Generators: ‘Unjust’ Rule Cost $100M in New England Heat Wave
New England generators say a rule meant to prevent withholding of generating resources unfairly cost them $100 million during an August heat wave (EL16-120).
The New England Power Generators Association filed a complaint with FERC on Sept. 30, saying ISO-NE’s peak energy rent (PER) adjustment created “absurd” results during a six-hour period of intense heat that featured unexpected outages and high prices.
The PER adjustment reduces capacity suppliers’ monthly capacity payments by an amount that approximates the “peak energy rents” earned by a hypothetical generator in the real-time energy market.
NEPGA asked FERC to order ISO-NE to “return the PER adjustment to a just and reasonable level” effective immediately.
The association said that on Aug. 11, as temperatures approached 100 degrees across New England, energy demand rose to 25,195 MW, the highest peak demand in several years. ISO-NE entered the day with 3,334 MW of reserves.
A morning lightning storm in Connecticut caused voltage problems that led to transmission outages and the loss of 3,113 MW of generation. ISO-NE implemented demand response at 2:25 p.m. At 2:50 p.m., the wholesale price peaked at $2,690.60/MWh, with the hourly price settling at $1,438.97/MWh, according to the complaint.
“Far from earning significant compensation during this emergency, the vast majority of capacity resources incurred significant losses across these operating hours. In other words, suppliers have been put in the untenable position of paying load to run during the electricity system’s most critical hours,” NEPGA wrote. “Suppliers incurred an aggregate penalty through the PER adjustment mechanism of over $100 million for just six hours on Aug. 11, while the total cost of energy paid by load for those six hours was only about $18 million.”
The generators added that 37 hours subject to the rebate over the past 20 months have caused suppliers an estimated $193 million in financial penalties.
When the hourly real-time energy market price exceeds a predetermined daily “strike price,” the RTO calculates an “hourly PER” value that roughly equals the difference between the real-time clearing price and the strike price. These monthly values are added for the month, averaged over a rolling 12-month period, and then deducted from suppliers’ monthly capacity payments.
The PER adjustment is intended to discourage economic withholding and to provide a hedge to load against price spikes in the real-time market.
“The rebate has become an unjust and unreasonable penalty,” NEPGA said. “The problem is that ISO New England calculates the rebate based on the earnings of a hypothetical generator in the real-time energy market, but the vast majority of generators that pay the rebate earn their energy market revenue in the day-ahead energy market.”
