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RESA: Generators' Play To Terminate ISO-NE Peak Energy Rent Rebate Immediately Would Harm Retail Suppliers

October 21, 2016

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Copyright 2010-16 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

A complaint filed at FERC by the New England Power Generators Association, Inc. seeking to terminate the Peak Energy Rent (PER) rebate, a key feature of the ISO-NE capacity market, effective September 30, 2016 would harm retail suppliers, the Retail Energy Supply Association said in comments at FERC.

The PER rebate, a key factor of the compromise which was the original ISO-NE capacity market design approved by FERC, essentially returns scarcity rents enjoyed by generators, who have willingly assumed (and been paid) fixed capacity payments in exchange for being available to meet peak demand, to load, in recognition that such infra-marginal scarcity revenues are meant to cover fixed costs, which load is already paying for through the capacity market. The rebate acts as a hedge for load in exchange for being required to pay generators' fixed costs via capacity payments three years in advance.

The rebate is already scheduled to be phased out on June 1, 2019. NEPGA's latest complaint was premised on the ostensible outcome during a recent summer day during which NEPGA alleged the rebate resulted in losses for generators (ignoring first the mechanism is in exchange for the riches of capacity revenues NEPGA members enjoy)

"[M]odifying the PER Adjustment will in an unjust and unreasonable fashion upset the reasonable expectations of both capacity suppliers and Load Serving Entities ('LSEs') in the PER Adjustment and its phase-out for FCA-10," RESA said.

"LSEs like RESA Members receive the rebate portion of the PER Adjustment and would be adversely affected by elimination of the PER Adjustment effective September 30, 2016," RESA said

"LSEs, such as RESA members, include the [PER] credits, which ... are known, and use the credits to reduce the overall rates paid for services. LSEs, such as RESA members, often offer fixed price contracts to customers, which can be either customers purchasing services as part of a state retail access program or customers served via the local utility provider of last resort solicitations. The PER credits to load are relied upon in pricing the services in these often long-term arrangements. Thus, in either case, a sudden change in or elimination of the credit will have devastating effects on LSEs with these fixed price contracts serving customers or POLR load pursuant to utility solicitations," RESA said

RESA noted that the PER rebate is set using an average on a rolling 12-month basis

Accordingly, "[t]he harm to LSEs such as RESA members with fixed price contracts is substantial in the short-term because some of the PER that has already been incurred and due to be paid back to load over the next 12 months by tariff would not, if the Complaint is granted, be credited to LSE’s as expected," RESA said

RESA noted that, "NEPGA has never supported the PER mechanism and has sought many times to eliminate it," calling NEPGA's complaint a collateral attack on prior FERC orders

RESA called "misleading" NEPGA's statement in its complaint that, under the PER rebate, "suppliers have been put in the untenable position of paying load to run during the electricity system’s most critical hours."

RESA correctly points out that, "Operating a generator is not what causes a unit to incur a PER Adjustment. What causes the PER Adjustment to be triggered is having a capacity supply obligation"

"Generators are obligated to pay the PER Adjustment as part of the opportunity to provide capacity in the ISO-NE market. In fact, the PER Adjustment is a deduction to capacity revenues, not energy revenues. To be sure, a $100 million PER Adjustment seems large, but it is not so large when considered in context of capacity revenues for the relevant CCP [Capacity Commitment Period]. RESA estimates that the $100 million figure equates to an estimated 10% of capacity revenues for the 2016-2017 CCP," RESA said

Terminating the PER Adjustment effective September 30, 2016, would prematurely terminate the collection of amounts that are included in the rolling 12-month credit. Of course, it would preclude inclusion of the $100 million PER Adjustment from being collected, giving those with a capacity obligation in the applicable CCPs a windfall at the expense of load," RESA noted

Docket No. EL16-120

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