UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION

Modernizing Electricity Market Design-Docket No. AD21-10-000

COMMENTS OF THE NEW ENGLAND STATES COMMITTEE ON ELECTRICITY

Pursuant to the Notice Inviting Post-Technical Conference Comments issued by the Federal Energy Regulatory Commission (“Commission” or “FERC”) in this docket on June 4, 2021 (“Notice”), the New England States Committee on Electricity (“NESCOE”) files comments on the issues discussed at the technical conference held on May 25, 2021 (“May 25 Technical Conference”).  The May 25 Technical Conference related to resource adequacy, state policies, and ISO New England Inc.’s (“ISO-NE”) wholesale markets.[1]

I.              DESCRIPTION OF COMMENTER

NESCOE is the Regional State Committee for New England.  It is governed by a board of managers appointed by the Governors of Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont and is funded through a regional tariff that ISO-NE administers.[2]  NESCOE’s mission is to represent the interests of the citizens of the New England region by advancing policies that will provide electricity at the lowest possible price over the long term, consistent with maintaining reliable service and environmental quality.[3]  These comments represent the collective view of the six New England states.

II.            INTRODUCTION

NESCOE appreciates the Commission’s willingness to engage the states, ISO-NE, and stakeholders on these critical issues.  The May 25 Technical Conference included representatives from all six of the New England states.  As discussed in these comments, the region is actively working on identifying what reforms to ISO-NE’s wholesale market rules are needed to align with, and appropriately account for, the execution of state energy and environmental requirements and to meet emerging challenges to reliable system operations.  ISO-NE has recognized that decarbonization requirements and state-led investments in clean energy are driving changes to New England’s resource mix and the transition of the power grid.[4]  The current market framework in New England must evolve.

As discussed in more detail below, NESCOE recently issued a report to the New England Governors with recommendations for reforms in three intersecting areas—wholesale markets, transmission, and ISO-NE governance—to transition successfully to a clean, affordable, and reliable 21st century power grid.  That report, Advancing the Vision,[5] also proposes the creation of an Ad Hoc State Work Group on Equity and Environmental Justice in Energy Infrastructure (“Equity and Environmental Justice Work Group”) and near-term actions to promote transparency and accessibility in regional electricity matters.[6]  Substantial work remains.  Time is of the essence to ensure that markets are both sustainable and capable of assuring that electric rates will remain just and reasonable as New England progresses to a modern grid supplied by reliable and cost-effective power that is compatible with states’ decarbonization requirements.  NESCOE greatly appreciates the Commission’s close engagement on these issues, with the May 25 Technical Conference serving as an important step toward advancing solutions to meet our region’s market needs.

III.          COMMENTS

The responses below are organized consistent with the numbering and sequencing of the Notice.[7]

1.              Relationship between State Policies and ISO New England Inc.’s Markets

a.              In October 2020, the New England States Committee on Electricity (NESCOE) released a vision statement that called for ISO-NE to provide an appropriate level of state involvement in wholesale market design and implementation.   Please provide an update on the discussions in the region since the vision statement was released.

Since NESCOE released the vision statement in October 2020,[8] New England state officials held a series of technical forums addressing the core elements set forth in the statement.  In January 2021, the New England states held two technical forums on wholesale market design issues.[9]  The New England states also held a transmission planning technical forum[10] and a governance reform technical forum,[11] both in February 2021.  In March 2021, New England state officials hosted a forum on equity and environmental justice issues related to the 2020 Vision Statement.[12]  The state officials invited written input following each of the forums.

Building on the discussions at these state-led technical forums, and after having considered the written input provided on these issues, on June 29, 2021, NESCOE’s Managers released the Advancing the Vision report.  The report describes the progress that has been made since the 2020 Vision Statement was issued to advance reforms to market design, transmission planning, and ISO-NE governance.  Those three areas of reform are “intricately tied as we move to a modern grid that meets needs cost-effectively.”[13]  Recommended reforms to market design and governance are discussed in more detail below in response to the Commission’s questions.

