FERC accepts ISO-NE’s proposed winter 2013/2014 reliability program

The Federal Energy Regulatory Commission (FERC) has conditionally accepted ISO New England’s proposed reliability program for the 2013/2014 winter, concluding that the proposal is an appropriate solution to the reliability challenges this coming winter, given the program’s interim nature. FERC conditioned its acceptance on revision of the proposal to allocate costs to real-time load obligation, which is paid by load-serving entities, rather than to regional network load, which is paid by transmission owners.

The program aims to mitigate winter system operation challenges associated with the region’s heavy reliance on natural gas to produce electricity and concerns about resource availability this coming winter. (Read about last winter’s challenges on the ISO Newswire and in the Winter Operations Summary: January-February 2013.)

ISO New England’s decisions regarding the procurement of resources to address these challenges are subject to FERC review. ISO-NE filed the list of the selected bidders, the prices the selected bidders will be paid, and a summary of the selection process with FERC on
August 26.

Bridging a reliability gap for the New England power grid

ISO New England has been working with regional stakeholders, including market participants and state regulators, on long-term, market-based solutions identified through the Strategic Planning Initiative to address operational challenges that result from resources’ fuel-procurement and fuel-supply issues.

Because some of these solutions will take time to implement, the ISO and stakeholders developed a short-term, interim solution to help ensure that the system has enough power in the event of colder-than-normal weather this coming winter. The objective is to fill a projected “reliability gap” of about 2 million megawatt-hours (MWh) of energy. The ISO held a competitive bidding process for resources to participate to fill this gap. Eligible bidders included:

• Oil-fired generators that can establish a specified amount of on-site oil  inventory
• Dual-fuel generators (where oil is secondary) that can establish a specified amount of on-site oil inventory  (which may include replenishment of inventory) and pass a test to show they can effectively switch to oil in five hours or less
• New demand-response (DR) resources or additional capacity from existing resources that are able to participate in a special DR program for the winter

Bid results

The ISO received bids amounting to 2.29 million MWh, or 96% of the 2.4 MWh originally targeted. This would equate to a total program price of $114.3 million. After reviewing the bids, the ISO proposed to accept 1.995 million MWh, or 83.1% of the original target, for a total program price of $78.8 million. Increasing the number of megawatt-hours beyond the 83.1% level would increase the cost precipitously. Therefore, the ISO selected a level that appropriately balances concerns about reliable operations and costs to consumers. Since August 26, a few bids were revised, resulting in a total acquisition of 1.9 million MWh of demand response and oil inventory services at a price of $75 million. Of this amount, 3,780 MWh are demand response and the rest of the selected bidders are providing oil inventory services.

In addition to evaluating costs in selecting bids, the ISO also assessed each resource’s historical availability and performance, ability to respond to contingencies and other changed conditions, diversity of location and sensitivity to locational constraints, dual-fuel capability, and fuel-replenishment capability.

Resources selected will be paid monthly for these capabilities—but also will be subject to non-performance charges if they are unavailable or if they don’t have the committed fuel. Additionally, changes to some market monitoring and mitigation rules focused on dual-fuel pricing will be made to accommodate this program.

While this program is in effect, ISO system operators will continue to dispatch the power system in New England as usual, starting with the lowest-cost resources first to meet consumer demand; in other words, the ISO does not invoke specific procedures through the program to call on oil and dual-fuel generators participating in the program. The mix of resources used in any given time period depends on a number of factors including the price of fuel, resource availability, amount of consumer demand, as well as supplemental unit commitments made to ensure system stability.

Why oil and DR?

While other options were considered, a combination of oil (including dual fuel) and demand response was selected in order to minimize impact on the current energy markets and assure the energy procured is actually an incremental increase over energy that was available during last winter. Fuel surveys have indicated that power plant oil tanks in New England have storage that is available and measurable. Eligible demand response must be an incremental increase to that already procured through the Forward Capacity Market.

Next steps in the winter 2013/2014 reliability program

With FERC acceptance, the program will be implemented starting December 1, 2013, and will run through the end of February 2014.

Looking beyond this winter, the ISO will work with stakeholders to prepare for winters 2014/15 through 2017/2018. For this interim period, fuel-neutral solutions will be developed based on the long-term changes to the Forward Capacity Market to improve performance incentives.

Related information:

• FERC’s order on the ISO’s winter reliability proposal
• The original Winter 2013-14 Reliability Program filing with FERC
• Amended filing with FERC, Emergency Amendments to Pending Filing Regarding the Winter 2013-14 Reliability Program
• Filing of Results of Bidding in Winter 2013-14 Reliability Program
• New England grid operated reliably through 2012/2013 winter despite resource performance challenges, ISO Newswire article summarizes last winter’s operation challenges
  
• Winter Operations Summary describes in detail the operational challenges faced during the winter events of January-February 2013
• 2013 Regional Electricity Outlook provides an easy-to-understand summary of the issues identified through the Strategic Planning Initiative and presents the immediate-, short-, and long-term solutions the ISO and stakeholders are pursuing to solve these challenges.
• Interdependencies of Market and Operational Changes to Address Resource Performance and Gas Dependency, further explains the interplay among forthcoming market changes and describes how they will collectively result in improved power system reliability and market efficiency.
• All other SPI discussion memos, white papers, and study reports can be found on the ISO website under www.iso-ne.com/spi.