By GARRY RAYNO, InDepthNH.org
CONCORD — Federal regulators have approved the first phase of ISO-NE’s, the New England electric grid manager, plan for assuring adequate electricity in the future.
The electric system manager is replacing its three-year-out forward capacity auction with one that is one-month in advance of when the capacity is needed.
Eventually the organization will also split the annual auction into two, one for the summer season and one for winter energy needs.
“In collaboration with stakeholders, ISO-New England is redesigning the capacity market to improve reliability and cost effectiveness as the resource mix evolves,” the company said in a press release.
Under the plan’s first phase, the capacity auctions will move to a “prompt” timeline, as well as updating the process for generators exiting the forward capacity market.
The ISO plans to conduct its first auction under the new framework in 2028 and submit its proposal for the two seasonal auctions to the Federal Energy Regulatory Commission by the end of the year.
Under the old system, electric generators were “paid in advance” for their capacity in future years, driving up electric bills by tens of millions of dollars annually.
Some of the generators who bid into the auction three years in the future were not producing electricity at the time, but anticipated they would in three years. If their bids were below the ceiling price, they were paid.
The new system removes those “phantom generators” from future auctions.
“Resources must be operational before they can sell capacity. This ensures they enhance system reliability and that consumers get what they pay for,” the organization said.
The short time between auctions and the need for capacity will produce more accurate projections for supply and demand which allows the ISO to establish more accurate auction parameters and the generators to make better-informed decisions about their costs for selling capacity.
The system manager said the shorter process streamlines administration for them and participation for resource owners.
Another problem with the old system was the deactivation process if a company no longer wants to participate in the future capacity market if they became no longer economically viable.
A generator who decided to stop supplying electricity had to submit an exit bid four years before the shutdown date.
Under the first phase plan, the time period would be shortened to one year.
“The ISO will continue performing reviews intended to deter attempts at market manipulation and safeguard against deactivations that jeopardize transmission security,” the organization said.
The closure of Mystic Generating Station, a natural gas burning facility with two mega units and a Liquified Natural Gas import station, one of two in New England, is often cited as one of the reasons for changing the forward capacity system.
The facility once owned by Boston Edison, which sold it in the mid 1990s to Sithe Energies, underwent a large capital expansion and a series of owners since the turn of the century and filed for bankruptcy in 2021.
The company sought to exit the forward capacity market in 2019, but ISO-NE believed New England would face brownouts without Mystic’s 1.4 gigawatts of electricity, even if the plant didn’t make money.
The facility was forced to stay open but needed to be made whole, which included 91 percent of the operating costs of the associated LNG terminal, resulting in a legal battle and ultimately FERC approval.
The Mystic situation spurred changes in the forward capacity market and in the region’s generating capacity.
Another issue with the old market was the low payments made to renewable energy sources such as solar and wind which were “discounted” due to reliability concerns, particularly during peak usage times.
The ISO a year ago changed the auction procedure for the Day-Ahead Ancillary Services program, and according to the region’s Internal Market Monitor, cost ratepayers an additional $921 million across New England since March 2025, significantly higher than the ISO’s original estimate of $140 million.
That caught the attention of Gov. Kelly Ayotte, who called on ISO NE to make changes in the procedures to reduce costs for all New England ratepayers.
The forward capacity market was created after New England states deregulated the electric industry separating transmission and distribution from generating and requiring all integrated electric companies to sell their generating facilities. The idea was to spur investments in new generating facilities with utilities leaving generation.
The goal of deregulation was to take the risks of constructing new generating facilities off of electric consumers and put them on the developers of the new facilities.
However, the New Hampshire House last week passed a bill to allow electric utilities to own small natural gas and nuclear generating facilities.
Yesterday ISO NE said it will continue to work with stakeholders on the winter and summer season auctions plan and how generators qualify for the forward capacity auctions under the new system.
New England is highly dependent on natural gas for electricity generation, but pipeline capacity to the region is constrained forcing utilities to rely on LNG during winter months.
In winter months, natural gas costs for utilities increase because much of the natural gas flowing into the region is earmarked for heating.
The change to two auctions is likely to lower electric costs in the summer when large solar arrays are at their most efficient and make costs higher in the winter because of the natural gas issue.
Industry observers are also concerned the mega data centers seen in other areas of the country that consume tremendous amounts of electricity and water could further reduce the region’s already small reserve margin in the future if some are built in New England.
Garry Rayno may be reached at garry.rayno@yahoo.com.