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The Future Of New England’s Electricity Market

ISO New England’s control room. Photo courtesy ISO New England

New England tends to act like one region. One of the biggest, and maybe the most important, example of this is the way our electric system is tied together. ISO New England is in charge of the grid, and they also operate a wholesale electricity market to make sure there’s always power available. It’s a system built on already dizzying complexity, in an energy ecosystem that’s getting more complex, adding new power from renewables all the time.

Bruce Mohl details what goes on behind-the-scenes at ISO, and why our electricity market is at an important moment. He and NHPR’s Energy and Environment Reporter Annie Ropeik spoke with John Dankosky to help demystify this important, complicated market that keeps electricity flowing in our region.

Interview Highlights

These Interview Highlights have been lightly edited for length and clarity. 

John Dankosky: What is ISO New England, and what do they do? 

Bruce Mohl: Well that’s a big question. It stands for Independent System Operator New England, and it’s the organization, a rather large organization based in Holyoke, that is in charge of making sure the power goes on when we flip our switch, basically. And that’s an easy, simplified answer, but it’s a complicated process about how they go about doing that.

They have to make sure that we have enough power being produced in the region, and they have to make sure that that power gets to people at the right time and in the right situations. They also run a bunch of markets to make this process work in a market-oriented way. And by that I mean they’re trying to get companies to compete against each other to provide electricity to the market, and they’re going to take revenue out of the market to recover their costs and make a profit. That’s sort of in a nutshell what they do.

What are the things about how ISO New England works that you think is important for our listeners to know? 

Annie Ropeik: I’ve come to understand that this is one of the areas that is really purposefully opaque, it is designed in not a very forward-facing, very customer-facing way. And it keeps people from understanding the process fully, and that is somewhat by design. This is a capitalist system, so it is designed to, in some ways, profit off of consumers and also to provide them with power, but it’s not necessarily in the interest of all the players here for everyone to understand how their rates are being set, to be frank.

So ISO is one of the most important players in that very opaque system. They are responsible for figuring out where that next megawatt, or the next electrons that are going to come to your house, your factory, your school, where those are going to come from. And so, one thing that I think that is so interesting about ISO, and about other groups like ISO around the country, is that they’re supposed to be kind of agnostic to the type of fuel that they’re bringing into the mix. So whether it’s coal, or solar, or hydropower, big hydro, or small hydro, they’re not supposed to really care about that, they’re not supposed to be political, they’re not supposed to really be interested in certain state policies or subsidies, or lack thereof, they’re just supposed to care about keeping the lights on, and doing it in the most cost-effective and reliable way.

Bruce, this is fascinating, because here’s an organization that’s, like Annie said, not supposed to be playing politics, they’re supposed to be trying to keep our lights on and providing the most reliable service. But the constraints that they’re talking about, the problems with reliability they see coming right now and down the road are concerning things like whether or not we’re going to build gas pipelines, whether or not we’re going to have nuclear power plants, whether or not we’re going to build new renewables, or have long throw transmission lines to get power down from Canada. Each of these things seems very political and very politically fraught. So then what happens next? 

Mohl: It’s a bit of a hodgepodge right now because the market, and I keep coming back to this because that’s what ISO New England runs, it runs a market, and it’s been extremely efficient over the last decade, I’d say, maybe even more, partly because natural gas has been so cheap. So natural gas came into the region, a lot of power plants were built that run on natural gas, and it backed out a lot of coal and oil plants, and now even nuclear plants are in danger. Because it was cheap, the market was ruthlessly efficient about that, and we also gained because natural gas was a cleaner burning, low emission fuel than coal and oil.

But now states across New England have these targets for reducing greenhouse gas emissions, and the problem is the market doesn’t really know how to deal with that, because building an offshore wind farm off the coast, or building a transmission line to bring hydropower from Canada, it costs a great deal of money to do that up front, but down the road in an operating sense, it’s almost free, because the wind is free and the water going over the dam is free. So how does a market deal with that? Well, it can’t deal with that, let’s put it that way. Because these plants want to come in and make a ton of money, they need a ton of money to get them up and running, and the market doesn’t see a need for that because you still have all these gas power plants that can operate, can get up and running faster, at a lower cost, but they have this fossil fuel component. So what the states have done is said, ok, if the market can’t provide it, we’re going to go out and do it ourselves. So Massachusetts ratepayers themselves are going out to do offshore wind projects, and they’re trying to buy hydropower from Canada, and this is outside the market.

