New England Energy Security Solutions
Federal Energy Regulatory Commission Public Meeting, July 15, 2019

[see PDF]

Series of New England energy security measures extremely fast-tracked (see slide 5)

Credit to ISO-NE for stepping back and in March 2019 reformulating its energy security design based on stakeholder feedback

We understand ISO-NE’s holistic energy security design will not be complete by October 2019

Stakeholders’ energy security proposals in process – limited time to assess those, ISO-NE proposal

ISO-NE will not review its Quantitative and Qualitative Impact Analysis until July 30, 2019; it will still be preliminary at September 2019 NEPOOL vote. Ultimate number of modeling cases and specific assumptions unclear at this point. ISO-NE encouraging state or stakeholder proposed amendments to its proposal in mid-August.

ISO-NE Long-Term Solution Timeframe

ISO-NE Long-term Solution Impact Analysis

• ISO-NE has retained a consultant to analyze the impacts of its long-term solution proposal to inform states and stakeholders about the expected impacts of its proposed rules on a variety of market outcomes
• Work underway focuses on quantitative analysis of the impacts of ISO-NE’s proposal on energy market outcomes, including:
• Evaluating particular winter scenarios (not probability-weighted scenarios)
• Illustrating particular mechanisms by which the proposed solutions may change market outcomes

Impact Analysis Approach
per ISO-NE consultant, June 12, 2019 (emphasis added)

• Develop an hourly production cost model to simulate the New England day-ahead and real-time energy markets (including real-time reserves)

Evaluate market outcomes under particular scenarios

• Scenarios reflect combinations of market conditions related to weather, natural gas demand and prices, resource mix, etc.
• Provide information on change in market outcomes under these different scenarios

Change in economic impacts (prices, production costs, total payments)

Changes in operational/system impacts (fuel inventory, reserve shortages)

• Provide information on incentives for improved energy security created by ESI

Why is Impact Analysis Critical to States?

Necessary to fully understand the mechanics of the proposal, costs, operational impacts and importantly, expectations for change in resource behavior that provides regional energy security

Some early concerns –

• analysis is limited to look at winter months compared to ISO-NE proposal to implement solution year round, and the model is highly simplified.
• without analysis, we do not know how the seasonal forward procurement will interact with the daily ancillary service procurement and cannot yet determine the preferable path forward.
• the planned Impact Analysis does not provide insight into the relative cost effectiveness of ISO-NE’s proposed solution as alternative solutions are not being modeled.

To what extent do markets already value energy security when scarce and reward conserving resources?

Current mechanisms provide incentives and ability for resource owners to take desired actions

1. Daily forward markets for energy and natural gas
2. “Opportunity cost” bidding to conserve scarce energy
3. Capacity supply obligation and Pay-for-Performance incentives

Should ISO-NE plan to capture the benefit of experience?
Two examples.

1) M-DAM – Provides a voluntary mechanism to let ISO-NE acquire and co-optimize energy and ancillary services over a time horizon longer than one day ahead which may increase energy security to the benefit of consumers.

2) DA Market Enhancements/Seasonal Procurements provides similar objective, secure energy, but over different timeframes

FERC needs to ensure ISO-NE’s design actually and appreciably changes resource behavior, especially during extended cold snaps

• Which type of resources will be affected and will it incent desired behavior, especially during cold snaps? Will it ensure the region’s resources, such as (or including) nuclear, are appropriately recognized for their contribution to fuel security?
• What type of actions will these resources take as a consequence of ISO-NE design that they would not otherwise have taken?  (How will we know?)
• Will these actions mitigate energy security risk appreciably? Will some resources’ energy security gains be offset by other resources’ actions?

FERC should ensure that ISO-NE’s design gets quantities and maximum prices right

• Getting volume(s) of ancillary services right will ensure the design does not impose a substantially higher reliability standard – and cost – than required
• ISO-NE should identify quantities based on some form of probabilistic analysis so that consumers do not over-purchase resources or over-compensate resources to meet actual needs
• Using Reserve Constraint Penalty Factors (RCPFs) as the maximum price could lead to very high energy and ancillary services prices in circumstances when reserves are ample and reliability risk is low

Evaluation by Market Monitors

• These proposals call for managing fuel/secure energy supply through possible high opportunity costs and limited fuel supplies, which may raise market power concerns.
• Have the Internal and External Market Monitors had the opportunity to conduct in-depth review of the proposed design and provide timely analysis to stakeholders?
• Will FERC have the benefit of that analysis and the ability to account for IMM or EMM recommendations in assessing ISO-NE’s proposed design?

Offer Flexibility

• ISO-NE has suggested that opportunity cost bidding will not be needed and may not be allowed with its M-DAM proposal
• To what extent will participants be required to yield to ISO-NE existing offer flexibility to manage their resources and scarce energy?
• Should resource management within the competitive market be the responsibility of competitors or market managers?

Maximizing Information and Transparency

• ISO-NE has confidential fuel security information (generator plans, aggregated information on fuel stocks, etc.) and says it will reflect that as it administers the markets (co-optimize)
• Resource owners have additional confidential information not provided to ISO-NE, which may be reflected in forward prices to a great extent
• There remain many open questions.  ISO-NE design incomplete, preliminary Impact Analysis discussed July 30th;  ISO-NE encourages amendments to its proposal two weeks later
• Work on a long-term solution comes on the heels of fast-tracked Mystic litigation and a simultaneously fast-tracked Interim Solution process

Too much too fast, coupled with increasing complexity of market rules, can lead to unintended consequences, unnecessary consumer costs, and/or a solution that doesn’t actually deliver results

At the end this process, for any future energy security mechanism to work, its benefits must be weighed against consumer costs.  Last week’s Markets Committee discussions about energy security proposals heightened our concerns about timing, and our ability to assess whether proposals will work and at the right cost.  We believe consumers will benefit if ISO-NE, states and stakeholders had more time to conduct and consider analysis. We think more time would ultimately benefit FERC’s review process by allowing it to receive input from states and stakeholders that reflects considered views based on full information. We would appreciate FERC allowing the region more time, along with direction to ISO-NE to continue to work on this critical issue with the speed it is due.”