Reality Check: ISO With Capacity Market Forced to Rely on "Out of Market" Solutions for Reliability

ISO New England, which requires load to pay capacity to meet a mandated reserve margin, has filed at FERC "out-of-market solutions" to meet looming reliability risks due to non-performance of resources receiving capacity payments.

The state of the ISO-NE resource adequacy situation prompted a representative of GDF Suez to remark, at a recent Texas workshop on an Operating Reserves Demand Curve, that ISO-NE's approach is "completely broken" and at the "brink of collapse." Despite paying for a mandated reserve margin, ISO-NE has been, "really, really close" to several blackouts due to the lack of available resources, GDF Suez noted.

Indeed, despite its mandated reserve margin, which load is fully paying for, ISO-NE, "concluded that New England could face a reliability gap of approximately 1.1 – 1.5 million MWh," this winter.

Friday, at FERC, ISO-NE filed for approval of a "Winter Reliability Program" consisting of four components: a new demand response program, an oil inventory service, incentives for dual fuel units, and market monitoring changes. Essentially, load must now pay resources additional amounts on top of existing capacity payments to avoid blackouts.

More specifically, in exchange for out-of-market, "as bid" monthly payments, market participants will provide ISO-NE with the equivalent of up to 2.4 million MWh of energy in oil inventory and demand response. Dual fuel assets providing the oil inventory service will be also compensated for successful tests of their switching capability.

The ISO conceded that these programs are "out-of-market solutions" to the reliability risks facing the grid.

The ISO also filed permanent market monitoring changes aimed at increasing the offer flexibility provided to generators.

Despite load paying for the capacity, the ISO reported that during the 2012-13 winter, the ISO saw a number of instances in which natural gas-fueled generation, "did not have sufficient fuel to provide energy at or even near the generator's stated capacity as reflected in their daily offers." Because the ISO rules only subject resources receiving capacity payments to performance during "shortage events" under a narrow ISO definition, generators with an inability to provide capacity at other times of grid stress are not penalized.

Docket ER13-1851