It’s been almost two months since ISO-NE presented FERC with its Energy Security Improvements proposal, a generator-backed plan nearly two years in the making that split stakeholders so much that the RTO agreed to also submit an alternative supported by load interests.

The time since the filing has done nothing to bring the two sides closer, it appears, based on a panel discussion webcast by the Northeast Energy and Commerce Association on Wednesday.

Tom Kaslow, vice president of market policy for generator FirstLight Power Resources, and Andy Weinstein, Vistra Energy’s director of ISO-NE market policy, joined Andrew Gillespie, ISO-NE’s senior market designer of market development, in defending the RTO’s proposal.

Jeffrey Bentz, director of analysis for the New England States Committee on Electricity (NESCOE), and David Cavanaugh, vice president of regulatory and market affairs for Energy New England, which serves 35 municipal utilities, made the case for NESCOE’s three amendments to reduce the plan’s cost to consumers.

Karen Iampen, vice president of trading and origination for Repsol, complained that neither of the plans work for the company’s Canaport LNG terminal in New Brunswick because they are focused on the day-ahead market.

ESI would allow the RTO to procure energy call options for three new day-ahead ancillary service products. ISO-NE detailed the plan in a 2,123-page filing April 15 in response to FERC’s July 2018 ruling that the RTO’s Tariff is not just and reasonable because it lacks a way to address fuel security concerns. The Tariff currently allows cost-of-service agreements only to respond to local transmission security issues (EL18-182, ER18-1509). (See FERC Denies ISO-NE Mystic Waiver, Orders Tariff Changes.)

New England’s fuel security is a particular concern in winter, when prioritized heating demand can leave natural gas-fired generators without supplies. FERC’s order noted that reliability violations could occur as soon as 2022.

ESI is intended to incent generators to provide fast-start and fast-ramping operating reserves, replacement reserves for long-duration supply losses, and energy to fill the gap between the RTO’s day-ahead energy awards and real-time load forecasts. Option awards will be co-optimized with all energy supply offers and demand bids in the day-ahead market.

ISO-NE’s proposal received only 40% of a sector-weighted vote of the New England Power Pool Participants Committee in April, with support from Generation, Suppliers and Alternative Resources and unanimous opposition from the other sectors.

The PC approved amendments by NESCOE to limit replacement energy reserve (RER) purchases to the winter months, remove the RTO’s ability to adjust reserve levels to account for load forecast errors, and create a $10/MWh adder to the strike price. The amendments were endorsed by almost 62% of the PC, with unanimous support from the Transmission, Publicly Owned Entity and End User sectors and unanimous opposition from the Generation sector. ISO-NE submitted them to FERC along with the RTO’s proposal. (See ISO-NE Sending 2 Energy Security Plans to FERC.)

‘Using a Tank to Block a Mousehole’

Cavanaugh said the NESCOE amendments allow the region to comply with the FERC order while minimizing costs.

Bentz repeated a line from the protest NESCOE filed in response to ISO-NE’s filing. “We think the ISO is using a tank to block a mousehole,” he said.

“ESI is a novel approach for day-ahead reserves without any precedent elsewhere,” he said. “The potential impacts on energy security and cost to consumers are and remain uncertain, notwithstanding the impact analysis efforts of the Analysis Group and the ISO,” he said. “We’re just not sure this solves the fuel security problem.”

Bentz said the states would have preferred exploring a seasonal forward market with “a more conventional approach” to day-ahead ancillary services based on the best practices of other RTOs. “We think it could be potentially easier: more efficient at addressing fuel security and less risky than ESI,” he said.

State regulators are concerned that consumers will pay high prices if ESI fails to produce competitive outcomes, “which could happen potentially through physical withholding or inadequate incentives to participate,” Bentz said. The RTO has not yet “demonstrated [an] ability to mitigate market power effectively.

“We think it’s going to overcharge [through] incentives that fail to account for any diminishing marginal reliability value and are grossly disproportionate to fuel holding costs, according to the ISO’s own independent impact analysis study,” he added.

Bentz noted Analysis Group’s impact report showed 70 oil-burning combustion turbines would collect $7,385/MW in increased revenue for an investment of $134/MW. “We think that’s excessive,” he said.

Novelty Nothing New for New England

FirstLight’s Kaslow insisted FERC will ensure that the RTO has effective market mitigation procedures to protect consumers. And he said ISO-NE should not hesitate to try new solutions.

“NEPOOL and ISO have prided themselves on … being the first to do something, not because they wanted to be first, but because there was nothing better out there,” Kaslow said. “We’ve done that with our demand curve design. … We’ve done that with Pay-for-Performance,” which, he noted, PJM used as the basis of its Capacity Performance rules.

Kaslow also noted the RTO was “the first to have a capacity auction to sponsor policy resources,” a reference to the Competitive Auctions with Sponsored Policy Resources (CASPR). “So being first and being novel isn’t a new thing in New England.”

Bentz responded that ESI seeks to address the same problem “Pay-for-Performance was supposed to solve.”

Of CASPR, he said, “the states are sitting here with thousands and thousands of megawatts wanting to get into the market. And so far — I know it’s been only two auctions … we’ve only transacted a total of 54 MW. Next auction isn’t looking so good either. So, I’d say from the states’ perspectives, we’re looking at these novel designs and going, ‘OK, they sound good on paper. But do they actually work in reality?’”

