I would like to divert from my traditional article this month to provide an open letter of response to Kathryn J. Jackson, Chair of the Board of Directors, and Gordon van Welie, Chief Executive Officer of ISO New England. On January 16, 2014, they issued a letter of response to concerns that the public power members and participants in New England have raised regarding forward capacity markets. To read the letter, click here.

Dear Ms. Jackson and Mr. Welie,

I appreciate your written response. It is well crafted and definitely reiterates your position; but your position is dismissive and does not adequately address the concerns raised by the public power community in New England. It is time for a real conversation about the market’s issues and shortcomings and the need for a holistic approach to reform.

As you seem unwilling to engage in an open discussion other than to defend your carved course, let me at least pose some questions in relation to your letter of January 16th. 

You stated in paragraph two of page two (of your letter) that "both the ISO and stakeholders have rejected the energy-only market approach because the market would be highly volatile and that high prices would be needed to induce investment in reliability." Please demonstrate the independent review of the data to show its vetting. Public power systems participated in the process and never argued that capacity markets should be replaced with an energy-only market.  Instead, we argued for enhancing signals in the energy and reserve markets and keeping the aspects of the capacity markets that work.  There is a need to look at the cost of maintaining reliability by looking at market costs on a holistic basis.  As you know, public power places a high value on reliability and our members as integral parts of their communities would not support a reduction in reliability. But we would very much like to see that this reliability is being obtained at the lowest reasonable cost to consumers on both a long term basis and a near term basis.   

You go on to suggest that our disagreements result from "differing visions." The reliable provision of power to the New England market should not be reduced to "differing visions." ISO was tasked with the creation and operation of a sustainable market for reliable power. It is not intended to be a monument to a person or group’s beliefs. 

Your dismissal of our suggestions for addressing the risks facing the region are not based on analysis, but "belief."  You dismiss the desire to provide the reliability that consumers' desire. No studies or quantifiable models were provided to support your lack of faith in the industry’s desire to value reliability or state governments’ ability to protect their citizen’s. Since public power is owned by the citizens, or using your term "consumers", that protection is built into our model.

Our concern is with the work done by the Analysis Group which indicates Pay For Performance will cause the capacity market to select more reliable resources. I would like to see the independent vetting of this analysis. The Analysis Group’s report is understating the risks implicit in the PI proposal, which will translate into higher risk premiums (and capacity charges to consumers). Your letter focuses on reliability of the market and how PFP will improve it. Has the ISO considered what would happen if (because of PI) existing units start retiring and no new units are willing to enter the market at the prices predicted by the Analysis Group? Has the AG analysis considered the implications of energy and reserve market reforms that are already in the pipeline and how they would affect their results, as well as the overall cost to consumers? As public power providers, NEPPA members interact with their customers/owners on a daily basis and they understand the economic constraints that drive their lives. Why should the citizens of New England trust your "beliefs" to strike the balance between their economic condition and the margins they are willing to accept for margins of reliability? I am proud of our members’ ability to balance their citizen’s economic situations and provide the most reliable power in the United States. Shouldn’t we be given more input based on our track record?

I eagerly await your response.

Thank you members, for your indulgence of my soap box moment. If you are as passionate about protecting the public power model, I strongly urge you to attend our annual DC rally, March 10th  –  12th. If you would like more information or are planning to attend, please let me know via email at lbrownell@neppa.org, so I can include you in our briefing and preparation process.