To: ISO-NE
From: NESCOE
Date: May 31, 2013
Subject: Market Resource Alternative Analysis

NESCOE has observed with strong interest the development of ISO-NE’s Market Resource Alternative (MRA) analysis since ISO-NE indicated it would conduct such analysis in the context of its Strategic Planning Initiative and in furtherance of the need to better align planning and markets. NESCOE’s is interested in the MRA analysis outputs and in how the MRA analysis will interact with the states’ Non-Transmission Alternative (NTA) Framework. As discussed previously in relation to implementation of the NTA Framework, the states planned to move that work forward and to re-visit some elements of the NTA Framework when ISO-NE’s MRA analysis became a consistent element of regional planning in order to avoid duplicative analysis. In the process of examining the results from ISO-NE’s initial MRA analyses and considering how the analysis might be modified to be of greater practical use, NESCOE received ISO-NE’s April 19, 2013 memo to the Planning Advisory Committee (PAC). In that communication, ISO-NE described its concerns with the MRA analysis and stated its intent to suspend work on MRA analysis, resuming it with an enhanced approach in 2014. NESCOE shares the concerns ISO-NE articulated about the analysis produced to date. NESCOE provides the states’ perspective on the analysis done to date and hopes the views below will inform ISO-NE’s future MRA work.

This memo (i) provides a brief background summarizing NESCOE’s understanding of the MRA analyses performed to date, (ii) identifies questions about the analyses, and (iii) offers suggestions for possible improvements that can be incorporated in future MRA studies. We hope our views are helpful as ISO-NE considers how to move forward with the MRA analysis that will help to align planning and markets, consistent with ISO-NE’s objectives as set forth in its June 2012 Aligning Planning and Markets whitepaper.

Brief Background of MRA Analyses and Solutions

ISO-NE has completed two MRA analyses and presented results to the PAC. Specifically, ISO-NE studied MRA solutions for the Vermont and New Hampshire study area in 2011 and then for the Greater Hartford Central Connecticut area in 2012.

Vermont/New Hampshire

ISO-NE first presented the Needs Assessment for this area to the PAC in 2008. The Needs Assessment was refined many times over several years due to changing assumptions and finally resulted in an initial Solutions Study that ISO-NE presented to PAC in April 2011. One month later, in May 2011, ISO-NE presented an alternative analysis. ISO-NE described this first analysis of this type as a “pilot study.”

The NTA study divided the Vermont/New Hampshire region into subareas and analyzed what was needed to solve all identified reliability issues in those subareas individually. Supply side and demand side solutions were examined separately. Below is the final results slide showing that all violations in all scenarios could be solved by either a total of 1935 MW of supply side resources, or, separately, by a total of 1760 MW of demand side resources:

[graphic]

On November 10, 2011, ISO-NE presented a Transmission Systems Solutions Update that summarized the recommended transmission solutions for most of the study sub areas. In January 2012, ISO-NE presented the Seacoast Area preferred solution. The following table summarizes the total cost of these preferred transmission solutions:

[graphic]

At the March 2012 PAC meeting, ISO-NE presented a follow-up to the previous transmission solution update. ISO-NE’s presentation indicated that several assumptions had changed since the Needs Assessment study had been finalized, including the following: 75 MW of Demand Response in VT/NH had cleared in Forward Capacity Auctions, 180 MW of Energy Efficiency (EE) projects were projected in VT/NH in the Energy Efficiency Forecast, and 75 MW (nameplate) of wind generation had received capacity obligations. As a result of these changes, $265.4 million in transmission upgrades that had been identified in November were deemed not needed within the planning period three months later, as detailed below:

[graphic]

These avoided costs were 27% of the upgrades ISO-NE previously identified as necessary to meet the needs in the Vermont/New Hampshire area. In the case of the NW VT subarea, the entire set of recommended upgrades were avoided.

Finally, in December 2012, ISO-NE informed PAC that ISO-NE was restudying the VT/NH area because further assumptions had changed. ISO-NE presented a new Needs Assessment Scope of Work. NESCOE understands that, due to increases in EE in the region, more of the previously identified transmission upgrades may not be needed.

Greater Hartford/Central Connecticut (GHCC)

ISO-NE conducted MRA analysis for GHCC. At the November 14, 2012 PAC meeting, ISO-NE presented possible demand side market resource solutions to the needs identified previously in its Needs Assessment study. The presentation showed that, in order to solve all violations expected to occur in the region, load would have to be reduced by 100% at more than half of the load buses in the region for at least one of the dispatch scenarios studied. In the chart below, the third column labeled “%MW Reduction” states 100% in several places:

[graphic]

This presentation then assessed the effects of doubling the EE forecast for an additional 168 MW statewide, evenly distributed among customer classes and load buses. The analysis concluded with what ISO-NE described as infeasible solutions. Specifically, ISO-NE concluded:

[graphic]

On December 13, 2012, ISO-NE presented supply side-focused MRA analysis. The presentation showed that solving all contingencies exclusively on the supply side would require eight new generating units totaling 936 MW. Stakeholders raised issues with the supply side methodology, particularly with the requirement that supply side MRAs must pass a Forward Capacity Market overlapping impact test (i.e., two generating resources being able to operate simultaneously). Under this requirement, a resource could not be considered as a viable alternative to transmission even if it was identical to the unit that tripped, caused the contingency, and was located at the same bus unless the transmission system could accommodate both resources operating simultaneously. In conclusion, ISO-NE stated:

[graphic]

Questions Raised by MRA Analyses Conducted to Date

In the context of the VT/NH study, ISO-NE removed from the transmission plan transmission upgrades that ISO-NE had earlier identified as necessary to solve needs because MRAs (active demand response, EE, and wind generation) satisfied those needs. The VT/NH experience demonstrated the importance of ISO-NE revisiting assumptions as system changes occur. It also exemplified the intended backstop nature of regulated transmission solutions. The VT/NH experience also raised a series of questions, the answers to which may be informative to the shape of future MRA analysis.