So in a sense, you have two markets sort of going on at this same time. One is states trying to bring in renewables to meet their greenhouse gas emission targets, and then this other market that is trying to operate just to keep the lights on. And the challenge for the ISO is how do you blend these two markets together and make them work efficiently.

The market seems to be unraveling, the way it has operated, because of all these competing concerns. At some point you think everyone has got to get together and figure out a way out of all of this, so far that hasn’t happened.

One of the reasons that hasn’t happened is that the Commonwealth of Massachusetts has an outsized role in all of this. They’re the most populous state in this region, they have the biggest power needs, and in many ways they’re calling the shots. I’m wondering, from the vantage point of someone who covers energy in New Hampshire, what this means for the Northern New England states, how they’re viewing this problem differently than what’s happening in Massachusetts. 

Ropeik: It’s super interesting, I mean the interplay between the political approach to energy and also just the grid-based approach to running a grid across six states that have very different power needs, very different power desires, is incredibly complicated. And it’s almost an impossible task for ISO, it’s just a balance that they have to try to strike every day.

New Hampshire really prides itself on not following states like Massachusetts on every policy that they put forth, New Hampshire doesn’t like to just do whatever everyone else in the region is doing, and we’ve really seen that come to bear on things like solar development. New Hampshire really lags behind states like Vermont and Massachusetts on new megawattage of solar, just policies to expand the use of renewable energy. New Hampshire is very opposed to subsidies, or I should say our current governor’s administration is very opposed to any kind of subsidy for renewable energy, he wants them to compete on their own merits, which they’re starting to be able to do, but as we’re seeing, a lot of these legacy fuels have their own kinds of subsidies that are really baked into the system, so the idea that there’s a free market for energy that exists out there is a little bit of a fallacy, I think I’ve probably said that before on this program, that’s one of the biggest things I’ve learned as an energy reporter that’s important to know.

And, you know, I think when Bruce says that the wholesale market is collapsing in on itself, one way to look at that is about 20 years ago we finished this process called deregulation where we basically said that companies like Eversource, for example, that own the poles and wires that get the power to your house, they can’t also own power plants. So we separated the generation from the transmission, that was deregulation. A lot of people see these steps like putting the gas plant that Bruce mentioned back on ISO’s watch, they see that as a step against deregulation, as a step back towards a more sort of self-controlled, less independent, less competitive energy market and that was what we set out to do with deregulation years ago, and a lot of people are concerned that that’s going to make it harder for ISO to allow state policies and the idea of the free market to kind of work together harmoniously, and it’s going to put them more at odds.

Bruce, how do we get to, in your mind, a system that seems to work in a more unified way and that also takes into account just the changes in the overall market. People are moving towards a more renewable energy economy, and it seems as though the system that we have in place right now isn’t set up to accept those changes. 

Mohl: I think you’re right to a certain extent about that. And so what you’re seeing is states increasingly going at it alone.

As Annie said, 20 years ago we used to have regulation, where regulators decided what plants would get built and how much we would pay for them. We’re moving back to that now, where Massachusetts decides we’re going to have an offshore wind farm and our customers are going to pay this amount for it. Everybody raved about the price on that contract, but it’s a 20-year contract. It’s interesting to note that if at 10 years some great new technology comes along that just beats the pants off of offshore wind in terms of price and environmental benefits, we’re still stuck with a 20-year contract. And that’s what we deregulated to get away from, that ratepayers are at risk. And so I think where we’re headed is that more and more either states or ISO or the federal government are going to start dictating what plants get built, what plants get supported economics-wise from ratepayers, and we’re going to move back to that regulated environment. I think that’s going to be increasingly the case as time goes by.

This is an edited interview from the December 13, 2018 episode of NEXT. You can listen to the entire show right nowFind out when NEXT airs throughout all of New England.