When it was his turn to ask a question during the opening panel of FERC’s technical conference on modernizing electricity market design in ISO-NE, Commissioner Mark Christie started with the part of his résumé that includes 17 years as a member of the Virginia State Corporation Commission.

“I’m very sympathetic to state sovereignty and accommodating state sovereignty and respecting it,” Christie said to a group of New England regulators, RTO executives and the chair of the NEPOOL Participants Committee, brought together to discuss the relationship between states’ policies and ISO-NE market design.

Contending that the RTO’s No. 1 job is to “keep the lights on,” Christie asked if states wanted responsibility for their resource adequacy like some others in PJM, MISO and SPP, or a governance change to make ISO-NE more like ERCOT, as in an energy-only market.

“My question to you is: What do you think of those two options?” Christie said.

Matthew Nelson, chair of the Massachusetts Department of Public Utilities, said the fundamental goals of the states and RTO “are almost in lockstep.” States like Massachusetts and Connecticut are procuring offshore wind and hydropower on their own, but there should be a market-based mechanism that the states create with ISO-NE and NEPOOL stakeholders to procure clean energy “with an eye toward reliability,” he said.

Katie Dykes, commissioner of Connecticut’s Department of Energy and Environmental Protection, said that she “respectfully” objected to Christie’s presumption of ISO-NE’s chief task — and his question.

“Yes, in Connecticut, we are focused on clean energy, but in addition to that, we have had to take extraordinary actions in recent years to shore up the reliability of the [ISO-NE] grid and the market,” Dykes said. The RTO’s capacity market design had been constructed around the investment needs of natural gas resources, she contended. Additionally, when the Millstone nuclear plant was considering premature retirement, ISO-NE and its market “had no plan to address this,” and it was left to Connecticut “legislators and ratepayers … to prevent [Millstone] from retiring.”

Vermont Department of Public Service Commissioner June Tierney said Christie’s question was based on “a false duality.”

“There’s more than one way to design a market to keep the lights on,” she said. ISO-NE “needs those lights to be kept on with clean energy in a way that addresses climate change meaningfully.”

ISO-NE CEO Gordon van Welie said markets are “never going to work very well” with inadequate infrastructure supporting them “or if policy objectives are not aligned.” He said the constraints in the region are around gas pipelines and storage plus LNG imports.

“We have to design the markets around those constraints, and we are in the position where certain energy providers are going to have an outsized influence on our reliability,” van Welie said. “That’s just where we ended up because of the choices we made over the last two decades.”

In terms of policy objectives, van Welie said there is a “misalignment at the moment” between the RTO and the states but added that the markets were set up to achieve reliability. “They’ve done an excellent job of doing that, despite the fact that we had to work around some of these constraints.”

A Forward Clean Energy Market (FCEM), which is under consideration, offers some hope to relieve some of the tensions, but it will not ultimately solve the problem, he said. (See ISO-NE: No Difference Between FCEM and ICCM — Yet.)

“Until the region figures out how it wants to socialize some of these costs for reliability that are outside of the market, we’re going to stay stuck in that situation,” van Welie said. “There’s no market design that will solve the problem that Commissioner Dykes wants us to solve.”

Potential Market Changes

In a discussion about the short-term options available and potential market changes that could better accommodate state policies, Mark Karl, ISO-NE vice president of market development and settlements, said that the capacity market design “needs to change.”

“We recognize that without the successful combination of state resource procurement policies, over time the combination or the continuation of them will lead to a mismatch and potential double procurement of resources by the state and the market, which would create the inefficiencies and would tend to increase consumer costs,” Karl said.

For the past few years, Karl said, the RTO has been working to accommodate state-procured resources within the minimum offer price rule (MOPR) framework. ISO-NE recently added a project to its Annual Work Plan to address the removal of the MOPR from the capacity market. Karl said that the Competitive Auctions with Sponsored Policy Resources (CASPR) mechanism was the RTO’s “second-choice policy,” but there is a “lack of regulatory support for it.”

Philip Bartlett, chairman of the Maine Public Utilities Commission, said that CASPR “has not proven effective in terms of allowing state-supported resources into the market.”

“The goal here is to define what it is we’re trying to achieve clearly, and then develop the tools that will do that at the least cost, while also supporting the renewable resources,” Bartlett said.

Dan Dolan, president of the New England Power Generators Association, agrees that market reforms are “clearly” needed. However, it is also necessary to recognize the MOPR has been a part of the capacity market “for a very good reason.”

