Winter Program: Restructuring Roundtable
New England States Committee on Electricity
September 2015

**Any views expressed should not be construed as representing those of NESCOE, any NESCOE manager, any individual state or NEPOOL Participant.**

The NEPOOL Proposal

• The origin of the NEPOOL proposal was the New England States’ preferred approach to the winter reliability solution
• Many NEPOOL participants shared similar views on the best interim solution
  • The states’ preferred approach was co-sponsored by a NEPOOL participant in each NEPOOL sector
  • Approved by 87% vote of NEPOOL, ISO-NE only received 13%
• Once approved, NEPOOL worked with ISO-NE, the states and its participants to prepare the jump ball filing
• NEPOOL is THE stakeholder voting advisory organization on all wholesale market matters in New England

Proposal Co-Sponsors

• Conservation Services Group – AR Sector
• TransCanada Power Marketing Ltd – Generation Sector
• CT Office of Consumer Counsel- End Users Sector
• The United Illuminating Company – Transmission Sector
• Massachusetts Municipal Wholesale Electric Company (MMWEC) – Publicly Owned Sector
• Energy America, LLC. (Direct Energy) – Supplier Sector

What was the Objective?

• To procure, as a stop-gap measure, an additional measure of reliability for the next three winters
• To pay only for necessary and incremental benefits
• To limit the incremental reliability costs to consumers
• The NEPOOL Proposal is designed specifically to procure an additional level of fuel assurance from certain resources
  • Resource types that can and have proven to provide measurable, verifiable, and truly incremental power system reliability
  • Effectively extends core provisions of targeted, proven, and cost-effective program

NEPOOL Proposal

• Maintains majority of ISO-NE New Program Language
  • Winter seasons 2015-16, 2016-17 and 2017-18, with Appendix K expiring on March 15, 2018
  • Updated payment rates and other participation requirements to be consistent with the current ISO-NE expanded program proposal
  • Other conforming changes—
• Replaces ISO-NE eligible resource-type participation with only those eligible in the 2014/2015 programs:
  • Fuel oil (barrels)
  • —Liquefied Natural Gas (Bcf)
  • —Demand Response (MW)
• —Like the ISO-NE proposal, reduced the number of days from 15 to 10 days

Advantages of the Proposal

• Continues a proven, effective and efficient program touted by ISO-NE as successfully providing the necessary level of incremental reliability to New England
  • Found by FERC to be a just and reasonable and not unduly discriminatory means of providing additional reliability services until a long-term market-based solution is implemented
• It is targeted at what the ISO-NE expressed as its immediate need leading up to the implementation of the Pay-for-Performance design
• Maintains a known and reasonably priced interim solution to consumers in return for their investment

A proven interim program at a proven cost provides the optimal course of action as a stop-gap measure in advance of long-term market design changes

The FERC Directive

• FERC granted ISO-NE rehearing request to permit additional out-of-market winter reliability programs. (ISO New England, Inc., Order Granting Rehearing, 151 FERC ¶ 61,052 (2015))
• FERC expected “ISO-NE to abide by its commitment to work with stakeholders to expand any future out-of-market winter reliability program to include ‘all resources that can supply the region with fuel assurance,’ such as nuclear, coal, and hydro resources.”
• However, “if any future out-of-market program is not fuel neutral, we expect that ISO-NE would provide a detailed
  description of the options it considered to make the program fuel neutral and why those options were ultimately not included.”

ISO-NE could have observed intervening events (significant/unnecessary program costs and overwhelming support for NEPOOL proposal) and made use of the flexibility FERC provided in the Rehearing Order to file the solution that satisfied ISO-NE reliability needs in prior years.

Specific to the States’ View

• A “Markets-No-Matter-The-Cost” approach puts the objective of sustainable competitive markets to serve New England consumers at risk
  • The point of markets is to drive efficiency for consumers’ benefit, not inefficiencies that drive costs up
• Costs to consumers must always be a strong consideration
  • Especially true when the short-term need is driven because of a market design failure
  • ISO-NE proposal potentially could cost New England consumers an additional $100 million or more over the life of the three-year program, without providing any need for an “expanded” program or identifying any incremental reliability benefit
• An out of market, non-fuel neutral program is admittedly imperfect; however, in this circumstance where New England consumers are forced to plug a hole to ensure power system reliability during a transition to a market-based program, a non-fuel neutral stop-gap program that is the most economically efficient option is the only reasonable way forward
• Proposals that result in increased cost with no incremental reliability benefit are unjust and unreasonable

Comments on the FERC Decision

• Accepted the NEPOOL proposal as “just and reasonable and preferable”
• Continued general preference for market-based solutions but “recognized that out-of-market solutions might be appropriate in certain circumstances”
  • Pointed to difficulties with creating and implementing a temporary and effective market-based solution
• The program is “essentially identical to last year’s program” which provided reliability benefits and achieved substantial stakeholder support
• ISO-NE proposal was an attempt to comply with FERC but found the record does not reflect that the ISO-NE proposal will incent any additional fuel procurement
• Disagreed with arguments that the NEPOOL proposal is unduly discriminatory
  • FERC effectively adopted NEPOOL’s proposal on this issue
  • Clarified that ISO-NE was not obligated to expand the program
  • Intended that ISO-NE and stakeholders would design a program that would adequately address the region’s needs
• NEPOOL had “sufficiently explained how the region considered ISO-NE’s fuel neutral proposal and why NEPOOL ultimately decided not to support or propose a fuel neutral option.” Also, disagreed with ISO-NE’s exclusion of demand response from its program
• The record reflects a 10-day inventory compensation cap is sufficient to incent participation

Thank You and Look Forward to the Panel Discussion

www.nescoe.com
JeffBentz@nescoe.com