On March 23, 2018, FERC accepted ISO New England Inc.’s (“ISO-NE”) filing to terminate a portion of the Capacity Supply Obligation (“CSO”) for a wind-powered electric generation facility (the “Disputed Portion”) owned by Blue Sky West, LLC (“Blue Sky West”).  Despite protests from Blue Sky West, FERC approved the requested termination, effective March 1, 2018.

ISO-NE procures the capacity resources that it needs to ensure resource adequacy through its Forward Capacity Auction (“FCA”).  Annual FCAs are held three years in advance of the year that capacity must be delivered.  Resource owners, such as Blue Sky West, compete in the FCA to secure a CSO, for which they will receive a market-priced capacity payment.  Under ISO-NE’s Transmission, Markets and Services Tariff (“Tariff”), a resource that is under construction may participate in the FCA and acquire a CSO only if the resource will be operational prior to the relevant capacity delivery period three years later.  If the resource is not available to provide the full capacity consistent with its CSO during the relevant delivery period, it must cover its commitment by separately acquiring and providing replacement capacity.  If a resource covers even a portion of its CSO for two years with replacement capacity, then ISO-NE may, upon a filing with FERC, terminate a resource’s CSO for any future periods.

On January 23, 2018, ISO-NE submitted the “Termination Filing,” in accordance with section 205 of the Federal Power Act (“FPA”) and section III.12.3.4(c) of ISO-NE’s Tariff (“Termination Filing”).  ISO-NE contended that Blue Sky West delayed its operation date for the wind-generation facility multiple times and only ever achieved partial operation.  Although Blue Sky West was acquiring replacement capacity to cover its CSO for a period of this time, ISO-NE explained that Blue Sky West was not satisfying its full CSO.  ISO-NE urged FERC to accept its termination request for the Disputed Portion (10.300 MW in the summer and 0.794 MW in the winter) and to adjust Blue Sky West’s participation in the Forward Capacity Market going forward.

On the same day that the ISO-NE made the Termination Filing, ISO-NE also terminated the Disputed Portion of Blue Sky West’s CSO in its system.  In response, on January 29, 2018, Blue Sky West filed an emergency motion asking FERC to order reinstatement of the Disputed Portion, arguing that ISO-NE must receive FERC’s approval before the termination could become effective.  ISO-NE responded by arguing that the Tariff authorizes immediate termination of a CSO once an FPA section 205 filing has been made.  On February 2, 2018, FERC granted Blue Sky West’s motion, stating that the termination could not be made effective prior to March 24, 2018, the end of the sixty-day notice period that is required by FPA section 205, unless FERC directs otherwise.

On February 13, 2018, Blue Sky West filed a protest to the Termination Filing.  Blue Sky West argued that ISO-NE’s termination of the Disputed Portion is improper because Blue Sky West’s generator achieved commercial operation and its Critical Path Schedule milestones as required by the Tariff.  Blue Sky West asserted that to allow termination after achieving these metrics would be creating a new standard that does not exist under the Tariff.  On March 1, 2018, ISO-NE filed an answer to Blue Sky West’s protest and argued that ISO-NE’s Tariff allowed ISO-NE to immediately terminate a CSO that has been covered, in full or in part, for two years, regardless of whether the resource achieved commercial operation or some portion of the resource is generating electricity for the grid.  According to ISO-NE, because Blue Sky West covered a portion of its CSO for more than two years, ISO-NE could terminate that portion of the CSO.

FERC accepted the Termination Filing, effective March 1, 2018, and agreed with ISO-NE that neither achieving commercial operation nor fulfilling Critical Path Schedule milestones prevents ISO-NE from terminating a CSO under the Tariff.  FERC interpreted the Tariff to mean that ISO-NE could terminate a CSO that is unfulfilled, even if part of the facility is operational and part of the CSO is fulfilled.  Further, FERC explained that before it may terminate a resource’s CSO, ISO-NE must submit an FPA section 205 filing and obtain FERC’s approval. FERC clarified that this includes both the involuntary termination and the drawdown of a resource’s financial assurance.

A copy of FERC’s order is available here.