BONUS: New Hampshire Considers Telling ISO-NE to Kick Rocks
They're considering spending $200k. I'll give them a free trial.
I’ve been reading about the history of utility regulation recently. One thing I found interesting is that market-driven grid operators like ISO-NE are, all told, on pretty thin legal ice. The FERC Order 888 that provides blessing for ISO-NE is a mere corollary of Title VII of the Energy Policy Act of 1992. All that statute says is that the Federal government cannot stop a holding company from owning their own power plants. Everything ISO-NE works on comes down to executing FERC’s mandate that interstate electric sales are “just and reasonable” in an era where random companies can own power plants. The Supreme Court has done case law under the assumption that ISO-NE and PJM and MISO and ERCOT exist, but nothing really stops the Court from nuking these organizations with a “lol show me where ‘Ar-Tee-Oh’ lives in the USC.”
ISO-NE is not inevitable. They’re only about as old as I am, and no one in the industry takes me seriously. And now the New Hampshire Legislature is in the late stages of a bill that would ask—politely, demurely—what would happen if New Hampshire backs out of ISO-NE’s triple mandates of 1) wholesale electricity market administration, 2) real-time generation and transmission dispatch, and 3) long-term system planning.
The answer is straightforward: chaos, disruption, panic, a lot of money spent putting out fires with a fire truck that’s also on fire. But we’re likely to get that with the status quo, too. New Hampshire’s legislature is asking the right questions. And I’m going to answer them, back-of-the-envelope, for everyone’s benefit.
Below are the investigatory questions from House Bill 690-FN, as amended by the Senate, as marked “Ought to Pass” by the Senate Finance Committee and House Energy and Natural Resources Committee. I’ll annotate them with my preliminary responses:
A. What are the current rights and obligations of ISO New England? Which responsibilities, currently held by ISO New England, could New Hampshire meet on its own through state agencies, utilities, or otherwise?
The current mandate of ISO-NE, as described above, is to:
Administer “just and reasonable” wholesale electricity rates between state lines. ISO-NE does this through market mechanisms—energy, capacity, reserves, ancillary services, etc.
Operate real-time generation and transmission dispatch based on system reliability and a near-real-time suite of markets.
Point a fleet of eggheads towards modeling the future of the electric grid, typically out to 2050 (or 2045, if their projected costs for true Net Zero break their scales)
See the response to Question C for New Hampshire’s capacity to replicate these functions.
B. Have other states, or utilities in other states, or both, left or considered leaving ISO New England or any other regional transmission organization? What has been the result of such initiatives?
I haven’t seen it done. The United States is currently going in the opposite direction, with the Southwest Power Pool (SPP) expanding into the Great Plains.
C. What new capabilities would state government and/or utilities need to develop if New Hampshire were no longer participating in ISO New England?
Depends on the regulatory structure. If New Hampshire reverts to cost-based dispatch, as existed prior to ISO-NE’s reign, we might see:
Generation and transmission dispatch might simply return to the control rooms of Eversource, Liberty, Unitil, and NHEC. They know how to handle this.
Wholesale electric costs and long-term planning would be managed by an “Integrated Resources” or “Energy Services” or “Policy & Planning” division within each utility. That staff might not be in-house, but it can be procured by poaching a consultant, giving them $150-500k/year in staff budget, and telling them to find some bright hotheads at UNH. If the utilities can’t do this, I will for an hourly rate plus travel expenses.
D. What are the costs and benefits to New Hampshire of leaving ISO New England? Would the state and its electric ratepayers suffer economically inefficient outcomes as a result, including exit fees, duplication of investments or costs, or operational redundancies?
The actual costs paid to ISO-NE are pretty small. If ISO-NE’s total budget is approximately $200M/year, and New Hampshire is approximately 10% of New England load, call it $20M/year in costs to New Hampshire ratepayers. However, the exit costs would be significant, particularly because ISO-NE will try their damnedest to stop this process. Depending on whether this catches national news, PJM or MISO might step in to resist this change—if New Hampshire successfully backs out of ISO-NE, other states might get ideas. If you think ISO-NE is in a bad way, PJM and MISO are doing worse.
Most of the physical plant is already there, and ISO-NE owns very little if any of it. Per back-of-the-envelope estimations, the biggest costs after the inevitable nightmare legal battle is in-housing dispatch and forecasting staff. And—speaking from experience—New England should be firing the old analytical staff and hiring fresh blood anyway.
E. What effect would exiting ISO New England have on the reliability of the bulk power transmission system serving New Hampshire?
ISO-NE doesn’t own that transmission infrastructure. The reliability costs would come from NH bulk power and Rest-of-New-England bulk power being managed by two different control rooms. In a real crisis, systems would fail faster than it would take for a phone call to go through.
F. What are the benefits to New Hampshire of continued participation in ISO New England? What opportunities exist to improve such outcomes should New Hampshire continue to participate in ISO New England?
The biggest benefit is consolidation of analytical resources. ISO-NE is full of very smart people, and their control room is very well-structured and well-staffed. Backing out of ISO-NE would require reinventing wheels. The whole promise of ISO-NE was that all these planned market economies would reduce net electric costs for customers, relative to the old model of vertical integration. That didn’t happen, even before the push to decarbonization.
G. What impediments to ISO New England withdrawal exist as the result of federal law, state law, or other legal obligations?
By my best understanding, backing out of ISO-NE is legal terra incognita. Impediment 1 is ISO-NE—and every other ISO/RTO in the country—arguing that exiting is legally untenable. This fight will go to FERC, minimum. Lawyer up. Impediment 2 is figuring out where the boundary lines are. Pricing and control nodes don’t cleanly map to state borders, so figuring out who owns (or is responsible for operating) what will involve financial and technical horse-trading. Unpleasant, annoying, ultimately doable.
