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FERC Rejects ISO New England Energy Security Proposal

Nov. 5, 2020
FERC finds proposal "unjust and unreasonable because it would impose substantial costs on consumers without meaningfully improving fuel security."

The Federal Energy Regulatory Commission (FERC) on Oct. 30 issued an order finding that ISO New England’s Energy Security Improvements (ESI) proposal “is unjust and unreasonable because it would impose substantial costs on consumers without meaningfully improving fuel security.”

Background

On April 15, ISO-NE submitted to FERC proposed ESI tariff changes, which the ISO described as “necessary to address the fuel security challenges facing the New England region.”

The proposal came in response to a July 2018 order in which FERC denied the ISO’s request for a tariff waiver to allow for reliability-must-run (RMR) agreements with Units 8 and 9 at the Mystic Generation Station for fuel security purposes.

FERC instead directed ISO-NE to submit interim tariff revisions providing for the filing of short-term, cost-of-service agreements to address demonstrated fuel security concerns, and “to submit by July 1, 2019, permanent Tariff revisions reflecting improvements to its market design to better address regional fuel security concerns.”

The ESI proposal responded to this second requirement, the deadline of which was extended twice since the July 2018 order.

The proposal called for the creation of new day-ahead ancillary service products that would allow market participants to voluntarily offer to sell options to the ISO to ensure the availability of energy in real time.

Details of FERC order

The Commission’s decision centered on three findings:

  • Day-ahead products do not provide sufficient time for resources to take the steps necessary to perform during stressed conditions if they have not already done so, such as the procurement of fuel in advance;
  • Because the options would be offered voluntarily, resources that have not made advance energy arrangements could decide not to participate; and
  • ISO-NE’s impact assessment demonstrates that the ESI proposal would not materially reduce reserve shortages or the potential for loss of load but would increase costs to consumers by US$20 million to US$257 million per year. FERC noted that while it “does not ‘generally require the mathematical specificity of a cost-benefit analysis’ to render a proposal just and reasonable, the Commission must protect consumers from excessive rates and charges.”

The New England Power Pool (NEPOOL) Participants Committee did not support the ESI proposal, so NEPOOL submitted an alternative ESI proposal along with ISO-NE’s proposal.

FERC determined that while the alternative “would result in lower costs to consumers than ISO-NE’s ESI proposal, we also reject the NEPOOL alternative as unjust and unreasonable because it contains the same deficiencies that render ISO-NE’s proposal unjust and unreasonable.”

The Commission did not make a finding on whether ISO-NE faces a fuel security or energy security issue, but acknowledged the concerns leading to the proposal and stated that if ISO-NE “decides to pursue a solution to address these concerns, we encourage it to 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 said it expects that such a market solution would be designed to:

  • Coordinate procurement of forward reserves with co-optimization of energy and reserves in the day-ahead and real-time markets;
  • Incentivize resources to offer into the forward, day-ahead and real-time energy and reserves markets based on their actual costs;
  • Prevent the exercise of market power, including through mitigation measures, if necessary; and
  • Include financial obligations or incentives sufficient to ensure resources can deliver energy and/or reserves in real time.

“We are not, however, directing ISO-NE to pursue any particular approach. We further note that nothing in this order prohibits ISO-NE from proposing a day-ahead reserves market independent of any proposal to address the concerns at issue here,” FERC said.

The Commission also rejected ISO-NE’s associated proposal to sunset interim fuel security programs one year earlier than currently provided for in the tariff, stating that “ISO-NE may propose to the Commission other steps it believes are warranted to address fuel security, such as submitting a revised long-term fuel security proposal or seeking to extend one or more of the interim programs.” 

Public power groups protested ESI proposal

Two public power group protests of the ESI proposal were filed by Energy New England and New England Consumer-Owned Systems and by Massachusetts Municipal Wholesale Electric Co. (MMWEC), New Hampshire Electric Cooperative and Connecticut Municipal Electric Energy Cooperative.

In a news release, MMWEC said that under ESI, New England electric customers would have paid the region’s generators up to an additional US$257 million dollars a year, “based on the hope that doing so would encourage them to procure fuel supplies under tight operating conditions.”

MMWEC, CMEEC and NHEC argued that the ESI proposal did not allow sufficient time for the generators to purchase fuel supplies.

They also pointed out that the proposal was voluntary, meaning that generators could choose not to participate in providing fuel security when the system needed them the most.

Paul Ciampoli

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