Two commissioners of the Federal Energy Regulatory Commission said Thursday they see major reliability challenges across parts of the United States.
“The capacity markets are not all right,” Commissioner Mark Christie said during the agency’s monthly meeting. “There are fundamental problems specifically in the multi-state capacity markets – ISO New England, [the Midcontinent Independent System Operator] and [the] PJM [Interconnection] – that are directly leading to serious reliability problems.”
The problems in MISO and PJM are at least as serious as those in New England, according to Christie.
“PJM has got serious problems in its capacity market, very serious problems, which are now coming out,” he said, pointing to a report issued earlier this month by the grid operator’s market monitor. Monitoring Analytics, PJM’s market monitor, called the grid operator’s “capacity performance” market design, installed after the 2014 Polar Vortex, a “failed experiment.”
Under the market design, generators are penalized financially if they fail to deliver on their capacity obligations when power is urgently needed and rewarded if they supply more than their obligation.
During Winter Storm Elliott in late December, PJM was hit with widespread power plant outages that led to up to $2 billion in potential penalties.
“There is no reason that in a rational market design less than 24 hours of cold weather should result in a crisis and a level of administrative complexity that threatens to undermine the incentives to invest in existing and new supply resources at a time when those resources are needed,” the market monitor said.
The challenges facing PJM comes as nearly 52,000 MW could retire by 2030 across the grid operator’s Mid-Atlantic and Midwest footprint, according to the report. About 23,500 MW of the possible shutdowns are driven by state and federal environmental regulations, the market monitor said.
“The real issue I think we're going to have to address at FERC is whether these multi-state capacity markets, including New England, can deliver what we expect them to deliver, which is reliable power, at prices that people can afford,” Christie said, noting it could take two years to develop solutions to the problem.
In responses to the challenges, MISO is considering adopting a “reliability-based demand curve” to help determine how much capacity to acquire in its auctions, Christie said. PJM last month launched a fast-track stakeholder process that aims to bring a capacity market reform proposal to FERC in October.
FERC Acting Chairman Willie Phillips told reporters Thursday that “when markets work, they provide tremendous value” and that they have helped prevent cascading power outages in recent periods of extreme weather.
Even so, “we certainly have questions. I think we should always have questions about the way our markets are working,” he said.
Those questions will be raised in upcoming forums, Phillips said. FERC intends to hold a forum on PJM’s markets and another on June 20 in Portland, Maine, focused on ISO-NE.
Meanwhile, Commissioner Allison Clements said she continues to remain focused on reliability issues in New England.
Although it appears New England will get through this winter without a major disaster akin to Winter Storm Uri, “the system continues to operate on a knife’s edge during extreme winter weather events,” she said. “It is not enough to sit by with our fingers crossed for mild winters each year.”
ISO-NE’s winter reliability challenges need to be tackled in the “very near-term” and in the longer term, according to Clements.
ISO-NE stakeholders have repeatedly suggested that quantifying the energy adequacy risk the region faces is a needed first step for FERC and the New England states to act on solutions, Clements said.
ISO-NE expects to release in May a study assessing its operational risks under extreme weather conditions beginning in 2027, a step that could lay the foundation for long-term solutions, she said.
But Clements said she is concerned about the near-term.
“We have heard repeatedly from ISO New England and others that the potential loss of the Everett LNG facility in Massachusetts would worsen the situation before things get better,” she said. “But we still need the data on the near-term risk to support the basis for either FERC or the New England states to take action, whether that be retaining Everett or some other immediate steps.”
The Everett LNG import facility recovers some of its costs through a reliability-must-run contract between ISO-NE and Constellation Energy, which owns the nearby Mystic power plant. The contract ends in May 2024.
A decision on whether steps should be taken to keep the Everett facility operating needs to be made in the next six to nine months, according to Clements. Progress on addressing New England’s reliability risks needs to be made before the forum in June, she said.
“I know the chairman shares a desire to roll up our sleeves, to engage with our state partners, and move the discussion forward so that we can show up in June with a shared commitment toward finalizing a plan of action,” Clements said.
