternative capacity market structures, including adjustments to auction timing and commitment periods, with the objective of ensuring that future capacity procurement reflects the latest information about supply, demand, and resource characteristics.
First Filing: Prompt Capacity Auction and Deactivation Reforms
In late December 2025, ISO-NE and the New England Power Pool Participants Committee took the first formal step by filing an initial set of capacity auction reforms with the FERC. This first filing focuses on two closely related changes: shifting to a prompt capacity auction and updating the rules for how resources leave the capacity market.
Prompt capacity auction. The headline change is the move away from auctions held more than three years in advance to auctions run roughly one month before the capacity commitment period begins. Under this approach, only resources that are already built and able to demonstrate deliverability would be eligible to participate. ISO-NE argues that buying capacity closer to delivery should lead to more accurate forecasts, reduce the risk of paying for capacity that never shows up, and simplify the process for both the ISO and market participants. If approved, the prompt auction would replace the current forward auction starting with the June 2028 – May 2029 capacity commitment period.
Deactivation framework. The filing also tackles how resources exit the market. Under current rules, resources must signal their intent to retire up to four years in advance through delist bids. ISO-NE’s proposal shortens that timeline to one year and replaces the delist construct with a more straightforward deactivation notification process. The ISO would still review retirements to guard against market power concerns and reliability risks.
Importantly, many familiar elements of the FCM, such as pay-for-performance incentives and core reliability obligations, would remain in place under the proposed prompt auction design. ISO-NE has asked FERC to rule on this first set of reforms by March 31, 2026.
What’s Next in the Capacity Auction Reforms Process
The prompt auction and deactivation changes are only the first piece of a larger redesign. ISO-NE is already working on the next phase of CAR, which will address two issues that were deliberately left out of the initial filing.
First, the ISO plans to move toward a seasonal capacity market, replacing the single annual commitment period with separate summer and winter obligations. This shift is intended to better reflect the seasonal differences in New England’s reliability challenges, particularly growing concerns around winter fuel availability and performance. This seasonal approach also becomes important as ISO-NE anticipates growing winter electricity demand due to the electrification of heating loads.
Second, ISO-NE will continue developing capacity accreditation reforms so that different resource types are credited based on how much the ISO anticipates they could actually contribute to system reliability. This work builds on earlier stakeholder discussions and technical studies and is closely tied to the proposed seasonal market design, as some resources may be assessed as offering different reliability contributions in the summer versus the winter.
A second FERC filing covering seasonal auctions and accreditation reforms is expected later in 2026. If approved, ISO-NE anticipates that the full prompt and seasonal capacity market framework would be in place for auctions beginning in 2028.
Looking Ahead
Taken together, these reforms represent one of the most significant overhauls of New England’s wholesale electricity markets in years. How they are finalized and how they perform in practice will shape reliability planning, investment decisions, and costs for years to come. As FERC reviews the first filing and ISONE advances the next phase of work, continued stakeholder engagement will be critical to getting the details right.
For CES clients, these changes will have significant implications for their retail electricity supply costs. Many CES clients are aware of the ways in which current FCM-related costs are assessed, based on relative electricity demands during the single peak hour of the year. The outcome of this CAR process is likely to modify that structure and will inevitably alter the way capacity costs are determined. This will lead to new market dynamics and potentially lead to new costs for some consumers. CES is continuing to follow these reforms closely and will be assisting our clients in understanding the changes and any associated implications for their electricity costs.
Sources and Further Reading
- ISO New England, ISO‑NE files 1st phase of capacity auction reforms with FERC (ISO Newswire, December 31, 2025): https://isonewswire.com/2025/12/31/iso-ne-files-1st-phase-of-capacity-auction-reforms-with-ferc/
- ISO New England, Capacity Auction Reforms Key Project: https://www.iso-ne.com/committees/key-projects/capacity-auction-reforms-key-project
- Utility Dive, ISO‑NE proposes capacity market overhaul with shift to ‘prompt’ auction (January 5, 2026): https://www.utilitydive.com/news/iso-ne-proposes-capacity-market-overhaul-with-shift-to-prompt-auction/808712/
- Troutman Pepper Locke, ISO‑NE Seeks to Establish a Prompt Capacity Market and Deactivation Framework (January 14, 2026): https://www.troutmanenergyreport.com/2026/01/iso-ne-seeks-to-establish-a-prompt-capacity-market-and-deactivation-framework/
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