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FERC approves ISO-NE tariff changes on financial assurances for new resources

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FERC approves ISO-NE tariff changes on financial assurances for new resources

The Federal Energy Regulatory Commission approved proposed tariff revisions for ISO New England that will update how the grid operator calculates financial assurances that new capacity resources must provide before they reach commercial operation.

In finding that the tariff changes appeared just and reasonable, FERC agreed with ISO-NE that the new methodology will provide certainty to market participants because the financial assurances that noncommercial resources must pay to enter the region's forward capacity market will be known before the capacity auction takes place.

In addition, the proposed methodology "will promote the expectation that non-commercial resources reach commercial operation by ensuring a consistent financial assurance requirement that does not decrease with low [forward capacity auction] clearing prices," FERC said in its Jan. 14 order.

FERC's decision was in response to a proposal ISO-NE filed in November 2019 under Section 205 of the Federal Power Act. The tariff revisions would alter the methodology for calculating the collateral owed by noncommercial resources, which are those that have cleared the forward capacity auction but have yet to achieve commercial operation.

The new methodology would base those financial assurances on the net cost of new entry, or net CONE, rather than the starting price before and the clearing price after ISO-NE's annual forward capacity auction, which secures needed capacity in the region for three years ahead. The revisions will require a market participant to add its total financial assurance requirements to an amount that is equal to the net CONE multiplied by the market participant's noncommercial qualified capacity.

After that resource receives a capacity supply obligation, the financial assurance will be equal to the awarded supply obligation, plus the net CONE value associated with the forward capacity auction and a multiplier that rises with each following auction year until it reaches the target commitment period.

Under ISO-NE's previous rules, a resource prior to the capacity auction must provide financial assurances equal to the noncommercial capacity qualified to participate in the forward auction multiplied by the auction starting price. If the resource obtained a capacity supply obligation, the financial assurance requirement was recalculated to equal the product of the awarded supply obligation, the capacity clearing price from the first round of the auction in which the supply obligation was awarded, and a multiplier.

In approving the methodology changes, FERC disagreed with the New England Power Generators Association that the tariff revisions were unduly discriminatory because they applied to noncommercial resources that first clear ISO-NE's upcoming 14th forward capacity auction and future auctions.

"A mere difference in the treatment of two entities does not constitute undue discrimination under the [Federal Power Act]," FERC said. "Instead, undue discrimination occurs only if the entities are 'similarly situated, such that there is no reason for the difference.'"

Despite the New England Power Generators Association's assertions to the contrary, FERC said new noncommercial resources clearing the 14th and future auctions are not similarly situated to existing noncommercial capacity, which "has already been subject to the previous financial assurance requirements and enters [forward capacity auction] 14 with settled expectations as to its financial assurance responsibilities."

FERC granted ISO-NE's request that the new methodology take effect Jan. 15, 10 days before the grid operator's 14th forward capacity auction is scheduled. (FERC docket ER20-395)