Regulatory Updates by Region

ISO-NE's Plan to Enact the Winter Reliability Program

On Sept. 16, 2013, the FERC issued an Order accepting the proposed tariff revisions, which included ISO-NE's plan to enact the Winter Reliability Program. This program is intended to aid ISO-NE in maintaining reliability during the 2013-2014 winter by procuring up to 2.4 million MWh of energy for winter 2013-2014

through a competitive bid process from a combination of oil-fired generators, dual-fuel generators and demand response assets.

According to the FERC, after considering the particular challenges to reliability this coming winter and the interim nature of the program, they found that the program is an appropriate solution for the fixed period requested.

The Winter Reliability Program actually contains four components: demand response, oil inventory service, dual-fuel testing, and market monitoring changes. The first three components became effective on Sept. 6, 2013 and continue through Feb. 28, 2014. The fourth component, the market monitoring changes, also went into effect on Sept. 6 but is continuing indefinitely.

What do each of these program components include?
Under the Winter Reliability Program’s oil inventory service, selected oil-fired and dual-fuel generators will take on certain obligations in exchange for monthly payments. The oil inventory service is only available to oil-fired generators and dual-fuel generators that can switch—within a 5-hour timeframe—to run on oil.

Generators whose bids were accepted are expected to establish an initial block of fuel inventory in their tanks prior to Dec. 1, 2013, and, in the case of some dual-fuel generators, to replenish their fuel inventory by that time. Generators providing the oil inventory service are also required to submit supply offers into the day-ahead and real-time markets for each hour of the operating day at their economic max limits and those supply offers must be at or above the generator’s reference price level on oil. Since oil prices are typically high, relative to natural gas, this means that units will run in merit (setting the marginal price) only when energy prices are relatively high.

Program participants (i.e. generators) will be compensated through a monthly payment derived from the price the resources submitted in their winning bids. This payment is in addition to payments made for capacity, energy, ancillary services, or other services—none of which will be changed by the Winter Reliability Program, but which will be collected through the normal tariff provisions.

The Winter Reliability Program’s demand response program solicited bids for demand reductions and net supply from demand response assets. The demand response program is open to market participants with new demand response assets that are not otherwise participating in the wholesale markets, as well as market participants participating in the Forward Capacity Market (FCM) that have capacity in excess of that which is needed to meet their Capacity Supply Obligations (CSO). ISO-NE will use the demand response assets selected to participate in the Winter Reliability Program to help maintain 30-minute operating reserves. ISO-NE will be implementing the demand response program manually, since it indicated that there was insufficient time to complete software changes before this winter. To allow for this manual implementation, ISO-NE limited participation to a maximum of 200 demand response assets.

Demand response participants will be compensated through a monthly payment derived from the resources’ as-bid price, as well as energy payments for demand reductions. The monthly payment will be equal to the resource’s as-bid price, multiplied by the asset’s average MW achieved during the month. The demand reduction payment will be the greater of either $250/MWh or the locational marginal price in the load zone where the asset is located, multiplied by the MWh reduction, then multiplied by an avoided energy loss factor.

Demand response participants will be subject to non-performance charges. A demand response asset will lose its entire monthly payment if it fails to achieve at least 75 percent of its committed MW quantity for a month. A resource is charged a fixed price of $250/MWh multiplied by the MWh shortfall for any demand reductions an asset fails to deliver.

Dual-fuel resources that were selected to participate in the Winter Reliability Program must test their unit’s ability to switch within five hours or less. A dual-fuel unit was required to submit a plan for testing when it submitted its program bid sheet, and the test must be completed before December 1, 2013. A generator whose test is successful will be compensated for the test15 via Net Commitment Period Compensation (NCPC) credits, calculated according to the unit’s testing plan. 

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