The report also provides some next steps to address inequity and environmental injustices that certain communities disproportionately bear.[14]  They include pursuing the creation of the Equity and Environmental Justice Work Group, which would comprise various diverse New England state officials.[15]  That group would seek to “work with the participation of regional partners, including for example, ISO-NE leadership, NEPOOL sector representatives, environmental justice representatives, academic experts, FERC, and others.”[16]  Initial goals for the group “would include identifying barriers to integrating individual states’ environmental justice considerations into the regional planning processes and to develop best practices that seek to address these barriers over time.”[17]  The report suggests a number of near-term actions to “facilitate transparency and accessibility in regional electricity matters for all communities.”[18]

As a whole, Advancing the Vision marks “another step toward the significant work [that states] need to execute collaboratively . . .  and in partnership with [FERC], ISO-NE, and [NEPOOL], for the public we all serve.”[19]  NESCOE looks forward to opportunities to continue discussing these issues with the Commission.

b.             Please explain how states are currently involved in market design and implementation processes.  How are states’ perspectives considered in these processes?  How is information shared with states related to these processes?

NESCOE, the New England Conference of Public Utilities Commissioners (“NECPUC”), and individual state agencies primarily engage on wholesale market design issues through the regional stakeholder process.  That stakeholder process is largely run through NEPOOL.  The NEPOOL Participants Committee is the primary stakeholder advisory body to ISO-NE and is the principal governing body through which NEPOOL members act as an organization.  Pursuant to the NESCOE MOU, NESCOE can sponsor rule proposals or amendments to ISO-NE rule proposals to be voted on at the appropriate NEPOOL technical committee (e.g., the Markets Committee) and/or the NEPOOL Participants Committee.  In New England, many state agencies have elected not to be voting members of NEPOOL, except for some state agencies that are designated as that state’s consumer advocate.

Twice a year, it has also been the standard practice for NECPUC and NESCOE to meet jointly with the ISO-NE Board to discuss regional electricity issues.  ISO-NE Board members meet individually with staff and Commissioners at state public utility commissions several times a year as well.

NESCOE appreciates these conversation opportunities, and dialogue over the last several months has been constructive on certain modeling analysis work and transmission planning issues.  However, interactions between ISO-NE leadership and states on some recent major market design efforts illustrate a need for reform to ISO-NE governance rules and practices to ensure that consumer and other state interests are more meaningfully considered.[20]

While the New England states participate in regional stakeholder processes addressing wholesale market design and other tariff issues, NESCOE emphasizes that state interests are not comparable to those of market participants or stakeholders, such as a power generator or transmission company.  Accordingly, the views of states merit different weight in these processes.  This underlies state decisions not to become voting members of NEPOOL.  Rather, states are sovereign entities that have unique roles and responsibilities as they participate in, inter alia, the design of wholesale markets and regional transmission rules.

The Commission has appropriately recognized states’ unique position in various rulemakings.  For example, in its rulemaking encouraging the development of regional transmission organizations (“RTOs”) over 20 years ago, the Commission emphasized that it “continue[d] to believe that states have important roles to play in RTO matters.”[21]  When reforming its open access transmission policies, the Commission recognized the critical role that states have with respect to transmission planning,[22] and has repeatedly “acknowledge[d] the vital role that state agencies play in transmission planning and their authority to site transmission facilities.”[23]  In Order No. 1000, the Commission affirmed that “[i]n response to commenters that urge us to recognize the role of the states in transmission planning, especially as it relates to compliance with Public Policy Requirements, we clarify that nothing in this Final Rule is intended to alter the role of states in that regard.”[24]  Indeed, the Commission expected “that state regulators should play a strong role and that public utility transmission providers will consult closely with state regulators to ensure that their respective transmission planning processes are consistent with state requirements.”[25]

In his dissent last year in connection with CASPR,[26] then-Commissioner Glick further noted the special role that the FPA accords to states in “shaping the mix of resources used to generate electricity.”[27]  His dissent also stated that, in order to realize the efficiencies of regional markets, RTOs and the Commission “need to once and for all stop trying to fight the effects of state public policies and make accommodating those policies a foundational principle of RTO markets.”[28]  In this way, “RTOs, and regional markets more generally, should be one of the principal building blocks for the transition to the electricity grid of the future.”[29]

What is the appropriate role for New England states with respect to ISO-NE capacity market reforms? 

