November 5, 2013

FERC accepts ISO-NE’s proposal to modify “shortage event” definition

New criteria is effective November 3, 2013

The Federal Energy Regulatory Commission (FERC) has approved ISO New England’s proposal to modify the definition of a “shortage event” to bolster the incentives for resources to perform during times of power system stress. The performance of resources during these times is an issue that the ISO and stakeholders have identified as a challenge to the long-term reliability of the New England grid through the Strategic Planning Initiative (SPI). ISO New England, together with NEPOOL, sought these changes to help restore the intent of the Forward Capacity Market (FCM) design, although the ISO and NEPOOL proposed different implementation schedules. In its order, FERC accepted ISO New England’s proposed implementation date of November 3, 2013, over NEPOOL’s proposed implementation date of June 1, 2017, stating that the benefits “are critical and should be provided for immediately rather than several years in the future.”

What are reserves, why are they needed?

To ensure that a reliable supply of power continues to meet demand even when a large generation or transmission facility trips offline, grid operators must always carry a supply of electricity reserves that can quickly come online to replace the lost power. There two main categories of reserves in New England: ten-minute, which are resources that can start providing energy within 10 minutes; and thirty-minute, which are resources that can provide energy within 30 minutes. System operators can call on these reserves when the amount of available generation is inadequate to meet consumer demand. National reliability standards require that, when reserves need to be activated, they must be replaced within a certain amount of time; this is to protect the system against yet another unexpected event that could occur.

Shortage event definition

A shortage event is a period when the New England power system is stressed and is using nearly all available resources to satisfy electricity demand. The term “shortage” is exactly what the name implies—the total amount of available generation is short of the normal target level required to maintain reliable operations. During these situations, system operators can call on electricity reserves provided by generators to come online quickly to help balance supply and consumer demand. Under the previous definition, a shortage event was triggered when the system was deficient in ten-minute reserves (see the sidebar on reserves for more information) for more than 30 minutes.

Resource performance assessed during shortage events

Under the current structure of the FCM, resources that have taken on capacity supply obligations receive payments to be available to produce electricity when called on. During shortage events, the performance of resources is measured and those that are unavailable to produce power are penalized with reduced capacity payments. These financial penalties are a central feature of the FCM design and are intended to give resources the incentive to perform and to minimize the chance of outages during times of system stress.

However, the definition of a shortage event was not accurately reflecting actual “at risk” periods. Since the inception of the FCM in 2010, there have been a number of times on the grid when conditions have become extremely tight and system operators have had to dip into reserves, but a shortage event was never triggered because the definition was too restrictive.

As a result, resources that didn’t perform up to their capacity supply obligation when called on during stressed grid conditions have faced only limited penalties.

New shortage event trigger criteria

As approved by FERC, the changes to the definition mean that a shortage event will now be declared when the grid is deficient in thirty-minute reserves—not just ten-minute reserves—and after the dispatch of demand-response resources. This change is expected to trigger shortage events sooner, more accurately reflecting the wide range of stressed system conditions that occur. As a result, resources will have the incentive to perform during at-risk periods.

Concerns with resource performance: SPI

The change to the shortage event trigger criteria is one of several changes to the regional wholesale electricity markets the ISO is making to address resource performance and other SPI challenges, such as the region’s dependence on natural gas as a fuel to produce electricity. These changes include shifting the timing of the Day-Ahead Energy Market to more closely align with the gas market trading day; the purchase of incremental energy for the upcoming winter to ensure power system reliability in the event of colder-than-normal weather; and changes to the energy market that will allow generators to change their power supply offers during the operating day to reflect changes in actual fuel prices. Read more about these enhancements in the following articles: