On February 14, 2020, FERC rejected ISO New England Inc.’s (“ISO-NE”) and the New England Power Pool Participants Committee’s (together with ISO-NE, the “Filing Parties”) proposed revisions to the ISO-NE tariff intended to allow for the termination of ISO-NE’s Fuel Security Reliability Retention Mechanism (“Fuel Security Mechanism”) at the end of Forward Capacity Auction (“FCA”) 14 – one year earlier than currently provided in the tariff. The Fuel Security Mechanism allows ISO-NE to retain resources for fuel security that seek to retire in FCAs 13, 14, or 15 and was initially implemented following ISO-NE’s 2018 petition for waiver seeking to retain two retiring Mystic Units through FCA 15 (“Mystic Units”). FERC rejected the filing because ISO-NE had not yet submitted its proposed long-term solutions to address fuel security concerns and because it found that that ISO-NE’s proposed interim solutions were inadequate. FERC Commissioner Richard Glick dissented from the order, arguing the majority lacked a reasoned basis to find that ISO-NE’s filing was not just and reasonable.
On May 1, 2018, following a series of studies showing that retirement of the Mystic Units would present an unacceptable fuel security risk, ISO-NE filed a petition for waiver of certain tariff provisions to allow ISO-NE to retain the retiring Mystic Units through May 31, 2024. On July 2, 2018, FERC denied ISO-NE’s petition for waiver and, finding that ISO-NE’s tariff did not sufficiently address fuel security concerns, instituted a Federal Power Act (“FPA”) section 206 proceeding (see July 11, 2018 edition of the WER). FERC directed ISO-NE to file both interim tariff revisions and tariff revisions implementing a long-term market solution (“Permanent Market Solution”) to address the fuel security concerns or show cause that the tariff was just and reasonable without such filings.
On August 31, 2018, ISO-NE submitted the proposed Fuel Security Mechanism as a temporary solution to the potential fuel security issues. Pursuant to the proposed revisions, the Fuel Security Mechanism would be in effect for FCAs 13, 14, and 15. FERC accepted this interim solution on December 3, 2018. ISO-NE is required to file a Permanent Market Solution by no later than April 1, 2020.
On December 19, 2019, the Filing Parties filed revisions to the ISO-NE tariff proposing to sunset the Fuel Security Mechanism a year earlier than provided for under the tariff, at the conclusion of FCA 14. The Filing Parties argued that ISO-NE made significant process toward developing a Permanent Market Solution, which it intends to implement at the start of FCA 15. Thus, the Filing Parties argued the “stop gap” Fuel Security Mechanism is no longer needed through FCA 15, and, if retained, could undermine the efficacy of the Permanent Market Solution once implemented. The Filing Parties further argued that their revisions would limit the unnecessary use of out-of-market actions. To the extent implementation of the Permanent Market Solution is delayed beyond the start of FCA 15, the Filing Parties pointed to various alternative mechanisms (“Gap Mechanisms”) that could be used to resolve any fuel security concerns during the gap between the end of the Fuel Security Mechanism and the implementation of the Permanent Market Solution.
FERC found the proposed revisions to be unjust and unreasonable and rejected the Filing Parties’ proposal without prejudice. FERC found that because it has not yet reviewed ISO-NE’s proposed Permanent Market Solution, it cannot be certain that the Permanent Market Solution will be implemented prior to the proposed sunset date of the Fuel Security Mechanism. In particular, FERC stated that allowing the Fuel Security Mechanism to end prior to the implementation of the Permanent Market Solution would ignore the Commission’s prior order directing ISO-NE to file interim tariff revisions. FERC further found that Filing Parties’ proposed Gap Mechanisms do not adequately resolve the potential fuel security issues that may arise during the potential gap period.
In his dissent, Commissioner Glick stated that ISO-NE met its burden to show that its revisions were just and reasonable. Commissioner Glick agreed with ISO-NE’s assessment that the Fuel Security Mechanism is not needed to maintain fuel security through FCA 15. Specifically, he argued that the majority lacked a reasoned basis for rejecting ISO-NE’s filing because FERC had previously relied on ISO-NE’s assessment of reliability risk when accepting the Fuel Security Mechanism, but now declined to rely on ISO-NE’s determination that the reliability risk would subside in FCA 15. Commissioner Glick also noted that FERC, in its July 2, 2018 order, did not actually determine that the ISO-NE tariff was unjust and unreasonable, and thus there was no support for the conclusion that removing the Fuel Security Mechanism would result in an unjust and unreasonable outcome.
FERC’s order can be found here.