Nescoe

Protest and Comments on ISO-NE Winter Program Proposal

Legal Document

Dated: August 5, 2015

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United States of America Before the Federal Energy Regulatory Commission
ISO New England Inc., New England Power Pool Participants Committee
Docket No. ER15-2208-0000
Protest and Comments of the New England States Committee on Electricity

 Pursuant to Rule 211 of the Rules of Practice and Procedure of the Federal Energy Regulatory Commission (“Commission” or “FERC”), 18 C.F.R. § 385.211 (2014), and the Commission’s July 15, 2015 Notice of Combined Filings #2, the New England States Committee on Electricity (“NESCOE”)[1] hereby files this protest to the winter reliability program proposed by ISO New England Inc. (“ISO-NE” or “ISO”) for the 2015/2016 through 2017/2018 periods (the “ISO-NE Proposal”) and comments in support of the New England Power Pool (“NEPOOL”) Participants Committee winter program for the same period (the “NEPOOL Proposal”).[2] Both proposals—each of which would constitute a “Winter Program III”—are contained in a “jump ball” filing made by ISO-NE and NEPOOL on July 15, 2015 (the “July 15 Filing”).[3]

  1. INTRODUCTION

The Commission has before it two competing proposals for Winter Program III. NESCOE strongly supports the NEPOOL Proposal because only it meets ISO-NE’s identified winter reliability need through a targeted, proven, and cost-effective program. The NEPOOL Proposal would effectively continue the successful design employed for the most recent winter program, which ISO-NE has called a “proven . . . cost-effective interim means to assure fuel inventory”[4] and which the Commission found to be a just and reasonable approach to winter reliability.[5] The NEPOOL Proposal maintains an appropriate and justified level of procurement for incremental reliability benefits, and it targets incentive payments only to those resources that are expected to modify their fuel management practices (or would provide additional demand response service) in exchange for program payments. NESCOE agrees with 87% of NEPOOL market participants and stakeholders—representing every sector—that the region should stay the course for the next three years and employ a successful and reasonably priced approach to winter reliability that New England has relied upon to meet its needs.

There is, quite simply, no need to remake a program that has worked. Yet, that is precisely what ISO-NE proposes. The ISO-NE Proposal would extend payments to additional resources, potentially costing New England consumers an additional $100 million or more over the life of the three-year program (above and beyond what the NEPOOL Proposal would cost), in an expensive, and, given the circumstances, unnecessary pursuit of a “more market-based” construct. As discussed below, ISO-NE’s expanded program eligibility does not promise corresponding incremental reliability benefits, nor is there a demonstrated need for incremental capacity beyond what the most recent program provided. The ISO-NE Proposal would potentially compensate 9,500 MW of additional resources beyond those that participated in the most recent winter program. That almost doubles the incremental capacity expected from oil-fired resources participating in the program, which ISO-NE identified as being capable of addressing winter reliability needs on their own.[6] In short, the ISO-NE Proposal is unsupported and imposes unneeded costs on consumers.

NESCOE appreciates ISO-NE’s early efforts to explore with states and stakeholders the possibility of expanding program eligibility to more resources, consistent with the Commission’s expectation that ISO-NE would “work with stakeholders to expand” the program.[7] Since the first winter program, both ISO-NE and NESCOE have expressed support for the concept of exploring a more resource-neutral approach,[8] which could provide consumer benefits in the form of increased competition. Winter Program II was adjusted to be more resource neutral (with LNG added), and ISO-NE has stated that Winter Program II was resource neutral to the maximum extent possible.[9]

However, as alternative structures were considered in greater detail over the past year, a transition away from past successful winter programs began to look increasingly imprudent. First, ISO-NE raised serious concerns around implementation of a market-based solution, citing the potential for a less efficient and effective program and questioning whether the complexity and cost of such an approach was justified for what would be a three-year stopgap measure.[10] Then, when ISO-NE presented to stakeholders its proposal for an “expanded” program, questions arose about the potential high cost of the program relative to past programs and whether expanded eligibility would achieve any incremental reliability benefits.

Since the introduction of winter programs in 2013, NESCOE has urged ISO-NE to pay particular attention to consumer cost implications associated with requiring consumers to fund incremental reliability, given that consumers have already paid for commitments through the Forward Capacity Market (“FCM”). As discussed below, without providing any indication of incremental reliability benefits, the ISO-NE Proposal could triple the cost of the winter program each year compared to the expected cost of the NEPOOL Proposal.[11] Unfortunately, rather than explain to the Commission why an expanded program would not be justified given the additional costs, ISO-NE continued to pursue its flawed and unnecessarily costly approach.