First, NESCOE appreciates ISO-NE’s diligence in re-scoping the needs assessment in light of changed assumptions in that case. However, the changing need raises the question of why the alternative resources that eliminated the need for backstop transmission were not identified in the pilot NTA analysis. It would be helpful to analysis going forward if ISO-NE could identify – and correct – why the MRAs able to satisfy the identified needs were not considered in the analysis.

Second, the results of the demand-side MRA analysis in the GHCC study also raise questions. Specifically, there is a need to understand why violations cannot be solved unless there is 100% load reduction at multiple buses. It would be helpful for ISO-NE to explain to PAC how many times ISO-NE has needed to drop the entire load at multiple buses due to a contingency. Without further information, it appears possible that something may be inaccurate with the methodology, the models, or the assumptions.

Third, the results of the supply side GHCC analysis raise questions about whether the supply side study is reasonable and, indeed, realistic. For instance, is it appropriate for ISO-NE to require supply side MRAs to pass the overlapping impact test? If yes, then this leads to the result that transmission upgrades must be placed into service in order to connect generation, in order to avoid other transmission upgrades.

Suggestions for Process Improvements

• One suggestion for ISO-NE’s MRA analysis to provide more practical value is for ISO-NE to study what could be done to eliminate some projects identified in the solutions study, instead of studying what would need to be done to solve all violations on all contingencies. A solutions study typically results in many projects, including one or two that are significantly larger than the others. Instead of trying to determine whether MRAs could replace all the transmission projects in the solution study, it would provide much higher value for ISO-NE to examine if it is feasible to replace any of the recommended upgrades.

• A second and related suggestion is for ISO-NE’s MRA analysis to consider that it may not be possible or cost-effective to solve all identified needs with NTAs. Rather, it is possible that in a broad study area there will be some contingencies that are naturally solved better with, or only by, a transmission solution. Analysis that forces all violations to be solved with NTAs is likely contributing to the time consuming studies that concerns ISO-NE and to the implausible outcomes. Going forward, instead of trying to solve all violations with NTAs, ISO-NE should identify which violations should be solved by a transmission solution (small cost/high impact from transmission solution) or those needs that can only be solved by a transmission solution due to the specific technical aspects of the issue. The analysis could leave these identified portions of the transmission upgrades in place and then do MRA analysis to seek to obtain a more efficient and reasonable hybrid solution. This suggestion is consistent with ISO-NE’s observations in its Aligning Planning and Markets Whitepaper at page 13: “Insufficient Technical Information. There is no mechanism to assess and provide markets with information on the locations, quantities, and other technical requirements of capacity MRAs that may substitute (in whole or in part) for a transmission project.” (Emphasis added).

• A third suggestion is to do some MRA analysis combing supply- and demand-side solutions. The MRA analyses performed to date have examined demand-side and supply-side potential solutions in silos, without accounting for the possibility that hybrid demand/supply solutions could be the most plausible and cost-effective solution to a reliability need. In some sub areas, and for some types of contingencies, demand-side NTAs might work better; in some sub areas supplyside NTAs might work better. Coupling either or both of those with smaller scale transmission solutions is also a practical and useful approach. While it is not possible or helpful to examine all possible combinations of solutions, planning engineers should be able to select a few reasonable sets of options for illustrative purposes. For example, this could include modeling generators in the queue that likely could be on-line in the study period, coupled with doubling energy efficiency in a given area, or combining NTA alternatives with smaller scale transmission solutions.

• Lastly, ISO-NE could consider stopping studies under certain conditions. In the case where ISO-NE planning engineers know based on experience and with a high degree of certainty that NTAs will in no case be appropriate under certain technical circumstances, ISO-NE could explain to market participants, with adequate support, why it believes there is no plausible technically feasible MRA solution before investing substantial staff time on a study. This could help preserve staff resources for analysis that is expected to be productive. ISO-NE recognized this need for resource allocation in its Aligning Planning & Markets Whitepaper at page 38: “First, as we convey below, identifying MRA technical requirements is apt to be a time-consuming process. This suggests the region’s efforts would be best spent, at least initially, on cases where MRAs are likely to have high potential benefit relative to transmission solutions. In some cases, a ‘reality check’ early in the MRA analysis process may indicate that MRAs are, or are not, likely to be technically capable of helping resolve a transmission security constraint.”

NESCOE appreciates ISO-NE’s efforts to produce MRA analysis that is useful to market participants and states, to whom alternative analysis is particularly helpful in the context of siting proceedings. The states continue to support ISO-NE’s MRA analysis objective, as identified in its June 2012 Aligning Planning and Markets Whitepaper, which is “…to have information dissemination and the procurement of market resources timed in coordination with the regional transmission planning process”. NESCOE hopes its perspectives are helpful in this regard.