by Peter Maloney
Posted August 12, 2019

A program proposed by ISO New England to promote fuel security went into effect because the Federal Energy Regulatory Commission lacked a quorum, an outcome that could allow some generators in New England to receive “windfall” payments in the coming winters, according to Commissioner Richard Glick.

The order, in Docket ER19-1428-001, which went into effect on Aug. 5 “by operation of law,” makes revisions to ISO New England tariffs for its upcoming Forward Capacity Auction (FCA 14 and FCA 15) for the winters of 2023-2024 and 2024-2025, respectively.

The revisions, filed with FERC in March, provide for payments to generators that maintain fuel inventories — coal piles, tanks of oil, or reservoirs at hydroelectric plants, for instance — as a way of ensuring that those facilities will not be forced into retirement and leave the ISO short of capacity during the coldest days of winter.

Like much of the rest of the nation, New England’s electric power has increasingly been supplied by gas-fired generation, even though a lack of new natural gas pipelines has created potential constraints, a fact that ISO New England has highlighted in past reports. The problem is exacerbated by the fact that heating needs are given preference over generation during the coldest days.

In response to the situation, the ISO New England created its Inventoried Energy Program, under which the ISO will directly compensate resources that maintain inventoried energy instead of converting it to electricity. ISO New England argues that paying for onsite fuel supplies will allow the owners of those resources to look forward to potential revenue when making retirement decisions, reducing the likelihood that those resources will exit the market or that ISO New England would be forced to keep them online by making out-of-market payments.

After ISO New England filed its plan in March, FERC found it deficient and sought additional information. ISO New England responded to FERC’s request in a June 6 letter. Under the Federal Power Act, FERC had 60 days to respond, but failed to do so by the Aug 5 deadline, which made the proposal effective “by operation of law.”

FERC needs three commissioners to reach quorum. There are currently four commissioners and one of them, Cheryl LaFleur, is stepping down at the end of August.

In the ISO New England proceeding, LaFleur and Commissioner Bernard McNamee, Democrat and Republican, respectively, issued statements indicating that they were not participating in the case, without providing additional information. The two remaining commissioners, as required by law, filed statements explaining their views on the matter.

In his explanation, Democratic Commissioner Richard Glick called ISO New England’s Inventoried Energy program “patently unjust and unreasonable.” He said the program would cost New England consumers as much as $300 million without any evidence to suggest that it would improve the region’s fuel security or be worth the cost.

“The program goes so far as to hand out substantial payments to nuclear, coal, and hydropower generators with no indication that these payments will change their behavior in the slightest,” Glick wrote. “That is a windfall, not a just and reasonable rate.”

Glick called the ISO’s plan “an utter waste of ratepayers’ money.” He added, “one cannot help but wonder whether burning that money [given as inventoried capacity payments] might contribute as much to fuel security as wasting it on entities that we know will not do anything differently.”

Chairman Neil Chatterjee, a Republican, endorsed the plan and said he would have voted to accept the tariff revisions “as a just and reasonable short-term solution.” In response to filings from critics of the plan, Chatterjee said, “it is well-settled that the entity filing a proposal need only demonstrate that the proposed revisions are just and reasonable, not that the proposal is the most just and reasonable proposal.”

Among the critics of the program are the Massachusetts Attorney General, who argued ISO New England’s previous winter reliability programs had significantly lower costs, and the Maine Public Utilities Commission, which said the plan was not just and reasonable and not necessary in light of the ISO’s existing Pay-for-Performance and Competitive Auctions with Sponsored Policy Resources (CASPR) incentive programs.