On October 2, 2009, FERC conditionally approved ISO New England Inc.’s (“ISO-NE”) Reliability Commitment Mitigation rules as applied to resources used to maintain electric reliability.  ISO-NE proposed using a single formula test that calls for mitigation when a resource’s low load cost exceeds fuel and variable operating and maintenance costs by more than the lesser amount of 10 percent or $80/MW-day on an ex ante basis.  FERC also approved ISO-NE’s proposal to eliminate the 100-percent make-whole payment thresholds for supply offers of resources needed during system-wide reliability events.

 Before this conditional approval, market participants were eligible to receive Net Commitment Period Compensation (“NCPC”) payments when a resource is dispatched out of economic merit for reliability reasons and the costs exceed revenues.  NCPC mitigation was imposed when NCPC exceeded twice the fuel and operating and maintenance costs. 
 Since 2003 the New England market has changed considerably, and the ISO-NE (along with the New England Power Pool) asked FERC to approve several tariffs to reflect those changes.  Specifically since New England implemented Forward Capacity, Locational Forward Reserve, and Real-Time Reserve Markets, ISO-NE stated there was no need for out-of-market NCPC payments to contribute to fixed cost recovery.  Now market participants can recover fixed costs as well as fuel and variable operating and maintenance costs through participation in New England markets or through Forward Capacity Market rules.

 The new rules will be implemented in two phases.  Phase I began on October 5, 2009 and Phase II will begin on January 1, 2010, when the mitigation would occur on an ex ante basis.   Phase II also includes a Physical Operating Characteristics Test to determine whether the time-based Supply Offer parameters must be mitigated.  Because Phase II will perform on an ex ante basis, the new rules will clarify when a participant can consult with the Internal Market Monitor when it comes to cost and operating parameters.

  The Commission decision is a conditional approval, subject to other compliance filings made in compliance with Order No. 719, the rule for improving competitiveness of organized wholesale electricity markets.  Also, ISO-NE has thirty days to provide more justification for why the $80/MW-day threshold is appropriate.  FERC also imposed a sixty day deadline from receipt of an invoice for suppliers to seek mitigation.

 The full opinion is available at www.ferc.gov under docket ER09-1546.