The NEPOOL Proposal is the only just and reasonable approach before the Commission, and it is consistent with the Commission’s past findings on the winter program. In contrast, the ISO-NE Proposal runs directly contrary to the Commission’s finding regarding the most recent winter program that “it would not be appropriate to make separate payments intended to incent resources to make the same fuel procurement decisions that they would have made, and been compensated for, absent the [winter program].”[12] NESCOE urges the Commission to reject the ISO-NE Proposal and to accept a continuation of the core winter reliability program it has already found to be just and reasonable. 

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Document Source Citations

  1.  

    [1]     NESCOE filed a motion to intervene in this docket on July 17, 2015.

    [2]     Capitalized terms not defined in this filing are intended to have the meaning given to such terms in the ISO-NE Transmission, Markets and Services Tariff.

    [3]     Under Section 11.1.5. of the Participants Agreement, “when NEPOOL supports by at least a 60% Vote of the Participants Committee a Market Rule change that is different than what is being proposed by ISO-NE,” ISO-NE is required to make a “jump ball” filing whereby both the ISO-NE and NEPOOL proposal are filed pursuant to Section 205 of the Federal Power Act (“FPA”) and are considered by the Commission “at the same time and on the same legal footing[.]” July 15 Filing at Attachment N-1a (the “NEPOOL Filing Letter”), at 3-4. The NEPOOL Filing Letter describes the legal standard under a jump ball filing in greater detail.

    [4]     Rehearing Request of ISO New England Inc., Docket No. ER14-2407-003 (filed Feb. 19, 2015) (“ISO-NE Rehearing Request”), at 12; see also Letter from Gordon van Welie, ISO-NE President and CEO, to Judith Judson, Commissioner, Massachusetts Department of Energy Resources, July 6, 2015 (“ISO-NE Letter to DOER”), at 3 (stating that past winter programs “have proven to be a cost-effective short-term solution to help keep the lights on in New England during the winter”), available at www.iso-ne.com/static-assets/documents/2015/07/iso_response_doer_info_request_july2015.pdf.

    [5]     ISO New England Inc., Order Accepting Tariff Revisions, 148 FERC ¶ 61,179 (2014) (“September 2014 Order”) at P 40.

    [6]     July 15 Filing at Attachment I-1a (“ISO-NE Filing Letter”) at 9.

    [7]     Order Granting Rehearing, 151 FERC ¶ 61,052 (2015) (the “Rehearing Order”) at P 17.

    [8]     See ISO New England Inc., Winter 2013-14 Reliability Program, Docket No. ER13-1851-000 (filed June 28, 2013) (“Winter Program I Filing”), at 7; Motion to Intervene and Comments of the New England States Committee on Electricity, Docket No. ER13-1851-000 (filed July 13, 2013) (“NESCOE Winter Program I Comments”), at 10. See also Winter Program I Filing at 5 (“As a transition between the [winter reliability program] and the FCM performance incentives project, the ISO intends to propose a scaled-down version of the performance incentives project to purchase a fuel-neutral, winter-based reliability product for the winters of 2014-15 through 2017-18.”).

    [9]     ISO New England Inc., Winter 2014-15 Reliability Program (Part 1 of 2), Docket No. ER14-2407-000 (filed July 11, 2014) (“Winter Program II Filing”), at 8.

    [10]    See ISO-NE Rehearing Request at 2, 8-12.

    [11]    See Section IV.B below.

    [12]    September 2014 Order at P 43 (emphasis added).

    [13]    See NEPOOL Filing Letter at 2; ISO-NE Filing Letter at 3-4.

