The independent organization that runs the New England power grid has struck a deal with regulators in four states to settle a protest filed late last year over a budget request of $165 million for 2013, a 14.8 percent increase over last year.
The challenge was spurred in part because of ISO-NE's lavish salaries. Last year, 275 ISO employees made more than $100,000 in base pay, received on average 3 percent for pay increases, 9 percent in merit bonuses, and enjoyed a defined benefit retirement program.
As a result of the settlement, filed May 13, ISO-NE agreed to cut nearly $3 million in operating and capital expense, change its pension plan for new employees and provide greater transparency in its budgeting process moving forward.
The changes stem from a November filing with the Federal Energy Regulatory Commission by a powerful alliance of regulators, consumer advocates and attorneys general in Connecticut, Rhode Island, New Hampshire and Maine.
FERC has final say over the ISO-NE budget, and is expected to approve the settlement, which state regulators say is designed to rein in out-of-control costs at the regional power management center in Holyoke, Mass.
An important principle
The cost of running ISO-NE only adds up to about 83 cents a month for the average ratepayer in the six New England states, so the savings from the settlement might not be noticed on electric bills.
"While the impact of the ISO budget on monthly electric bills is small, there is an important principle at stake here," said Arthur House, chairman of the Connecticut Public Utilities Regulatory Authority, which initiated the action. "That principle is that costs borne by ratepayers — including the ISO budget — must be subject to careful scrutiny and review. Our legal responsibility and fiscal obligation to everyone who pays an electric bill demand this."
ISO-NE is a non-profit organization that can only raise enough money to match its expenses, as supervised by FERC. The money comes from fees charged to participants in the wholesale electricity market, who pass those fees along in their pricing to consumers.
New Hampshire's portion of savings from the settlement is modest, according to Susan Chamberlin, the consumer advocate at the N.H. Public Utilities Commission and a party to the protest.
The state accounts for about 10 percent of the region's electricity usage, and will get about 10 percent of the $3 million in savings, or $300,000 spread out among 400,000 utility customers in 2013.
"The significant element of the settlement is increased transparency in the budget process," Chamberlin said. "There are more opportunities for state consumer representatives to participate in the process, and ISO-NE must provide more detailed information."
No economies of scale
Ellen Foley, an ISO-NE spokesperson, said all stakeholders in the ISO-NE budgeting process had plenty of opportunity for input prior to the settlement, and will have even more now. She pointed out that the budget as proposed was endorsed by the members of New England Power Pool (NEPOOL), which represents the roughly 500 companies that do business with the ISO.
She said the organization stands by the budget as proposed, but was anxious to settle the case and move forward. ISO was already four months into its fiscal year when the settlement was reached, and can tell from its actual experience that it will be able to meet the new spending targets.
ISO-NE is one of six regional transmission organizations in the country, and according to the protesters, the most expensive to operate, even though it has the smallest service area, serves the smallest population, manages the least amount of installed generation and oversees the fewest number of miles of transmission lines.
Foley admits that New England ISO's small footprint results in a high cost per megawatt hour delivered when comparing the megawatts to the size of the budget.
"There are no real economies of scale," she said. "Everyone needs a control room to operate 24-7 no matter how many megawatts are being served."
Scope of services
Beyond the size of the territory is the scope of services, and Foley said ISO-NE has a much more robust portfolio of services to the energy market, when compared to similar organizations in other regions.
"We offer day-ahead and real-time energy markets, and other ISOs may just offer next day. Some don't offer forward capacity, she said, referring to the purchase of power for a future year at competitive price.
She cited several other factors driving cost, including the increased complexity of managing the power grid on a day-to-day basis, the challenges of deregulation and competitive retail sales, adapting the system to a changing fuel mix, and new mandates imposed after the Northeast blackout of 2003.
As regards high salaries and generous benefits, Foley said the ISO is competing in a high-wage market for high-end technical, scientific and legal talent to manage an essential service.
Chamberlin believes the more structured review of ISO budgets by state regulators emerging from the settlement will provide a cost-control perspective that has been lacking.
"Their primary focus is reliability, not cost-containment," she said. "When you have a lot of experts who solely want to make things reliable, they may be doing a lot of things that put pressure on rates. We certainly want them to have the tools they need, but we don't want to write a blank check."