On October 30, 2020, FERC rejected ISO New England Inc.’s (“ISO-NE”) proposed revisions to the ISO-NE tariff to resolve long-term fuel security concerns in the New England region. FERC found that ISO-NE’s proposed solutions would substantially increase consumer costs without meaningfully improving fuel security in the region, and offered guidance on how ISO-NE might develop a just and reasonable approach to address its fuel security concerns.
ISO-NE’s proposal is its latest effort to address FERC’s July 2, 2018 order directing ISO-NE to file tariff revisions to address fuel security concerns and improve the market design in New England. ISO-NE previously proposed, and FERC accepted, two filings concerning fuel security. In the first, ISO-NE proposed to revise its tariff to include, among other things, provisions for a short-term cost of service agreement for resources retained for fuel security reasons (see December 12, 2018 edition of the WER). In the second, ISO-NE proposed to implement a program to compensate resources for maintaining inventoried energy during the winter months (see April 2, 2019 edition of the WER). FERC accepted these two tariff proposals, referred to herein as the “Interim Solutions,” in a March 25, 2019 and a June 18, 2020 order, respectively. Both of the Interim Solutions are scheduled to be in effect through ISO-NE’s 15th Forward Capacity Auction (“FCA”), which aligns with ISO-NE’s 2024-2025 capacity commitment period.
On April 15, 2020, ISO-NE proposed a long-term, market-based Energy Security Improvement (“ESI”) solution to begin June 1, 2024, in line with start of the capacity commitment period associated with FCA 15 (“ESI Proposal”). ISO-NE proposed to create three new day-ahead ancillary services: (i) the Energy Imbalance Reserve, which would assist ISO-NE in meeting gaps between day-ahead cleared energy demand and forecasted real-time load; (ii) the Generation Contingency Reserve, which would cover ISO-NE’s existing real-time operating reserve requirements; and (iii) the Replacement Energy Reserve, which would assist ISO-NE in procuring resources to ensure that the system’s real-time reserves can be fully restored within the NERC specified timeframes (“ESI Products”). ISO-NE further proposed that ESI Products be voluntary options, where market participants seeking to sell such products would submit a single option offer specifying the minimum price they would be willing to accept to provide any of the ESI Products. Based on its impact assessment, ISO-NE estimated that the ESI Proposal would improve overall reliability of the system, but would increase consumer costs by between $20 to $257 million per year. ISO-NE further identified that the New England Power Pool (“NEPOOL”) had proposed an alternative solution, with three changes to ISO-NE’s proposal. Finally, in order to avoid interference between its Interim Solutions and the ESI Proposal, ISO-NE asked to sunset the two Interim Solutions a year earlier than expected, thereby matching the start date of the ESI Proposal.
In its October 30, 2020 order, FERC rejected ISO-NE’s proposal as unjust and unreasonable, finding that the ESI Products would impose significant costs on consumers without meaningfully improving fuel security. FERC found that: (i) ISO-NE’s proposed day-ahead ESI Products would not allow participating resources sufficient time to take the necessary steps to perform during stressed conditions; (ii) because resources would be able to voluntarily choose to offer ESI Products, there was no guarantee that resources would make such offers during times of stressed conditions; and (iii) ISO-NE’s impact assessment indicated that ISO-NE’s proposal may not materially improve fuel security, and therefore, the increased costs to consumers was not justified. FERC also rejected NEPOOL’s alternative as unjust and unreasonable, finding that it suffered from the same deficiencies as ISO-NE’s proposal. While noting that it was not directing ISO-NE to pursue any particular approach, FERC offered that in any future proposal, ISO-NE should explore a market-based reserve product that provides resources sufficient lead time and ability to acquire fuel or take other steps necessary to be able to deliver energy when needed. FERC further expressed its expectation that such a market solution would coordinate procurement of forward reserves with the co-optimization of energy and reserves in the day-ahead and real-time markets, incentivize resources to make offers based on actual costs while preventing the exercise of market power through mitigation, and provide financial obligations or incentives to ensure resources can deliver energy and/or reserves in real-time.
FERC’s October 30, 2020 order is available here.