    [14]    See ISO-NE Filing Letter at 4; see also ISO New England Inc., Fuel Assurance Status Report, Docket Nos. AD13-7-000 and AD14-8-000 (Feb. 18, 2015) (“Fuel Assurance Status Report”), at 5, available at http://www.iso-ne.com/static-assets/documents/2015/02/Final_for_Filing__Fuel_Assurance_Report.pdf. As NESCOE explained in comments on the Fuel Assurance Status Report, although PfP “is expected to influence generator performance and responsiveness, it is not expected to solve the root cause of New England’s fundamental energy infrastructure problem and associated exorbitant price increases. . . . [and] despite over a decade of conversation in New England about gas and electric markets and the potential development of market mechanisms to address infrastructure inadequacies, not one has been proposed that is expected to solve the problems caused by the region’s natural gas constraints in a cost-effective way.” See Comments of the New England States Committee on Electricity, Docket Nos. AD13-7-000 and AD14-8-000 (filed Mar. 20, 2015), at 8, citing to Fuel Assurance Status Report at 4. See also ISO-NE Letter to DOER at 1-2 (stating that PfP “will improve resource performance, but it will not necessarily result in added natural gas pipeline” and will not address significant pricing issues arising from pipeline constraints). Despite implementation of PfP, ISO-NE has identified natural gas pipeline constraints as a continued risk to reliable operations and escalating prices. See, e.g., Gordon Van Welie, ISO-NE, State of the Grid: Managing a System in Transition, Presentation and Remarks, Jan. 21, 2015, at 35 (“Reliability will be threatened, and prices will spike, until the effects of the natural gas pipeline constraints are alleviated with additional investments in fuel infrastructure[.]”), available at www.iso-ne.com/static-assets/documents/2015/01/stateofgrid_ppt_remarks_01212015.pdf; ISO New England, 2015 Regional Electricity Outlook, at 18 (“Without significant expansion of natural gas pipeline and LNG storage serving New England, the impacts on reliability, price, and emissions are likely to continue.”), available at http://www.iso-ne.com/static-assets/documents/2015/02/2015_reo.pdf; Fuel Assurance Status Report at 4. The New England states have been closely engaged in collaborative efforts to address regional energy challenges. See, e.g., New England Governors, Actions for a Cleaner, More Reliable and More Affordable Energy Future, Apr. 23, 2015, available at http://www.nescoe.com/uploads/6_State_Action_Plan_FINAL_4-22-15_1-5.40_pf.pdf; New England Governors’ Statement: Regional Cooperation on Energy Infrastructure, Apr. 23, 2015, available at http://www.nescoe.com/uploads/6_State_Joint_Statement_FINAL_4-22-15_12-3.36pm_w-sealsf.pdf.

    [15]    ISO-NE Filing Letter at 4.

    [16]    Winter Program II Filing at 5. See also Fuel Assurance Status Report at 7 (“The region relied heavily on oil-fired generators [in the 2013-2014 winter], burning through 1.6 million of the 1.9 million megawatt-hours of oil procured through the program.”).

    [17]    See ISO-NE Filing Letter at 4-5; NEPOOL Filing Letter at 7; Winter Program II Filing at 11.

    [18]    Winter Program II Filing at 11-14.

    [19]    See NEPOOL Filing Letter at 7.

    [20]    September 2014 Order at P 40.

    [21]    ISO New England Inc., 150 FERC ¶ 61,029 (2015) (the “Clarification Order”) at P 10.

    [22]    ISO-NE Rehearing Request at 2.

    [23]    Id. at 11.

    [24]    Id. at 12.

    [25]    Id. at 13.

    [26]    Market-Based Approach to Winter Reliability: Exelon, Entergy and NextEra, NEPOOL Markets Committee, April 13, 2015.

    [27]    Rehearing Order at P 17 (footnote omitted).

    [28]    July 15 Filing at Attachment N-1b, Prepared Testimony of Jeffrey W. Bentz in Support of the New England Power Pool’s Proposed Winter Reliability Program (“Bentz Testimony”), at 21.

    [29]    NEPOOL Filing Letter at 9.

    [30]    ISO-NE Filing Letter at 5.

    [31]    See NEPOOL Filing Letter at 9.

    [32]    NESCOE, Winter Program: New England States’ Preferred Approach, NEPOOL Markets Committee, May 2015, available at http://www.nescoe.com/uploads/MC_Winter_ProposalF.pdf.

    [33]    See Bentz Testimony at 23 (“A market participant from each of the six NEPOOL sectors joined the proposal in support: Conservation Services Group (Alternative Resources Sector), TransCanada Power Marketing Ltd (Generation Sector), the Connecticut Office of Consumer Counsel (End User Sector), the United Illuminating Company (Transmission Sector), the Massachusetts Municipal Wholesale Electric Company (Publicly Owned Entity Sector), and Energy America, LLC. (an affiliate of Direct Energy) (Supplier Sector).”).

    [34]    NEPOOL Filing Letter at 10; Bentz Testimony at 21, 23.

    [35]    NEPOOL Filing Letter at 11.

    [36]    Id.

    [37]    See ISO-NE Filing Letter at 11.

    [38]    NEPOOL Filing Letter at 14.

