By Michael Kuser and Rich Heidorn Jr.

New England state regulators ended up split over ISO-NE’s plan for accommodating clean energy procurements — yet seemingly united in their dismay over how the RTO’s stakeholder process ended.

Vermont, Connecticut and Rhode Island opposed the Competitive Auctions with Sponsored Policy Resources (CASPR) proposal filed with FERC on Monday, while Massachusetts, New Hampshire and Maine supported it (ER18-619). (See ISO-NE Files CASPR Proposal.)

But all six states were upset about last-minute revisions the RTO made to the proposed two-stage capacity auction, according to the New England States Committee on Electricity.

Late Change

“The late change does not reflect the way, in our experience, that New England has done business in recent years,” NESCOE said in a statement at the Dec. 8 Participants Committee meeting, where the proposal fell short of the 60% support needed to win committee endorsement. “If we want New England to be the place where groups gather to try [to] figure out complicated issues, there is work to do to restore trust and restart the willingness to participate in the process.”

[EDITOR’S NOTE: Because the New England Power Pool bars the press and public from its stakeholder meetings, RTO Insider was not permitted to cover any of the stakeholder sessions at which CASPR was debated. This account is based on NEPOOL meeting documents, the NESCOE statement and interviews with state officials and other stakeholders.]

CASPR received a sector-weighted vote of 58%, backed by most of the Generation, Transmission and Supplier sectors but receiving virtually no support from End Users. Publicly Owned Entities voted 45-0 in opposition.

The proposal arose out of NEPOOL’s Integrating Markets and Public Policy (IMAPP) initiative, launched in August 2016 in response to state regulators’ cost concerns and generators’ fears that out-of-market procurements of renewable generation would suppress capacity prices.

NESCOE said that although its members are split over CASPR, the states were united in their opposition to ISO-NE’s last-minute decision to adopt changes to the definition of sponsored policy resources (SPR) and limit inter-zonal transfers in the new second capacity auction.

“The states are of one mind on one thing about CASPR. ISO-NE’s approach at the very end of an otherwise open and collaborative process — and specifically its 11th-hour changes — was, to put it mildly, disheartening. These late changes were accompanied by little explanation and provided no time for meaningful dialogue,” NESCOE said.

ISO-NE declined to respond in detail to NESCOE’s criticism. In an email, ISO-NE spokeswoman Marcia Blomberg said only, “The CASPR proposal underwent a robust stakeholder process, with extensive discussion in the NEPOOL Markets Committee and the Participants Committee. The ISO’s goal with CASPR is to balance the accommodation of state policy actions while maintaining accurate pricing in the wholesale markets.”

Regional Split

Although state regulators don’t have voting rights in NEPOOL, they are nevertheless an important constituency.

ISO-NE’s effort in IMAPP to balance the interests of states and generators was further complicated by the disparity in the states’ environmental goals. Massachusetts, Connecticut and Rhode Island plan to procure more than 3,600 MW of nameplate renewable generation. Vermont, New Hampshire and Maine have not adopted such goals.

Those differences were evident when New England rejected increasing carbon emission prices to accommodate the state procurements within ISO-NE’s wholesale markets.

Although the New England states have supported carbon pricing through the Regional Greenhouse Gas Initiative for a decade, RGGI’s emissions limits would have to be substantially reduced to make the resources sought by the states economic in the RTO markets, Market Monitor David Patton told a FERC technical conference in May. Cost was among eight factors NESCOE cited in an April 7 memo outlining the states’ opposition to a “carbon pricing-style mechanism” administered by ISO-NE and regulated by FERC.

“What I want is not to pay for Massachusetts’ and Connecticut’s policies,” New Hampshire Public Utilities Commissioner Robert Scott said at the conference. (See ISO-NE Two-Tier Auction Proposal Gets FERC Airing.)

Proposal Described

Under CASPR, ISO-NE would clear its Forward Capacity Auction as it does today, applying the minimum offer price rule (MOPR) to new capacity offers to prevent price suppression. In the second Substitution Auction (SA), generators with retirement bids that cleared in the primary auction would transfer their obligations to subsidized new resources that did not clear because of the MOPR. Because the SA will not use the MOPR, it will clear at lower prices than the primary auction, enabling existing resources to buy out their obligations at a lower cost in return for retiring.

