Update on Christmas Eve capacity deficiency

ISO New England provides this update on the Dec. 24, 2022, capacity deficiency to help correct any confusion, misinformation, and misunderstanding resulting from various news stories and social media posts.

Capacity deficiency mainly about timing

Entering the Dec. 24 operating day, ISO New England had sufficient resource commitments through the Day-Ahead Energy Market to meet demand and required operating reserves. Additionally, the day began with a surplus of more than 950 megawatts (MW) of fast-start resources, which can quickly supply electricity to the grid. Consumer demand for electricity was expected to peak that evening at approximately 17,500 MW—a typical winter peak.

As the day went on, some generators in the region experienced unanticipated issues that caused them to go offline or reduce their output. These outages were caused by cold temperatures or mechanical problems, and not due to inadequate fuel supplies. Expected imported electricity from Canada was also reduced due to transmission system issues and unexpectedly high consumer demand in Québec. Despite these issues, New England was still expected to meet demand and operating reserves over the evening peak as of 3 p.m.

Around 4 p.m., additional unanticipated outages led to a capacity deficiency in the region. This meant that the 950 MW surplus was depleted and supply was insufficient to meet both demand and required operating reserves. In response, ISO New England system operators implemented procedures for dealing with capacity deficiencies. This included calling upon any resource that could respond quickly enough to be online for the evening peak, which usually falls between 5 and 6 p.m. during the winter months. The ISO dispatched all remaining offline resources that were available to provide electricity or operating reserves during this period.

Resources have different operating characteristics that affect the time it takes for them to start up. For example, some may need to first warm up equipment before they can produce electricity. Based on the timing of the event, more than 8,000 MW of resources in the region with longer startup times could not be ready in time to supply electricity during the period of peak consumer demand. With an earlier notice and longer lead-time, these resources may have been available to produce electricity or provide operating reserves.

Capacity deficiencies are typically short-duration events. In this instance, system operators anticipated the deficiency would end after the evening peak. Dispatching resources that could not be online in time for the peak would have created additional costs in the wholesale markets without providing additional system reliability. ISO New England did not issue appeals for public conservation during this event; consumer conservation wasn’t necessary given the short duration of the event and the ability of reserve resources to make up the deficiency.

Regardless of why they were unavailable, resources that did not supply enough electricity or reserves to meet their capacity supply obligation are subject to penalties under the region’s Pay-for-Performance rules. Charges for underperformance are paid by the underperforming resources, not electricity ratepayers.

Capacity deficiencies can occur under a range of scenarios, but are often triggered by unanticipated outages or unexpectedly high consumer demand for electricity. These conditions are different from an energy shortage caused by inadequate fuel supplies, which is something ISO New England has identified as a reliability risk in the region because such a shortage could span several days.

Mystic Generating Station cost-of-service agreement

Questions have arisen regarding the Christmas Eve event and the cost-of-service agreement with the Mystic Generating Station, a natural-gas-fired power plant in eastern Massachusetts. Mystic agreed to delay its retirement for two years under a cost-of-service agreement to support the region’s energy security needs during periods when fuel supplies are tight.

The Christmas Eve event was not the type of situation for which Mystic was retained, as inadequate fuel supplies were not the cause of the unexpected outages and reductions. Rather, as described above, the situation was a short-duration capacity deficiency caused by unexpected outages and reductions and influenced by the timing in which they occurred.

Under the terms of the Mystic cost-of-service agreement, the plant enters the region’s energy market each day and is dispatched based on price, similar to other resources. Like other resources that have obligations in the Forward Capacity Market, the Mystic plant is subject to penalties under the region’s Pay-for-Performance rules. The cost-of-service agreement does not allow the plant to earn payments made to over-performing resources under the Pay-for-Performance rules.

Also unlike other resources, the Mystic plant is subject to additional penalties if it fails to have sufficient fuel on hand during cold spells per the cost-of-service agreement.

Impact of real-time pricing on consumers

Prices in the Real-Time Energy Market averaged more than $2,000 per megawatt-hour (MWh) during the 2.5-hour capacity deficiency. While high, these prices are unlikely to affect most consumers given how retail rates are set in the region. Though practices vary by state and utility coverage area, the rates paid by most retail customers are set for months-long periods and not subject to volatility within the wholesale marketplace. 

Almost all of New England’s wholesale electricity is bought and sold in the Day-Ahead Energy Market, where prices were unaffected by the capacity deficiency. Average day-ahead prices during that time were roughly $285/MWh.