ISO-NE PUBLIC

M A R C H 1 0 , 2 0 1 6 | C R O M W E L L , C T

Anne George V I C E P R E S I D E N T , E X T E R N A L A F F A I R S & C O R P O R A T E C O M M U N I C A T I O N S

Consumer Liaison Group Meeting

ISO New England Update

ISO-NE PUBLIC

• The 2015 Report of the Consumer Liaison Group summarizes the activities of the CLG in 2015:

– http://www.iso-ne.com/committees/industry-collaborations/consumer-liaison

• The report also provides an update on ISO activities and initiatives, as well as wholesale electricity costs and retail electricity rates in New England

ISO New England and the CLG Coordinating Committee Publish 2015 Report of the Consumer Liaison Group

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ISO-NE PUBLIC

Running the Electric Power Grid

Provides a “tour” of the ISO’s state-of-the-art control room and an overview of how the ISO’s system operators keep

electricity supply and demand in near-perfect balance every

minute of the day

ISO New England Releases Several New Publications

2016 Regional Electricity Outlook

Provides an in-depth look at New England’s biggest challenges

to power system reliability, the solutions the region is pursuing,

and other ISO New England efforts to improve services and

performance

Energy Storage Paper

Provides an overview of energy-storage resources

participating in New England’s wholesale electricity markets

and how energy-storage resources can be used as a tool

to maintain system reliability

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ISO-NE PUBLIC ISO-NE PUBLIC

FORWARD CAPACITY AUCTION #10

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ISO-NE PUBLIC

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Last Month, ISO New England Conducted the Tenth Forward Capacity Auction (FCA #10)

• FCA #10 was held on February 8, 2016 to procure the capacity resources needed to meet electricity demand in New England for the 2019-2020 Capacity Commitment Period

• The auction concluded with sufficient resources to meet electricity demand in 2019-2020, at a lower price than the previous auction (FCA #9), and with more than 1,400 megawatts of new generating capacity that will help replace recently retired generators and generators that have announced retirement

• On February 29, 2016, ISO New England filed finalized auction results with the Federal Energy Regulatory Commission for review and approval

– http://www.iso-ne.com/participate/filings-orders/ferc-filings

ISO-NE PUBLIC

• The ISO modeled two capacity zones in FCA #10:

1. The Southeastern New England Capacity Zone, which included Northeastern Massachusetts (NEMA)/Boston, Southeastern Massachusetts (SEMA), and Rhode Island

2. The Rest-of-Pool Capacity Zone, which included Connecticut, Maine, Western/Central Massachusetts, New Hampshire and Vermont

• A total of 40,131 MW, including 6,720 MW of new resources, qualified to compete in the auction to satisfy the 34,151 MW Installed Capacity Requirement (ICR) for 2019-2020

• The auction concluded with 35,567 MW of capacity acquired region wide

– With the sloped demand curve, the region can acquire more or less than the ICR, depending on reliability requirements and price

Rest of Pool (CT, ME, WCM,

NH and VT)

Southeastern New England

(NEMA/Boston, SEMA and RI)

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Two Capacity Zones Were Modeled in FCA #10

ISO-NE PUBLIC

• The auction concluded system wide after four rounds of competitive bidding with a clearing price of $7.03/kW-month, which is more than 25% lower than last year’s $9.55/kW-month clearing price for most resources

• $7.03/kW-month is less than the pre-auction estimate of the cost of building a new natural-gas fired power plant in New England (known as “cost of new entry” or CONE), at $10.81/kW-month

• With a clearing price of $7.03/kW-month, the total value of the capacity market for the 2019-2020 commitment period will be approximately $3 billion

– Down from the estimated $4 billion for the 2018-2019 commitment period (FCA #9)

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The Auction Clearing Price Was More Than 25% Lower Than Last Year’s Clearing Price

ISO-NE PUBLIC

• The lower clearing price demonstrates strong competition among capacity resources

