NGI The Weekly Gas Market Report / NGI All News Access

Design Changes OK'd for New England Power Market

Design Changes OK'd for New England Power Market

FERC last week conditionally approved a significant re-design of the New England bulk power market in an attempt to reduce the price volatility stemming from congestion of the region's transmission system. But it could be as long as two years before the regional market feels the benefits of the changes.

In a complex decision, the Commission gave the New England Independent System Operator (ISO) the green light to move away from its existing single-settlement system, which offers day-ahead bidding for energy and ancillary services, toward a multi-settlement approach that would provide for both real-time and day-ahead bidding. In addition, it approved certain elements of a permanent congestion management system for the New England ISO, which manages the wholesale market and power exchange for six states in the region.

"My hope is that today's order is a signal of a more aggressive Commission posture on insisting on well designed and efficient electricity markets," said Commissioner William Massey. "The headlines about electricity price spikes and impending shortages drive home the importance of getting market design right."

The "good news" is that there was "broad consensus" among the New England stakeholders for adopting locational marginal pricing (LMP) to manage system congestion, which Massey said "sends [the market] correct price signals for using existing generation and transmission resources efficiently." At the same time, LMP will help with future siting of new generation and transmission facilities, he noted, adding that it is "becoming the Commission's preferred congestion management system."

The "bad news" is that the New England ISO has said it will be 16 to 24 months before it can fully implement the market design changes, Massey said. The Commission made it very clear that it was "very disappointed" with the ISO's projected timetable for implementation. It ordered New England to submit within 30 days an explanation of why it can't complete implementation by Feb. 1, 2001 --- prior to the start of next spring [EL00-62]."We're going to be taking a hard look" at this issue, said Ellen Foley, a spokeswoman for the New England ISO.

If the extended implementation timetable is due to the development of LMP software, FERC encouraged the New England ISO to purchase the "rather successful" software of the Pennsylvania-New Jersey-Maryland (PJM) pool.

Commissioner Linda Breathitt noted that many of the procedures being adopted for the New England power market were already in use by adjoining ISOs --- the New York ISO and the PJM power pool. "Approving similar bidding, settlement and congestion mechanisms for New England will simplify coordination among the regional ISOs," and hopefully improve system reliability.

Many parties, including the North American Electric Reliability Council (NERC), believe the patchwork of different congestion management systems being approved in regions is at least partly to blame for some of the reliability stresses on the grid now.

Commissioner Curt Hebert Jr., a strong advocate of transcos, didn't think the ISO design changes would make much difference. "As long as we continue to allow ISOs to live from summer to summer, while putting a Band-Aid [on them], we're never going to get it right." The power market needs more investment in transmission facilities, he said, and transcos will encourage that.

In a related matter, New England ISO's Foley dismissed reports last week that the New England region could face severe power outages this summer due to insufficient generation supplies. The published reports accompanied the New England ISO's decision to declare an eight-hour power watch last Tuesday when the Seabrook Nuclear Power Station in New Hampshire tripped off line amid "hot, humid weather" in the region.

"We don't suffer from generation shortages in New England," Foley said. In fact, almost 1,500 MW of new capacity has been added to the region during the past year, and another 5,000 MW is currently under construction, she noted. New England currently has 330 generating units that serve more than 6.3 million customers.

Susan Parker

©Copyright 2000 Intelligence Press, Inc. All rights reserved. The preceding news report may not be republished or redistributed in whole or in part without prior written consent of Intelligence Press, Inc.