NRG criticizes ISO New England attempt to fix market problems

NRG Energy (NYSE: NRG) and various subsidiaries told the Federal Energy Regulatory Commission on Feb. 27 that ISO New England is proposing the wrong changes to meet a looming power reliability “crisis.”

On Jan. 17, ISO New England (ISO-NE) and the New England Power Pool (NEPOOL) Participants Committee submitted competing proposals for reforming the ISO-NE Forward Capacity Market (FCM). In its Feb. 12 protest to the proposal filed by NEPOOL, ISO-NE asserted that its performance incentives proposal (the “PI Proposal”) is similar to the two settlement system employed in the spot energy markets, that the risk premium that would be demanded by resources under its PI Proposal is quite small, and that capacity resource performance should not be judged based on “availability,” among other things.

“ISO-NE is wrong on all points,” said the NRG companies. “ISO-NE correctly identifies the problem: a looming reliability crisis spurred by significant retirements and a fleet of resources highly dependent on natural gas at a time when gas infrastructure is limited in New England. ISO-NE fails to identify the proper solution, however, because of its complete disregard for the factors that investors consider in determining whether to expend capital and its misguided belief that the continued participation of certain coal- and oil-fired resources in the capacity market is the main obstacle to new investment. At a time when ISO-NE should be embracing fuel diversity, it proposes a market design that both drives out coal- and oil-fired resources and fails to support new investment. The results for reliability would be disastrous.”

Instead of accelerating towards the “reliability train wreck,” ISO-NE should instead examine the flaws in its market design and look to other regions for guidance on ways to fix the problem, NRG added.

The NEPOOL stakeholders have embraced this approach and a supermajority of stakeholders have voted in support of a proposal modeled after mechanisms successfully implemented in other Regional Transmission Organizations (RTOs). “Respected economists and market design experts, such as Ms. Julia Frayer of London Economics International, LLC and Dr. Susan L. Pope of FTI Consulting, have explained why traditional scarcity pricing of energy and reserves is a better alternative than the PI Proposal, and they and other experts, including ISO-NE’s external market monitor, Dr. David Patton, have explained why ‘availability’ is still the correct metric for evaluating the performance of capacity resources,” NRG added.

“The truth is that New England cannot withstand another ten years of regulatory uncertainty as ISO-NE attempts to implement another ‘custom,’ ‘first of its kind’ capacity market design,” NRG argued. “New England is at a critical juncture, and investors such as the NRG Companies are unwilling to invest based on ISO-NE’s PI Proposal. The Commission must respond by unequivocally rejecting ISO-NE’s misguided market redesign and accepting the NEPOOL proposal without delay.”

The Dominion Resources Services unit of Dominion Resources (NYSE: D) was also among the parties submitting Feb. 27 comments, in this case also against the ISO-NE proposals. “As Dominion demonstrated in its February 12 Comments filed in this proceeding, of the two proposals filed to address operational problems in the Real-Time energy and ancillary services market, only NEPOOL’s proposal represents a just and reasonable approach to incenting resource performance, because it (1) addresses current deficiencies in the pricing of energy and reserves in Real-Time; and (2) seeks to improve the ‘availability’ metric through incremental reforms to the Forward Capacity Market (‘FCM’) without fundamentally redesigning the existing resource adequacy construct. The reasonableness of NEPOOL’s proposal is further evidenced by the overwhelming support it received from stakeholders across all sectors.”

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.