New England Grid Operator Moves to Delay Reform of Rule Favoring Fossil Fuels
May 5, 2022
A proposal from New England’s grid operator to delay a key reform that would enable more renewable energy sources to bid into the capacity market is prompting a torrent of protests in a proceeding before the Federal Energy Regulatory Commission (FERC).
U.S. Sens. Edward Markey, Elizabeth Warren, and Bernie Sanders; the Massachusetts attorney general; the Maine Office of the Public Advocate; the National Caucus of Environmental Legislators; numerous environmental and renewable energy organizations; and more than 100 individuals have submitted comments asking FERC to reject ISO New England’s proposal.
“At the very moment when New England should be fully embracing the transition to renewables and the related socioeconomic opportunities, this decision to undermine state actions and renewable energy deployment is a terrible and ill-timed mistake,” the senators wrote in their mutually signed letter.
“It should come as no surprise,” they added, “that three New England natural gas plant operators developed what became the ISO-New England proposal.”
The expressions of outrage follow what critics say was a last-minute flip-flop in ISO New England’s position on what is called the minimum offer price rule, commonly referred to as the MOPR (pronounced moper).
The MOPR sets an artificial bidding price floor for each type of state-supported renewable energy resource in ISO’s annual forward capacity auctions, which secure adequate generating resources for the region three years in advance. It is intended to prevent state-sponsored bidders from offering low bids that could distort the market because they don’t include costs that have been paid for by the state.
The rule negatively impacts many renewable energy resources, which often have state contracts and other subsidies. The MOPR fixes a bidding price floor that is intended to factor in the entire reconstructed cost of each type of renewable energy, including any potential support it could receive from the state. That has prevented renewable suppliers from competing in the auctions with older fossil fuel generators.
In its proposal to FERC, ISO New England calls for the elimination of the MOPR beginning with the forward capacity auction in 2025.
On the one hand, ISO notes, the MOPR protects investors in other generation resources from being undercut by artificially low bids from subsidized resources. But on the other, it can harm consumers. That’s because state-subsidized renewable projects like solar and offshore wind will be built regardless, meaning consumers will end up paying for additional capacity beyond what ISO selects through the auctions.
“And while there is no evidence that this potential inefficiency has harmed consumers to date,” ISO says in its proposal, “that result is clearly looming.”
So why not eliminate the MOPR immediately, rather than three years from now, ask ISO’s critics. In fact, plans were well underway to eliminate it as of the next forward capacity auction, in March 2023, until ISO suddenly scrapped that idea in favor of a slower alternative put forward by Vistra Energy, Calpine Energy Services, and Nautilus Power as part of an eight-month stakeholder discussion.
“It caught everybody by surprise,” said Melissa Birchard, the director of renewable energy and grid reform at the Acadia Center, a regional environmental organization that participated in the discussions. “Changing their position at the very last minute gave no one the opportunity to really look into what that meant.”
In its proposal, ISO cited reliability concerns as the primary reason for delaying an end to the MOPR. Immediate elimination could cause other capacity resources to withdraw from the market, as capacity market prices decline, which could create reliability problems if the renewable resources aren’t commercially available, according to the proposal.
But Bruce Ho, New England lead for the Sustainable FERC Project, housed at the Natural Resources Defense Council, said ISO has offered little to substantiate that argument.
“We haven’t seen any real analysis from the grid operator that shows that there’s a problem,” he said. “We also need to understand the tradeoffs. Keeping the MOPR in place is going to be very expensive for customers, bad for the environment, and will keep a dirtier grid in place than the New England states are calling for.”
The Massachusetts attorney general and the Maine consumer advocate have another theory: “ISO-New England’s sudden adoption of the transition mechanism must be viewed for what it is: an attempt to disincent legal challenges to MOPR reform by fossil fuel generators.”
Instead of prioritizing reducing consumer cost and system overbuild, the authorities wrote in their joint comments, ISO has signaled that “protecting capacity market revenues for incumbent generators is paramount.”
The proposal does include an exemption for a total of 700 megawatts of state-sponsored renewable capacity in the next two auctions. But that’s “not at all sufficient, especially given the amount of offshore wind coming online,” said Susannah Hatch, the regional lead for the New England for Offshore Wind coalition.
Connecticut, Massachusetts, and Rhode Island have set targets for more than 8,000 megawatts of offshore wind by 2030. More than 4,700 megawatts are already under contract, she said.
FERC must make its decision in accordance with the Federal Power Act, which authorizes the commission to reject a tariff proposal only if it determines it isn’t “just and reasonable” and unduly discriminatory. A decision is expected by the end of May.
Choice Limited to Slow or No Transition
The issue of how and when to open the capacity markets to more state-sponsored renewable resources has become increasingly contentious in recent years as most New England states have ramped up their renewable energy goals. Connecticut Department of Energy and Environmental Protection Commissioner Katie Dykes has been particularly vocal in her criticism, at one point threatening that the state would pull out of the ISO marketplace altogether if reforms aren’t made.
With pressure growing, ISO announced last May that it was going to work with the New England Power Pool, a FERC-approved stakeholder advisory group with more than 500 members, to eliminate the MOPR.
“We had about eight months of in-depth discussions, negotiations, presentations, and analyses all focused on getting rid of the MOPR by next year,” Ho said.
During that process, the generation companies proposed an amendment to delay elimination.
“The owners of fossil fuel generation were not happy about the proposed changes to the MOPR and were in opposition throughout the process,” Ho said. “There was a sense that if they didn’t get what they wanted, they would likely challenge it.”
But their proposal was not received positively. On Jan. 11, NEPOOL’s Markets Committee (New England Power Pool Generation Information System) voted to approve ISO’s draft proposal to eliminate the MOPR as of 2023, with 74% in favor, according to the Massachusetts attorney general’s account. The power generators’ amendment was roundly rejected, with less than 24% in favor.
That left one final vote on MOPR reform with NEPOOL’s Participants Committee. Nine days before that vote, ISO suddenly issued a memorandum saying it “wholly supported and preferred” the generators’ proposed amendment for a slower transition.
“We often adjust our proposals before the final stakeholder votes” after listening to all the feedback, said Matthew Kakley, an ISO spokesperson.
On the day of the final vote, Feb. 3, ISO’s chief operating officer, Vamsi Chadalavada, told the Participants Committee the transition amendment was the preference in lieu of “prolonged litigation that could result from a failure to compromise,” according to the attorney general’s account.
The amendment passed with 61.49% support, just 1.49% over the required minimum. Only that amended proposal was offered by ISO for a full vote, giving the committee the choice of voting for no MOPR reform or delayed MOPR reform. The amended proposal passed with 69% in favor.
“Our proposal is one to remove the MOPR from the capacity market in a way that protects power system reliability and continues the region’s clean energy transition,” Kakley said. “The proposal received broad stakeholder support and many comments were filed in support of the transition.”
Among the supporters is the Electric Power Supply Association, which said it “strongly agrees that simply eliminating the MOPR without a just and reasonable replacement or accompanying market reforms is untenable.”
The New England States Committee on Electricity wrote in its comments that it does not oppose the slower transition, so long as the 2025 MOPR elimination deadline “remains firm.”
But many of the comments from private individuals expressed extreme frustration with what they view as the continuation of a major barrier to progress on renewable energy. Jon Slote, a Newton, Mass., resident, said he and many of his neighbors are trying to do their part.
“We have installed added insulation, rooftop solar panels and a whole-house heat pump,” he wrote. “And I expect our utilities and regulators to be ‘rowing in the same direction’ with the citizens of the Commonwealth.”