ISO-NE is approaching its 16th Forward Capacity Auction.  Like a teenager moving into adulthood, the capacity market must evolve to apply lessons learned from the past.  One of those lessons is the need for ISO-NE to have a closer relationship with the states given the authorities reserved under the FPA and their unique role in matters affecting regional electricity markets and operations.

At a minimum, as explained in the 2020 Vision Statement, reforms are needed to ensure that market rules account for and support the New England states’ clean energy policies and mandates rather than impede them by making consumers overpay for power.[30]  This is not a new concept.  NESCOE began observing that such changes were needed for markets to be sustainable years ago, at least as early as 2012, and has regularly repeated the call for change.[31]

In July 2019, NESCOE asked ISO-NE to allocate resources to this specific and central issue as part of its work plan in 2020 and to undertake it on a calendar of the region’s choosing, allowing time for analysis and understanding of implications.  NESCOE requested that “ISO-NE plan to dedicate market development and planning resources in 2020 to support states and stakeholders in analyzing and discussing potential future market frameworks that contemplate and are compatible with the implementation of state energy and environmental laws.”[32]  Such analysis is getting underway in 2021.

Advancing the Vision provides recommendations across three intersecting areas: markets, transmission planning, and ISO-NE governance.  The role of states in the capacity market and in all of ISO-NE’s functions—the ultimate objective which is to serve consumers—is inseparable from the need to reform ISO-NE governance.

Through the 2020 Vision Statement, NESCOE asked ISO-NE and its Board to initiate a process in 2021 with states and stakeholders to identify potential changes to ISO-NE’s mission statement and governance structure:

Beginning in 2021, ISO-NE and its Board should convene a collaborative process with States and stakeholders to identify potential changes to its mission statement and governance structure that improve transparency and foster improved alignment with a rapidly-evolving 21st century clean energy grid.  As part of this process, NESCOE seeks to explore reform of ISO-NE governance to achieve greater transparency around decision-making, a needed focus on consumer cost concerns, and support for States’ energy and environmental laws.[[33]]

The Advancing the Vision report observes that ISO-NE has yet to convene that process.[34]  The report therefore calls on ISO-NE to adopt, at a minimum, a number of new practices and governance reforms.  These include explicit focus on consumer and other state interests, mechanisms to enhance transparency and facilitate a better public understanding of its work, and proposing a form of shared FPA section 205 rights with states in connection with the development of future ISO-NE market rule changes that seek to execute or integrate state energy and environmental policies and requirements.[35]  To the extent the Commission believes that a holistic look across Independent System Operators (“ISOs”)/RTOs is warranted given the passage of time since it issued Order No. 719,[36] the report also expresses support for such action.[37]

ISO-NE’s mission and governance should be more transparent, provide greater and needed focus on consumer costs, and better align with states’ energy and environmental laws—the most significant drivers of the changing resource mix.[38]

c.              New England Power Pool (NEPOOL), in coordination with NESCOE and ISO-NE representatives, launched the “New England’s Future Grid Initiative” in two parallel processes to (1) define and assess the future state of the region’s power system; and (2) explore and evaluate potential market frameworks that could be pursued to accommodate state policies focused on decarbonization.  What is the current status of each of these stakeholder processes?

Advancing the Vision provides an update on the status of both the Future Grid Initiative as well as a related analysis, Pathways to the Future Grid.[39]

d.             Many New England states have established long-term policy goals and/or statutory requirements to reduce greenhouse gas emissions and increase clean energy generation. Consistent with these goals, several states have instituted programs to promote the development of renewable energy resources and to retain existing zero-emitting generation resources.  How do the current ISO-NE market rules affect implementation of existing or proposed state policies?

