On April 20, 2009, Connecticut Attorney General Richard Blumenthal filed a complaint with the Federal Energy Regulatory Commission (“FERC” or “Commission”) claiming that unnamed power suppliers used a loophole in the Independent System Operator of New England’s (“ISO-NE”) market rules to receive $85.8 million in capacity payments while failing to deliver energy when called upon by ISO-NE. Blumenthal’s complaint asks the Commission to make the companies’ names public and to order them to disgorge their profits.
ISO-NE first launched its installed capacity market late in 2006. Some power suppliers soon thereafter began submitting supply offers at or near the market’s offer cap for capacity that was to be imported over a specific interface. ISO-NE selected offers above $660/MWh 108 times and attempted to dispatch those suppliers. In each of these cases, the power supplier never delivered any power. ISO-NE’s market rules did not provide for any penalty for failing to supply power even though the suppliers made a guarantee to supply the power if called upon by ISO-NE. As a result, when the power suppliers failed to deliver the reserved capacity they had previously promised, they were not assessed a penalty. While the power suppliers were not paid for any undelivered electricity, they were paid for $85.8 million in capacity payments for their guarantees.
On March 20, 2009, ISO-NE and the New England Power Pool participants committee made a filing with the Commission to close the loophole. ISO-NE’s filing attempted to ensure competitive pricing and to provide better penalty rules. Several parties however, wanted ISO-NE to demand more in their filing. For instance, several comments asked the Commission to release the names of the power suppliers that took advantage of the loophole and the details of specific instances where the power supplies failed to deliver reserved capacity. Some comments also expressed concern that other loopholes may still exist within ISO-NE’s market rules.
In addition to asking the unnamed power suppliers to be identified and to pay back their profits from the ISO-NE loophole, Blumenthal’s complaint asked the Commission to investigate why ISO-NE failed to hold the power suppliers accountable when they reneged on their promises to provide capacity. Blumenthal also requested changes to ISO-NE’s internal market monitoring unit (“MMU”) which reports internally to ISO-NE management. Blumenthal asked that the MMU report directly to the Commission because the failure to identify the problematic conduct “until that conduct had occurred on 108 separate occasions and cost New England electric consumers nearly $86 million reveals a severe need for reform of the ISO-NE Internal MMU.”
A copy of Blumenthal’s complaint can be found at the Commission’s website at http://www.ferc.gov/ under Docket No. EL09-47. Comments on the complaint are due May 11. A copy of ISO-NE’s filing to help close its loophole can be found under Docket No. ER09-873.