• The capacity market is working as designed: higher prices resulting from resource shortfalls in earlier auctions sent price signals to developers to bring new—and needed—resources to market

• Three new large dual-fuel power plants (totaling 1,302 MW) cleared the auction, all near the region’s largest population centers

– Burrillville Energy Center 3 in Burrillville, Rhode Island (485 MW)

– Bridgeport Harbor 6 in Bridgeport, Connecticut (484 MW)

– Canal 3 in Sandwich, Massachusetts (333 MW)

• New wind (27 MW) and new solar (40 MW) cleared the auction

– In all, 135 MW of wind and 62 MW of solar facilities cleared the auction

• New demand-side resources (371 MW) cleared the auction

– In all, 2,746 MW of demand-side resources cleared the auction

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FCA #10 Takeaways…

ISO-NE PUBLIC

ISO-NE INTERNAL USE

ISO-NE PUBLIC

U.S. SUPREME COURT RULING ON DEMAND RESPONSE RESOURCES

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ISO-NE PUBLIC

• On January 25, 2016, the U.S. Supreme Court ruled that FERC was acting within its authority under the Federal Power Act when it issued Order 745 in March 2011

• Order 745 requires demand response resources participating in organized wholesale energy markets to be compensated for the service they provide at the market price for energy (referred to as the locational marginal price)

• The Federal Power Act authorizes FERC to regulate “the sale of electric energy at wholesale in interstate commerce,” including both wholesale electricity rates and any rule or practice “affecting” such rates

– The Federal Power Act leaves within the states’ exclusive jurisdiction the regulation of “any other sale” (i.e., retail sale) of electricity

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U.S. Supreme Court Rules That FERC Has the Authority to Regulate Demand Response Resources

ISO-NE PUBLIC

• In May 2014, the D.C. Circuit Court of Appeals vacated FERC Order 745 on the grounds that the order “goes too far, encroaching on the states' exclusive jurisdiction to regulate the retail market”

• FERC appealed this decision to the U.S. Supreme Court

• The U.S. Supreme Court found that compensating demand response resources at the wholesale level directly affects wholesale electricity rates, and that Order 745 does not intrude on the states’ authority to regulate retail sales of electricity

• The Court also found that the practice of compensating demand response resources at the wholesale level enables FERC to fulfill its statutory duties of holding down prices and enhancing grid reliability – just as the Federal Power Act contemplates

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U.S. Supreme Court Rules That FERC Has the Authority to Regulate Demand Response Resources, continued

ISO-NE PUBLIC

• With the Court’s decision, ISO New England can now continue with its plans, which had been delayed by a year due to the legal challenges, for full integration of demand response resources into the region’s wholesale electricity markets

• The full-integration project will create opportunities and obligations comparable to those of generators for demand response resources

• The full-integration project will incorporate demand-reduction offers into the same energy market systems that currently dispatch the system based on generation-supply offers, and will allow active demand resources to provide reserves

– The project will require extensive software changes; completion is expected by June 1, 2018

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ISO New England Has a Clear Path Forward for Fully Integrating Demand Response Resources

ISO-NE PUBLIC

0%

2%

4%

6%

8%

10%

12%

Potential Peak Reduction from Demand Response Programs by ISO/RTO • No other energy market in the

U.S. currently incorporates demand-reduction offers into its energy dispatch system

– ISO New England’s plans to implement this by June 2018 may make it the first U.S. grid operator to accomplish this

• ISO New England already has the greatest ability to reduce peak demand through demand response resources compared to other grid operators in the U.S.