The Pathways Report explained that “States would like to achieve their specific policy objectives cost effectively, whereas wholesale electricity markets are designed to maximize economic efficiency.”[40]  It posited that while “there is some substantial overlap between the States’ objectives of decarbonization and environmental enhancements, economic development, and political acceptability, and the objective of efficient, regional wholesale electricity markets, these objectives are not necessarily reconcilable.”[41]

New England state officials and others, such as electric distribution companies in certain cases, are obligated to meet the requirements of state laws irrespective of wholesale market rules.  This creates a tension of which the Commission is well aware—one that has caused the New England states to call for reform in order to make wholesale markets sustainable over the long-term.

The tension primarily revolves around Offer Review Trigger Prices—ISO-NE’s version of the Minimum Offer Price Rule (“MOPR”).  The MOPR impedes state-led investments in clean energy from participating in the Forward Capacity Market (“FCM”), resulting in these investments not being counted toward ISO-NE’s resource adequacy requirements.  This effectively creates a double payment for consumers as has been acknowledged in various Commission proceedings.  The tension in New England around wholesale markets and meeting state legal requirements was intensified with the removal of a narrowly tailored Renewable Technology Resource exemption[42] in favor of a non-functional CASPR design, discussed further below.

As then-Commissioner Glick noted in his dissent addressing the MOPR in PJM Interconnection, L.L.C. (“PJM”), “as a resource adequacy construct, the PJM capacity market will increasingly operate in an alternate reality, ignoring more and more capacity just because it receives some form of state support.  It also means that customers will increasingly be forced to pay twice for capacity or, in different terms, to buy ever more unneeded capacity with each passing year.  I cannot fathom how the costs imposed by a resource adequacy regime that is premised on ignoring actual capacity can ever be just and reasonable.”[43]

The Commission has recognized the potential for overpayment for capacity that the MOPR can create in New England:

• “As the record reflects, ISO-NE sought to accommodate New England state laws and regulations that provide incentives for development of renewable resources outside of the FCM. To the extent that resources built pursuant to state incentive programs contribute toward meeting the region’s resource adequacy requirements, the renewables exemption decreases the likelihood that customers must pay for more resources than are necessary to provide for resource adequacy or that the capacity market will provide a false signal that new investment is needed when this is not the case.”[44]
• “First, accommodating the entry of new Sponsored Policy Resources into the FCM over time will reduce the potential for New England to develop more resources than ISO-NE needs to maintain resource adequacy. While customers may be paying for more overall capacity than they would were the FCM to clear all Sponsored Policy Resources in the primary auction without applying a MOPR, ISO-NE explained that the substitution auction will enable more capacity to obtain a capacity supply obligation than the renewables exemption previously in effect (and which is being phased-out over the next three years), reducing the amount of redundant capacity supported by customers.”[45]

Earlier this year, ISO-NE announced that it intended to eliminate the MOPR but that it would pair that tariff revision with other changes to “maintai[n] competitive capacity market pricing.”[46]  Along with stakeholders, NESCOE is actively engaged in reviewing ISO-NE’s recommended approach to reforming the MOPR.  This includes, consistent with Advancing the Vision, “ensuring that any other changes that ISO-NE seeks to pair with MOPR reforms in the name of promoting system reliability are fully evaluated and justified based on verifiable data.”[47]

NESCOE shares ISO-NE’s interest in reliable power system operations.  It always has.  As the New England states continue to partner with ISO-NE in keeping the lights on, so too must ISO-NE partner with the states to ensure that any accompanying “competitive pricing” tariff changes are supported by verifiable data, are targeted to the specific reliability issue identified, and are not effectively a replacement or enhanced MOPR.

If states have differing policy goals, how should these be accommodated in the ISO-NE capacity market?    

The specifics of each state’s goals may differ, but when looking across the New England region at policies and programs such as renewable portfolio standards and the Regional Greenhouse Gas Initiative, state policies have strong common threads including promoting clean energy and innovative technologies.  These state policies are currently, and state laws suggest will continue to be, a primary driver of the region’s future resource mix.  To the extent conflicting policy goals are identified, they can continue to be addressed on a case-by-case basis.  For example, despite differences in state laws, the states together supported the Renewable Technology Resource exemption and amendments to CASPR that might have made it functional. The New England states have a demonstrated record of working collaboratively on regional energy issues, as the recent Advancing the Vision report confirms.