    [39]    Id. at 11-14.

    [40]    July 15 Filing at Attachment I-1b, Testimony of Andrew G. Gillespie in Support of ISO New England Inc. (“Gillespie Testimony”), at 15; see ISO-NE Filing Letter at 6.

    [41]    ISO-NE Filing Letter at 11; NEPOOL Filing Letter at 13.

    [42]    Testimony of James F. Wilson, attached hereto as Attachment A (“Wilson Testimony”), at 9, 20.

    [43]   See id. at 4, 9, 19-20.

    [44]    ISO-NE Letter to DOER at 3. See also ISO-NE Rehearing Request at 12 (Winter Program II “has been proven to be a cost-effective interim means to assure fuel inventory while the ISO completes development and implementation of the full PFP market-based solution.”).

    [45]    ISO-NE Rehearing Request at 4. See also ISO-NE Filing Letter at 4-5.

    [46]    ISO-NE Letter to DOER at 3.

    [47]    ISO-NE Filing Letter at 6, 12.

    [48]    Wilson Testimony at 15.

    [49]    Id. at 15-16 (footnote omitted).

    [50]    July 15 Filing at Attachment N-1d, Testimony of Alan A. Trotta, Director of Wholesale Power Contracts for UIL Holdings Corporation (“Trotta Testimony”), at 3.

    [51]    Id.

    [52]    July 15 Filing at Attachment N-1e, Affidavit of Brian E. Forshaw, NEPOOL Participants Committee Publicly Owned Entity Sector Vice-Chair, at 6. See also id. at 7.

    [53]    Bentz Testimony at 19-20.

    [54]    July 15 Filing at Attachment N-1c, Testimony of John Flumerfelt, Director of Government and Regulatory Affairs, Calpine Corporation (“Flumerfelt Testimony”), at 4-5.

    [55]    July 15 Filing at Attachment N-1f, Affidavit of Herb Healy, Senior Director of Regulatory Affairs, EnerNOC, Inc., at 4.

    [56]    Wilson Testimony at 15, 19.

    [57]    ISO-NE Filing Letter at 12 (emphasis added).

    [58]    See Wilson Testimony at 3.

    [59]    Id. at 19.

    [60]    Id. at 20.

    [61]    September 2014 Order at P 43.

    [62]    Id. (emphasis added).

    [63]    Trotta Testimony at 2.

    [64]    Wilson Testimony at 20.

    [65]    Id. at 14.

    [66]    See Gillespie Testimony at 17.

    [67]    Bentz Testimony at 16 (emphasis added).

    [68]    Id. at 20.

    [69]    Trotta Testimony at 2.

    [70]    See ISO-NE Letter to DOER at 3; ISO-NE Rehearing Request at 4, 12; ISO-NE Filing Letter at 4-5.

    [71]    ISO-NE Filing Letter at 6, 12.

    [72]    Id. at 9.

    [73]    While some might argue for the exclusion of LNG and demand response resources from Winter Program III under the same rationale, these resources have proven to make limited but cost-effective contributions to the Winter Reliability Programs and, unlike the Newly Eligible Resources, they have a more direct nexus to gas pipeline constraints which motivated the advent of these programs.

    [74]    See September 2014 Order at P 43; Rehearing Order at P 17. See Section IV.C below explaining why the Rehearing Order did not require ISO-NE to file its “expanded” program.

    [75]    ISO-NE Filing Letter at 12.

    [76]    Wilson Testimony at 8; see also id. at 9.

    [77]    Id. at 8, 18.

    [78]    Id. at 18-19.

    [79]    Trotta Testimony at 4. See also Bentz Testimony at 22 (“NESCOE, along with other stakeholders, concluded that the ISO-NE Proposal was no more market-based than the Winter Program II, and were concerned that the additional costs of the ISO-NE proposal provided no identifiable benefits.”).

    [80]    Bentz Testimony at 12.

    [81]    Flumerfelt Testimony at 3.

    [82]    Wilson Testimony at 10-11 (emphasis in original).

    [83]    See September 2014 Order at P 43.

    [84]    Winter Program II Filing at 8.

    [85]    Winter Program I Filing at 7. See also id. at 5 (“As a transition between the Winter Reliability Project and the FCM performance incentives project, the ISO intends to propose a scaled-down version of the performance incentives project to purchase a fuel-neutral, winter-based reliability product for the winters of 2014-15 through 2017-18.”).

    [86]    NESCOE Winter Program I Comments at 10.

