By William Opalka

The New England Power Pool (NEPOOL) is considering redesigning its market rules to align them with the region’s efforts to reduce carbon emissions from the generation sector.

The first of six scheduled stakeholder meetings on the Integrating Markets and Public Policy (IMAPP) process was held Aug. 11.

The goal is to provide guidance to ISO-NE on how wholesale markets could be adapted to meet the public policy goals of the New England states. The group hopes to complete its work by the RTO’s annual meeting Dec. 2 with market rule changes filed with FERC beginning next year.

NEPOOL, created in 1971, has more than 440 members (with about 260 voting members), including utilities, independent power producers, marketers, load aggregators, end users and demand response providers.

RTO Insider recently spoke to its chairman, Joel S. Gordon, whose day job is director of market policy at Public Service Enterprise Group’s PSEG Power Connecticut unit. The interview has been edited for clarity.

New England has usually had an active public policy agenda related to energy, but this is a rather different way to approach this topic. So, why now?

“If you look at the New England states, there has been a rather large consensus that the environmental objectives that the individual states have are all heading in the same direction. The states have different means to achieve them, but they are all part of the Regional Greenhouse Gas Initiative, and some of them have even more aggressive targets than RGGI.

“They have outlined means to achieve [decarbonization] through mandates for aggressive carbon reduction and renewable energy goals, so in order to meet those targets that have been legislatively mandated, they needed to take some actions that are outside of the market.

“Right now, the markets, as we’ve designed them, are not designed to drive the [decarbonization] of the generation fleet. It is designed to find the most efficient set of resources and to meet a reliability need, which has been the mission of NEPOOL and ISO-NE throughout the entirety of their existence.

“The recognition of our members has been that over the last couple of years, as we’ve seen more programs come out of the states, we’ve recognized that the markets were not really not going to give them what they needed, so the states took these out-of-market actions. [IMAPP] is a recognition that the states have legitimate public policy goals, so the markets should be designed to help achieve those public policy goals.”

The state RFPs and the Massachusetts legislation mandating hydropower and offshore wind are examples of these out-of-market actions. [See Massachusetts Bill Boosts Offshore Wind, Canadian Hydro.]

“From the states’ perspective, the markets weren’t moving fast enough to get them where they needed to be and that’s where these big RFPs come from, and the Massachusetts legislation. Our goal at NEPOOL and for the region is to create a competitive market signal to get the states what they need so they don’t have to act on their own. If we’re successful, the markets on their own will find the most cost-effective means in meeting those state objectives.”

In remarks to stakeholders, you said, “No other RTO has done this before.” Are you optimistic that you can meet these challenges, or is it a bit frightening that New England is out there a bit alone, perhaps the first region trying to integrate markets to this extent with public policy?

“I’m incredibly optimistic that we can find solutions to the problems that we face, the challenges before us. That’s what NEPOOL is really good at as a stakeholder organization. We have six different governing sections that look at our industry from all different perspectives. This is what the IMAPP initiative is, reaching out to the members as they try to find solutions to the challenges.

“I’m also optimistic that the states have encouraged us to do this. They recognized that in [the multistate requests for clean energy] that there’s potential in what the markets have developed. But recognizing they have objectives mandated in their legislation, we can provide a pathway to achieving their objectives using the discipline of competitive markets.”

You seem to have a pretty aggressive schedule in what seems to be a large task ahead of you. Are you confident you will have a consensus document to present to ISO-NE in December?

“The process that we’ve set up [six meetings over four months] is an aggressive schedule. But it’s also important that we put ourselves in that schedule so when we start out in 2017, that we’ll be in a position to respond to the mandates that are out there legislatively. They have carbon reduction goals, so we have to start the process sooner, rather than later, to go to a market-based solution. It also provides the states with an opportunity to see what NEPOOL is doing. They may see there is less pressure for them to act if they see what we’re doing. Really, it’s our first step. I think we’ll be able to get to a high-level framework document by December.

“We hopefully will have a framework for a suite of solutions that would achieve a set of objectives, then we would get into the traditional NEPOOL process that works with ISO-NE and begins to analyze how it would work with the market rules. Then we would begin to work that into the Tariff revisions that would implement it.”

Do you see this process being informative for other RTOs, or do you see New England’s situation as unique?

“We are looking to the other regions as well to understand other concepts that are out there that may help to achieve our goals, which are somewhat unique to New England. We see some of this discussion in PJM in their Grid 20/20 process. [See PJM’s Grid 20/20 Ponders Mixing Public Policy, Competitive Markets.] But integrating public policy is not part of their mandate. In New England, we are fortunate in there are six states and they’re pretty much aligned, as opposed to [PJM’s] 13 states [which are not].”

Would it lead to inefficient market outcomes if rules that go into effect 10 years from now run counter to commitments that states make now through long-term power purchase agreements?

“Timing is going to be a challenge, there’s no question. We’ve talked about two timelines that we need to deal with [10-year goals and 30-year goals for emission reductions.] … I think we’re going to have to work on integrating the short-term and the long-term. I’m not sure how that happens. That’s one of the things that this process is going to have to deal with.”