How do one state’s actions to shape the resource mix affect other states?  Should such effects be addressed, and if so, how? 

This is difficult to answer in the abstract, without detail around a state’s specific actions or their circumstances.  Certainly, in a regional market construct, one state’s energy policies can affect other states.  It is commonly recognized that New England is a tightly integrated grid.  Whether a single state’s action has a material effect on other states, or how material that effect is, depends on the circumstances. To date, the New England states have worked collaboratively and identified ways forward together on specific market proposals intended to better harmonize regional markets and state laws.

e.              Is ISO-NE’s existing capacity market design, including the Competitive Auctions with Sponsored Policy Resources (CASPR) framework effective in ensuring resource adequacy at just and reasonable rates? Why or why not?  Is it compatible with achieving New England states’ policies?  Given the small quantity of capacity cleared through the substitution auction, is CASPR achieving its goals?  Is CASPR’s current design durable? Why, or why not?

During the development of the CASPR proposal, NESCOE proposed a “backstop” amendment to the CASPR design.[48]  The amendment would have allowed CASPR to work first as the preferred method to guide entry and exit from the capacity market.  If CASPR worked as ISO-NE hoped, the backstop would have been irrelevant—hardly a disruption to its objective or functionality.  However, if over time CASPR failed to live up to its objective, which has proven to be the case, the backstop would have triggered to ensure a reasonable level of entry of state sponsored resources to balance the tensions between competitive pricing concerns and accommodating state energy and environmental policies, similar to the FERC-approved Renewable Technology Resource exemption to ISO-NE’s MOPR.[49]  The states advocated to ISO-NE management and the ISO-NE Board in support of the backstop, to no avail.[50]  ISO-NE filed its CASPR proposal without such a backstop,[51] and the Commission accepted the program without this protection.[52]

As the Commission is aware, over the past three Forward Capacity Auctions, almost no resources have cleared through CASPR’s secondary auction feature.  In Forward Capacity Auction 13 (conducted in February 2019), ISO-NE procured 54 MW in the secondary auction.  There were no procurements through CASPR, however, in the following two auctions, conducted in 2020 and 2021, respectively.[53]  As a result, in practice, CASPR has proven to be a failure in aligning wholesale markets with the requirements of state laws and as a durable design.

Chairman Glick has stated that “CASPR deserves a failing grade” in terms of “accommodating state public policies.”[54]  He echoed this view at the May 25 Technical Conference: “as we’ve seen[,] CASPR has been a complete failure.  Very little, [an] extremely little amount of new generation has been added as a result of that program.  And all this has left us [in] is a situation where we have higher prices, dirtier air, and states that are growing increasingly frustrated.”[55]

Several of the New England state officials participating in the May 25 Technical Conference articulated similar views about CASPR.  Katie S. Dykes, Commissioner, Connecticut Department of Energy & Environmental Protection, stated that she “think[s] it is incredibly important to act with urgency, not only given the state mandates that we have that are requiring urgent investment in resources to decarbonize our grid, but also because of the costs to our ratepayers, duplicative payments associated with delay.  And I’ll point to the failure of the CASPR mechanism.  You know with only 54 megawatts clearing of the 1,000 megawatts of offshore wind for example that’s been procured by ISO New England states in the last few years.”[56]  Similarly, Matthew Nelson, Chair, Massachusetts Department of Public Utilities, noted that “[t]o specifically address the question around CASPR[,] I just want to say that … the fact that we are here today I think confirms the fact that CASPR has in practice over the past several auctions, proven to be a failure in aligning the wholesale market with the requirements of state laws as a durable mechanism for ensuring resource adequacy.”[57]

After ISO-NE filed the CASPR program with the Commission, NESCOE filed comments that were generally supportive of CASPR given its objective of accommodating clean energy resources in the wholesale market, but that support was expressly conditioned on ISO-NE’s commitment to monitor CASPR and file revisions if the program failed in practice.[58]  NESCOE emphasized that:

