ISO-New England: Proposed (Long Term) Winter Energy Security Improvements

At the ISO-NE Markets Committee Meeting (Nov 7-8, 2018), ISO staff presented conceptual approaches and stakeholder concepts for developing a market-based solution to improving energy security in the region. Per FERC’s order in EL18-182-000, the ISO must develop and file improvements to its market design to better address regional fuel security by July 1, 2019, and, with that in mind, the ISO shared its high-level views on conceptual approach elements during the MC meeting, which focused on:

1. Multi-Day Ahead Markets
2. New Ancillary Service in RT/Multi-DA Markets: Energy Inventory Reserve Constraint
3. Seasonal Forward Procurement of Energy Inventory: Forward Inventory Reserve Mechanism

One of the main issues facing the ISO is that there may be insufficient energy available to the New England power system during extended cold winter weather conditions (i.e., beyond tomorrow) to satisfy electricity demand, given the system’s evolving resource mix and fuel delivery infrastructure. A key consideration guiding the development of a solution is that New England’s energy markets are not currently designed to provide forward price signals beyond a single (next) day-ahead market.

Conceptual Design #1:  Multi-Day Ahead Market (MDAM)

• Optimizes limited energy inventories cost-effectively over the multi-day horizon (6-days)
  • Obligations to bid/offer in real-time and in the next day’s day-ahead market (D1) would remain
  • Participation in additional MDAM days (Days 2-6) would be voluntary
• Provides a forward price signal to (a) replenish when prospective supplies are tight and (b) influence consumption decisions
• Creates financially binding obligations for cleared quantities using the multi-day ahead clearing prices
  • Offers and bids may be different across the MDAM horizon
  • All cleared quantities would be financially binding
  • Virtual transactions (Increment Offers and Decrement Bids) would be allowed – possibly with lower NCPC charge risk
• Should reduce (or eliminate) the need for out-of-market posturing of resources for fuel

Mechanics of MDAM

1. Each day the MDAM would be run for a rolling forward horizon
2. Each time the MDAM is run, it would be using the latest bids, offers, etc.
3. The next day, the MDAM would re-clear a portion of this rolling forward horizon
4. The settlement would now include not only the prompt day ahead vs. real-time energy market (D1 to RT in the prior example) but also a settlement of each forward-day to forward-day

Conceptual Design #2: Energy Inventory Reserve Constraint (EIRC)

• Integrated into the multi-day ahead optimization
  • Mechanically, the EIRC would be a separately-priced ancillary service product that is co-optimized with energy in the MDAM, so its reliability benefit is achieved at least cost
• Provides a price signal to maintain a “buffer stock” of energy inventory for technologies capable of doing so
  • The EIRC would create and preserve a margin by preventing the MDAM from using up all storable energy within the market horizon
• The system re-dispatches to preserve such energy inventories, shifting production as needed to higher cost resources with “use it or lose it” energy
  • An EIRC preserves a margin to deal with uncertainties and helps ensure that the region does not end up in a situation where it is too late to avoid a shortage after something unforeseen happens
• Conceptually, this is a familiar solution approach; logic mirrors operating reserve designs
  • Uncertainties that can affect the system for extended periods can be planned for in a cost-effective way using a co-optimized ancillary service designed that expressly protects such situations

ISO-NE plans to continue the discussion and provide analysis to inform stakeholders on how the design performs under different scenarios to arrive at a workable solution to be filed by July 1, 2019.

Alternative Approaches

Meanwhile, multiple stakeholders presented alternative approaches to ISO-NE. These included:

• FirstLight Power Resources proposed the addition of a new Fueled Fast Start Reserve (3FSR) product, pricing, and the requirement to the existing single-day-ahead market. It also includes ISO-NE’s proposed Buffer Stock requirement/pricing under single the day-ahead market.
• Calpine proposed the addition of a Forward Enhanced Reserve Market “FERM” Winter Product that would be co-optimized with the Capacity Market with a term 3 years ahead (November-March). A qualified resource can participate in the FERM and/or the Forward Capacity Auction (FCA).

PCI’s Role

PCI will be in attendance at a number of upcoming ISO-NE meetings as stakeholders discuss different principles and designs in an effort to overcome and manage fuel security changes. PCI constantly stays on top of changes in all markets so that we may provide value-added consulting and software to our clients. ISO-NE market participants should feel confident that PCI will greatly assist them in navigating the market’s evolution and that PCI’s GenManager (front-to-back office) platform will evolve with changes in ISO-NE.