Could Success Spoil ISO-NE?
On July 1, the Independent System Operator-New England (ISO-NE), headquartered in Holyoke, Massachusetts (Figure 1), marked 20 years as a wholesale, competitive market covering Connecticut, Rhode Island, Massachusetts, Vermont, New Hampshire, and most of Maine (Figure 2). When the ISO began operations, competitive wholesale markets were a bold experiment for the 1990s, fostered by the Federal Energy Regulatory Commission (FERC). The foundation was FERC’s belief, based in classical economics, that market competition would produce superior results compared to the conventional model of the state-regulated, vertically integrated monopoly electric companies.
FERC’s theory was that separating electric generation, which had seen competition arise as a result of the 1978 Public Utility Regulatory Policies Act and the appearance of nonutility generation companies, from transmission and distribution would lower consumer prices, introduce new investment, and spur innovation. It was called “restructuring.” There were plenty of skeptics.
New England’s electric market in the 1990s, dominated by vertically integrated monopoly electric utilities, was a mess. Consumer rates were high. Generation was dominated by oil, coal, and nuclear. Little electric system investment was occurring in the region. Reliability was problematic. Then FERC unleashed its experiment in wholesale electric market competition.
“The experiment was extremely successful,” ISO-NE CEO Gordon van Welie told POWER in an interview shortly after the anniversary. “The aim of restructuring was more efficient production and greater reliability. We can check both those boxes. We also needed to attract investment in the region.” That box also got checked.
ISO-NE claims the following benefits have been realized:
■ Wholesale energy prices (which translate into consumer prices) have dropped 44% since 2004, which was the first year of the ISO’s energy market. 2016 saw the lowest wholesale electric prices since 2003.
■ Some 14,000 MW of new—mostly gas combined cycle—generation has replaced older coal- and oil-fired generating capacity, a private investment of about $14 billion. Another $8 billion of private-sector investment has gone into new high-voltage transmission, with another $4 billion coming along.
■ The new generation has slashed regional air pollution. Nitrogen oxide emissions decreased by 68%, SO 2 emissions plunged 95%, and CO 2 emissions dropped 24% between 2001 and 2015.
■ New technology and efficiency has arrived, including wind, solar photovoltaic, demand response, and energy efficiency.
The changed generating profile of the region illustrates the generation transition that has occurred in a system that now totals 30,500 MW in capacity. According to the ISO, in 1990, the region saw nuclear power as the dominant generating source, at 36%, followed by oil at 34%, coal at 16%, hydro at 7%, natural gas at 6%, and pumped storage at 1.7%. That general profile remained the case for more than a decade, but that’s changed. Today “it’s a much more reliable system, cleaner and greener,” said van Welie.
Changing Generation Mix
During the mid-2000s, the generating mix changed rapidly, driven largely by the rise in natural gas produced by horizontal drilling and hydraulic fracturing. By 2015, natural gas held the dominant market share at 49%, followed by nuclear, renewables, coal, and—badly trailing a market it once dominated—oil.
At the moment, New England faces an oversupply of electric generation, as van Welie acknowledged, which he said was “temporary overcapacity.” New market entry, mostly gas, he said, “cleared a bit more than we needed. Demand reduced slightly, and we are expecting to see more [retirements of older coal and oil capacity].”
The market profile will continue to change in the years ahead, according to van Welie. Coal and oil capacity will slide (see sidebar). For nuclear, Entergy’s 640-MW Vermont Yankee plant shut down in 2014 and the company’s 690-MW Pilgrim nuclear plant on Cape Cod will be out of the mix in 2019. That leaves only Dominion’s two-unit, 2,000-MW Millstone station in Connecticut, the largest generating plant in New England, and NextEra Energy’s single unit, the 1,200-MW Seabrook in New Hampshire, successfully bidding into the ISO-NE market.