ISO New England Inc. (ISO-NE) last week notified the Federal Energy Regulatory Commission (FERC) that its new day-ahead energy market schedule will become effective on May 23, 2013.

In late April, FERC issued an order accepting modifications to ISO-NE’s market rules to provide for earlier clearing of the day-ahead energy market and earlier completion of the initial Reserve Adequacy Analysis (RAA) process, which is ISO-NE’s analytical process to ensure adequate resources are committed for reliability purposes. These timeline changes are intended to better coordinate the gas and electricity markets. FERC approved the changes to take effect on or after May 1, 2013, with ISO-NE to provide two weeks’ notice of the actual effective date.

The approved changes were proposed by the New England Power Pool (“NEPOOL”). FERC chose NEPOOL’s proposal over a competing ISO-NE proposal, which would have shifted the day-ahead scheduling timeline even earlier. ISO-NE and NEPOOL jointly filed their alternative proposals on February 7, 2013, describing their efforts to work together to change the day-ahead market schedule—“one part of a broader effort to address emerging concerns over New England’s increased reliance on natural gas to generate electricity and over resource performance issues.” They explained that an accelerated day-ahead energy market schedule would provide more time for market participants with gas-fired generation resources to make fuel arrangements based upon their commitments. The filing pointed to past instances where natural gas-fueled generators in ISO-NE were unable to provide energy when dispatched due to their inability to procure natural gas or transportation services, or due to high real-time gas prices.

Under the accepted NEPOOL proposal, the day-ahead bidding window will close at 10:00 a.m. (as compared to 12:00 p.m. under currently effective rules), the market will clear at 1:30 p.m. (as compared to 4:00 p.m. under currently effective rules), and the initial RAA process will be completed at 5:00 p.m. (as compared to 10:00 p.m. under currently effective rules).

FERC found that NEPOOL’s proposal promoted both reliability and market efficiency. FERC explained that it chose NEPOOL’s proposal over ISO-NE’s proposal in part because “[t]o the extent that there could be incremental benefits associated with issuing an initial RAA at 4:00 p.m. under the ISO-NE Proposal, as opposed to 5:00 p.m. under the NEPOOL Proposal, we do not believe that these potential benefits outweigh the market inefficiencies associated with the earlier submission deadline for day-ahead offers.” FERC cited concerns that ISO-NE’s proposed earlier timeline could spur gas-fired generators to add risk premiums to their day-ahead offers, leading to “inefficient clearing of the market, improper market price signals, and the operation of less efficient generators.” FERC also echoed concerns that the national natural gas market may not adjust sufficiently to the 9:00 a.m. day-ahead market offer deadline proposed by ISO-NE, preventing adequate transparency to inform offers.

FERC directed ISO-NE to submit within one year a report on the impact of the schedule changes on system operations.