Northeast Regional Wind Summit
Panel ~ Emerging Policy Landscape
July 19, 2016

Overview

• Transmission Investment; Potential Value of Competitive Dynamics
• FERC Order 1000 ~ Public Policy
• Multi-State Clean Energy RFP
• Policies and Markets, NEPOOL Solutions’ Exploration
• NESCOE Clean Energy Mechanisms 2.0 Study

New England has invested in reliability-based transmission, more than other regions from 2010 forward

[see pdf for graphic]

Competition in (reliability) Transmission Development
Good Results for Consumers Elsewhere
Illustration: Cost Variation in Bids

[see pdf for graphic]

FERC’s Order 1000 on Public Policy

• NESCOE*/5 States challenging FERC’s compliance orders at D.C. Circuit
• FERC unlawfully expanded the rule to require project selection rather than consideration of public policies

The problem with Order 1000 is not academic

By requiring project selection and at the same time denying states a central role in that process, FERC substitutes ISO-NE judgment for the judgment of state officials implementing state laws.

*Maine is not participating in the challenge

What’s the Vision?

• The half of ISO-NE that determines how to transmit electricity must consider state public policies under Order 1000
• The half of ISO-NE that determines what resources will generate electricity generally does not consider state public policies

Multi-State Clean Energy RFP

To explore whether a multi-state procurement might attract larger-scale projects and transmission than single state procurements and achieve individual states’ clean energy goals more cost effectively than if each state proceeded on its own.

Current: Bids in Evaluation

Next: Regulatory Review Process

• No obligation to procure anything at all
• RFP Issuers jointly and individually evaluate bids
• Each state, EDC uses own authority, criteria, judgment

Proposals with No Transmission

[see pdf for graphic]

Transmission Proposal with Associated Generation

[see pdf for graphic]

Green Tracking

Verification of clean energy attributes for imported power is critical if Canadian resources wish to be credited with helping states satisfy carbon reduction requirements or environmental objectives

• No uniform structure currently in place in Eastern Canada to measure, verify, and track emissions characteristics of imports into New England.

In 2013, N.E. Governors and Eastern Canadian Premiers adopted a resolution encouraging Canadian provinces to evaluate existing options and opportunities to adopt verification mechanisms of generation sources and environmental attributes that correspond with the existing New England Power Pool GIS verification system

• Recent changes to NEPOOL GIS rules to facilitate tracking but corresponding changes likely needed on other side of the New England’s borders.

States have long supported New England’s competitive wholesale markets. 

Some states are obligated as a matter of law to implement energy and environmental policy requirements, and will seek to do so in the most cost-effective way.

Despite requirements of law, some generators have to date opposed the execution of state energy and environmental policies

• Clean Energy RFP
• RTR in FCM
• DG Forecast in ICR

Rehear, Appeal, Oppose

Example: Litigation Over A Modest Clean Energy Mechanisms in the FCM “Renewable Technology Resource” Exemption

In February 2016 auction, 55 MW of new renewable resources cleared under the exemption for a total of 72 MW in two years – making the exemption roughly 0.2% of the total resources procured

• Generators challenged the RTR Exemption at FERC –
  • FERC disagreed
• NRG, PSEG, NextEra petitioned for review in the D.C. Circuit. Entergy Supported.
  • The Court remanded to FERC
  • FERC rejected the litigants challenges and upheld the justness/reasonableness of the exemption
  • Litigants asked for rehearing

• Some challenge the RTR Exemption at every corner
  • by seeking to tie it to the DG Forecast
  • in stakeholder discussions about other proposed market changes to advocate for changes more favorable to them

2016 – The Year For Forward Movement on State Policies + Wholesale Markets

1. Competitive markets must accommodate state policies in order for markets to be sustainable over the long-term
2. States must execute state policies – with or without generators’ support, in- or out-of-market as needed
3. Even if litigating generators “succeed” to weaken in-market mechanisms, it won’t eliminate state energy and environmental laws

NEPOOL Commencing Stakeholder Conversations on Potential Solutions

Policies & Markets: The Problem

• Organized markets meet resource adequacy at the lowest price – nothing more, nothing less – and do so in a way that is resource neutral or blind to policy objectives.
• Other than through the RTR exemption, the current organized markets do not – by design – generally include resources that can satisfy policy objectives that currently require, for whatever reason, additional non-market revenues to operate.
• To be sustainable over time, markets must reasonably accommodate various policy requirements such as, for example, carbon-emissions reductions or fuel source diversity.

