On February 12, 2010, FERC accepted ISO New England Inc.’s (“ISO-NE”) proposed Installed Capacity Requirement, as well as related values to be used in ISO-NE’s Forward Capacity Market (“FCM”).  As requested, the proposal became effective February 15, 2010, subject to certain conditions. 

On December 15, 2009, ISO-NE and New England Power Pool (“NEPOOL”) jointly filed their proposals for the third and final FCM reconfiguration auction for the 2010-2011 Capability Year, to take place in March 2010.  ISO-NE conducts the annual reconfiguration auctions to allow a more complete and accurate picture of the Installed Capacity Requirement for the ISO-NE area during the Capability Year.  The Installed Capacity Requirement includes the calculation of tie benefits from neighboring control areas, which reduce the need to buy capacity, and were the focal point of ISO-NE and NEPOOL’s proposals.

In ISO-NE’s proposal, ISO-NE argued that current market rules which use an “as is” methodology to calculate tie benefits pose a problem to reliability by reducing the New England reserve margin to 4.3%.  ISO-NE pointed out in its proposal that it would be difficult to operate according to NERC and Northeast Power Coordinating Council, Inc. reliability standards with such a low reserve margin.  Instead, they proposed a tie benefits value of 1,860 MW, which matches the value that ISO-NE utilized in calculating the Installed Capacity Requirement and related values in the previous FCM and annual reconfiguration auction.  ISO-NE argued that this value will provide stability to the marketplace and ISO operators with a reserve margin of 9.7%.  ISO-NE concluded that their proposal will allow for continued discussions about tie benefits methodology going forward and therefore, is just and reasonable.

Alternatively, NEPOOL proposed to retain the “as is” methodology used to model control areas and “cap” the tie benefits value that can be used in the Installed Capacity Requirement calculation for the final reconfiguration auction in March.  NEPOOL proposed to cap this value at 2,286 MW for the 2010-2011 and 2011-2012 Capability Years.  They would also allow a sunset period to give NEPOOL, ISO-NE and ISO-NE Stakeholders a chance to come to an agreement on a more permanent methodology for tie benefits calculation.  NEPOOL argued that, unlike ISO-NE’s proposal, their proposal is consistent with existing section 12.9 of Market Rule 1 under ISO-NE’s Transmission, Markets and Services Tariff.  NEPOOL also argued that ISO-NE’s proposal places too high a cost on consumers by requiring a higher Installed Capacity Requirement because of lower tie benefits and that their amendment is just and reasonable because stakeholders used the Market Rules while negotiating about tie benefits and agreed to the 2,286 MW value. 

FERC ultimately decided to accept ISO-NE’s proposal as to a tie benefits value of 1,860 MW.  In making its decision, FERC noted that no one disputed ISO-NE’s claims that using the “as is” methodology would trigger operational concerns and possible negative implications for reliability.  Thus, while FERC recognized that NEPOOL’s proposal might be an improvement, it ultimately failed to demonstrate how it will avoid these operational concerns.  However, FERC did ask ISO-NE to implement a two-year sunset provision in order to create a stakeholder process to address the tie benefit issue for the applicable third configuration auction for the 2012/2013 commitment period.  Additionally, FERC asked ISO-NE to address commenter’s complaints that ISO-NE failed to provide an analysis in connection with alternative proposals.  As such, ISO-NE must make a compliance filing addressing these issues within 30 days of the issuance of FERC’s order.  

FERC’s full order is available at www.ferc.gov under Docket No. ER10-438-000.