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New England’s Demand Response Has Largest Peak Demand Impact Among All U.S. ISOs and RTOs

Source: Assessment of Demand Response and Advanced Metering Staff Report, Federal Energy Regulatory Commission, December 2015

ISO-NE PUBLIC ISO-NE PUBLIC

WHOLESALE ELECTRICITY COSTS

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ISO-NE PUBLIC

Wholesale Electricity Costs Reflect Market Conditions Annual wholesale market costs have ranged from $6 billion to $14 billion

12.1

5.9

7.3 6.7

5.2

8.0 9.1

5.9

1.5

1.8

1.6 1.3

1.2

1.1

1.1

1.1

$0

$2

$4

$6

$8

$10

$12

$14

$16

2008 2009 2010 2011 2012 2013 2014 2015

Energy Market

Ancillary Markets

Capacity Market

Annual Value of Wholesale Electricity Markets (in billions)

Source: 2015 Report of the Consumer Liaison Group Note: 2015 wholesale market values are preliminary and subject to reconciliation

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ISO-NE PUBLIC

New England Wholesale Electricity Costs(a)

(a) Average annual costs are based on the 12 months beginning January 1 and ending December 31. Costs in millions = the dollar value of the costs to New England wholesale market load servers for ISO-administered services. Cents/kWh = the value derived by dividing the dollar value (indicated above) by the real-time load obligation. These values are presented for illustrative purposes only.

(b) Energy values are derived from wholesale market pricing. (c) Ancillaries include first- and second-contingency Net Commitment-Period Compensation (NCPC), forward reserves, real-time reserves, regulation service, and a

reduction for the Marginal Loss Revenue Fund. (d) Capacity charges are those associated with the Forward Capacity Market. (e) Transmission charges reflect the collection for transmission owners’ revenue requirements and tariff-based reliability services, including black-start capability

and voltage support. In 2015, the cost of payments made to these generators for reliability services under the ISO’s tariff was $41.9 million. (f) RTO costs are the costs to run and operate ISO New England Inc. (g) 2015 wholesale values are preliminary and subject to reconciliation.

2008 2009 2010 2011 2012 2013 2014 2015(g)

$ Mil. ¢/kWh $ Mil. ¢/kWh $ Mil. ¢/kWh $ Mil. ¢/kWh $ Mil. ¢/kWh $ Mil. ¢/kWh $ Mil. ¢/kWh $ Mil. ¢/kWh

Wholesale market costs

Energy (LMPs)(b)

$12,085 9.1 $5,884 4.6 $7,284 5.6 $6,695 4.9 $5,193 3.9 $8,009 6.0 $9,079 6.9 $5,909 4.5

Ancillaries(c) $366 0.3 $190 0.1 $164 0.1 $39 0.0 $56 0.0 $155 0.1 $330 0.2 $209 0.2

Capacity(d) $1,505 1.1 $1,768 1.4 $1,647 1.3 $1,345 1.0 $1,195 0.9 $1,057 0.8 $1,063 0.8 $1,110 0.8

Subtotal $13,956 10.5 $7,842 6.1 $9,095 7.0 $8,079 5.9 $6,444 4.8 $9,220 6.9 $10,472 8.0 $7,228 5.5

Transmission charges(e)

$869 0.7 $1,155 0.9 $1,417 1.1 $1,378 1.0 $1,532 1.1 $1,806 1.3 $1,815 1.4 $1,954 1.5

RTO costs(f) $124 0.1 $116 0.1 $145 0.1 $130 0.1 $139 0.1 $167 0.1 $165 0.1 $165 0.1

Total $14,949 11.3 $9,113 7.1 $10,657 8.2 $9,588 7.0 $8,115 6.0 $11,193 8.3 $12,452 9.5 $9,346 7.1

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ISO-NE PUBLIC

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ISO-NE PUBLIC

For More Information…

• Subscribe to the ISO Newswire – ISO Newswire is your source for regular news

about ISO New England and the wholesale electricity industry within the six-state region

• Log on to ISO Express – ISO Express provides real-time data on New

England’s wholesale electricity markets and power system operations

• Follow the ISO on Twitter – @isonewengland

• Download the ISO to Go App – ISO to Go is a free mobile application that puts

real-time wholesale electricity pricing and power grid information in the palm of your hand

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