Washington — ISO New England is pushing back against claims that its short-term plan to ensure fuel security is too conservative and will suppress capacity prices, with the grid operator saying its proposal is based on an accurate view of the risks the region faces during frigid weather.
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"The fuel security reliability review contains an optimistic set of assumptions that show real problems and exposure to load shedding, and demonstrates that the system is challenged to serve load during cold weather periods," the grid operator told federal regulators Tuesday.
In July, the US Federal Energy Regulatory Commission found that ISO-NE's rules do not adequately address fuel security concerns, and it ordered ISO-NE to submit short-term changes by August 31, 2018 and long-term changes by July 1, 2019. For the long-term fixes, the grid operator is weighing market-based approaches such as a multi-day-ahead market and seasonal auction.
Tuesday's filing responds to concerns about ISO-NE's short-term fixes, which would accommodate a cost-of-service agreement with Exelon to keep Mystic units 8 and 9 in Massachusetts operating to ensure reliability in 2022 and beyond. The units provide about 1,400 MW of capacity and use LNG from the Distrigas import terminal, rather than pipeline gas, for fuel supply.
Among other interim changes, ISO-NE proposed to conduct fuel security reliability reviews - similar to the studies that spurred the proposed Mystic contract - to assess the winter-season impact of a generator retirement.
The New England Power Pool Participants Committee argued that ISO-NE's proposed reviews are too conservative. The stakeholder group filed an alternate proposal with relaxed criteria that would narrow the circumstances in which the ISO would pursue out-of-market deals for fuel security.
But ISO-NE on Tuesday urged FERC to reject NEPOOL's plan, including a proposal to assume that all generators have enough fuel to meet their capacity supply obligations.
"If NEPOOL's supposition about fuel were correct, this docket simply would not exist," ISO-NE said. "The lack of fuel for resources, even those with capacity supply obligations, to produce energy is the very nature of the fuel security issue."
The problem is that industry is replacing coal-fired, oil-fired and nuclear generation with gas-fired resources that rely on non-firm fuel supply arrangements on constrained gas pipelines, the ISO said.
Some protestors raised concerns about ISO-NE's plan to treat resources retained for fuel security reasons as price-takers in forward capacity auctions. This means these resources would be offered into the auction at a price of zero, ensuring they clear the market.
For example, the New England Power Generators Association said treating the Mystic units as price-takers would suppress capacity prices by 11% to 33%.
"To conclude that the reduction of market clearing prices by hundreds of millions of dollars due to the submission of zero-priced offers by subsidized resources does not amount to price suppression would require a complete suspension of disbelief on the part of the commission," NEPGA said.
But ISO-NE says other approaches would artificially inflate capacity prices and lead the region to procure too much capacity. Once the ISO assumes the Mystic units will be retained for fuel security, "it is appropriate to consider their contributions to resource adequacy when determining capacity awards and prices since the retained resources will continue to contribute to resource adequacy," ISO-NE said.
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