Wholesale and Regional Electricity Markets

FERC regulates transmission and wholesale sales of electricity in interstate commerce; licenses and inspects hydroelectric projects; oversees certain environmental matters; and administers accounting and financial reporting regulations. The ISO-NE was established as a not-for-profit private corporation on July 1, 1997, following its approval by the FERC as the regional transmission operator.

ISO-NE manages the New England region's electric bulk power system – the generation and transmission of electricity on the wholesale and interstate level – and administers the region's wholesale electricity markets. ISO-NE is responsible for ensuring the system's day-to-day reliable operation and administers a comprehensive regional planning process, issuing a Regional System Plan each year. These 10-year plans include forecasts of future demand for electricity within the New England region and how the system can meet demand by adding generating resources, demand-side resources, or transmission infrastructure. Each plan addresses region-wide and local needs to ensure the reliability of the system and compliance with national and regional planning standards and procedures.

New England regional and wholesale electricity markets underwent a major change in 2006 when a new capacity market was developed and implemented. The Forward Capacity Market (FCM) was developed in response to a FERC order to ensure that New England's long-term electric needs would be met. The FCM was the result of months of negotiations between the various stakeholders in New England (electricity generators, transmission system owners, regulators, policymakers, and customers/end-users) and was approved by FERC in June of 2006. Under the FCM design, ISO-NE projects the capacity needs of the power system three years in advance and holds an annual auction to purchase power resources to satisfy the region's future needs. These resources include increased electricity supply from power plants or decreased electricity use through demand-response resources.  Demand response involves providing financial incentives to customers to reduce or shift their electricity usage during peak periods.

The day-ahead and real-time energy markets are run on a daily basis and ensure the delivery of electricity throughout New England. ISO-NE calculates the price of electricity at different locations across the region and matches energy demand with market rates. Before the creation of the wholesale markets, utility companies could own generation resources and sell the electricity generated by such resources to customers. That resulted in a monopoly scenario where the utility could charge customers rates that were above the cost of producing electricity. For most of the country's history, this problem has been addressed through regulation. However, most of the New England states underwent "deregulation" – where utilities were forced to sell their generators. Now, electricity is supplied by so-called "merchant generators." This means that markets determine the price of electricity rather than regulators.

In the long run, strong markets send better investment signals than regulation. New England's energy markets help ensure that ratepayers purchase electricity from the most efficient resources in the region – at the lowest possible price. The Department of Energy is committed to the savings and benefits of a market-based approach to electricity.

For more information on these and other important issues, visit the FERC and ISO-NE websites.

Other regional entities and initiatives that involve New Hampshire include New England Conference of Public Utilities Commissioners (NECPUC) and New England States Committee on Electricity (NESCOE).