Electricity Markets

FERC approves ISO-NE interim fuel security proposal

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The Federal Energy Regulatory Commission on Dec. 3 issued an order approving ISO New-England’s (ISO-NE) proposed interim measure for the retention of resources that propose to retire but are needed for fuel security purposes.

The approved tariff revisions will allow the grid operator to enter into cost-of-service agreements with retiring generators determined to be needed for fuel security (Docket No. ER18-2364). 

ISO-NE’s August 2018 filing was made in compliance with a July FERC order in which the Commission had 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 near Boston, which had proposed to retire. 

ISO-NE argued that retention of the units is necessary for fuel security purposes, rather than for local transmission reliability, which is the purpose of RMRs.

FERC had 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 -- or explain why such a filing was unnecessary. The ISO must file a longer-term solution by July 1, 2019.

A central part of ISO-NE’s interim proposal, which is supported by comments submitted in the proceeding by the American Public Power Association, is that the resources that are subject to the fuel security agreements would participate in the forward capacity auction as price-takers.

FERC agreed with this approach, saying that doing so allows these resources to be counted in the capacity auction and avoids “a market outcome that inefficiently over-procures the resource adequacy product at excessive prices.”

The approved tariff provisions also establish a fuel security reliability review process for resources submitting retirement bids for Forward Capacity Auctions (FCAs) 13, 14, and 15, procuring capacity for delivery years 2022/23, 2023/24, and 2024/25, respectively.  The grid operator would model different scenarios to determine whether such a resource is needed to maintain fuel security and eligible for the cost-of-service agreement.

FERC agreed with the ISO’s proposed fuel security study process, but said that the study assumptions, methods, scenarios, and triggers may need to be further refined and updated.

FERC therefore directed ISO-NE to submit an annual informational filing comparing the study assumptions, scenarios and triggers to actual conditions, beginning with the upcoming winter of 2018/19, along with a description of lessons learned, and whether changes to study assumptions and triggers are necessary for future studies.

The Commission also approved ISO-NE’s proposed allocation of the costs of resources retained for fuel security to real-time load obligation, instead of the cost allocation used for RMRs to transmission customers, noting that the “fuel security needs contemplated by the proposed revisions are distinct from traditional transmission-related reliability needs,” and that fuel security “impacts the reliability of the entire region.”

Some commenters had asked for the interim proposal to be limited to two, instead of three, capacity auctions, to allow for a quicker transition to a longer-term solution. But FERC approved ISO-NE’s proposed length because of the limited amount of time between the July 1, 2019 filing deadline for a longer-term market solution and the March 2020 deadline for the submission of retirement proposals for FCA 15. At the same time, the Commission urged the ISO to develop a longer-term market solution as soon as possible.

Chatterjee dissents on two issues

FERC Chairman Neil Chatterjee dissented from the order on two issues.

First, he disagreed with the proposal to allow the fuel security resources to participate in the capacity auctions as price takers, saying that doing so will lower capacity prices and therefore “encourage marginal units – specifically those that otherwise would have received adequate capacity revenue if fuel security resources were not entered into the FCA as price takers – to retire.  If these same units also are fuel-secure resources, then this price suppression could lead to a further decline in fuel security.”

In addition, Chatterjee objected to phasing out the fuel security measure after FCA 15, stating that the proposed sunset provision should be rejected as unjust and unreasonable because it could allow the ISO-NE tariff to revert to a state without fuel security provisions.

Glick issues concurrence

Meanwhile, Commissioner Richard Glick issued a concurrence to the order.

Glick said that although he dissented from the July order, he agreed that the proposed interim measure is just and reasonable. He said that ISO-NE’s ultimate approach to fuel security “will need to be more sophisticated than the interim approach we approve today,” and that if fuel security is needed, it “should be procured through the ISO’s markets, with open and vigorous competition among all resources capable of providing that service.”

Glick also said that ISO-NE should work with its member states to reconsider its approach to resources procured pursuant to state public policies, many of which are renewable resources that will reduce the reliance on natural gas-fired resources.

He also emphasized that transmission should be incorporated into any fuel security solution.