• Reliability Payments Plan from ISO-NE Accepted by FERC
  • November 13, 2008
  • Law Firm: Troutman Sanders LLP - Atlanta Office
  • On Tuesday, the Federal Energy Regulatory Commission (“FERC” or “Commission”) accepted a plan from the ISO New England, Inc. (“ISO-NE”) to re-pay capacity suppliers based on costs rather than market value when they must stay within ISO-NE’s capacity market due to reliability concerns. The Commission accepted the tariff sheets, effective October 29, 2008, but ordered ISO-NE to refile several sections to include a procedure to consult with NEPOOL members regarding resource capacity reductions or retirements.

    The compensation issue began at ISO-NE’s first Forward Capacity Market (“FCM”) auction earlier this year. The FCM usually allows capacity suppliers to submit de-list bid which are minimum bids for which they are willing to supply capacity. Capacity suppliers are not usually obligated to supply capacity if the auction ends at a price below their de-list bids. However, FERC ruled that the FCM, partly developed through negotiations with stakeholders, also allows ISO-NE to require capacity suppliers to stay within the market for reliability reasons even if capacity suppliers want to de-list.

    New England previously used Reliability Must Run Agreements (“RMRA”) for inefficient sources of power needed for reliability reasons. Under the RMRA, capacity suppliers were paid based on the cost of service.

    While the FCM auction reduced the need for RMRA, there was still a lingering possibility that a capacity supplier might have to stay in the market for reliability reasons. Such was the case for two units in Connecticut during FCM’s first auction. Before the auction, and according to the FCM settlement, ISO-NE ruled that Connecticut would not be modeled as a separate capacity zone. Thus, ISO-NE forced the two utility companies to stay within the Connecticut sub-area, even though they chose to de-list, in order to meet transmission requirements specified in ISO-NE’s planning procedures.
    The current compensation plan proposed by ISO-NE offers to pay capacity suppliers based on “going-forward costs.” Capacity suppliers, however, have argued that this compensation level is far lower than what they have traditionally been paid in RMRAs and that they should receive increased compensation for the increased value in reliability capacity. Ultimately, FERC approved ISO-NE’s proposal because it was part of the FCM settlement and categorized the utility companies’ arguments as “collateral attacks on earlier [FERC] rulings” that are already a part of the FCM.

    FERC emphasized that it has consistently ruled that capacity suppliers only need to be given the “opportunity to recover their costs, not a guarantee.” FERC went on to conclude that “when a resource is paid its going forward costs, the resource is no worse off by providing capacity than if it were allowed to de-list.”

    A copy of the order is available on FERC’s website under Docket No. ER08-1209.