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ISO New England's van Welie warns energy crunch, green push could lead to blackouts

The head of New England's power grid operator is warningthat natural gas pipeline constraints, power plant retirements, and states'renewable and environmental policies threaten to make the region's power systemunsustainable during extreme winter conditions after 2019.

"We currently have a precarious operating situation inthe winter time and we're worried about it becoming unsustainable beyond 2019,"Gordon van Welie, president and CEO of ISONew England Inc., said in an interview. "The reality is thatwe're really operating with a very slim operating margin during the winter timethat may not cover these large contingencies that worry us."

So far, coal, nuclear, oil and liquefied natural gas-firedgeneration have kept New England's lights on during the coldest winter snaps,such as early 2014's polar vortex, when demand for gas to heat buildings limitsfuel supplies for natural gas-fired generators. Van Welie fears what couldhappen if the increasingly gas-dependent Northeast were to lose any more of itsbaseload generation not fired by gas.

A Sept. 28 presentationby van Welie outlined those concerns and warned that the region's problem ofmeeting electricity demand as a result of inadequate natural gas infrastructureall year round, but especially during winter.

"Particularly during January and February, we heavilyrely on coal and oil in particular and also nuclear to maintain reliability,"van Welie said. "Within such a fine energy balance under those conditions,were we to lose a large non-gas source of electricity within the region, we'dbe hard-pressed to maintain reliability without some form of emergency action."

On top of the uncertain future of approximately 997 MW ofcapacity generated by four coal and oil-fired plants in New Hampshire afterthey are divested byEversource Energysubsidiary Public Service Co. ofNew Hampshire, van Welie is troubled with the slated retirements inMassachusetts of Dynegy Inc.'sroughly 1,500-MW BraytonPoint coal and oil-fueled plant by June 2017 and 's nearly 684-MWPilgrim nuclearplant by June 2019. The loss of those plants will create even more demand forthe region's limited gas supplies, he said. Further, he noted that New Englandno longer has Entergy's VermontYankee nuclear plant, which helped maintain reliability during thepolar vortex of 2014.

Van Welie is also concerned that permits to run plants thatburn gas and another fuel are becoming increasingly difficult to obtain andthat the run times of those dual-fuel plants are being restricted as statestighten their air emissions regulations. SNL data showed in that regional winteremissions have increased as a result of an ISO-NE temporary winter reliabilityprogram that offers financial assurances for dual-fuel-capable naturalgas-fired generators to fill their storage tanks with oil for winters. Theprogram to ensure natural gas-fired generators can burn more expensive oil whengas supplies run low will be replaced in 2018 by pay-for-performanceincentives.

"It paints a picture of a further reduction throughretirements and permits restricting our ability to burn oil in the winter time,"van Welie said. "And really oil is the thing that has been helping usmanage reliability through the winter time when the gas pipelines areconstrained. So our cause for alarm really is how are we going to maintainenergy balance in future winters?"

Van Welie said an obvious solution to ensure the grid'sreliability would be to relieve gas pipeline constraints by building orexpanding capacity. However, that solution was blocked by a MassachusettsSupreme Judicial Court Aug. 17decision squashing a regional effort by state regulators to boost New England'snatural gas supplies by allowing electric distribution companies to signratepayer-backed, long-term contracts for natural gas capacity.

Since increasing New England's natural gas supplies is nolonger an option, van Welie said that the ISO-NE has few options left formaintaining reliability. He said one "not particularly-desirable option"is to postpone retirements of generators, such as oil-fired units, by makingthe case that their closures will threaten reliability and then negotiatetemporary reliability agreements to keep them running longer.

If New England loses a large non-gas generating resource,van Welie said the operator will deploy reserves. "To the extent ourreserves can't cover the contingency, the only option that we ultimately haveis involuntary load reductions. That's something that we would be able toutilize in real time if we were ever faced with those circumstances," hesaid.

State policies mandatingmore renewable generation and out-of-market financial support for those sourcesare also threatening reliability by harming the ISO-NE's wholesale electricitymarkets, said van Welie. The low-to-zero marginal costs of wind turbines andsolar panels depress energy and capacity market prices – even to the point ofnegative amounts – for all energy sources, including flexible gas-firedgenerators that are needed to backup intermittent renewable electricity.

"The wholesale structure is quite vulnerable at themoment," van Welie said. "As you add more and more renewable energyto the system, it's going to lower energy prices and energy revenues. So thequestion then becomes how do you maintain the backup system that needs tospring into action when the renewable energy cannot produce?"

Van Welie specifically questioned whether states' emissionsreduction goals are compatible with achieving reliability through competitivewholesale markets. His presentation called for a "thoughtful balance"between public policy goals and wholesale market operations.

According to van Welie, "revisiting" scarcitypricing in the ISO-NE's capacity and energy markets could tackle this "conundrum."The RTO chief explained that the New England Power Pool's recently-launchedstakeholder process known as the Integrating Markets and Public Policyinitiative is doing just that as it seeks to identify potential changes to thewholesale electricity market to accommodate and achieve New England states'environmental and energy policies. NEPOOL will provide guidance on thosechanges by Dec. 2.

"In seeking to meet the renewable energy objective orthe carbon reduction objective, do we inadvertently undermine the ability ofthe wholesale market to solve for reliability," van Welie said. "Wealso need [to make sure] that those resources that clear through the capacitymarket… [are] able to perform when we need them and that also means that theyneed to have fuel."