Battle underway to get more clean energy into New England’s electric grid
In January 2020, Katie Dykes, commissioner of Connecticut’s Department of Energy and Environmental Protection — speaking to environmental advocates attending the Connecticut League of Conservation Voters annual environmental summit — leveled this broadside at the independent system operator that runs the six-state New England electricity grid and the federal authorities that govern it:
“Because of the lack of leadership on carbon at the ISO-New England, we are at the mercy of a regional capacity market that’s driving investment in more natural gas and fossil fuel power plants that we don’t want and that we don’t need,” she said. “This is forcing us to take a serious look at the costs and benefits of participating in the ISO-New England markets.”
It was widely misunderstood.
“People interpreted that as physically leaving the grid,” Dykes said a year later. “Ratepayers have gotten a lot of benefits of more reliable and affordable power by participating in a regional grid.”
What she had been talking about was a market paradigm the ISO uses to purchase power for the grid. Not much more than a year later, she is still talking about it. And with nothing short of evangelical zeal and little deference to a potentially paralyzing pandemic, Dykes has commandeered the other five New England states, the ISO, system stakeholders and more than a little national interest into a bona fide effort to figure out how to increase renewable power, decrease the use of fossil fuels and lower costs — or at least not let them go through the roof — and keep everyone on civil terms with each other.
“Our goal has been to ensure that we have an electricity supply that is meeting our carbon goals, that’s affordable and that’s reliable,” she said.
And that, she has also said repeatedly, means the grid needs to change.
A blueprint called the New England Energy Vision was unveiled in October, signed by all six states through the New England States Committee on Electricity (NESCOE), which represents the six New England governors’ electricity interests. The Energy Vision launched a series of online public forums featuring experts on the key areas the states felt needed overhaul: the wholesale market, transmission and governance. A fourth on equity and environmental justice was added later. The forums have generated a blizzard of documents, presentations, studies, comments and more — all laden with an alphabet soup of acronyms.
While success is not guaranteed, the effort is now bolstered by a new administration in Washington that is already making ambitious moves to deal with climate change including appointing new leadership at the Federal Energy Regulatory Commission, which regulates the ISO-NE and other grid operators.
Looking broadly at the issues that are driving what Dykes considers New England’s key problems is high up on FERC’s agenda. In March, FERC began a series of technical meetings on topics that include the market structures Dykes is complaining about.
The recent power crisis in Texas has provided extra heft by illuminating potential hazards for a grid that does not operate properly.
ISO 101
The ISO for New England, which is actually a non-profit RTO – a Regional Transmission
Organization — has three main functions today: operating the transmission portion of the grid, running the wholesale markets that supply power for the grid, and doing the long-term planning for both.
The ISO-NE did not have all of those functions when it came into existence as part of deregulation in the late 1990s. Over its first 10 years, the ISO evolved from a regional power operator into one that also ran competitive wholesale electric markets and the regional transmission system — those tall power lines, not the ones that come to your house.
But it wasn’t until 2008 that it began operating what’s called the Forward Capacity Market (FCM). It’s the mechanism the ISO uses to purchase future energy resources three years in advance. It was envisioned to give the ISO the security that power will be there and to provide a commitment to potential new power sources so they can get financed and built, though not all are.
Up until 2008, states were deciding what future power they wanted, and the focus was still mostly on supporting a classic centralized grid, which has big so-called baseload power plants and long power lines crisscrossing the region. How clean the power was, from the standpoint of standard pollutants, as well as cost were the big considerations, so the push was to convert from coal and oil to natural gas.
And that was the thrust of the capacity market rules the ISO put in place for the auctions it uses to select that future power. Those rules are the crux of the dissatisfaction expressed by Dykes and others.
“We’ve been arguing about capacity market for over a decade,” Dykes said. “Connecticut was reluctant from the outset.”
The initial reluctance has exploded into full anger that the system favors greenhouse gas-emitting natural gas generation, ignores state policies and overall societal goals for clean and renewable energy to help curb climate change, and makes it next to impossible for clean energy facilities to be chosen. Dykes has been relentless in her complaint that as a result of the auction rules, ratepayers wind up paying more than they should.
In Connecticut, the ISO’s rules could make it difficult for the state to meet its greenhouse gas emissions goals and Gov. Ned Lamont’s executive order to have a 100% clean electric grid by 2040. And it makes the clean energy the state has already approved for development even more expensive.
The proposed Killingly natural gas plant has become the poster child for the failures of the existing system. The ISO has approved it through the FCM, while those concerned about climate change — including Gov. Lamont — say it’s the wrong choice and unnecessary.
Within the auction rules the ISO put in place is something called a Minimum Offer Price Rule. MOPR sets the lowest price that a resource can offer as its cost — that mainly being the amount it needs to recoup what it cost to build.