Bentz said NESCOE and the Massachusetts attorney general had sought a three-year “lookback” to see if ESI is working as designed. Depending on their experience, Bentz said, the states could consider RER for summer months later. “Our pitch was, ‘start out slow,’” he said.

Unfair to Generators

Kaslow said it is generators that would be at risk if the commission agrees with NESCOE’s call to set RERs’ value to zero in the non-winter months.

“We’re troubled by the fact that NEPOOL proposes simply not to pay [for] replacement energy reserves in the non-winter months. Nothing in the NEPOOL filed amendments removes the ISO’s ability to schedule those reserves. As an owner of a resource relying on merchant revenues … that just doesn’t seem to be a fair outcome.

“When you have a market that’s relying on the marginal price of the reserves to set the price, that determines whether or not — and to what extent — we get paid. If there’s an element of that supply that the ISO ends up scheduling that isn’t accounted for in the demand that’s used to price it, the prices drop to zero.

“ISO will always maintain reliability. Unless they’re handcuffed or prevented from scheduling that reserve, they’re going to do it. And our concern is if they do that and it isn’t reflected in the market, it just suppresses the real-time prices — with the feedback loop [to] the day-ahead — and we just end up in a problem.”

LNG complaint

Repsol, a global “multi-energy company” that owns 75% of Canaport, thinks the RTO is seeking the wrong solution, Iampen said.

“In our opinion, the ESI filing … inappropriately replaced the fuel security with an energy security construct. So instead of the focus being on securing firm fuel or having secure fuel, it became about energy, which … wasn’t what the ISO was directed to submit Tariff revisions on.”

Iampen said securing LNG supplies requires firm forward contracting. “Compensation that is contingent on the generator’s option offer clearing on a day-ahead basis does not incent generators to procure the firm forward fuel supplies necessary to assure fuel security,” she said.

“We don’t contract forward for LNG speculatively. There is an awful lot of advance planning that is required. All LNG is not the same. You have to have a certain quality that shows up. You have to have a certain ship that can come alongside on your jetty. Not every ship can go into Everett, [Mass., where Exelon’s LNG terminal is located]. The bridge is too low for a good portion of the fleet that’s out there. Those logistics require more than a day-before cost certainty.”

ISO-NE’s Gillespie agreed with Iampen that the RTO’s goal with ESI is — as the title suggests — “energy” not “fuel” security.

“Fundamentally, the ISO really only cares about electrical energy. We really don’t want to be in the business of managing fuel for different power plants across the region,” he said. “So, our focus in this process [has been on] the outputs of these plants. These are the services that the system needs — the standby capability.”

Non-winter Incidents

Kaslow contended that NESCOE’s focus on winter is “designing by looking through the rear-view mirror.” Three losses of large baseload resources in the prior two weeks showed that energy security concerns are not limited to winter, he said.

On May 27, the region lost the Phase II transmission line with Quebec to a lightning strike while it was supplying almost 2,000 MW of power to New England.

Two days later, the region lost the Seabrook nuclear plant and Phase II again, then carrying more than 1,300 MW of imports.

On June 6, the RTO lost Seabrook again. In both cases, the plant shut down when control rods moved into the reactor when they weren’t supposed to.

“We need to be clear that we can’t predict the future, and ISO needs to keep the system operating every day. And the resources they need to rely on actually need to have compensation … to continue to provide that service,” Kaslow said.

ENE’s Cavanaugh countered that none of the recent events involved fuel issues. Nor did they result in reserve shortages, he said.

“Prices went to about $120[/MWh],” Bentz agreed. “The system handled it well.”

Cavanaugh said the probability of needing RER in the summer is “very low,” making the ISO-NE plan “a very huge insurance bill for covering something that we think is outside the scope of what the FERC asked.”

Gillespie said that although the RTO’s energy security vulnerabilities are currently most acute in winter, that will likely change as renewables increase their penetration.

“Right now, it’s mostly a concern in the wintertime, [but if] a lot of these resources that are providing these standby capabilities end up leaving that could spill out into months outside the winter,” he said. “If a pipeline is down for maintenance. If it’s a cloudy day. All these different things can occur. … It will be, I think, a broader problem than just the winter” because of system changes.

Starting Over?

Repsol’s protest of ISO-NE’s proposal asked FERC to order the RTO to make a compliance filing to address the “fuel security” concerns the company says were ignored in the ESI filing.

Iampen said Repsol is not asking FERC to reject the two proposals and is encouraged by the RTO’s commitment to develop a “longer-horizon seasonal fuel security framework.”

Kaslow observed that it took almost two years to develop a plan in response to the FERC order, “and then we still have another four years to implement” it.

“A delay, or going back to what I would call a blank page, I think is just impractical at this point,” he said.

“It’s critical that we give ESI time to work … rather than immediately looking for the next shiny object,” said

Weinstein, who joined Vistra a year ago after nine years at FERC, including a stint as former Commissioner Cheryl LaFleur’s legal adviser, said, “I think there should be concern about how FERC proceeds going forward. FERC could decide it’s obligated to find a solution on its own. It could be prescriptive.”

“I don’t know that we want to restart,” Bentz said. “But our original approach two years ago was, ‘Can’t we do a conventional approach that’s in place in other places?”