ISO-NE must revise CASPR if it falls short of its intent to accommodate the participation of state-sponsored resources or if it proves inflexible to the execution of state laws, which are not static.  Indeed, should CASPR not accommodate the entry of state-sponsored resources, NESCOE expects that ISO-NE would act expeditiously, in collaboration with states and stakeholders, to develop and file revised market rules with the Commission—including interim rules as necessary—to protect against excessive consumer costs.  If and when that circumstance should occur, the need for expedited action may be particularly acute given the planned phase out of the Renewable Technology Resource exemption, New England’s current just and reasonable mechanism for accommodating state-sponsored policy resources and limiting the risk of excessive consumer costs arising from redundant capacity purchases.[[59]]

Since CASPR’s implementation, NESCOE has identified the need to assess closely whether it has been working in practice.  In its annual reports, NESCOE identified as this as a priority:

• 2018 Annual Report: “[E]valuating the operation of the first CASPR substitution auction and whether the design appears likely to accommodate the requirements of state laws into wholesale markets over the long-term and assessing the need for modifying the effective date of state laws that are CASPR-eligible (currently those laws in effect as of January 2018).[60]
• 2019 Annual Report: “Continue to assess whether CASPR, ISO New England’s mechanism through which to accommodate resources required by state laws adopted before January 2018 into the markets over the long-term, appears likely to operate according to its theory.”[61]

The region needs a better path forward.  To that end, Advancing the Vision recommends another potential framework.  In addition to engaging with ISO-NE and stakeholders on proposed MOPR reforms, the report calls on the region to “[p]rogress to the next level of market design detail on a regional forward market through which states may elect, at each state’s option, to procure clean energy attributes.”[62]  The report continues:

Discussion to date on such a market shows some promise compared to other designs. Such a forward, opt-in style regional market has the potential to deliver scalable clean energy that provides predictability to all market participants and appropriate flexibility for each state to make determinations about whether, when, and to what extent participation makes sense based on then-current needs. With ISO-NE and market participants, work to develop market design details and associated analyses to further inform state judgments about pursuing the implementation of such a market. This assessment will include consideration of any interim or transitional design features that may be necessary before ultimately achieving the most economically efficient form of regional forward market, including, as one example, a single regional clean energy product definition.  The development of any mechanism that the states pursue to achieve state jurisdictional policy goals and mandates must carefully consider the states’ role in the governance of that program.[[63]]

Advancing the Vision also recommends that the states:

• Continue to assess other potential market mechanisms, such as but not limited to, a market approach that supports the needs of new and existing clean energy resources. Assessment of a mechanism that supports the differing needs of new resources, as well as existing resources that help meet reliability needs, will turn in part on the design details of the forward market described above.

• Continue to explore potential new energy and ancillary service market mechanisms – or improvements to such current market mechanisms – that could support the region in reliably and cost-effectively integrating large amounts of intermittent renewable energy resources in a way that is compatible with states’ decarbonization mandates.[[64]]

2.              Short-Term Options and Complementary Potential Market Changes to Accommodate State Policies in ISO-NE

a.              Should ISO-NE’s capacity market design, including the CASPR framework, change to better accommodate state policies?  If so, how?

Yes.  See responses above regarding CASPR and the recommendations in Advancing the Vision.

b.             As the resource mix in ISO-NE continues to evolve, what new challenges are presented?  Are the needs of the evolving resource mix better addressed in the capacity market or the energy and ancillary services markets, or are changes needed in both?  Please explain.

