ISO New England winter capacity plan draws good and bad comments

TransCanada Power Marketing (TCPM) told the Federal Energy Regulatory Commission on Sept. 9 that ISO New England’s plans to shore up winter of 2013-2014 power capacity availability would cost too much and produce too little backup power.

TCPM is moving to intervene in a proceeding that involves filings made by ISO New England (ISO-NE) in June and August. ISO-NE is seeking to revise its tariff to implement a set of “stop gap solutions” to maintain reliability during the cold weather months of December 2013-February 2014 and to allocate the costs of that program.

“TCPM continues to be concerned that ISO-NE’s filings do not completely consider or reasonably resolve the long-standing nature of the circumstances that led ISO-NE to propose its tariff revisions and select the proposed solutions to satisfy those tariff revisions,” said the company’s Sept. 9 comments. “In light of the fact that the cost of the service will be almost twice the high end of the estimated cost and will not even achieve the targeted quantity, serious questions have been raised with respect to whether the tariff and associated costs are just and reasonable. There do not appear to be sufficient quantities of service being offered to meet the previously established target and therefore it does not appear the procurement process was contestable and no review or analysis by ISO-NE, its market monitor or another expert was performed. Finally, the much higher costs compared to estimates indicates that the service may be poorly defined and/or includes onerous terms and conditions that continue to raise risk concerns and cost premiums unnecessarily.”

TCPM is a wholly owned subsidiary of TransCanada PipeLine USA Ltd., which in turn is a wholly owned subsidiary of TransCanada PipeLines Ltd. TCPM is a member of the New England Power Pool (NEPOOL) and transacts (purchases and sells) both on a bilateral basis and in the markets operated by ISO-NE. TCPM also is the 100% entitlement holder for its affiliate companies that own various generating assets located in New England. One such generating asset is the approximately 560-MW Ocean State plant, located in Burrillville, R.I., which typically burns natural gas, but which can also burn No. 2 fuel oil if its oil equipment is recommissioned.

ISO-NE’s filings propose short-term changes to its tariff that would apply to the performance and compensation of oil-fired and dual-fired generators as well as demand response providers through their participation in ISO-NE’s 2013-14 Winter Reliability Program. ISO- NE’s filings now reflect that the cost of the program will be much higher than estimated and the quantity of MWhs to be procured will be less than originally targeted (i.e., only 1.995 million MWh vs. 2.4 million MWh), said TCPM.

TCPM said it understands and supports ISO-NE’s need to maintain reliability. However, ISO-NE’s Aug. 26 filing assumes the rate design (i.e., the tariff revision proposed on June 28 as amended on Aug. 9) is just and reasonable and will be approved by FERC. A decision to approve the proposed tariff revision cannot be made independently of the actual cost information that was filed on Aug. 26 because the very high costs and less than targeted response indicate there may be problems with the tariff and/or implementation.

“The actual cost of the program, even as amended, will be almost twice the estimate and will not achieve the reliability levels originally targeted,” TCPM wrote. “The cost of any service needs to be just and reasonable even if it is in line with estimates, and TCPM was concerned with the original range of estimates. Moreover, when the actual cost of a service is significantly higher than the estimated cost, the reason for the discrepancy needs to be scrutinized and justified to an even greater extent.”

TCPM added: “The fact that insufficient bids were obtained may indicate the market is not contestable. It is unknown whether additional suppliers in excess of the requirement were available but simply decided not to participate for economic or business reasons, or whether ISO-NE conducted an auction where insufficient supplies existed even if all supplies were offered. No analysis or evidence was provided by ISO-NE, its market monitor or other expert to support the very specific solution selected by ISO-NE. There was a relatively short lead time between announcing the program and the requirement to provide service such that certain suppliers that have equipment in mothball or inactive status did not have sufficient time or financial assurances to take necessary actions to participate. Hopefully, future programs will have longer lead times for suppliers to respond, such that unnecessary risks can be avoided and increased competition can be achieved.”

The bid results seem to indicate the actual terms and conditions of service continue to carry significant risk and are potentially subject to significant variations in interpretation by suppliers, TCPM said.

Exelon files generally favorable comments with FERC

On the other hand, Exelon Corp. filed Sept. 9 comments with the commission supporting current ISO-NE plans. It noted that the Winter Reliability Program included four components: a new demand response program, an oil inventory service, incentives for duel fuel units and certain market monitoring changes.

