- FERC Approves ISO-NE Proposal to Increase Nonperformance Penalties in Forward Capacity Market
- November 14, 2013 | Authors: Peter S. Glaser; Kevin C. Greene; Daniel L. Larcamp; Clifford S. Sikora; Lara L. Skidmore
- Law Firms: Troutman Sanders LLP - Washington Office ; Troutman Sanders LLP - Atlanta Office ; Troutman Sanders LLP - Washington Office ; Troutman Sanders LLP - Portland Office
On Friday, November 1, FERC approved changes to ISO New England, Inc.’s (“ISO-NE”) Transmission, Markets and Services Tariff expanding the instances in which ISO-NE can penalize resources that have capacity supply obligations and are completely or partially unavailable during periods of high demand in the ISO-NE’s Forward Capacity Market (“FCM”). ISO-NE’s tariff changes became effective on November 3, 2013, as requested.
In its filing, ISO-NE explained that its tariff includes penalties for times when capacity resources are not made completely available during a “Shortage Event.” As originally drafted, a Shortage Event can only be triggered when the system has been deficient of ten-minute reserves for at least thirty contiguous minutes. However, ISO-NE indicated that there are instances where the ISO-NE system is stressed and facing reliability concerns, yet no Shortage Event is triggered. In an effort to incent additional capacity resource availability, ISO-NE and the New England Power Pool (“NEPOOL”) Participants Committee jointly submitted to FERC two proposals to alter the definition of Shortage Event, such that it will also be triggered when there are shortages of thirty-minute operating reserves. While both proposals contained nearly identical substantive changes, ISO-NE’s proposal included a November 3, 2013 effective date whereas NEPOOL proposed an effective date of June 1, 2017.
NEPOOL, along with intervening parties, explained that the altered tariff provisions, if made effective immediately, would alter capacity supply obligations that were negotiated in prior years under the framework of the more limited definition of a Shortage Event. Some intervenors argued that the risk of a Shortage Event was a factor incorporated into the market participants’ analysis underlying their decisions with regard to capacity market participation. Expanding the definition of a Shortage Event would change the risk of a Shortage Event without allowing the parties to have an opportunity to factor this adjusted risk of penalty into their current capacity supply obligations. Certain intervenors also argued that if FERC accepted the earlier effective date, it would effectively be engaging in retroactive rulemaking and would disrupt the settled expectations of the parties. In contrast, ISO-NE argued that the revisions should be implemented as soon as possible in order to address reliability concerns.
In accepting the tariff revisions, FERC sided with ISO-NE on the effective date, explaining that the benefits of reducing shortage events and ensuring reserve requirements are met are critical goals and should be implemented without delay. FERC also dismissed allegations of retroactive ratemaking, explaining that the changes were going to apply prospectively and after the proposals had been publicly noticed. FERC further explained that while the revised Shortage Event definition might upset the expectations of market participants, the benefits of the tariff revisions outweigh the value of the parties’ reliance on the original definition of a Shortage Event.