ISONE External Market Monitor report 2015

A report by the New England electricity market's external monitor has found that "the markets performed competitively in 2015."

ISO New England operates wholesale electricity markets covering most of New England.  It employs two independent market monitors -- one internal to ISO-NE, one a hired external consultant -- to regularly review, analyze, and report on market results, and offer recommendations on market improvements.

Potomac Economics serves as the External Market Monitor for ISO-NE. In this role, it is charged with evaluating the competitive performance, design, and operation of the wholesale electricity markets operated by ISO-NE.  Last month, the external market monitor released its "2015 Assessment of the ISO New England Electricity Markets" (102-page PDF), presenting its perspective on the New England electricity markets.

Among other findings, the report notes that energy market trends "have been dominated by reductions in fuel prices over the last two years.  In particular, from 2014 to 2015:

• Natural gas prices declined more than 40 percent, falling to multi -year lows in mid -2015 largely because of higher shale production from the Marcellus and Utica regions; and

• Fuel oil prices fell by more than 35 percent because of increased global supply, and world liquefied natural gas (LNG) prices have fallen similarly. These reductions helped limit the increase in natural gas prices during tight gas supply conditions in the winter. 

The report notes that as a result, energy prices dropped 35 percent over the same time.  According to the external market monitor, "The strong relationship between energy and natural gas prices indicated by these results is expected in a well-functioning, competitive market. Natural gas-fired resources were the marginal source of supply in most intervals in 2015 and competition compels suppliers submit offers consistent with their marginal costs, most of which are resources’ fuel costs."

ISO New England's internal market monitor released its 2015 Annual Markets Report earlier this year.  That report similarly found that overall, "the ISO New England capacity, energy, and ancillary service markets performed well in 2015."

Report on 2011 New England electricity market

New England electricity markets operated competitively and relatively efficiently in 2011, according to a report filed with federal regulators earlier this week.  The 2011 Assessment of the ISO New England Electricity Markets (184-page PDF), prepared by New England's external market monitor, reports on how the market performed last year, with a focus on evaluating efficiency and competitiveness.

ISO New England Inc. is the regional transmission organization covering most of New England.  In this role, ISO New England performs three major functions: overseeing operation of New England's bulk power generation and transmission system, administering the region's wholesale electricity markets, and managing regional planning processes. ISO New England is regulated by the Federal Energy Regulatory Commission, and has both internal and external market monitors who review its performance.  The internal market monitor is a unit within ISO New England Inc., while the external market monitor is an independent outside consultant.  Potomac Economics currently serves as the external market monitor.

Potomac's report found that "the markets performed competitively in 2011".  One piece of evidence Potomac used to support this finding is that average energy prices fell 7 percent from 2010 to 2011 (from approximately $53 per MWh in 2010 to $49 in 2011).  According to the report, this is due in large part to a decrease in the average price of natural gas.  In Potomac's view, lower fuel costs translate to lower prices in a well-functioning, competitive market because fuel costs constitute the vast majority of the marginal costs of most generation.  Natural gas pricing decreases were not the only contributor to lower energy prices, according to the report; Potomac also noted that prices fell due to a weather-driven decrease in demand for electricity, stating that, "Average load decreased 1 percent from 2010 to 2011 and 2.5 percent from the summer of 2010 to the summer of 2011, primarily due to milder weather."

Potomac also found that "both the day-ahead and real-time markets operated relatively efficiently in 2011 as prices appropriately reflected the effects of lower fuel prices and load levels."  However, the external market monitor found that "real-time prices often do not fully reflect the cost of satisfying demand and maintaining reliability during tight market conditions, particularly when fast-start resources or demand response resources are deployed in the real-time market."  As a result, the report recommended a series of changes to the New England markets, including developing pricing changes to allow the actual costs of demand response and fast-start resources to be reflected in prices.

The report was filed with the Federal Energy Regulatory Commission on June 25.  It complements the 2011 Annual Markets Report (121-page PDF), released this May by ISO New England's internal market monitor.  The internal market monitor's report similarly found that the markets operated competitively in 2011.

June 13, 2011 - RGGI carbon auction results

The latest carbon auction results from the RGGI program show a market in uncertainty.

The "Old Woolen Mill" on the Great Works River in North Berwick, Maine.

The Regional Greenhouse Gas Initiative (RGGI) is the first market-based greenhouse gas regulatory program in the United States.  RGGI represents a cooperative effort by Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont.  These ten states agreed to cap and reduce their electrical energy sector's greenhouse gas emissions by 10% by 2018.

While each state's legislature implemented its own version of the compact, the overall structure is that carbon allowances are auctioned off to the power sector.  Proceeds from these auctions are invested in energy efficiency, renewable energy, and other clean energy technologies.  The program has been a success in creating jobs, reducing greenhouse gas emissions from the power sector, and funding high-yield energy efficiency projects at businesses.

RGGI just held its twelfth auction.  (You can read the market monitor's report, a 10-page PDF, here.)  Altogether, the auction raised $25.5 million.  Each participating state's energy programs get a share in those proceeds based on how the underlying carbon allowances were allocated; for Maine, the twelfth auction yielded just under $770,000.  Since 2007, Maine has received $26 million through the program, which has been invested in energy efficiency through the Efficiency Maine Trust.

Interestingly, only 30 percent of the current-period carbon allowances available in the auction actually changed hands.  This low demand for allowances is striking, particularly since the price was as low as it could be: the auction floor price of $1.89 per short ton of CO2.  This apparent oversupply has emerged as the RGGI market matured; in the initial auction, the bid demand was four times larger than the supply.  While supply first outpaced demand for the tenth auction, held in December 2010, the 30% figure represents a new low for auction demand.

RGGI's thirteenth auction is scheduled for September 7, 2011.