The auction is something of a reverse auction in which the lowest price wins — meaning it’s chosen by the ISO for use three years in the future. The point of the MOPR is to keep certain generators from undercutting others and manipulating the market price. The MOPR is specifically targeted at facilities that have statesponsored contracts and other sorts of subsidies. Mostly those sponsored resources are clean and renewable energy. And that means they COULD offer cheaper power — but can’t, because of the MOPR.
Since newly built resources are mainly covering their capital costs, ones that receive subsidies and other incentives are already able to cover some of those costs. Dykes — along with a whole lot of other folks in other states even outside the ISONE — believe the clean resources should only have to offer a price accounting for the non-covered portion of their costs. That means they could offer a lower price and have a better chance of clearing the auction and beating out fossil fuel resources, since clean energy, while coming down in cost, still tends to be more expensive than natural gas.
Nope, the ISO has said. Most of the cost has to be included, based on its formulas for what’s covered by state subsidies and other funds and what isn’t. Compounding that is the difficulty of trying to gauge costs years in advance for technologies that are changing rapidly and likely will be cheaper a few years down the road than they are now.
Dykes and others say the ISO is over-estimating costs of clean power. And the draft Integrated Resources Plan released by her office late last year stated: “ISO-NE’s MOPR has gone well beyond its market-protection purposes.”
Indeed, the ISO has approved natural gas plants Connecticut doesn’t want and rejected the clean energy the state has already agreed to purchase. Ratepayers in Connecticut will wind up paying for both. And there’ll be an over-capacity to boot.
“Ratepayers should not have to pay twice,” Dykes said — her often-stated complaint. “We don’t want to build a whole bunch of new renewables and then find that the grid operator is extending or expanding reliance on fossil fuels.”
But she said MOPR is just one thing — the whole paradigm of clean energy, reliability and a 21st century grid needs comprehensive reform.
“We have this one-sizefits-all capacity market, but we’re not actually thinking about what does reliability look like in 2025 or 2030,” said Francis Pullaro, executive director of RENEW Northeast, an advocacy group uniting renewable energy and environmental advocates. “It’s not just having steel in the ground — we need certain types of steel in the ground.”
But there’s another player in the MOPR problem — the FERC.
Changes at the FERC
The FERC has to approve many of the processes the various ISOs have, including the forward capacity market. And the ISO-NE isn’t the only grid that uses a MOPRstyle rule in its capacity auction. New York, a one-state grid, does. So does the huge PJM Interconnection that covers the mid-Atlantic all the way into Illinois — 13 states plus the District of Columbia.
During the Trump administration, in late 2019, the FERC ruled that PJM’s capacity market auction MOPR had to include the full cost of clean energy projects, even if some of the cost is already subsidized. While it didn’t directly order this for other ISOs/RTOs, it was widely seen as a shot across the bow and that all the ISOs would have to do it.
“It really set everybody back a number of years,” said Rob Gramlich, a one-time adviser to former FERC chair Pat Wood. Gramlich is now an energy consultant at Grid Strategies, the company he founded and runs. “It simply makes no sense, and they need to quit doing it.”
Bruce Ho, senior advocate in the climate and clean energy program at the Natural Resources Defense Council, added his voice to the chorus. “A very simple, straightforward fix would be to stop doing that,” he said.
The elimination of the MOPR is not a solution in itself, said Eric Johnson, the ISO-NE’s director of external affairs.
“It certainly would address the challenge some of the states have identified for bringing clean energy resources into the capacity market,” he said. ”But if we just eliminate the MOPR without finding a way to provide adequate revenue for the other resources that you need to balance renewable and clean energy, it’s not really a full solution.”
The ISO-NE has generally argued that power like natural gas needs to be available to backstop sources that may not be available all the time, like solar, or might be available in lower amounts, like wind.
But is ending the MOPR a necessary first step toward getting more clean energy on to the grid?
“That’s a great question,” Johnson said without directly answering. He pointed out that the MOPR was a directive of the FERC, so the ISO can’t just eliminate it. He also said changing the capacity market rules would have to be a whole package, more than a step one followed by a step two. “We’re operating a system; we’re not operating just renewables.”
In written comments to the FERC in advance of that March 23 technical meeting on the capacity market situation, the ISO-NE seemed to be trying to have it both ways.
“While we believe that capacity markets are still the right vehicles for ensuring resource adequacy, they must evolve,” the comments said, indicating that “energy adequacy” should replace “resource adequacy,” to indicate the variability of some types of resources and newer means, such as energy efficiency or rooftop residential solar could lower energy needs.
The comments indicated the MOPR did need examination, though elimination must “be consistent with the maintenance of reliability.” In other words, it can’t jeopardize grid operations. And then went on: “Without taking additional action, the elimination of the MOPR creates risk for investors in unsponsored resources” — such as natural gas.
