By Michael Kuser

NEW BRITAIN, Conn. — State regulators on Wednesday hosted a spirited public hearing to examine whether ISO-NE’s wholesale electricity markets are geared to serving the state’s clean energy objectives.

“Despite the ISO’s best efforts … the markets seem to have been unable to attract and retain the resources that Connecticut has identified as the most valuable to our state from a climate change and policy perspective, as well as for resource adequacy and winter reliability,” said Public Utilities Regulatory Authority (PURA) Chair Marissa Gillett, the first to comment at the hearing held by the Department of Energy and Environmental Protection (DEEP).

Gillett said her view is “evidenced most acutely” by the cost-of-service agreement issued to keep Exelon’s Mystic Generating Station online for reliability reasons and the state’s power purchase agreement to prevent closure of Dominion Energy’s Millstone nuclear plant. (See FERC Approves Mystic Cost-of-Service Agreement and Conn. Zero-Carbon Awards Include Nukes, OSW, Solar.) The out-of-market actions “resulted in increased costs to the ratepayers of Connecticut,” she said.

In the state’s 2018 solicitation for nearly 12 million MWh of zero-carbon electric power, DEEP selected a 10-year bid from Millstone for about 50% of the plant’s output. State officials felt they had “no choice” but to protect the reliability of the grid, Gillett said. (See Conn. Zero-Carbon Awards Include Nukes, OSW, Solar.)

The selection of Millstone’s bid followed a draft decision by PURA categorizing the plant as “an existing resource at risk for retirement” without ratepayer support (Case 18-05-04).

Go Slowly

“We understand that your objective is to transition to the clean energy future, and that you have aggressive decarbonization goals for this, not only for the energy sector, but economywide,” said ISO-NE Vice President of External Affairs Anne George, a Connecticut utility commissioner for five years prior to joining the RTO in 2008.

George recommended the state pursue a general policy discussion rather than a regulatory proceeding, especially as no specific regulation could take effect before the end of the 2020s.

“With regard to looking to the future and what Connecticut may need to do to meet its policy goals, I think that is at the core of what the New England States Committee on Electricity asked for,” George said. “NESCOE made it clear that they didn’t want to necessarily rush into discussion with a deadline in place, because they didn’t want to face making decisions in too fast of a timeline.”

George said ISO-NE’s substitution auction mechanism, Competitive Auctions for Sponsored Policy Resources (CASPR), worked last year for Forward Capacity Auction 13, which saw 54 MW of offshore wind energy clear. She noted that planners purposely kept the renewable technology resource (RTR) exemption from the minimum offer price rule (MOPR) for three successive auctions in order to smooth the transition to cleaner resources. (See “Market Mechanisms,” Overheard at NECBC 2019 Energy Conference.)

About 336 MW of capacity will be eligible for the RTR in next month’s FCA 14, which will cover 2023/24.

MOPR and Carbon Pricing

DEEP Commissioner Katie Dykes asked George for her thoughts on FERC’s ruling last month requiring PJM to expand its MOPR to cover all state-subsidized resources — a decision that provoked dozens of intervenors on Tuesday to ask the commission to reconsider or clarify. (See related story, PJM MOPR Rehearing Requests Pour into FERC.)

“We don’t see that it poses an immediate risk to the New England capacity market,” George said. “First, in the order, FERC acknowledged that regions do not need to have the same rules. … Our minimum offer price rule is broader than what existed prior to the PJM order, so we believe there’s no real impetus there to expand the New England MOPR.

“And finally, if it came to discussion, there’d be a significant amount of process around that, and so there would be a lot of time before any changes were in effect,” George said, adding that a carbon price could be “designed and implemented very quickly” to counter the impact of an expanded MOPR for New England.

A top PJM official on Wednesday suggested states embrace carbon pricing rather than exit the RTO’s capacity market in response to FERC’s order. (See related story, PJM: Carbon Pricing the Answer to Subsidy Dispute.) NYISO CEO Rich Dewey on Wednesday told his Management Committee much the same thing, saying that integrating carbon pricing into the markets is the most immediate and effective means to pursue the state’s public policy goals for clean energy production.

Market Design

“There was the ability for Dominion to come into ISO New England in the same way that the Mystic units did,” George said. “They chose not to do that. I don’t think that our process didn’t allow for Millstone to have an opportunity to come into the regional market.”

Dykes interrupted to clarify that George was referring to Mystic’s one-year reliability-must-run contract, after which the resource is required to retire.

“In the Mystic situation, they got approval for up to two years, but that was an avenue” available from ISO-NE, George said, adding the RTO will soon file with FERC new energy security provisions that should ensure compensation for needed units. (See ISO-NE Energy Security Plan Looms Large in 2020.)

“This brings me to the broader point of fuel diversity,” Dykes said. “From an operations standpoint, is there a value in terms of maintaining reliability on the grid in having diverse fuel types?”

George replied that it was not an easy question to answer: “I’ve heard our operators indicate that if we had 100% of the same type of resource, as long as we had a strong system and the underlying fuel system was strong, you could operate a system reliably predominantly on one fuel. I think our operators prefer having some diversity of supply, but it’s not an easy answer to say exactly what our operators would need to meet reliability.”

Dykes said she found that response “a little surprising” given the challenges highlighted in the RTO’s 2018 report on the New England grid’s fuel security. That report, she noted, pointed to a lack of firm gas delivery in the region, and to “the critical dependence the grid has on the two remaining nuclear facilities, Seabrook and Millstone, as well as LNG facilities, in order to prevent rolling blackouts from occurring during winter periods.”

“How do I reconcile that with the idea that the grid could be run reliably 100% on one fuel type?” Dykes asked.

“The message of that report was the vulnerability of the fuel infrastructure supplying a large part of the resource mix in New England,” George said. “But in that same report we indicated the importance of LNG, and we also indicated the importance of dual-fuel units, so there are ways to meet reliability without necessarily having prescriptive amounts of different types of fuel.”

The Right Design

Dan Dolan, president of the New England Power Generators Association, said he agreed with the ISO-NE’s assertion that its markets are not designed to get any one technology or resource into the marketplace.

“Part of the issue is making sure that the different attributes are being valued,” Dolan said. “One reason we haven’t seen that level of merchant renewables come in is because one of the largest attributes of their value, lower carbon emissions, isn’t being valued in the marketplace.”

The ISO-NE capacity market doesn’t reduce the investment risk for high-cost renewable resources, which also have low operating costs, said Francis Pullaro, executive director of RENEW Northeast, an industry trade group.

“Even if there were no MOPR, they just wouldn’t get enough revenue from the capacity market, because of its inherent design, to actually be financeable,” Pullaro said.

The Natural Resources Defense Council’s Tom Rutigliano said, “We love wholesale markets; they’re great. Wholesale markets bring us geographic diversity, efficient dispatch, efficient price signals [and] provision of ancillary services; all important in a low-carbon future. And the path to decarbonization becomes much harder and much more expensive without those tools.”

However, the new trend is for reliability to come from a combination of heterogeneous resources, which is a very different picture than reliability being a commodity produced by individual power plants, he said.

“It’s not clear that the fundamental design of capacity markets can accommodate the reliability picture we’re moving towards,” Rutigliano said.