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FERC members split on ISO-NE fuel security program

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FERC members split on ISO-NE fuel security program

Members of the Federal Energy Regulatory Commission offered conflicting views Aug. 8 on an ISO New England winter fuel security program that is set to take effect because the power regulator lacked a quorum to act on the proposal.

In a statement, Commissioner Richard Glick issued harsh criticism of the grid operator's proposal to pay resources for keeping fuel or another form of potential energy on hand during the winter, calling a central component of the plan "an utter waste of ratepayers' money." But Chairman Neil Chatterjee in his own statement said he would have voted for the proposal. Chatterjee agreed with the ISO-NE's position that the payment program will incentivize sufficient energy supplies as the region shifts away from coal- and nuclear-fired generation.

In a rare development, FERC announced Aug. 6 that the regional transmission operator's "inventoried energy" program will take effect by operation of law because the commission lacked enough voting members to decide whether the proposal is just and reasonable.

Under the Federal Power Act, tariff filings become effective if FERC allows 60 days to pass without issuing an order accepting or denying proposed changes. The ISO-NE's proposed changes became effective after the commission was unable to act due to the lack of a three-member quorum on a June 6 filing responding to an earlier deficiency letter from FERC staff questioning whether the grid operator's analysis of its proposal was adequate.

The four sitting members of the five-person commission are evenly split along party lines, with outgoing Democratic Commissioner Cheryl LaFleur set to leave at the end of August. LaFleur and Republican Commissioner Bernard McNamee issued separate one-sentence statements Aug. 8 that did not specify why they decided not to vote on the filing.

Critics have argued that the ISO-NE program resembles a failed "fuel-secure" resilience proposal unanimously rejected by FERC in January 2018 that McNamee helped develop in his previous role as general counsel at the U.S. Department of Energy.

ISO-NE's proposal dates back to August 2018 when the RTO committed to working with stakeholders on a market-based solution that could price fuel security benefits into future-forward capacity auctions in order to address concerns about grid resilience. To that end, the ISO-NE proposed March 25 to create an interim program to pay resources that maintain enough "inventoried energy" for three days during certain conditions. Intended to serve as a bridge until the grid operator can implement a long-term fuel security solution, the program will be for the 2023-2024 and 2024-2025 winters, which are covered by Forward Capacity Auctions 14 and 15.

Resources are able to participate in the program in one of two ways. Under one option, resources can enter into forward contracts that require generating facilities to have a certain amount of inventoried energy on-site whenever the ISO-NE declares a cold-weather event. Alternatively, resources can be paid through the spot market if they have three days of inventoried energy on-site during those events. The ISO-NE estimated that the program will cost consumers between $200 million and $300 million over the two years covered by the program.

'One cannot help but wonder'

In his statement, Chatterjee said he would have found those costs to be just and reasonable, citing a lengthy ISO-NE discussion paper detailing what the grid operator called a problem of "misaligned incentives for energy supply arrangements." The grid operator said in the paper that "the ISO-administered wholesale electricity markets, in their current form, may not provide sufficient incentives for resource owners to make additional investments in energy supply arrangements even when such investments would be cost-effective and reduce potential reliability risks."

"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," Chatterjee said.

He also agreed with ISO-NE's assertion that the inventoried energy program will complement other existing incentive structures, such as the grid operator's pay-for-performance program. That carrot-and-stick program, which will not take full effect until 2024, replaced the region's winter reliability stop-gap program requiring dual-fuel-capable generators to stockpile oil or liquefied natural gas on-site.

Glick, however, called the inventoried program "patently unjust and unreasonable." While agreeing that New England suffers from fuel security issues, he said the ISO-NE has failed to provide any evidence or analysis showing that a near-term fuel security problem cannot be adequately addressed with its existing rules.

Moreover, Glick said the program would supply at least $40 million in annual payments to coal- and nuclear-fired generators when those resources already maintain considerably more than three days of fuel on-site. "Based on the record here, one cannot help but wonder whether burning that money might contribute as much to fuel security as wasting it on entities that we know will not do anything differently," he said.

Under a law passed by the U.S. Congress in 2018 that essentially treats FERC inaction the same as a final order, parties can seek review of the ISO-NE program through a rehearing request and court appeal. (FERC docket ER19-1428)