The FERC could very well push the ISO faster than anticipated to get rid of the MOPR and make other reforms to enhance clean energy. The change of administration from Trump to Biden is already signaling a changes in thinking on MOPR. At the March 23 session, the commissioners — including Republicans who supported MOPR in the past — indicated they’d be willing to reconsider it.
The FERC has five commissioners — no more than three from any single political party. Three are presently Republicans, but one of those positions expires in June, and Biden more than likely will
fill it with a Democrat. On the day after his inauguration, Biden named one of the Democratic members as chair. And the new chair — Richard Glick — has relentlessly objected to MOPR.
He’s called arguments that MOPR protects the competitiveness of the capacity market “just plain garbage,” which he also called a “charitable” description.
And he’s said that the FERC was purposefully “making it very difficult for state-preferred resources to [be selected] in the capacity market.”
Pretty much what Dykes has said.
The FERC may well deal with MOPR, but Dykes has no intention of waiting around.
Replacement ideas
A few ideas for reforming the capacity market have bubbled to the top in the Energy Vision process. The idea with the most traction right now is the concept of a forward clean energy market, FCEM. While there’s no existing model, it would essentially be a clean energyonly market.
It’s been suggested by several groups in the past and resurfaced in Energy Vision comments from RENEW and a coalition of environmental advocates. The ISO is acknowledging it and plans a study, contracting with an outside consultant for a report due later this year. The report will also look at the ISO’s longstanding preference for a carbon charge as a solution, essentially paying to pollute as a way to incentivize lowering emissions, even though states have pointed out for just as long that a carbon charge is likely politically untenable.
Other ideas include returning capacity responsibilities to the states, instead of leaving them in the hands of the ISO, essentially subdividing the market to share the decisions between the ISO and the states, or even delegating it to the retail energy providers.
Over the last 15 years, the states gradually relinquished to ISO-NE all responsibility, control and authority over how much generation gets built, what kind and where, said Mike Hogan, a one-time generation developer who is now a senior advisor at the Regulatory Assistance Project, a group assisting the transition to clean energy.
He said the ISO had done a pretty good job maintaining system reliability, noting that the last “Texas-sized grid failure” here was the 2003 failure in the northeast. “New England managed to stop it at their border, pretty much,” he said.
But regarding the balancing act between state policies on clean energy and the ISOs, he said: “I don’t see any way out of it other than for the states to take back, in some form or fashion, responsibility for and authority over how the grid achieves resource adequacy. There’s no reason why responsibility for resource adequacy has to be centralized with ISO New England,” he said.
Casey Roberts, a senior attorney with the Sierra Club, said her organization is advocating
for the states to be the primary decision makers. “The ISO and FERC would play sort of a backstop role,” she said. “That’s kind of how it was initially before the capacity market came in.”
But Caitlin Marquis, a director at Advanced Energy Economy, a trade association for the clean energy industry, worried. “Are you getting six different tiny markets?” she asked. “It’s a big responsibility for the states to take back what they did used to have, but it’s not something they’ve been responsible for, for a while.”
Some have broached the thorny issue of reforming the concept of cost when comparing generation types — particularly clean versus fossil fuel energy. The ISO’s marching orders are to provide technology and fuelneutral power that’s reliable, at least cost.
One idea for re-defining cost might be something akin to a social cost of carbon calculation the federal government uses. Instead of the basic view of cost that exists now, a new definition of cost would also monetize attributes such as health benefits of energy sources and contributions towards addressing climate change, as well as considering fuel availability. Natural gas has struggled with availability in the winter when gas is sometimes diverted for heating. It was also one of the issues in the Texas crisis.
“That’s a big question,” said Dykes about changing the definition of “cost,” and left it at that.
“That’s a good question,” said Ellen Foley, another spokesperson at the ISO, who defined the question but offered no answer. She said the federal, state and environmental objectives are not quite aligned. “How do we get to a wholesale market that will price those attributes in?” she asked.
Ho at NRDC said it’s not that the ISO should get rid of the goal of getting reliable power at the lowest cost. “I think the problem is the perspective they have on ‘least cost’ is too narrow. It’s not counting enough things. They’re missing some costs and benefits in the electricity system that haven’t historically been within their calculations,” Ho said — namely, climate change and its nexus with electricity generation. “What’s needed is a new paradigm in thinking. How do we provide not energy markets that procure how the market used to work in the past, but more markets that look at how do we provide the service of affordable, reliable electricity that’s also clean?” he said.
An ISO effort a few years ago to get more clean energy into the system by essentially replacing a retiring resource with equivalent clean energy is largely described as a failure. Out of 800 megawatts of offshore wind Massachusetts has planned for its Vineyard Wind project, only 54 megawatts cleared the capacity auction through substitution. The rest has not.
As frustrating as the capacity market problems have been, it’s not the only grid issue that prompted Dykes to take action.