The proposal would phase out the current Renewable Technology Resource (RTR) exemption, which has allowed ISO-NE to exempt limited quantities of renewable generation from the MOPR.

Supporters of the RTO’s proposal said it was “an improvement over [the] status quo and is properly tailored narrowly to address particular concerns in the markets that are arising or threatened from the future addition of substantial state-sponsored resources,” according to the minutes of the Dec. 8 meeting.

One representative described the CASPR proposal as “a reasonable balance in accommodating states’ initiatives while minimizing the impact on the markets. Many expressed support for how the proposal seeks to support reasonable price formation in FCM and for the late changes that address concerns they had with a very broad definition for sponsored policy resources.”

ISO-NE’s Reversal

The states became disillusioned after the NEPOOL Markets Committee voted on the CASPR proposal and nine states suggested amendments on Nov. 8-9. Only one amendment, by NESCOE, was approved.

According to a summary memo prepared by Day Pitney attorneys for the Participants Committee, the NESCOE proposal included a FirstLight Power Resources amendment to limit SA capacity transfers between zones. They would be permitted only where the cleared outcome does not change marginal reliability impact congestion in any capacity zone.

NESCOE also proposed a backstop mechanism to take effect after the phase-out of the RTR exemption that would allow up to 200 MW of state-procured renewables to enter the market annually even if there were no corresponding retirements in that year.

The NESCOE amendment won a 61% vote of the Markets Committee. With the amendment, however, the overall proposal won only 58%, just below the 60% threshold to recommend it to the Participants Committee. In a separate vote, only 28% of the committee supported the RTO’s proposal without the NESCOE amendment.

Dec. 8 Participants Committee Meeting

Without a Markets Committee-approved package, it was unclear what ISO-NE would propose at the Dec. 8 Participants Committee meeting — the final venue for stakeholders to express their opinion before the RTO filed its proposal with FERC.

On Nov. 30, the RTO outlined its plans in a memo, saying it was adding the FirstLight amendment and a revised definition of SPR.

The revised definition, proposed by the Natural Resources Defense Council and Conservation Law Foundation, limited eligibility in the SA to renewable or clean energy resources receiving out-of-market revenue under state rules enacted before Jan. 1, 2018.

Although the states had included the FirstLight amendment in their November proposal to the Markets Committee, NESCOE’s statement said they opposed the amendments “on a standalone basis [because they would] limit the likelihood of CASPR being successful.”

Liquidity Concerns

Vermont, Connecticut and Rhode Island say the limits on inter-zonal substitution will reduce liquidity in the SA and the chance that CASPR will accomplish ISO-NE’s design objective No. 2: accommodating the entry of SPR into the Forward Capacity Market over time. That, they said, creates a risk that consumers will pay twice for state-procured renewables.

By agreeing to the Jan. 1 cutoff date for eligibility, NESCOE said, ISO-NE “reversed its previously unwavering position that CASPR would be resource-neutral” and accommodate future technologies and solicitations for resources such as storage.

“Without explaining what new information caused the reversal or [providing] an opportunity to discuss, ISO-NE let us all know that its ‘notable property’ — resource neutrality — was wrong all along and that ISO-NE instead prefers a tariff that limits resource eligibility based on an arbitrary statutory date,” NESCOE said.

The Jan. 1 cutoff means CASPR will be a “very short-term mechanism,” the states said. “Should any state adopt a new law this coming legislative session, for example, states and perhaps others will be back where we were at the outset of this process, with a diminished appetite to negotiate and tempered optimism more broadly.”

Connecticut expressed concern at the Dec. 8 meeting that the RTO’s proposal did not “definitively allow” large-scale hydro that the state may procure “through existing or future state law or regulations” to qualify for the SA.

“The minutes accurately reflect a concern Connecticut expressed at the December [Participants Committee] meeting, which speaks to the general confusion and lack of dialogue that resulted from the ISO-NE’s 11th-hour changes to the proposal,” Katie Dykes, chair of the Connecticut Public Utilities Regulatory Authority, said in an email to RTO Insider.

