The Federal Energy Regulatory Commission on Oct. 7 conditionally accepted ISO New England bid results related to the efforts by the organization to ensure winter 2013-2014 power supply reliability.
On Aug. 26, ISO New England (ISO-NE) submitted the results of its Winter Reliability Program bid selection process. In the Oct. 7 order, FERC conditionally accepted the bid results, to become effective Sept. 20, as requested, subject to ISO-NE submitting a compliance filing that has further details on the bid evaluation process.
In a Sept. 6 order, the commission conditionally accepted ISO-NE’s Winter Reliability Program, effective for an interim period from Sept. 6, 2013, to Feb. 28, 2014, as ISO-NE requested. The Winter Reliability Program set forth a competitive bidding process for ISO-NE to procure energy for winter 2013-2014 from a combination of select oil-fired generators, dual-fuel generators, and demand response resources.
ISO-NE intended to procure a target of 2.4 million MWh of energy from the Winter Reliability Program’s demand response and oil inventory services. In the Bid Results, ISO-NE stated that market participants submitted bids totaling 2.29 million MWh, or 96% of the target, at a total offer price of $114.3m. ISO-NE proposes to accept 1.995 million MWh, or 83.1% of the target, at a total price of $78.8m. ISO-NE explains that after a cut-off point—$31 per MWh-month—the supply curve became steeper which would have resulted in increased costs.
The selected bids include 3,780 MWh of demand response with the remaining MWh provided by the oil inventory service. The oil inventory service includes 907,144 MWh provided by dual-fuel units.
ISO-NE stated that it first reviewed all bids to ensure they were eligible based on the rules of the Winter Reliability Program and then assessed the bids in accordance with certain criteria: cost; historical availability and performance; ability to respond to contingencies and other changed conditions; diversity of location and sensitivity to locational constraints; dual-fuel capability; and replenishment capability.
Various parties commented on the ISO-NE process. PSEG Companies disputed the bid results, asserting that ISO-NE selected resources solely on price without considering operating characteristics, geographical location, historical availability, or dual-fuel capability. PSEG therefore asserted that ISO-NE should be directed to utilize a uniform clearing process for the program. PSEG also stated that the bid solicitation process revealed the value of fuel diversity and firm fuel supply in New England and that the market fails to send the proper price signals. Similarly, Algonquin stated that while it does not oppose the Winter Reliability Program, the bid results reveal market design flaws that the commission should consider in its exploration of centralized capacity markets in a separate docket.
New England States Committee on Electricity (NESCOE), Maine Public Utilities Commission, and TransCanada Power Marketing Ltd. stated that ISO-NE underestimated the costs of the program, noting that the cost estimate in ISO-NE’s Winter Reliability Program filing was between $16m to $43m, while the proposed actual costs are $79m. NESCOE stated that many stakeholders voted for the program based upon the cost estimate initially provided by ISO-NE and, going forward, ISO-NE must provide more accurate estimates.
FERC said in the Oct. 7 approval order: “While protestors point to the disparity between the estimated costs and actual costs in challenging the entire Program, we are not persuaded by those arguments. The Winter Reliability Program is a novel approach to addressing reliability concerns that manifested themselves last winter. As such, the Program does not easily lend itself to precise cost predictions. Nevertheless, we note that ISO-NE made a good faith effort to develop an estimate, including hiring an independent consultant to calculate projected costs for the information of market participants.”