Connecticut and four other New England states fired the first salvo Thursday in a campaign to reform the region’s complex wholesale electric market – and the unaccountable and largely opaque governance of its operator, ISO New England.
Gov. Ned Lamont and his counterparts in every New England state except New Hampshire signed onto a statement that was long on ambition and short on specifics, other than promising to deliver “a vision document outlining specific areas for reform” by week’s end.
The multi-state campaign is an expression of mounting and deep-seated frustration over ISO New England policies that state officials say undermine the economic viability of clean-energy sources and drive up transmission costs that are reflected in consumer bills.
ISO, which stands for “independent system operator,” both manages the flow of electricity and sets pricing parameters of a partially deregulated market resulting from state and federal laws in the 1980s and 1990s aimed at promoting competition.
“When Connecticut deregulated our electricity sector, we were promised competition, lower risk for ratepayers, more affordable electricity, and a system that respects and accommodates our clean energy mandates,” Lamont said. “What we got is a system that has actively hindered our efforts to decarbonize the grid, and imposed burdensome costs on Connecticut ratepayers to fix market design failures.”
Untangling that system and reforming its governance will not be easy. ISO’s board is largely self-perpetuating, meets privately and has shown itself to be immune to the pleadings of state policy makers on issues of clean energy and market rules.
Katie Dykes, the commissioner of energy and environmental protection in Connecticut, says ISO has no accountability. D. Maurice Kreis, who represents New Hampshire ratepayers as the state’s consumer advocate, find Dykes’ description overly kind.
“The ISO is unaccountable and rogue,” Kreis said Thursday in a telephone interview.
Kreis, a former regulatory lawyer and journalist, recently wrote a column for the public-interest-news site InDepthNH.org complaining that even the selection of a board member who ostensibly represents consumers was conducted in secret and without outside input.
“ISO New England is not a country club and its Board is not the Skull and Bones Club at Yale. Electing new Board members should happen in the sunshine. And it is time to appoint a director with a history of fighting for ratepayers,” Kreis wrote. “In darkness or in light, keep an eye on ISO New England and its Board. No utility, no regulator, indeed, no other entity wields such a gargantuan influence on our electric grid and, ultimately, your electric rates.”
Kreis said he sees ISO New England as performing an important function, but it should not operate as a private, industry-dominated nonprofit.
“Make the ISO act as a quasi-public organization, because that’s what it is,” Kreis said. “Make it subject to transparency laws – the federal freedom of information and open-meeting laws – so the public has access.”
ISO New England ignored the complaints implicit in the governors’ calls for reform.
“We have received the governors’ statement, and look forward to engaging with the states and our stakeholders on these issues. ISO New England, the New England states, and market participants have a long history of working together to tackle the challenges facing the power system, and we expect that to continue,” Matt Kakley, a spokesman, said in an emailed statement. “Maintaining reliable, competitively-priced electricity through the clean energy transition will require broad collaboration, and the common vision of the New England governors will play an important role in the discussions currently underway on the future of the grid.”
A push for transparency
To appreciate the role of the ISO, the frustration of state policy makers and the complexity of the electric markets requires a quick history lesson.
The electric industry began simply as a collective of vertically integrated utilities that both generated electricity and distributed it within monopoly regions. Beginning in the early 1900s, the separate regional networks interconnected and sometimes merged as they grew.
In Connecticut, the Hartford Electric Light Co. grew into Connecticut Light & Power, which eventually became part of Northeast Utilities and its present owner, the tri-state company Eversource.
Today, the industry and its regulatory oversight is anything but simple. To understand it requires a command of state and federal laws and market rules that shape what essentially is an electricity commodities market, as well as the intricacies of a dizzying array of interconnected, acronym-labeled entities that determine where your electricity is generated, how it is delivered and, ultimately, what it costs.
In 1971, utilities created the New England Power Pool, or NEPOOL, a step toward formalizing how the supply and demand of electricity is balanced throughout the region, which is important to reliability. NEPOOL opened a central control center in Holyoke, Mass.
It has met one primary goal: avoiding a replay of the Great Northeast Blackout of 1965, when a relay failure in a transmission line outside Toronto led to a cascade of outages affecting 30 million customers in eight states.
In the 1980s, the deregulation movement that successfully drove down prices and increased service in the airline, trucking and telecom industries turned to electricity, leading to the passage of the federal Energy Policy Act of 1992 and to deregulation or “market restructuring” orders a few years later by FERC, the Federal Energy Regulatory Commission.
FERC encouraged the creation of ISOs or RTOs (regional transmission organizations). ISO New England was created in 1997 and took over the Holyoke control center from NEPOOL.
Connecticut adopted its own market restructuring law in 1998, which required the state’s two major utilities, United Illuminating and what would become Eversource, to divest themselves of generating plants, such as the Millstone nuclear station, and instead buy electricity from a regional market.
Dykes says the market rules set by ISO New England ignore the clean energy goals set in state laws by the states now seeking reform: Connecticut, Massachusetts, Rhode Island, Vermont and Maine. New Hampshire has no so-called decarbonization law, but it will participate in the release of regional vision state, Dykes said.
The pressure points on ISO so far are ineffective, Dykes said.
“Connecticut has litigated. We’ve worked through the FERC process, the NEPOOL process. And it’s fallen on deaf ears,” Dykes said. “All the venues have been closed to reporters, closed to legislators and other important policy voices. That’s why it’s so important to finally have the governors speak collectively about their concerns.”
For now, they are.
“It is far past time that New England reforms how its electric grid is managed,” said Gov. Janet T. Mills of Maine, a Democrat. “The wholesale electricity markets must advance and support clean energy laws and policies, as the states demand decarbonization and markets and consumers support more renewables. ISO New England must keep pace with state priorities, and it must be more transparent and accountable in its decision making, broadening its focus to include consumer and environment concerns as well as reliability and cost.”
Massachusetts Gov. Charlie Baker, a Republican, concurred. He has previously worked with two Democrats, Lamont and Rhode Island Gov. Gina Raimondo, on regional cooperation.
“My administration looks forward to working with our partner states, ISO New England and stakeholders to build a more transparent, modern and cost-effective power system that will allow New England states to meet our ambitious climate change and clean energy goals while creating a better future for our residents,” Baker said.
The reform will include the states convening open and accessible forums. If nothing else, it will shine a light on an important organization that typically gets little attention from the public, press and most politicians.
Dykes calls that an important start: “I think it’s very overdue to kind of reintroduce Connecticut ratepayers to something they don’t know much about.”