See discussion above regarding Advancing the Vision.  NESCOE also looks forward to continuing work with ISO-NE and NEPOOL on the analyses that the Future Grid Reliability Study and Pathways to the Future Grid will provide to the region.  The outcome of this work, with the identification of market gaps in the grid of the future, will help define in which markets these gaps may be best addressed.  Generally, there is an expectation that changes will be required in all wholesale markets.

c.              At the March 23, 2021 technical conference,  panelists suggested that both short-term and long-term reforms to aspects of ISO-NE’s capacity, energy, and ancillary services markets could be needed if CASPR and the Offer Review Trigger Prices (ORTPs) are modified or eliminated.

i.      What, if any, are the short-term and long-term challenges of removing CASPR and the ORTPs from ISO-NE’s capacity market?  What market design changes, if any, would be necessary to preserve the capacity market’s ability to ensure resource adequacy? If changes are necessary, how quickly would ISO-NE need to implement short-term changes following the removal of CASPR and ORTP?

ii.    What other specific modifications to ISO-NE’s capacity market rules may be necessary?  For example, should capacity accreditation rules for various resource types, the shape of the capacity market demand curve, the net cost of new entry estimates, or mechanisms to ensure fuel security, among others, be revised and if so why, and how?  Approximately how long would it take ISO-NE and stakeholders to develop and implement each additional needed reform?  Assuming any such modifications are necessary, which should be prioritized in the short-term, and which should be pursued in the long-term?

iii.   Some panelists expressed concerns that ORTPs are necessary to prevent cost shifts between New England states.  Please explain whether and if so, how these cost shifts would occur if CASPR and the ORTPs were eliminated.  Is there a way to mitigate such an effect?  Please explain.  Additionally, please discuss the extent to which certain impacts are unavoidable in a regional market where participating resources are located in multiple states.

NESCOE looks forward to working with ISO-NE and regional stakeholders on these issues.  In general, the issues raised in this set of questions prompted NESCOE, in 2019, to ask ISO-NE to allocate resources in its 2020 work plan to perform the required future grid analysis and identify gaps in current market rules and possible solutions.[65]  That work got underway in 2021 and the analysis will help inform NESCOE’s judgment about a long-term, sustainable path forward.

3.              Long-Term Options and Centralized Procurement of Clean Energy

a.              What benefits would a centralized clean procurement mechanism in ISO-NE provide to the ISO-NE states and the ISO-NE markets?  What would be the goals of such approaches and what are important design considerations in developing any potential market mechanism?  What are the downsides of pursuing such constructs?  What concerns regarding potential undue discrimination may arise from implementing such new market constructs, if any?

The idea of a centralized clean energy procurement mechanism has been discussed in New England for several years.  It dates back at least to discussions in the NEPOOL stakeholder process five years ago, at that time focused on “Integrating Markets and Public Policy” or “IMAPP.”[66]  The 2020 Vision Statement articulated that a forward clean energy market “may be one way to support resources capable of achieving the requirements of state clean energy and carbon emissions reduction laws.”[67]  Over the past year, there has been a renewed focus on identifying and sorting through the myriad complicated issues associated with such a centralized market.  The states, and the region more broadly, are still in the process of identifying the range of complex issues, approaches, and trade-offs that a forward clean energy market would present.  Advancing the Vision seeks to move to the next level of design detail on this centralized clean energy market, as discussed above.

One example of the complexity of issues involved is regulatory integration with existing state programs that support clean energy resources, such as renewable portfolio standards.  Early discussions suggest that, in the early years of a potential forward clean energy market, it would be unlikely that such a market would entirely replace current state programs.  It is, accordingly, important to explore how a new market construct to procure clean energy resources would work in tandem with current state programs that provide economic support to certain resources.  There is not likely a “right” answer: any choice requires the identification and assessment of trade-offs.

ISO-NE, the states, and the region’s stakeholders continue to work closely on the technical analysis of various future pathways.  To the extent the region moves into other phases of work, and the foundational details of a design are more grounded than they are today, the details of that design can and must be considered against a range of other considerations.  This includes the legal question posed here.

b.             What are potential challenges to developing the new market constructs discussed in this panel (e.g., would interstate compacts be required)?  How could those challenges be overcome?  For example, New England states have policies that support different types of resources (e.g., offshore wind).  Could a standard product be developed and centrally procured in ISO-NE-administered markets to meet these diverse state policy goals?  Given the differences in state policies, is it possible to define products that resources could provide (e.g., zero-emission generation) and incorporate the procurement of those products into Commission-jurisdictional markets?

