FERC grants delay on N.E. energy market reform

Gives grid operator 2-year transition period

IN A DECISION posted at 10 p.m. Friday night, the Federal Energy Regulatory Commission gave the operator of the New England power grid two more years to come up with a system for incorporating subsidized clean energy into the region’s electricity markets.

Environmental activists had been urging FERC not to grant the delay, but the commission voted 4-1 to approve it. All five commissioners issued separate statements explaining their votes, a sign of the division among them.

Richard Glick, the chairman of the commission, said he reluctantly accepted the two-year delay and criticized ISO-New England, the region’s power grid operator, for dragging its feet.

“Simply put, ISO-New England could have, and should have, done better,” he wrote in his concurring opinion.

Commissioner James Danly, the lone dissenter, warned that the decision will ultimately undermine the electricity markets in New England. “I dissent because a market rate design cannot be just and reasonable if it is not competitive, and it cannot be competitive when it permits states to freely manipulate prices,” he wrote, referring to state subsidization of wind farms. “The proposed rate does exactly that and is therefore manifestly unjust and unreasonable.”

The arcane issue of how to manage electricity markets is attracting attention because it is another example of the tension between those eager to abandon fossil fuels in a bid to deal with climate change and those wary of doing so too quickly out of fear of market disruptions.

ISO-New England oversees the region’s wholesale markets for electricity. In one of those markets, the forward capacity market, ISO-New England forecasts how much electricity the region will need three years in the future and then encourages power generators to bid to supply it. Power plant operators use the promise of this future revenue to build, maintain, and operate their plants.

The forward capacity market is under stress because states like Massachusetts, operating outside the market, have ordered utilities to purchase offshore wind and hydroelectricity, with their ratepayers picking up the cost of the projects. The states have pushed for the offshore wind procurements to comply with state laws dealing with climate change.

The challenge for ISO-New England is how to incorporate these ratepayer-subsidized renewable energy projects into the forward capacity market without undermining it. Letting the renewable energy projects into the market could squeeze out other generators needed for the system’s future reliability. Keeping the renewable energy projects out of the market could mean the market may be procuring more power than it actually needs.

Since 2013, ISO-New England has adopted what it calls a minimum offer price rule – allowing the subsidized projects to bid into the forward capacity market but at an estimated unsubsidized cost. This approach puts all the generators on more equal footing, but it can be inefficient from a market standpoint. Many renewable resources not allowed into the market get built anyway, so consumers end up paying for capacity they don’t really need. Much of that electricity capacity continues to be generated using fossil fuels.

In its proposal to FERC, the ISO-New England said it intended to come up with better pricing rules by 2025 and in the meantime offered to grant exemptions from the minimum price rule for 700 megawatts of renewable resources — 300 megawatts next year and 400 megawatts the year after. The exemptions are expected to incorporate the offshore wind farms coming online soon into the capacity market.

(The combined 700 megawatts of is a sizable commitment, the equivalent of projects with a nameplate capacity of 2,000 megawatts. Nameplate capacity is the amount of electricity a project can theoretically deliver under optimum weather conditions; the 700 megawatts is the amount of electricity projects could deliver at any given time.)

Four of FERC’s commissioners endorsed ISO-New England’s proposal in the Friday night decision.

Glick in his concurring opinion said no one disputes that the changing resource mix in New England requires a new approach to meeting power reliability.

“The right way—and, in my view, the only just and reasonable way—to do so is by designing wholesale electricity markets to ensure reliability in light of that changing resource mix rather than trying to roll back the resource mix clock,” Glick wrote. “It is not the commission’s role to choose one resource type over another, or to second guess the wisdom of state resource decision-making. Instead, we must ensure, in a resource-neutral manner, that wholesale electricity markets are procuring the services needed to keep the lights on and the grid in balance.”

Danly, in his dissent, insisted the markets cannot function properly if some subsidized resources are given unfair advantage.

”This scheme will fail,” he wrote. “This order will compromise reliability. All-in ratepayer costs will increase substantially. Placed beside the commission’s draft natural gas pipeline policy statements, which seem geared toward discouraging—if not outright prohibiting—the development of new natural gas pipelines, the New England region appears severely exposed. And New England is not alone. With every day that passes, with every pipeline that is delayed, and with every order that undermines the price signals in the markets, we come closer to a disaster. And when it happens, my colleagues will have presided over a predictable, avoidable, and catastrophic failure. Perhaps then they will stop accommodating the states’ uneconomic policies and will instead, consistent with our statutory obligations, act to ensure that our markets are just and reasonable and can function as intended.”

Meet the Author

Bruce Mohl

Editor, CommonWealth

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

Melissa Birchard, the director for clean energy and grid reform at Acadia Center, issued a statement saying the minimum offer price rule has functioned for years as a subsidy for fossil fuel generators, and that subsidy will now continue for several more years thanks to FERC’s decision.

By contrast, Dan Dolan, the president of the New England Power Generators Association, applauded FERC’s decision doing away with the minimum price rule in a way that mitigates “the reliability and financial risks that could arise from sudden changes in market designs.”