External Market Monitor Delivers 2020 Assessment

ISO-NE energy prices and uplift costs exceed those in other RTO markets, External Market Monitor Potomac Economics told the NEPOOL Participants committee last week.

The Monitor was presenting its 2020 ISO-NE assessment at the committee’s annual summer meeting.

Other than ERCOT’s energy-only market, ISO-NE had the highest average prices among RTO markets over the last three years because of higher natural gas prices.

The Monitor also found that New England energy prices are more sensitive to costs for complying with state greenhouse gas emissions policies. Compliance with the Regional Greenhouse Gas Initiative (RGGI) last year added about $6.60/MWh to the marginal production costs of a gas-fired combined cycle generator in Massachusetts and $2.90/MWh in the other five New England states. While NYISO is also subject to RGGI, no such programs impact generators in ERCOT or MISO. RGGI compliance costs are included in a small number of PJM states.

ISO-NE also incurs more uplift costs than MISO and NYISO, in part the result of New England’s higher fuel costs and the fact that ISO-NE does not have day-ahead ancillary services markets to coordinate and price its system-level and local operating reserve requirements.

ISO-NE additionally makes real-time net commitment period compensation (NCPC) payments to resources under a broader range of circumstances than MISO and NYISO. In 2020, ISO-NE’s market-wide NCPC uplift ($0.42/MWh) was more than double that of NYISO ($0.19) or MISO ($0.18).  Day-ahead ancillary services markets also help reduce uplift charges.

And while all three markets have rules for compensating a generator whose scheduled output level differs from its most profitable output level, ISO-NE’s tariff provides compensation in some circumstances when MISO’s and NYISO’s do not. The Monitor recommended that the grid operator examine differences and identify best practices across markets.

ISO-NE does experience far less congestion than other RTOs. Congestion costs have averaged under $0.35/MWh in the last five years, 10 to 20% the levels seen in other RTO markets. That reflects significant transmission investments made over the past decade, resulting in a transmission service cost of more than $19/MWh in 2020, which is far higher than the rates in other RTO markets.

Transmission investments made in ISO-NE primarily satisfy relatively aggressive local reliability planning criteria. The primary reasons for transmission expansion in ERCOT, MISO and NYISO have been to increase the deliverability of renewable generation to consumers, the EMM said.

The Monitor withdrew its recommendations to improve the minimum offer price rule (MOPR) after ISO-NE said it plans to eliminate the rule to ensure market access for state policy resources but will reassess in the future.

The EMM also plans to provide comments to NEPOOL this summer identifying market rule changes needed to ensure that the markets will attract necessary investment and maintain needed existing units after the MOPR is eliminated. Such changes will improve the RTO’s accreditation of capacity resources and reflect increased financial risk in the capacity demand curves that investors will face in New England without the MOPR.

RTO Presents Preliminary Budgets for 2022-23

ISO-NE Chief Financial and Compliance Officer Robert Ludlow provided a look at the preliminary 2022 and 2023 operating and capital budgets, with the respective year-over-year increases before depreciation for the operating budgets projected to be $10.61 million (5.9%) and $9.16 million (4.8%).

The RTO plans to add several full-time equivalent positions to address changes impacting the capacity market, including the proposed elimination of the MOPR. Additional new FTEs will:

• help deal with increased interconnection studies for renewable resources;
• work on continuing studies on carbon pricing and a forward clean energy market; and
• consult on the Pathways to the Future Grid work.

The RTO expects its capital budget over the next five years to increase from $28 million to $35 million, including $32 million for 2022. The primary drivers of the spending spike are: GEMplatform replacement, cybersecurity, the clean energy transition, and reliability improvement projects, as well as IT asset and infrastructure replacement.

The proposed budget timeline includes meeting with state officials in August and the RTO’s Board of Directors in September, a vote before the Planning Committee during its Oct. 7 meeting and filing with FERC by Oct. 15.