New England winter reliability plan costs may rise

OREANDA-NEWS. New England's electric grid operator may need to spend more to renew its winter reliability program for another year because of pressure from federal regulators to begin compensating more types of generating fuels, such as coal and nuclear.

The program, which just finished its second year, has so far only included units that commit to stockpile fuel oil or make LNG supply arrangements ahead of winter. Those units are compensated based on the amount of fuel-oil equivalent left unburned at winter's end, at a rate of \$18/bl. Last winter the program paid out \$45mn, below the maximum budgeted amount of \$70mn.

But the Federal Energy Regulatory Commission (FERC) has limited future winter reliability programs to a market-based approach, meaning any resource participating in the market could qualify for compensation. FERC's proposed change would prevent the grid operator from renewing the program in its current form and its existing out-of-market subsidy.

The Independent System Operator of New England in a bid to save the program has offered to broaden it to cover nuclear, coal and hydro units. Those units will qualify if they show availability of 10 days' supply of fuel to sustain full load operation at wintertime generation capacity.

Including those other fuels would mean up to 8.4mn barrels of oil-equivalent could be subsidized under the program, up from 5.1mn if the program was limited to oil and LNG. The maximum payment using the compensation rate employed last year would be \$151mn.

The Independent System Operator expects that 20.9GW of capacity will be eligible for the expanded subsidy program, including 10.8GW of oil and dual-fuel capacity; 4GW of nuclear capacity; 2GW of coal; 1.1GW of biomass and 2.9GW of pumped hydro storage.

FERC could still reject the attempt to revive the winter reliability program. If that happens, the grid operator has said it would probably raise its "reserve constraint penalty factor," a metric that allows energy prices to rise during constrained conditions. A higher penalty factor would mean generators would have more of an incentive to perform.

The consulting firm Analysis Group in a report it will present to the grid's markets committee next week found that increasing that metric to \$1,500-\$2,500/MWh would provide enough incentive to improve fuel assurance. The firm did not provide an estimate on the costs of that change, as it said the cost would depend on assumptions and program design.