UNA REFLEXIÓN FINAL

The issue of gas-electric reliability was first identified following a cold snap in 2004. Since then, ISO-NE and NEPOOL committees have examined the issue and some modifications have been implemented. ISO-NE periodically makes changes to various planning processes and market rules that affect the resources in Connecticut and New England. The changes made by ISO-NE are typically aimed at improving market efficiencies or system reliability. In 2013, ISO-NE implemented a number of market rule changes including the 2013/2014 winter reliability program and changes to the day-ahead energy market schedule.

ISO-NE has implemented several initiatives to address risks associated with unit performance and gas dependency.60 _{These initiatives include:}

 Winter Reliability Program: In 2013, ISO-NE introduced a one-year, out-of-market Winter Reliability Program to ensure the availability of certain non-gas resources to maintain reliability during the winter of 2013/2014. This program was intended to operate as a temporary, one-time measure for the winter months. The program included: (a) incentives for oil-fired generators to increase their fuel oil inventory; (b) a winter demand response program; (c) payments to dual fuel units for testing their fuel-switching capability; and (d) changes to market monitoring to increase generators’ flexibility.61

Through this program, ISO-NE procured roughly 1.951 million MWh of demand response and oil inventory service (over 99.8% of the procured energy was the oil

58 _{Neptune LNG received approval from US Department of Transportation's Maritime Administration (MARAD)}

in July 2013 to suspend operations at its LNG import facility for 5-years. See

http://www.enerdata.net/enerdatauk/press-and-publication/energy-news-001/neptune-lng-allowed-suspend-lng- operations-5-years-usa_21161.html.

59 _{Peak-shaving capacity is owned or contracted for by LDCs for service to retail gas customers during the coldest}

days of the year, and is generally not available to other customers such as electric generators. The 1.0 Bcf/d Distrigas LNG terminal imported roughly 86.5 Bcf (or 0.24 Bcf/d) in 2012.

60

These initiatives address: “1) filling information gaps with better and timely information to manage the power system; 2) enhancing market mechanics to better enable resource performance; 3) improving market incentives for resources to perform; and 4) procuring sufficient reserves for reliability.” See Interdependencies of Market and Operational Changes to Address Resource Performance and Gas Dependency, ISO-NE, 2013, available at http://www.iso-

ne.com/committees/comm_wkgrps/strategic_planning_discussion/materials/interdependency_of_iso_proposals _to_key_spi_risks.pdf.

inventory service) at a cost of $75.1 million.62 _{The 2013-14 Program did not include}

measures to encourage firm gas deliverability or holding LNG in inventory. ISO has proposed modifications to the Winter Reliability Program for 2014-15 which includes cost recovery for LNG and other modifications. The Winter Reliability Program is only intended as a temporary measure to ensure reliability of the electric system but does not address the fundamental problem of dependence on non-firm gas purchases or implement long-term solutions to improve the reliability of gas generators at a reasonable cost.  Increased Coordination and Communication with Gas Pipelines: ISO-NE received

approval from the FERC on an interim basis for winter of 2013/14 to share forecasted schedule and real-time information about specific gas generators with the region’s gas pipelines.63 _{This measure is intended to enhance reliability by improving communication}

and coordination between electric and gas control room operators. Communication of operational information between gas industry and transmission operators are currently being explored through FERC’s NOPR in Docket No. RM13-17-000.

 Improved Scheduling: ISO-NE accelerated the deadlines for the Day-Ahead Market (DAM) and Reserve Adequacy Analysis (RAA) effective May 23, 2013. Now, the DAM offer closes at 10:00 a.m. with results posted at 1:30 p.m., and the initial RAA process is completed by 5:00 PM. This earlier clearing of the DAM and RAA will provide ISO-NE more time to commit long lead-time resources if necessary. The earlier bidding window and RAA will improve gas-fired generation’s ability procure fuel, for example by providing them access to the most liquid gas trading period in the day. 64

 Allow Hourly Re-Offers: In an Order issued on October 3, 2013, FERC conditionally approved ISO-NE’s proposed market rules to allow participants to update their offers in real-time to reflect changing fuel costs. These changes will allow participants to better reflect actual fuel or other operational costs, improving market pricing and incentives to perform.65

 Increased Flexibility To Manage Fuel Contingencies: In 2013, ISO-NE also made various changes to the reserve markets to provide greater flexibility to generators and operators to manage fuel contingencies and to produce prices that more accurately reflect actual costs. The changes implemented include: ISO-NE procures more 10 minute non- spinning reserves; increasing the amount of replacement reserves required; increasing the reserve constraint penalty factor (RCPF), which is a price cap, to decrease the need for units being committed out of merit.

62 _{See Filing in Compliance with Order Conditionally Accepting Bid Results; Docket No. ER 13-2266-000,}

October 15, 2013, p.7, 18-22.

63

While FERC approved the proposal in interim, it noted that the changes “may be unjust, unreasonable, unduly discriminatory or preferential, or otherwise unlawful.” See 141 FERC ¶ 61,196, p.11.

64 _{See ISO-NE’s Settlements Issues Forum, Q2 2013 Meeting, Rachel Likover, June 28, 2013, slides 14-15,}

available at http://www.iso-ne.com/stlmnts/qrtly_stlmnts_mtrls/settlement_quarterly_webex_06_12_2013.pdf.

 Proactive Commitment of Non-Gas Resources: During periods of gas supply and deliverability constraints, ISO-NE proactively commits long lead-time oil-fired generators out-of-economic-merit so that they are available for dispatch when needed.  Allowing Generators to Reflect Real Time Price of Fuel: ISO-NE is expected to

implement rule changes in December of 2014 or early 2015 that will allow generators to more accurately reflect the real time price of fuel in their offers. The proposed change is intended to provide a financial incentive for generators to follow dispatch and to have market prices more accurately reflect the costs to produce energy. Among the proposed changes, which were considered in DEEP initiatives, is the ability of market participants to reflect negative offers for energy. Negative offers will allow units with high start-up and shut down expenses to make the economic decision to keep running. It will also allow resources such as wind power to run at times when demand is low or when the system is becoming physically constrained.

The above improvements to communications, scheduling, and operation of the gas and electric markets are helping to optimize the use of available non-firm gas supply, but have not resolved the underlying gas capacity limitations in the New England region that affect liquidity and the physical ability to respond to electric generator needs. Still, underlying issues of reliability and high costs remain due to the reliance of generators on non-firm gas purchases.