By Michael Kuser and Rich Heidorn Jr.

WASHINGTON — New England regulators and stakeholders told FERC on Monday they fear ISO-NE’s fuel security proposal could increase costs without solving the region’s winter supply concerns, urging the commission to postpone the RTO’s Oct. 15 filing deadline and require it to provide more analysis before drafting Tariff changes.

The “ISO, to its credit, has done a lot of hard work in a short amount of time,” Matthew Nelson, chairman of the Massachusetts Department of Public Utilities, told FERC staff during a daylong public meeting (EL18-182, et. al.). “But … this is a case of too much, too fast.”

“We don’t want to buy things we don’t need to buy,” said New Hampshire Public Utilities Commissioner Kathryn Bailey, who said the proposal could increase the region’s already high electric rates. “The current design suggests that we have a winter problem, but we’re going to pay for ancillary services year-round.”

Last July, FERC ordered ISO-NE to develop a long-term plan to address concerns over insufficient natural gas supplies for generation in winter. (See FERC Denies ISO-NE Mystic Waiver, Orders Tariff Changes.) In March, the commission pushed the original July 1 filing deadline back to Oct. 15.

In April, the RTO, the New England States Committee on Electricity (NESCOE) and the New England Power Pool requested the public meeting with staff, saying that ex parte rules had prevented stakeholders from seeking guidance from the commission.

ISO-NE Chief Economist Matthew White and Christopher Parent, director of market development, opened the meeting Monday with an overview of the RTO’s “energy security improvements” (ESI) proposal, which includes day-ahead energy option products, a multiday-ahead market (M-DAM) and seasonal forward markets.

White said the proposal’s energy option design — the only part of the proposal the RTO plans to file in October — solves the “misalignment” between the high price implicit in energy interruptions and the lower energy prices suppliers receive. The RTO gave its most recent outline of the proposal to NEPOOL members at last week’s Markets Committee meeting. (See related story, “ESI Conceptual Design,” NEPOOL Markets Committee Briefs: July 8-10, 2019.)

Seeking Delay

Regulators and NEPOOL members told FERC staff Monday that the RTO’s plan for a deterministic impact analysis was insufficient and should include probabilistic results. Some complained that the RTO had failed to adequately define the problem or had ignored how offshore wind, LNG tanker deliveries and energy efficiency could reduce winter concerns. And numerous witnesses said the RTO’s plan to submit a Tariff filing in mid-October is premature.

Jeff Bentz, NESCOE’s director of analysis, said the schedule could be delayed by six months without impacting the proposed implementation.

“The ISO will not review its impact analysis until July 30. It will still be preliminary at the September 2019 Markets Committee vote, and a number of the modeling cases and specific assumptions are unclear at this point,” Bentz said. “With that backdrop though, ISO is encouraging state and stakeholder proposal amendments by mid-August, which is about two weeks after we get the impact analysis. … We have more questions than firm views at this point.”

NEPOOL Chair Nancy Chafetz, of Customized Energy Solutions, asked FERC to “keep an open mind” on the proposals. Although NEPOOL members have “jump ball” rights to propose an alternative to the RTO’s proposal, Chafetz said the stakeholder body won’t have an official position until it votes in October. And even then, she said, “some of our stakeholders may have difficulty in taking a position when we vote because of” the aspects of the plan that the RTO said it would have to deal with later.

Bentz and others also expressed concerns about the ability to mitigate market power. “We think it’s going to be hard to mitigate these call options. There’s a lot of subjective inputs in determining what your option bid is going to be,” he said.

What’s the Target?

Phil Bartlett, chairman of the Maine Public Utilities Commission, said the RTO’s “problem statement” is not specific enough because it fails to define the level of reliability it is seeking.

“We think this is a very aggressive time frame, so we would support any kind of delay to ensure there’s better analysis, to make sure that we have a fully developed solution and we know what the results are going to be,” he said. “If we end up … mostly just compensating existing generators for doing what they’re already doing, we’ll see significantly higher costs without much benefit. I think that’s a very real risk with this proposal.”

Liz Delaney, director of energy market policy for the Environmental Defense Fund, raised a similar concern. “While the ISO has made efforts to justify its targets and to tie them to NERC standards, it’s still unclear if this target is calibrated with enough precision to ensure that it’s procuring essential and not excessive quantities. ISO New England has not assessed whether a more modest procurement would still uphold the NERC standards.”

