On January 14, 2020, FERC accepted revisions to ISO New England, Inc.’s (“ISO-NE”) Transmission, Markets and Services Tariff (“Tariff”), which update ISO-NE’s Financial Assurance Policy, which aims to ensure that resources achieve commercial operation by the time their relevant Capacity Commitment Period begins.  The revisions alter the methodology used to calculate the financial assurances requirements for resources that have cleared the Forward Capacity Auction (“FCA”) but have not yet achieved commercial operation (“Non-Commercial Resources”), basing it on the Net Cost of New Entry (“Net CONE”) value associated with the FCA, rather than the starting and clearing prices of the FCA.

Under the previous rules, Non-Commercial Resources were first required to submit a deposit equal to $2.00/kW multiplied by the amount of non-commercial capacity qualified to participate in the auction.  Then, ten days before the auction, a market participant was required to pay its total financial assurances equal to the non-commercial capacity qualified to participate in the FCA multiplied by the FCA Starting Price.  If a resource obtained a Capacity Supply Obligation (“CSO”) award, the financial assurances requirement was recalculated based on the Non-Commercial Capacity Financial Assurance Amount (“NCCFAA”) formula set forth in the Financial Assurance Policy.  Under the previously-effective rules, the NCCFAA was based on the clearing price in the relevant FCA multiplied by the Capacity Supply Obligation and a multiplier that increases from one to three in subsequent FCAs.

Stakeholders supporting the revisions pointed out that because FCA clearing prices have been low in recent years, the financial assurances requirement has likewise been low, thereby encouraging market participants to submit speculative FCA offers.  Because clearing prices are expected to remain low, parties supported what is effectively an increase to the collateral requirement to discourage risky market speculation.

Under the new rules, the overall Financial Assurance Policy remains the same, but the financial assurances will be based upon the Net CONE value associated with the FCA, both before and after the auction, rather than the FCA starting and clearing prices.  ISO-NE argued this change would provide uniformity for financial assurance prices, reduce uncertainty, and reduce the amount of financial assurances needed before the FCA.  ISO-NE proposed to apply the new calculations prospectively, beginning with FCA 14, scheduled to begin in February 2020 for the 2023-2024 Capacity Commitment Period.

In accepting the proposed revisions, FERC explained that the new methodology will provide certainty to market participation because the financial assurance requirement will be known before the FCA.  FERC also explained that revisions would promote the expectation that Non-Commercial Resources will reach commercial operation by ensuring a consistent financial assurances requirement that does not decrease with low FCA clearing prices. FERC rejected arguments that the prospective application of the new rules would unduly discriminate against resources participating in FCA 14.

A copy of the order is available here.