“Economic price formation to provide market-based reliability is critical and cannot be lost sight of,” Dolan said. “But I also recognize the discussion over the last several months and today about the future and potentially numbered days of MOPR.”

Dolan said “out-of-market reliability support” like Connecticut’s subsidies for Millstone should be avoided “as much as humanly possible.” He said markets need to deliver reliability at a competitive price.

“How we do that is to evolve the electricity market in New England to manage three elements,” Dolan said. “First, it must integrate the state-sponsored resources to recognize their capacity value. Second, it should incorporate the underlying clean energy decarbonization policies into the market … and third, it must ensure that the market is still providing resource adequacy and broader reliability services in a competitive manner.”

Abigail Krich, president of Boreas Renewables, said if reliability is a concern, “better defining our reliability needs and products should be the issue of top priority.” Krich expressed three key concerns that should be addressed to prevent the market from acting as a barrier to entry or limiting the counting of resources needed to meet state policy goals.

“First, the accreditation process in which different resources are qualified to provide a certain quantity of capacity does not currently strike a reasonable balance between the goals of recognizing the unique attributes of different technologies and treating all technologies comparably,” Krich said. “Second, the overlapping impact deliverability test effectively prevents new capacity resources in transmission constrained areas from competing with existing resources. Finally, energy-only solar generators that do not participate in the [Forward Capacity Market] are neither counted toward metering nor reducing the installed capacity requirement. They are simply ignored.”

Panelists Warn of Long-term Transition Woes

The last panel of the day found strong support for centralized clean energy procurement mechanisms. But while participants stressed the urgent need for a path toward New England’s carbon-free future, they also emphasized the danger of mishandling the transition.

“The costs of getting things wrong here are significant. … We want to make sure we get it right, and we design it in a way that is consistent with sound market design so that we’re not back at the commission a year later saying, ‘We have to patch it up … [because] this didn’t work exactly how we thought it would,’” said Christopher Geissler, principal economist for ISO-NE. “While we want to work as quickly as possible, I think our objective would be to do the work as well as possible, and if that takes a little bit longer, I think that’s a trade-off that … would be necessary.”

The FCEM framework — which would competitively procure clean energy commitments that can complement other wholesale power market products — received the endorsement of several panelists. But others cautioned against seeing any one strategy as a cure-all. Geissler, for instance, noted several barriers to the FCEM working as desired, such as a lack of consensus on what exactly constitutes clean energy and the likelihood of rapidly growing complexity as more products are added to the mix.

Arnie Quinn, senior director of FERC-jurisdictional markets at Vistra, echoed this warning, emphasizing that participants must be sure of the need they are trying to fill before they move forward with a new market design.

“Too much focus on emissions is going to get us California and CAISO from last summer; too much focus on cost is going to get us Texas from last winter,” Quinn said, referring to the Western heat waves of 2020 and the winter storm of February 2021, respectively. “So, we really have to incorporate [all] communities’ goals into the wholesale market. We think a reasonable carbon pricing mechanism, or a well designed regional clean energy standard, are both steps in the right direction.”

Jolette Westbrook, director and senior attorney for energy markets and regulation at the Environmental Defense Fund, observed that while there is a need for new market designs that “take [environmental justice] into account in a very meaningful way,” regulators must also recognize that changes cannot be made overnight. Short-term measures will be needed to cover the transition period.

“In the near term, for example, ISOs should adopt capacity market reforms so that all resources can compete on equal footing,” Westbrook said. She added that the long-term shift must incorporate “off-ramps” so that “corrections can be made early” if the new market is discovered to have unintended damages to disadvantaged populations.

The changing nature of the bulk power system and its generation mix are also complicating factors in adopting FCEM or other market designs, panelists warned, echoing multiple recent assessments from NERC and FERC. (See FERC Summer Assessment Spotlights Western Drought Risks.) As the electric grid continues its transition away from conventional generation, market structures will need to accommodate the characteristics of the new resources coming online while still supporting consumer demands.

“Our market today is based on summer peaking, and so we may need more dynamic purchases to support the changing resource mix across the season, shifting demands across the day, and new technologies,” said Michelle Gardner, senior director of regulatory affairs at NextEra Energy. Moreover, “as the states look to centrally procure clean energy, we are going to want those megawatts to count toward resource adequacy … and as we all know, intermittent [generation resources] have very different profiles, depending on the season.”