At the highest level, a threshold question is whether any new market construct would be beneficial to consumers relative to the status quo.  Ongoing analyses that ISO-NE is conducting on various potential market pathways will help inform state and stakeholder consideration of the trade-offs of different options.

Other critical threshold questions involve jurisdiction and risk of future litigation in connection with incorporating the requirements of state laws and mandates into the design of a Commission-jurisdictional market.  For example, as discussed above, the Commission accepted the Renewable Technology Resource exemption as part of a compromise package of changes.  This package of changes to ISO-NE’s market rules included the incorporation of a system-wide downward-sloping demand curve in place of the vertical curve; extending the option new resources had to lock-in capacity prices for up to five years by another two years;[68] eliminating system-wide administrative pricing rules in the event of insufficient competition and insufficient supply; and—relevant here—establishment of a narrowly tailored exemption from buyer-side mitigation for certain state-sponsored renewable resources.[69]  As NESCOE explained, “these capacity market reforms work together to align the incentives for resource adequacy, financial stability, consumer cost impacts, market power mitigation, and state statutory requirements.”[70]  Notwithstanding compromise on the part of many stakeholders and the states, a group of market participants brought a series of legal challenges (which were ultimately unsuccessful) to what amounted to a limited mechanism to accommodate state-led resource investments.[71]

The litigation targeting the Renewable Technology Resource exemption teaches that, irrespective of broad agreement among states, ISO-NE, and a vast majority of stakeholders on a market design, a single market participant can allocate resources to litigation and seek to overturn on a piecemeal basis key features of that design that protected states and consumers.  States take such risks, based on experience and practice, into account in assessing trade-offs about the best way forward in considering and structuring any new FERC-jurisdictional market construct that seeks to account for the requirements of state laws.

Another challenge, as noted in the question, is product definition.  A standard product could be identified and centrally procured, but that, too, creates trade-offs that states must assess.  For example, a market could instead procure multiple products to account for diverse state policies, but that approach loses some market efficiency.

As discussed, the Pathways to the Future Grid analysis and continuing regional discussions will help the states to better understand some of these tradeoffs in the context of a forward clean energy market and other potential constructs.  For any potential path, states will need to assess and make judgments about tradeoffs and consider other core concerns and risks.

c.              Stakeholder discussions to date have focused on the Forward Clean Energy Market and Integrated Clean Capacity Market as potential frameworks.  What are the key design features of these proposals?  What are the advantages and disadvantages of these approaches?

NEPOOL’s reference library contains updated information on these two potential market frameworks, which are part of ISO-NE’s Pathways Study analysis.[72]

d.             Given that many state policy goals target electricity generation (e.g., Renewable Portfolio Standards that target a percentage of electric loads), would it be more effective to develop such a construct within the energy and ancillary services markets?

As set forth above, Advancing the Vision includes a recommendation to “[c]ontinue to explore potential new energy and ancillary service market mechanisms – or improvements to such current market mechanisms – that could support the region in reliably and cost-effectively integrating large amounts of intermittent renewable energy resources in a way that is compatible with states’ decarbonization mandates.”[73]

IV.          CONCLUSION

NESCOE greatly appreciates the Commission’s willingness to explore electricity market design issues through this series of technical conferences.  NESCOE thanks the Commission for the opportunity to comment on issues involving ISO-NE markets and respectfully requests that the Commission take its comments into consideration in evaluating any further action related to this proceeding.

Respectfully Submitted,

/s/ Jason Marshall                 

Jason Marshall

General Counsel

New England States Committee on Electricity

424 Main Street

Osterville, MA 02655

Tel: (617) 913-0342

Email:  jasonmarshall@nescoe.com

/s/ Phyllis G. Kimmel             

Phyllis G. Kimmel

Phyllis G. Kimmel Law Office PLLC

1717 K Street, NW, Suite 900

Washington, DC 20006

Tel: (202) 787-5704

Email:  pkimmel@pgklawoffice.com

Attorneys for the New England States Committee on Electricity

Date:  July 19, 2021

Attachment A

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