    [87]    Motion to Intervene and Comments of the New England States Committee on Electricity, Docket Nos. ER14-2407-000 et al. (filed Aug. 1, 2014), at 5.

    [88]    Motion for Leave to Answer and Limited Answer of the New England States Committee on Electricity, Docket No. ER14-2407-003 (filed Mar. 4, 2015), at 3.

    [89]    ISO-NE Rehearing Request at 8.

    [90]    Id. at 2, 8-12.

    [91]    Wilson Testimony at 9-10.

    [92]    Id.

    [93]    Id. at 10. See also id. at 20 (a market-based approach “would likely be ineffective and costly.”).

    [94]    Indeed, one way to erode support for genuine market-based approaches is to label an approach market-based and, through it, force consumers to pay more for resources with no apparent incremental value.

    [95]    Memorandum from ISO-NE to NEPOOL Members, 2015-2016 Winter Program Payment Rate, July 15, 2015, available at http://www.iso-ne.com/markets-operations/markets/winter-program-payment-rate.

    [96]    Wilson Testimony at 16-17.

    [97]    Id.

    [98]    Gillespie Testimony at 18.

    [99]    As explained in the Wilson Testimony, these are the expected costs assuming 75% of the oil inventory and LNG contract amounts are used. In a cold winter during which the oil and LNG stocks are drawn down such that the program only pays for 25% of the maximum inventory quantity for these resources, the cost of the program for these resources would be roughly $16.5 million, while the other resources compensated under the ISO-NE Proposal would likely still receive close to the $34.8 million maximum amount. See Wilson Testimony at 16-17.

    [100]   Prior to the July 15 Filing, ISO-NE had not provided an estimate of program costs or an assumed compensation rate for subsequent winters. The $14 assumed rate was based on an estimate at the time of what the expected payment rate might be for subsequent winters.

    [101]   Bentz Testimony at 16.

    [102]   Id. (emphasis in original)

    [103]   Id.

    [104]   Wilson Testimony at 17-18.

    [105]   Id.

    [106]   See id. at 18.

    [107]   Bentz Testimony at 18.

    [108]   ISO-NE Filing Letter at 6, citing to ISO-NE Rehearing Request at 12-13.

    [109]   Rehearing Order at P 17 (footnote omitted).

    [110]   Id. (emphasis added)

    [111]   Id.

    [112]   See Bentz Testimony at 13 (emphasis in original), citing to Winter Reliability Solution: Committee Discussion, presentation by Andrew Gillespie, Principal Analyst, Market Development, ISO-NE, March 10-11, 2015 NEPOOL Markets Committee Meeting, at Slide 7; Winter Reliability Solution: Committee Discussion, presentation by Andrew Gillespie, Principal Analyst, Market Development, ISO-NE, Jan. 13-14, 2015 NEPOOL Markets Committee Meeting, at Slide 7; Winter Reliability Solution: Winter Periods Prior to June 1, 2018, presentation by Andrew Gillespie, Principal Analyst, Market Development, ISO-NE, Nov. 11-12, 2014 NEPOOL Markets Committee Meeting, at Slide 6.

    [113]   Wilson Testimony at 13.

    [114]   See id. at 18.

    [115]   Winter Program II Filing at 8.

    [116]   See ISO-NE Filing Letter at 11; Gillespie Testimony at 17-18.

    [117]   Gillespie Testimony at 18; Wilson Testimony at 16-17.

    [118]   NEPOOL Filing Letter at 18.

    [119]   Id.

    [120]   See July 15 Filing at Attachment N-1g, Tabulation of NEPOOL Participants Committee Votes Taken on the ISO-NE and NEPOOL Proposals. Those participants referenced above— Dominion, Entergy, NextEra, GDF SUEZ, and Dynegy—own assets that rely on Newly Eligible Resources, specifically nuclear, coal, or pumped hydro.

    [121]   See NEPOOL Filing Letter at 18.

    [122]   See id., quoting Am. Elec. Power Serv. Corp. v. Midwest Indep. Transmission Sys. Operator, Inc., 122 FERC ¶ 61,083 (2008) at P 172 (“While stakeholder support does not alone prove that the NEPOOL Proposal is just and reasonable and preferable, ‘stakeholder consensus is an important factor to be considered in reviewing the justness and reasonableness of a rate design.’”).

    [123]   September 2014 Order at P 33.

    [124]   Winter Program II Filing at 5-6.

    [125]   About FERC, Guiding Principles, available at http://www.ferc.gov/about/about.asp.