ISO Corrects Its Big Mistake — And Will Count Renewable Energy

Jerry Elmer

At the January 21, 2015 meeting of the ISO’s Planning Advisory Committee (PAC), the ISO made clear that – for the first time in its history – the ISO is going to count renewable energy Distributed Generation (DG) in calculating how much electricity capacity it buys in its annual “Forward Capacity Auction” (FCA). Although many details remain to be worked out, this is a big win for renewable energy – and one that CLF has been fighting for literally for years.

ISO-New England is the entity that runs the New England electricity grid and wholesale electricity markets; those markets, in turn, determine how much ratepayers will pay for every kilowatt hour of electricity they use. You can read about CLF’s long-standing work with the ISO, here.

Once a year, the ISO runs a “Forward Capacity Auction” (FCA). In a blog post on October 15, 2014, I explained what these FCAs are, and why they are so important:

Once a year, ISO holds what it calls a “Forward Capacity Auction” (FCA) for a one-year period of time three years in the future. The purpose of these FCAs is to ensure that there will be adequate supplies of electricity (that is, enough power generators) in the region to meet the expected load. . . . The technical term that ISO uses to describe what it wants to buy in these FCAs is “Installed Capacity Requirement” (ICR). Don’t be frightened by the name or the acronym: the ICR is the quantity of electricity generation (“capacity”) that is needed (“requirement”) to meet the expected load (electricity usage) during the relevant period.

One reason that these FCAs matter is because a lot of money is involved. The clearing prices of the eight FCAs that ISO has conducted have resulted in real costs to New England electricity ratepayers of between $800 million to $2.2 billion (that is per annum).

For years, CLF (and others) have been arguing that, when the ISO calculates its annual ICR figure, it needs to account for renewable energy DG that is actually on the New England electricity grid or expected to be during the relevant period. The title on my October 15 blog post was: “The ISO’s big Mistake: Not Counting Renewable Energy.” I said:

ISO’s big mistake was not accounting for renewable DG when it projected how much electricity to buy in the next Forward Capacity Auction . . . ISO’s big mistake will cost ratepayers a lot of money. For every 100 MW of renewable DG that ISO failed to count, New England ratepayers will overpay $200 million in the upcoming February 2015 FCA. And ISO’s own estimate (which CLF believes is overly conservative) is that there will be hundreds of megawatts of renewable DG in New England during the relevant period (2018-2019).

On October 6, 2014, CLF sent a letter to the ISO challenging the ISO’s big mistake. As you can see, CLF emphasized the potential savings to ratepayers if the ISO corrected its mistake of improperly ignoring renewable energy. And CLF was not the only one that objected to the ISO’s big mistake. The New England States Committee on Electricity (NESCOE) sent its own letter urging the ISO to count renewables in making its ICR calculation.

As you can see, CLF’s letter to ISO also raised the possibility that, if not corrected in the future, ISO’s mistake could make the ISO’s auction results subject to legal challenge before the Federal Energy Regulatory Commission (FERC). (All major ISO decisions are subject to FERC approval.) In its letter, CLF cited the specific section of the Federal Power Act that such a challenge would be based on and cited specific cases on the topic.

FERC essentially agreed with CLF. On January 12, 2015, I posted a blog on CLF’s website entitled, “FERC Agrees With CLF About the ISO’s Big Mistake, Not Counting Renewable Energy.” In that blog, I linked to a January 2 FERC Order directing the ISO not to make the same mistake again when it next calculates how much capacity to buy in the next Forward Capacity Auction, FCA-10, scheduled to be held in February 2016.

The good news now is that the ISO got the message that CLF, NESCOE, and FERC have all been sending. At the January 21, 2015 meeting of the PAC, ISO staff reported that they will include some renewable energy DG in the calculation of the ICR for FCA-10. While CLF is not completely satisfied with the methodology that the ISO proposes to use, this is nevertheless a huge step forward – because it means that we can now discuss how to account for renewable energy on the system rather than whether to account for it.

In fact, at the January 21 PAC meeting, ISO staff acknowledged the existence of four separate “buckets” of DG on the electricity grid: (1) DG that participates in the Forward Capacity Market and does get a Capacity Supply Obligation from the ISO;  (2) DG that does not participate in the Forward Capacity Market but is known to the ISO’s Control Room as so-called Settlement-Only Generators (SOGs);  (3) behind-the-meter resources that are accounted for already as part of the ISO’s load forecast; and (4) behind-the-meter resources that are not accounted for already as part of the ISO’s load forecast. The third of these four categories will not result in any change in future ICR calculations, because these resources are already figured in to the ISO’s load forecasts. However, there is now opportunity, for the first time, for the other three categories to be accounted for in the ISO’s annual calculation of how much electricity capacity to buy in the annual capacity auctions.

This will result in a classic win-win situation. All New England ratepayers will benefit because they will stand to save literally hundreds of millions of dollars a year by not double-paying for energy. And renewable energy producers will finally start to receive some credit for the electricity that they are putting into the New England electricity grid.

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