David Cavanaugh, vice president of regulatory and market affairs for Energy New England, said NEPOOL’s publicly owned utilities sector is not convinced the M-DAM is needed. “The M-DAM significantly complicates the design and implementation and would increase the cost of business for publicly owned entity members through increased IT requirements and staff with yet-to-be-determined benefits,” he said.

Katie Dykes, commissioner of the Connecticut Department of Energy and Environmental Protection, said regulators have been chastened by previous market overhauls touted as fixes, such as the Pay-for-Performance capacity market program.

She noted that the RTO is proposing not just three new ancillary services markets, but also the M-DAM and a new futures market. “With all of these new markets, we know that they will raise costs. The questions that we’re not prepared today to be able to address is whether they will solve the problem and whether they will solve the problem fully.”

Penalties or Incentives?

FERC Commissioner Richard Glick, who attended part of the hearing, also cited the incentives in the PfP program in expressing skepticism over the ESI plan. He questioned whether the RTO should be using a “carrot or stick” approach.

“There was an expectation that resources were going to firm up their fuel supply arrangements … and I understand that didn’t really occur,” Glick said. “Is this something we should be solving … with incentives or should we be providing penalties?”

“Whether it’s structured as an incentive or penalty, what it really comes down to in influencing the commercial decisions of entities … is the delta in their profit and loss if they take [action] or they don’t,” ISO-NE’s White responded. “I don’t look at it as there’s a fork in the road [where] you can create incentives or penalties. I think that’s not the most constructive way to approach it.”

Massachusetts DPU Chair Nelson said he worries “that a stick approach might spur on more [plant] retirements.”

But James Daly, vice president of energy supply for Eversource Energy, said prior markets mechanisms have failed to deliver needed infrastructure. “FERC should require ISO-NE to make fuel assurance mandatory and not an option,” he said.

OSW, LNG Ignored?

David Ismay, senior attorney for the Conservation Law Foundation, said the proposal underestimates the contribution of state-sponsored clean energy resources to winter reliability.

The “ISO confirmed that, had it been operating at the time, the 800 MW of offshore wind that will be brought online in the next few years for Massachusetts would have had significant energy security and cost benefits during a representative cold snap [such as] one that we experienced in the 2017-18 winter,” he said.

White said the RTO has done some modeling of prospective offshore wind. “The challenge, of course, is that it is prospective. There is only the one very small facility [operating currently],” he said, referring to the 30-MW Block Island Wind Farm. “It’s difficult to reliably simulate the potential variability when there isn’t enough data to go on.”

Brett Kruse, vice president of market design for Calpine, said the RTO’s decision to sign Exelon’s Mystic generating plant to out-of-market contracts for Forward Capacity Auction 14 assumed there would be no LNG imports to the Northeast Gateway Deepwater Port Facility, which his company has used to supply its 2,000 MW of gas-fired generation in the region.

“We certainly believed that we could enter into similar agreements for the delivery years for FCA 13 and 14. In fact, we believe that many other alternatives (including additional oil backup) would have been available to ISO-NE at less than half the cost of the Mystic contract, if only ISO-NE would have opened their fuel security efforts to competition,” he said.

Other Proposals

Kruse and several other witnesses also offered alternatives to the RTO’s proposal.

Calpine proposed procuring fuel-secure megawatt-hours for the winter months three years in advance, a proposal it called the “forward enhanced reserves market.”

“We believe the forward market is the critical piece. Not the spot market,” Kruse said.

Neal Fitch, senior director of regulatory affairs for NRG Energy, said a seasonal forward market that incented purchases of oil and LNG four to six months ahead of real time would be most effective. But he said it will come with a cost. “Revenue-neutral solutions are really no solution at all,” he said.

ISO-NE’s Parent said the RTO will begin outlining its forward market proposal to stakeholders in August, but it won’t be included in its October filing. “Forward markets require sound spot markets. … to design a forward market in the absence of understanding how the spot market works is premature,” he said.

Tom Kaslow, vice president of market policy for FirstLight Power Resources, proposed the RTO limit the qualified capacity of gas-only resources in winter “to the level of such generation that the ISO-NE analysis indicates can be simultaneously fueled.”

“Qualifying a higher level doesn’t give you any more” capacity, he said.