H. How can a regional wholesale electricity market balance differing state policy goals while ensuring just and reasonable outcomes for New Hampshire utility customers?
The direct costs of decarbonization aren’t borne by ISO-NE. The Renewable Energy Credits (RECs) are administered through NEPOOL’s GIS, and those RECs are only relevant to individual state regulatory bodies. Consequently, ISO-NE doesn’t see REC transactions, only the indirect costs from distribution, capacity, and transmission strain.
For what it’s worth, ISO-NE is not prepared for decarbonization policy. Their analytical staff put on brave faces in their slide decks, but we’re about ten years away from the utter collapse of existing business models for intermittent renewables (particularly utility-scale solar), and no one has proven bright enough to spin up a better idea.
ISO-NE has no control over decarbonization policy. They’re purely reactive. CEO Gordon van Welie told Congress he wants more options, and he won’t get them.
I. What changes to existing ISO New England tariffs would be necessary in order to allow New Hampshire to withdraw from ISO New England?
That will take more time to assess. I don’t trust ISO-NE to give honest answers on this front.
J. What obligations would New Hampshire, and entities operating in New Hampshire, incur under the Federal Power Act if New Hampshire were to withdraw from ISO New England?
Note that the Federal Power Act primarily governs interstate electricity. If FERC wants to interfere with New Hampshire electric policy within New Hampshire jurisdiction, it’s their funeral. See the response to Question M for more detail.
K. What alternative regulatory structures, beyond reliance on a regional transmission organization like ISO New England, should New Hampshire consider to assure that New Hampshire electric customers receive safe and reliable service at the lowest possible cost?
Vertical integration and least-cost dispatch is the old-school option. That regulatory structure is well-worn, and its tradeoffs are clearly known. Alternately, NH could administer its own mini-RTO, akin to ERCOT, which would be a lot of fun to build on a whiteboard. See the response to Question N for more detail.
L. Is the governance of ISO New England, including its board of directors as well as its stakeholder advisory body NEPOOL, sufficiently accountable to the public and adequate to assure that ISO New England is operated in the public interest?
haha
hahahhahahahahha no.
The only people speaking publicly about ISO-NE are yours truly and the leftist environmental group No Coal No Gas. Take your pick.
M. When operating independently of ISO-New England, what restrictions would be placed on the state by the Federal Power Act or principles of federalism? What powers are beyond the state's purview?
For all interstate electricity transmission, New Hampshire will remain at the mercy of FERC. But to the extent that New Hampshire chooses to island itself with respect to electric capacity, interconnection with other states, and regulatory policy, the state has a more leeway. Of course, FERC’s role—in fact, the Federal role broadly—has expanded dramatically since the initial utility regulation was written. But if there’s ever a time to push back on Federal overreach, it’s right now. I suspect the existing leadership at FERC is uniquely sympathetic to New Hampshire’s interests right now, but that sympathy may not survive to 2029.
N. What alternative regulatory structures could the state explore that would better allow it to serve reliable, affordable electricity to its citizens?
A return to vertical integration and a miniaturized RTO are the two most straightforward ideas. I’d look at North Carolina and Florida as first-pass models for how vertical integration in 2025 might look like. As for a miniature RTO, I recommend reaching out to ERCOT. Their magic could be replicated with a small office in Littleton, NH, but there is a decent chance that the economies of scale would not be in New Hampshire’s favor.
An Open Offer
One of the core sticking points in this bill is the cost—the House and Senate agree that shopping this report out to a consulting firm will cost at least $200,000. The New Hampshire Department of Energy thinks they can do this in-house. The New Hampshire Office of the Consumer Advocate also thinks they can do this in-house. Senator David Watters (4th District) pitched lowering the budget to $100,000.
Of course, if New Hampshire shops this out to a Cadmus, Navigant, Synapse, or E3, they’ll get:
Two Senior Associates or Directors of Power Supply and Resource Planning writing out their conclusions on a whiteboard, two Fridays after getting this contract. Their minds were made up by the time they sent a proposal.
Two or three Project Managers or Associate Consultants laundering those conclusions into 1) an Excel model that they recycled from a project they did for some Californians and 2) a slide deck completed two days before the deadline.
Two or three analysts doing the real work: data cleaning, draft writing, assumption making.1
New Hampshire will be Priority Number Three-to-Five for these folks, because they don’t have the time or interest to ask if ISO-NE is actually good for ratepayers.
But I’ll make an offer to the New Hampshire legislature: I can write this report for $99,000, with an execution timeline of eight months. It’ll be my Priority Number One. You’ll get my real name, my cell phone number, and my honesty. If you want, I’ll call you weekly. I will not give you an arcane quantitative model that—let’s be real—no one will read through.2 Instead, I will ask questions from first principles, identify responsibilities and ideologies, slaughter sacred cattle, and speak in tradeoffs instead of utopias.
I understand that I’m young, scrappy, and unproven. But I have not made up my mind. I’m committed to the truth. And if you email f.ichiro.gifford@gmail.com with interest to do business, I will seek the truth on New Hampshire’s behalf—wherever that leads.
This post and the information presented are intended for informational purposes only. The views expressed herein are the author’s alone and do not reflect those of their current or previous employers or any elected officials. The author makes no recommendations toward any electric utility, regulatory body, or other organization. While certain information contained herein has been obtained from sources believed to be reliable, the author has not independently verified this information, and its accuracy and completeness cannot be guaranteed. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, timeliness or completeness of this information. The author assumes no liability for this information and no obligation to update the information or analysis contained herein in the future.
I would know.
And let’s be doubly real—that quantitative model will be a justification for a qualitative assessment that was decided before the model was built.