The New England Power Generators Association (NEPGA) has filed a complaint against ISO New England (ISO NE) arguing that provisions of the ISO’s Transmission, Markets and Services Tariff Peak Energy Rent (PER) adjustments are unjust and unreasonable.
NEPGA recently filed the complaint with the Federal Energy Regulatory Commission (FERC). NEPGA says generators are unfairly being hit with $100m in penalties – far more than they made during one particularly hot day in August.
NEPGA wants FERC to issue an order directing ISO New England to make appropriate revisions to the PER adjustment and establish a refund date. NEPGA asks that its complaint be granted by Nov. 29 or within 60 days from the date of filing.
On Thursday, Aug. 11, temperatures approached 100 degrees across New England and energy demand rose to 25,195 MW, the highest peak demand experienced in years, the trade group said in the filing.
“Despite this surge in demand, ISO New England entered the operating day with 3,334 MW of available generation uncommitted and believed that it had sufficient resources at its disposal to reliably serve load,” NEPGA.
“Unfortunately, a lightning storm moved through the Connecticut area during the morning hours, causing voltage issues that led to unexpected transmission and generator outages,”
A large nuclear generating station was required to come offline (and remain offline) pursuant to Nuclear Regulatory Commission safety regulations, NEPGA said. The trade group is apparently referring to the Dominion (NYSE:D) Millstone nuclear facility.
The unexpected generation outages amounted to 3,113 MW. As demand continued to rise during the day, available reserves hit “dangerously low” levels.
Procedures were started to trigger dispatch of demand response. “Shortly thereafter, at 2:50 PM, the wholesale price peaked at $2,690.60/MWh, with the hourly price for Hour Ending 15 settling at $1,438.97/MWh,” NEPGA said in the filing.
Suppliers in the region responded to this price spike with additional supply.
“Although capacity suppliers provided the critically-needed energy and reserves, the PER Adjustment mechanism, which is the subject of this Complaint, inflicted serious financial penalties on them,” NEPGA said in the complaint.
“Far from earning significant compensation during this emergency, the vast majority of capacity resources incurred significant losses across these operating hours,” the trade group said. “In other words, suppliers have been put in the untenable position of paying load to run during the electricity system’s most critical hours.”
“Suppliers incurred an aggregate penalty through the PER Adjustment mechanism of over $100 million for just six hours on August 11, while the total cost of energy paid by load for those six hours was only about $18 million,” NEPGA went on to say.
“While the August 11 event was the most severe recent PER event, it was not the only event in which the PER Adjustment has caused significant harm to capacity suppliers in the last twenty months,” NEPGA said.
“Thirty-seven separate PER hours, occurring across all seasons, have caused those suppliers to suffer an estimated $193 million in financial penalties through the PER Adjustment mechanism, all while these resources provided critical reliability during times of system stress,” NEPGA went on to say.
NEPGA is the trade association representing competitive power generators in New England. NEPGA’s member companies represent approximately 26,000 MW, or roughly 80% of the installed capacity in New England.
ISO New England administers the forward capacity market (FCM) to obtain sufficient capacity resources to meet the region’s electric needs. The FCM includes the “peak energy rent adjustment” or PER adjustment.
The PER reduces capacity suppliers’ monthly capacity payments by an amount that approximates the “peak energy rents” earned by a hypothetical proxy generator in the real-time energy market
Specifically, when the hourly real-time energy market price exceeds a pre-determined daily “strike price.”
The 84-page filing by NEPGA includes an affidavit by Charles River Associates Vice President David Hunger. Hunger was formally a senior economist and deputy division director for the energy regulation office at FERC.
It also includes an affidavit of Calpine (NYSE:CPN) Vice President of Power Trading-East Region, Seth Berend.