Policy & Market: Design Objectives
Solutions Should…

• Enable reaction to different market conditions and changing public policy priorities over time
• Focus on achieving longer-term goals (10-30 years) cost-effectively, with the ability to incorporate needed shorter-term mechanisms to achieve near-term policy requirements
• At a minimum, enable the achievement of the current RPS requirements of each state
• In the near-term, consider the need to accomplish current policy objectives under discussion including, for example, up to 2,400 MWs of hydropower and 1,200 MWs of on- or off-shore wind
• These number are illustrative and could vary according to the outcome of current matters, including but not limited to the three-state Clean Energy RFP
• Consider mechanisms to ensure consumers in any one state do not fund the public policy requirements mandated by another state’s laws
• Attempt to minimize short-term financial effects to current existing resources

Policy & Markets: Design Objectives
Solutions Should Not…

• Imprudently increase costs to consumers over the costs that they would incur under the status quo
• Over the long-term, include out-of-market mechanisms unless those ultimately are determined to be required in order to meet the objective and limit overall costs of the design
  • markets are not an objective themselves; they are a means to place risk with shareholders and to serve consumers at the lowest cost
• Produce undue windfall profits for existing non-carbon or carbon emitting resources
  • existing resources and particularly existing carbon-emitting resources should not profit from state requirements to increase the amount of non-carbon emitting resources in the region’s portfolio
• Compel or assume state legislative action or action from jurisdictions outside New England
  • any state may wish to pursue state legislative action related to this matter, but any potential regional wholesale market adjustment should not presuppose state legislative action(s)

NEPOOL Leadership on Moving Forward

• “… the markets were designed to be as fuel neutral as possible, and to find the most economically efficient set of resources to meet the reliability objectives of the region.  They have not been designed to transition the fleet to low carbon resources.  But State policy objectives are changing to encourage this transition, and so too must our markets.”
• “NEPOOL is feeling the tension of how best to support the public policy of the states while remaining true to its mission.  There are many alternatives to explore.  Perhaps we, along with ISO-NE, as market developers, have been too slow on the uptake, but we have a history of working together with ISO-NE and the States to meet the region’s challenges.”
• “It feels as if the region may be coming to a cross roads where competitive markets and state mandates could collide. That needs to change.”
• “We, as an industry, need to get back on track and begin a more productive conversation toward finding solutions that better harmonize state public policy objectives with open, transparent and efficient wholesale market design.”

http://www.nepool.com/uploads/Other_20160606_Chairman_Comments_NECPUC_Symposium.pdf

Near-Term Regional Dialogue on Ways Forward

• NEPOOL commending stakeholder dialogue about potential solutions
• NEPOOL 2016 Economic Study of Markets and Planning
  • ISO-NE conducting analysis
  • Stakeholders defined scope, hypothetical future scenarios, scenario assumptions
  • Draft of Phase I Report in Q4; Phase II, which includes market and operational issues to be conducted in 2017
• Other analysis and/or proposals by market participants, advocates and others expected to inform dialogue.  NESCOE will contribute analysis as well.

2015: Mechanisms 1.0     2016: Mechanisms 2.0

Continued analysis of a range of mechanisms that could support public policy resources, such as, for example:

• renewable portfolio & clean energy standards
• power purchase agreements
• strategic transmission investments
• centralized auction-based procurement

Mechanisms 2.0 Analysis

Scenario Analysis

• Base Case
• Expanded RPS
• Clean Energy Imports
• Nuclear Retirements
• Combined Renewable and Clean Energy
• Alternative Transmission

Mechanism Analysis

• Mechanisms
  • RPS
  • CES
  • PPA
  • Strategic Transmission
  • Centralized Procurement
  • Others?
  • Costs and Impacts
• Policy Goal Achievement

Clean Energy Mechanisms 2.0 Study
Fourth Quarter 2016

The production of information about hypothetical scenarios or mechanisms does not indicate and should not be interpreted as indicating any state or states’ preference for any particular scenario or mechanism.
Further, hypothetical information is not a plan.  It is simply information.

Mechanisms 2.0 Analysis Approach

[see pdf for graphic]

Analysis, Studies and Discussion in Looking for Solutions

[see pdf for graphic]

nescoe.com