Commissioner Allison Clements Dissent in Part Regarding ISO New England Inc.

Commissioner Allison Clements Statement
June 7, 2021
Docket No. ER21-1637-000

I agree with the findings in today’s order with one critical exception: I disagree that ISO New England’s proposed Offer Review Trigger Price (ORTP) for offshore wind is just, reasonable, and preferable to that proposed by the New England Power Pool (NEPOOL).  I would have instead found that the NEPOOL proposal is just, reasonable, and preferable.

Before jumping into the particulars of this proceeding, I must begin by reiterating my grave concerns with the scope of ISO New England’s existing minimum offer price rules.[1]  Those rules inappropriately mitigate state law- and policy-driven resources under the withering guise of protection against buyer-side market power.  Decisions to procure specific types of capacity fall squarely within states’ reserved rights under the Federal Power Act.  Rules that render the capacity market blind to capacity built pursuant to these state requirements are counterproductive and leave customers paying unjust and unreasonable capacity rates.

In the context of this broader concern, I turn to the aspect of today’s order addressing the ORTP for offshore wind.  Practically speaking, today’s decision means that the capacity market may ignore state-supported offshore wind resources, which risks significant over-procurement and unnecessary costs.  Today’s decision means that any offshore wind resource seeking to sell its capacity into the capacity market must first justify its offer price to the satisfaction of the Internal Market Monitor.  This status establishes what amounts to a rebuttable presumption that an offshore wind resource’s offer is illegitimate, thus creating material risk to an offshore wind facility’s ability to participate in the capacity market and receive payment for its capacity contributions.

In its transmittal letter, ISO New England asserts that it strives to set ORTPs at the “low end of the range of potential competitive offers” for each resource type in order to “strike[] a reasonable balance by not subjecting offers that are ‘clearly competitive’ to [Internal Market Monitor] evaluation[.]”[2]  Consistent with this standard, I believe NEPOOL’s proposal is the just, reasonable, and preferable option before us.  It is supported by ample record evidence, is derived from essentially the same capital budgeting model used by ISO New England’s consultant, is validated by a literature review of offshore wind project costs, and has the benefit of deriving from publicly available information regarding actual market conditions.

Today’s order disagrees with this conclusion, finding that NEPOOL’s proposed capital cost and resulting ORTP for offshore wind is not just and reasonable. The majority finds fault with NEPOOL’s methodology of imputing capital cost for the hypothetical resource from recent offshore wind power purchase agreement (PPA) prices in New England. But, as NEPOOL’s consultant Daymark Energy Advisors explains, NEPOOL’s approach merely uses the same capital budgeting model employed by ISO New England and solves for a different variable.[3]  That is, rather than inputting capital cost from a proprietary database and solving for a required capacity price to break even, NEPOOL inputs an assumed (conservative) capacity price and solves for capital cost. With this capital cost estimate in hand, NEPOOL runs the model again in the same way ISO New England runs it to estimate an ORTP.  While this approach is different from ISO New England’s, to call it a radical deviation or facially unreasonable is simply wrong.  And NEPOOL’s reason for its approach is entirely logical—it seeks to use executed New England offshore wind PPA prices as the basis for the offshore wind ORTP because those prices are the most recent and most applicable data on offshore wind in the region.

ISO New England criticizes NEPOOL’s supplementary support for its ORTP determination—a comprehensive review of publicly available literature on offshore wind costs that validates NEPOOL’s results.  ISO New England expresses concern that this literature review considers costs of projects outside the U.S.  It appears, however—from what insight we have into the proprietary cost data—that ISO New England’s consultant Mott MacDonald also relies on cost data for projects outside the U.S., not as validating support but as an input into its ORTP capital costs determination.  That is not surprising given that all offshore wind projects of significant size have been developed outside the U.S.  Certainly, it cannot be that it is appropriate to rely on data from international projects in the ISO New England analysis but not within NEPOOL’s analysis.

I find the NEPOOL proposal the better option for two reasons.  First, similar to declining costs for onshore wind and PV solar before it, the costs of offshore wind are declining quickly as development of projects ramps up in the U.S. and as a number of states in the Northeast contract for increasingly large projects.  These decreasing costs weigh in favor of an ORTP method that uses as up-to-date data as possible.  NEPOOL’s approach relies on recently signed PPAs for New England projects, which means it is both up-to-date and reflective of the region in question.  Due to our limited visibility into the sources of Mott Macdonald’s cost database, we cannot ascertain whether that data reflects equally current sourcing.

Second, NEPOOL’s proposal offers a viable alternative to ISO New England having to estimate costs for a hypothetical resource, an exercise that is inherently fraught.  RTOs/ISOs are not project developers.  Even with the aid of consultants, experience demonstrates that processes requiring RTO/ISOs to make myriad project development assumptions and estimate the associated costs using proprietary data is a recipe for extensive litigation before the Commission.  To the extent filing parties provide a well-supported alternative approach that relies less on estimated development costs of a hypothetical resource and more on real-world, publicly available information, the process and the results are more defensible and will likely prove more durable.  NEPOOL offers such an alternative here.

Today’s decision on the offshore wind ORTP is especially troubling given New England states’ increasing interest in procuring offshore wind generation to support their policy goals.  As the region will be left to navigate this decision for the time-being, I can only express my hope that the Internal Market Monitor will provide a fair and legitimate opportunity for offshore wind resources to demonstrate the appropriateness of offer prices below the ORTP.

For these reasons, I respectfully dissent in part.