Massachusetts DPU issues order on capacity needs in Boston area

The Massachusetts Department of Public Utilities (DPU) issued a determination on March 15, 2013, that National Grid and NSTAR should not be required to enter into long-term contracts with developers of electricity generation in Northeast Massachusetts/Greater Boston (NEMA/Boston). The DPU ruled that such a move would only be justified with convincing evidence “that the competitive market had failed and that there were imminent reliability concerns,” conditions that do not exist at this time.

About the order

The two-part order was issued in compliance with a bill passed last year in the state Legislature that required the DPU to investigate and answer two questions: (1) is there a need for additional capacity resources in the NEMA/Boston zone over the next ten years; and (2) if yes, should the DPU order the distribution companies serving NEMA/Boston to solicit proposals and enter into long-term contracts for generation resources delivered to the area?

During the investigation, ISO New England provided information requested by the DPU, including information about existing generation capacity and demand response resources in the area, the load forecast for the next ten years, the likelihood of resource retirements, the implementation of planned transmission upgrades, and results from the seventh Forward Capacity Market auction (FCA #7), conducted in February.

Order findings and conclusions

Answering the first question, the DPU concluded that without Footprint Power, a 674-megawatt natural gas plant proposed for the site of the Salem Harbor Station in Salem, Mass., there would be a need for additional capacity in NEMA/Boston within the next ten years. The proposed Footprint Power plant cleared FCA #7, which means it has a commitment to provide capacity in 2016-2017.

The DPU order stated that the auction results demonstrate that “the FCA #7 process has worked as designed, notwithstanding that Footprint is correct that the FCM has suffered problems that ISO-NE and stakeholders continue to address.”  The auction in February “was the first opportunity for the FCM mechanism to send a significant price signal to an import-constrained capacity zone, and the market signal in fact did attract a significant new resource, which cleared in the auction,” the DPU noted. Read more about the results of FCA #7.

In answering the second question, the DPU concluded that “it would be premature for the Department to conclude that Footprint will in fact not be built absent a long-term contract.” Rather, the DPU concluded that ordering distribution companies to seek long-term contracts with generators could undercut the Forward Capacity Market process because “the financial community would likely wait for the Department’s long-term contract proceeding to conclude before making its investment decisions.”

The DPU noted that the state restructured its electricity market 15 years ago, in 1997, and that the new competitive structure “represents a clear policy choice that electric generation resources are best developed in response to price signals from a competitive marketplace.”