ISO-NE proposes modifying definition of ‘shortage event’ to bolster incentives for resources during times of system stress

In efforts to help restore the intent of the forward capacity market (FCM) design, ISO New England (ISO-NE) on Sept. 4 submitted a proposal to FERC requesting to modify the definition of a “shortage event,” to bolster the incentives for resources to perform during times of power system stress.

The performance of resources during those times is an issue that ISO-NE and stakeholders have identified as a challenge to the long-term reliability of the region’s grid through the strategic planning initiative (SPI), ISO-NE added in its Sept. 9 “ISO Newswire” update.

According to the filing with FERC, shortage events are periods of reserve deficiency during which the performance of capacity resources is measured. Under the FCM design, the capacity payments of capacity resources that are fully or partially available during a shortage event are adjusted downwards.

Currently, ISO-NE added, a shortage event is triggered when the system has been deficient of 10-minute reserves for at least 30 minutes.

This restrictive implementation of the definition of a shortage event, however, has resulted in no shortage events since the beginning of the first capacity commitment period on June 1, 2010, despite a few extended periods of 30-minute reserve shortages during this same time frame when the system was genuinely stressed.

ISO-NE also said that as a result, the FCM has been left without its primary mechanism for enforcing and incenting resource availability during reserve deficiencies as expected under the original market design.

In its update, ISO-NE noted that there are two main categories of reserves in New England: 10-minute, which are resources that can start providing energy within 10 minutes; and 30-minute, which are resources that can provide energy within 30 minutes.

ISO-NE also said that in its filing, it proposed to expand the definition so that a shortage event will be declared when the grid is deficient in 30-minute reserves, not just 10-minute reserves. This change, ISO-NE added, is expected to trigger shortage events sooner, more accurately reflecting the wide range of stressed system conditions that occur, and, as a result, resources will have the incentive to perform during at-risk periods.

ISO-NE and the New England Power Pool (NEPOOL), which is the voluntary association of market participants including transmission owners – agree that expanding the shortage event definition will restore the intended purpose in the FCM design, but the two entities have proposed different implementation dates.

According to the filing, ISO-NE proposed that the new definition of “shortage event” be applied beginning on Nov. 3, but NEPOOL proposed for the new definition to be applied beginning on June 1, 2017. ISO-NE noted that if the changes to the definition do not become effective for implementation on Nov. 3, and instead are implemented starting on June 1, 2017, the FCM will continue to lack a means to incent resource availability during reserve deficiencies for about 3.5 more years, or three summers and four winters.

In its update, ISO-NE said that under the current structure of the FCM, resources that have taken on capacity supply obligations receive payments to be available to produce electricity when called on.

During shortage events, the performance of resources is measured and those that are unavailable to produce power are penalized with reduced capacity payments. Those financial penalties are a central feature of the FCM design and are intended to give resources the incentive to perform and minimize the chance of outages during times of system stress, ISO-NE added.

However, the rules as originally designed have proven to define shortage events too narrowly to accurately reflect actual “at-risk” periods. Resources that did not perform up to their capacity supply obligation when called on during stressed grid conditions have faced only limited penalties, ISO-NE said.


About Corina Rivera-Linares 3113 Articles
Corina Rivera-Linares, chief editor for TransmissionHub, has covered the U.S. power industry for the past 15 years. Before joining TransmissionHub, Corina covered renewable energy and environmental issues, as well as transmission, generation, regulation, legislation and ISO/RTO matters at SNL Financial. She has also covered such topics as health, politics, and education for weekly newspapers and national magazines. She can be reached at clinares@endeavorb2b.com.