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ISO-New England Forward Capacity Market

On March 6, 2006, the region’s energy stakeholders achieved a critical settlement concerning the design of the New England capacity market. An alternative to the widely contested Locational Installed Capacity (LICAP) proposal, the Forward Capacity Market (FCM) settlement was agreed to by most involved as a workable wholesale capacity market design. The Federal Energy Regulatory Commission (FERC) approved the settlement on June 16, 2006, recognizing the key objectives of the FCM design: to procure enough capacity to meet New England’s forecasted demand three years in advance (through a competitive auction process); and to provide a long-term (up to five-year) commitment to Supply and Demand Resources to encourage new investment.

A major provision of the FCM settlement is that Demand Resources – including energy efficiency, distributed generation, real-time demand response, and load management – can qualify as capacity along with supply-side resources both during the Transition Period to the FCM as well as in the Forward Capacity Auctions (FCA). Because Demand Resources have not historically competed in wholesale markets administered by the Independent System Operator for New England (ISO-New England), FERC required that a new stakeholder group – the Demand Resources Group (DRG) – convene to develop recommendations for: 1) the Transition Period rules for Demand Resources; 2) the treatment and integration of Demand Resources in the FCM; 3) the integration of the current ISO-New England Demand Response Programs into the FCM; and 4) input to the Installed Capacity Requirement (ICR) process, which sets the capacity resource needs for annual Forward Capacity Auctions starting in 2008.

A key to effectively integrating energy efficiency into the capacity market is creating rules that provide a fair opportunity for energy efficiency to compete with supply side resources during the auction period. Demand Resources advocates have been instrumental in ensuring a level playing field for demand and supply resources. These parties include, among others, the state regulatory agencies in New England, Conservation Services Group (with the technical assistance of Synapse Energy Economics), Vermont Energy Investment Corporation, Environment Northeast, Regulatory Assistance Project, Conservation Law Foundation, the National Association of Energy Service Companies (NAESCO) and NEEP. 

Of particular importance to successfully valuing efficiency resources in the capacity market is to ensure that appropriate measurement and verification standards are used and/or developed for the capacity market. Key efficiency stakeholders in the DRG have and continue to work on this issue with ISO-New England staff and other stakeholders during the process to develop the capacity market rules and ultimately the support Market Manuals.

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PJM Reliability Pricing Model

     

In 2007, PJM began implementation of its Reliability Pricing Model (RPM) as the new mechanism for valuing capacity resources. As part of the FERC-approved RPM Settlement, demand response resources can participate in the RPM auction either by bidding into the auction and being eligible to set the clearing price, or demand response resources can be nominated in advance of the delivery year as an interruptible load for reliability and reduce a participant’s capacity obligation in that year. The Settlement Agreement also provided that PJM would provide a report on the integration of energy efficiency into RPM and the establishment of a forum for identifying and resolving impediments to market participation by demand resources (including energy efficiency).

In a report filed with the FERC on September 24, 2007, PJM identified the Demand Side Response Working Group (DSRWG) as the forum for demand response market design. The DSRWG has recently begun to focus on barriers to participation of energy efficiency (EE) resources in the capacity market (RPM). After an initial presentation in April on how EE was incorporated into New England’s Forward Capacity Market, the DSRWG began a discussion of how EE resources might participate in RPM.  Synapse Energy Economics, on behalf of several state consumer advocate offices, has been working with PJM staff to develop discussion topics for the DSRWG regarding the incorporation of EE resources into the capacity market. The discussions to date with both PJM staff and the DSRWG have focused on how EE resources from customers with interval meters, mostly large customers, might participate under current RPM rules. A far larger reservoir of EE resources is available from residential and small commercial customers, many of whom do not have interval meters.This report is due to FERC in February 2008.

For more information, go to the PJM DRSWG Web site at http://www.pjm.com/committees/working-groups/dsrwg/dsrwg.html

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ISO-New England Scenario Analysis

 

ISO New England’s Scenario Analysis, released in August, evaluated how seven different future resource scenarios and various sensitivities would affect wholesale electric power system production costs and emissions in or around the year 2020. But because the ISO was limited in its ability to make policy judgments in its analysis, Northeast Energy Efficiency Partnerships, along with the Conservation Law Foundation, the Connecticut Office of Consumer Counsel and the New Hampshire Office of Consumer Advocate, commissioned Synapse Energy Economics to produce a Companion Analysis that modeled a resource mix that better achieves state and regional economic and environmental goals compared to the ISO’s scenarios. The resulting Companion Analysis showed energy efficiency combined with demand response to be a clear policy winner for the New England region in terms of reducing costs to customers and emissions to meet regional carbon goals.

 

 

 

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