The program provided that in exchange for “as bid” monthly payments, market participants would provide the equivalent of up to 2.4 million MWh of energy in oil inventory and demand response. “Given the time constraints of the program, the ISO sought bids, which were to be contingent on Commission approval of the program, to be received by July 30,” Exelon wrote. “In response to the Winter Reliability Program filing, a number of comments and protests were submitted raising various issues including concerns about the risks arising from the proposed penalties. The bids ISO-NE received by July 30 were not sufficient to meet the program’s objectives. Accordingly, on August 9, the ISO filed for consideration, on an expedited basis, emergency amendments to the Winter Reliability Program. Under the emergency amendments, market participants were invited to resubmit bids or submit revised or new bids for participation in the program by August 19, 2013. On August 26, 2013, the ISO finalized its selection of bidders and submitted the Results Filing to the Commission proposing to accept 1.995 million MWh or 83.1% of the program’s targeted MWh at a price of $78.8 million.”

Exelon said it generally supported ISO-NE’s filings related to the Winter Reliability Program and similarly supports the results filing. “In addition, Exelon appreciates the opportunity to work with the ISO to address some of the issues that led to inadequate participation in the first round of bidding,” it added. “In particular, Exelon appreciates the ISO’s revisions to the penalty provisions and the provisions governing timing for regulatory approvals. In addressing these issues, the ISO improved the program, reduced some regulatory risk and made it possible for more bidders to participate in the program. Enabling more bidders to participate enables the Winter Reliability Program to provide more reliability benefits for ISO New England. The Results Filing should be accepted to ensure that market participants who are helping to strengthen reliability for the ISO-NE area for the upcoming cold winter months will receive just and reasonable compensation for those services.”

Various PSEG companies. including PSEG Power LLC, that do business in the region said in their Sept. 9 comments: “While the PSEG Companies do not object to the Program and support ISO-NE’s efforts to maintain the reliability of its system, we reiterate our earlier stated belief that actions taken by the system operator in support of reliability should adhere to competitive market principles. As noted in the PSEG Companies’ earlier protest, the instant solicitation was set up as a pay-as-bid program based upon the ISO’s assurances that there would be non-financial considerations in the selection of the winning bidders. However, the results of the solicitation process reveals that the only factor ISO-NE considered in determining which bids to accept was price. As such, ISO-NE by its own admission should have utilized a single clearing price methodology for this Program, and the Commission should grant the PSEG Companies’ request to require one.”

Gas pipelines say this program results from overall market ‘flaws’

Algonquin Gas Transmission LLC (AGT) and Maritimes & Northeast Pipeline LLC said in their Sept. 9 comments that this ISO-NE effort is a sympton of a larger problem with a non-functional competitive power market in the region.

“Nowhere does the need for market reform to ensure a diversified portfolio of reliable electricity options seem more apparent than in New England,” AGT and Maritimes wrote. “In a most recent example, design flaws in the wholesale market have been prominently cited as a reason for Entergy’s announcement to close its Vermont Yankee nuclear plant. Entergy Wholesale Commodities President Bill Mohl went so far as to say that ISO-NE ‘has created anything but a competitive market’ noting that the compensation for baseload capacity is inadequate despite the fact that such baseload capacity offers diverse and reliable supply to the market. Indeed, even the Nuclear Energy Institute’s chief Marv Fertel has stated the Vermont Yankee closure is ‘proof that competitive markets must be designed appropriately to ensure reliable long-term capacity and to provide fair capacity payments to companies producing electricity in those markets.'”

The gas pipeline companies added: “Further evidence of market flaws in New England is the necessity for an out-of-market solution in order to ensure reliability for the upcoming winter. Not only is the need for an out-of-market solution demonstrative of the market’s inability to ensure reliability in critical periods, the program itself contributes to the lack of fuel diversity lamented by Mohl and Fertel. ISO-NE in its Winter Reliability program ‘establishe[d] a paradigm where only certain type of resources – demand response, oil-fired generators and units with dual fuel capability – will be called on (and paid) to address perceived reliability issues during the upcoming winter period’ which, as noted by the New England Power Generators Association, Inc. (‘NEPGA’) ‘[mutes] the benefits of a resource-neutral competitive market.’ The results of this paradigm are seen in the low response and lack of competitive results to the initial auction that necessitated the ISO- NE make adjustments to its Winter Reliability program before the program even began. AGT and Maritimes agree with the Natural Gas Supply Association’s comments that ‘[t]he inability to secure enough bids for winter 2013-2014 in ISO-NE’s first solicitation only highlights the importance of ensuring that future programs are fuel neutral.’ AGT and Maritimes submit that had ISO-NE developed an out-of-market solution that allowed other resources to participate, including natural gas options, the initial auction would have been more successful.”

There has been a significant increase in the utilization of natural gas for electric generation in New England and this generation can reliably serve provided there is adequate transportation capacity available to do so, the pipeline companies wrote.  

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.