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Power Pool Politics: How New England Agreed to an ISO

Fortnightly Magazine - February 15 1997

requirement. Because this requirement is reduced by the reliability benefits of the ties with New York and New Brunswick, each participant's requirement can be reduced when a bilateral transaction across the tie lines reduces unused transfer capability.

In the restructured NEPOOL, those making transactions across ties must compensate others for the increased reserve requirement, through the so-called outside transaction adjustment, or OTA. In effect, the OTA increases the cost of purchases from outside of pool as compared with those from within it.

Resources to meet the installed capability requirement may be purchased and sold bilaterally. Because system generation and purchases may not match requirements, surpluses and deficiencies will be handled through the power exchange. The ISO will ensure adequate resources and that the most economical are used in merit order. The ISO will also arrange for surplus to be assigned to deficient loads at market rates (which should be a marginal transaction).

Tradeable Products. The market for interchange transactions will operate on a "clearing-clearing" basis. All bids at or below the price for the quantity required to clear the market will receive the clearing price. All purchases will be at the clearing price.

There will be markets for: installed capacity; operable capacity; automatic generation control; energy; and operating reserves composed of five 10-minute non-spinning; six 30-minute non-spinning; and seven 10-minute spinning. Eventually seven discrete markets will operate beside the bilateral market.

Two transmission ancillary services (em scheduling and system control, and dispatch and reactive demand (em will be provided by NEPOOL through the ISO.

To ensure reliability, all transactions must be scheduled through the system operator. Enron has said it views such scheduling as unnecessary (em that the market will ensure reliability.

Negotiating the market provisions proved to be complex. The challenge was to convert a closed, yet functional, world into an open, but still functional, world. As a result, the market provisions are to be implemented beginning in the second half of 1997, after the new transmission tariff becomes effective. A second phase will begin no more than six months later, complete with separate bid prices for each of the seven products. The market will shift from daily to hourly pricing.

Governance

NEPOOL's governance structure was designed both to produce results and to allow smaller parties an opportunity to influence decisions. When this structure developed, it was acceptable for the major generation and transmission providers to play a dominant role. Smaller participants could obtain entitlements in "Pool Planned Units," accorded special low-cost transmission pricing.

Dominant Players. For a long period, negotiations on governance remained bogged down over how new "nontraditional" participants could vote and the degree to which the dominance of traditional players could be reduced.

Finally, the parties arrived at a governance structure, which, perhaps surprisingly, paralleled the existing organization. NEPOOL will be composed of six major committees: the Management and Executive Committees, as at present; two operating committees; and two planning committees, one each for generation and for transmission. The structure includes a procedure for alterative dispute resolution.

Voting shares. All participants are members of the Management Committee and