In contrast, Katie Gronendyke, spokeswoman for the Massachusetts Executive Office of Energy and Environmental Affairs, said her state supported the final CASPR proposal because it “will provide the region with the mechanism necessary to provide residents and businesses with affordable energy while achieving carbon reduction goals set forth under the Global Warming Solutions Act as well as regional emissions targets.”

The 2008 act requires the state to reduce greenhouse gas emissions by 25% from 1990 levels by 2020 and 80% by 2050. To meet those goals, the state in 2016 required its utilities to purchase 1,600 MW of offshore wind and about 1,200 MW of other new renewables, including onshore wind and hydropower.

ISO-NE’s Seeks to Balance Competing Concerns

ISO-NE Chief Operating Officer Vamsi Chadalavada attempted to assuage the states’ concerns at the Dec. 8 meeting with a promise that the RTO would consider future rule changes if CASPR fails to accommodate state policies.

He noted that it took the RTO from 2005 to 2010 to implement its capacity market and said it has made “numerous and material changes” to the market since, according to meeting minutes. “He stated that, with CASPR, the ISO favored price formation as the best means for the market to address a very uncertain future.”

Chadalavada’s “expressed hope was that necessary improvements over time would be much more limited and capable of being identified and implemented quickly,” according to the minutes. “He acknowledged that some of the late decisions illustrated the ISO’s internal struggles related to the competing objectives inherent in the CASPR proposal.”

Lack of ‘Backstop’

Vermont, Connecticut and Rhode Island said the elimination of the RTR exemption was unacceptable without a backstop provision “that provides a comparable degree of accommodation of the requirements of state laws and, thereby, mitigation of excessive consumer costs and oversupply,” NESCOE said.

Consumer advocates for Massachusetts, Connecticut, New Hampshire and Maine, who are members of the End User sector, cited the lack of a backstop in voting against the RTO’s proposal.

For FCA 12, which begins Feb. 5, 514 MW of RTR exemptions are available. Under CASPR, RTRs would be eliminated beginning with FCA 16. In the interim, RTRs would decrease annually by the amount of capacity supply obligations (CSO) acquired by new RTR capacity in the prior auction. If 100 MW of CSO is acquired in FCA 12, for example, the FCA 13 cap would be reduced to 414 MW. Any RTRs remaining after FCA 15 would be void.

Public Power’s Concerns

Brian Forshaw, representing the Public Power sector, also was dissatisfied with the RTO’s promises to consider changing the SPR definition in the future, according to the Participants Committee meeting minutes, “because such a commitment provided no assurance of whether or when any definitional change would be made.”

Forshaw moved to restore the SPR definition to that advocated by ISO-NE at the Nov. 8 Markets Committee meeting, before its Nov. 30 changes.

In a memo to NEPOOL, Forshaw said the earlier “technology-neutral” definition would allow procurement of resources meeting “broader policy objectives including fuel diversity, local area resiliency, maintaining competitive electric rates, and mitigating the volatility of capacity costs in addition to environmental stewardship objectives.”

Forshaw also was unmoved by the RTO’s assurances that resources not meeting the SPR definition could be offered into the primary auction. “Many of the policy resources that states and local communities are seeking to meet fuel diversity and local area resiliency objectives (including microgrid facilities and battery storage projects) are smaller and limited to specific locations, making it highly unlikely that such resources will be able to clear in the primary FCA, even if those states and communities are willing to absorb the incremental costs above the FCA clearing price,” he said.

“What this means is that if a state or local utility wants to develop a battery storage project (outside of a limited quantity in Massachusetts) or a fuel cell-based combined heat and power project (outside of Connecticut) it would be precluded from having such projects acquire a capacity supply obligation through the Substitution Auction.”

The Public Power motion failed by a show-of-hands vote.

CLF Opposition

The CLF also opposed the RTO’s proposal, despite the revised SPR definition that excluded fossil fuel generation.

The organization’s David Ismay told RTO Insider it also insisted on inclusion of “a reasonable RTR backstop that would ensure state clean energy procurements are timely integrated into the regional market (and unjust/unreasonable double charging for capacity avoided) if CASPR doesn’t work as advertised or at all — a risk we think is … potentially significant.”