On December 3, 2018, FERC accepted ISO New England Inc.’s (“ISO-NE”) proposed temporary revisions to its Transmission, Markets and Services Tariff (“Tariff”) designed to address fuel security by a 2-1 vote.  Among other things, the order enables ISO-NE to enter into cost-of service agreements with certain retiring generators that are deemed necessary for regional fuel security and reliability.  Commissioner McIntyre did not participate and Commissioner Glick issued a separate concurring opinion.  Of particular note was the dissenting opinion filed by Chairman Neil Chatterjee.

On May 1, 2018, ISO-NE filed a petition for waiver (“Petition”) of certain Tariff provisions to allow ISO-NE to retain two retiring generating units during the winter of 2023 and 2024 to maintain fuel security.  According to ISO-NE, the potential retirement of these two generating units would both endanger 1,700 MW of winter generating capacity and also threaten the continued operations of the generators’ natural gas supplier, thereby increasing the risk of reserve depletion and load shedding in the ISO-NE region.  On July 2, 2018, FERC rejected ISO-NE’s Petition, upon finding that the Petition sought to create a new process to address fuel security concerns outside of ISO-NE’s current Tariff (“July 2 Order”).  FERC directed ISO-NE to propose short- and long-term Tariff revisions to remedy the fuel security issues identified in the record, or to show cause why none were necessary.

In compliance with the July 2 Order, ISO-NE submitted short-term Tariff revisions on August 31, 2018.  ISO-NE proposal sought to retain certain resources for fuel-security purposes by: (1) implementing a Fuel Security Study Process for determining, based on specific criteria, whether a resource is needed to maintain fuel security; (2) using short-term cost-of-service agreements for such resources; (3) allocating the costs for the retained resources using a methodology consistent with ISO-NE’s previously-approved Winter Reliability Program; and (4) treating such resources as “price-takers” in ISO-NE’s Forward Capacity Market (“FCM”).  ISO-NE requested an effective date of October 30, 2018 and explained that its proposed Tariff revisions would be temporary since ISO-NE will submit a long-term market solution to FERC for approval by July 1, 2019, as required by the July 2 Order.

In its December 3, 2018 Order, FERC accepted ISO-NE’s Tariff revisions to become effective October 30, 2018, as requested.  FERC first concluded that the Fuel Security Study process was just and reasonable and directed ISO-NE to submit annual informational filings regarding the applicability of ISO-NE’s chosen study triggers, assumptions, and scenarios starting in the winter of 2018/19.  Second, FERC agreed that ISO-NE’s cost allocation proposal was similar to the previously-approved Winter Reliability Program (an interim program designed to address reliability concerns during the winter), and therefore was a just and reasonable cost allocation method.  Third, FERC accepted ISO-NE’s proposal to enter retained fuel security resources as price-takers in the FCM.  FERC found that, absent such an approach, identified fuel security resources might not clear the Forward Capacity Auction (“FCA”) and consumers would have to “pay twice” for the capacity.  As such, FERC found that ISO-NE’s proposal was consistent with previous precedent and would result in efficient and reasonable FCA outcomes.  Finally, FERC accepted ISO-NE’s proposal to implement the Fuel Security Study process on an interim basis — specifically, for the FCAs associated with the capacity commitment periods of 2022/23, 2023/24, and 2024/25.

Chairman Chatterjee dissented from FERC’s ruling, arguing that two elements of the proposed Tariff revisions were unjust and unreasonable.  First, Chairman Chatterjee asserted that treating fuel-secure resources as price-takers would be unjust and unreasonable under the Federal Power Act because such treatment would likely result in additional out-of-market interventions for these retiring resources, further suppressing prices, increasing retirements, and threatening fuel security in the ISO-NE region.  Second, Chairman Chatterjee also stated that the sunset provision proposed by ISO-NE should be rejected as unjust and unreasonable because it could allow the ISO-NE Tariff to revert to a state without fuel security provisions, which he argued would be an unjust and unreasonable outcome based on the majority’s own conclusions.

Commissioner Glick filed a concurring opinion, arguing that ISO-NE’s temporary Tariff revisions addressing regional fuel security concerns are a just and reasonable bridge to a longer-term solution.

A copy of FERC’s order is available here.