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FERC Accepts ISO-NE Proposal To Impose New Fuel Security Costs On Retail Suppliers, Load

Dismisses Concerns About Risk Premiums, Says That's Life For LSEs


December 4, 2018

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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FERC has accepted as filed ISO New England's proposal regarding the allocation of out-of-market costs of resources retained for fuel security, as FERC agreed that such costs shall be allocated to load serving entities on a regional basis using the Real-Time Load Obligation allocator

The adopted proposal provides that the compensation for resources needed for fuel security reliability reasons will utilize the Commission-approved compensation mechanisms set out at III.13.2.5.2.5.1 of the existing ISO-NE tariff, with the variation that the costs shall be allocated on a regional basis to Real-Time Load Obligation in the same manner the Commission directed in the Winter Reliability Program dockets, i.e., excluding Real-Time Load Obligation associated with Dispatchable Asset Related Demand Resources (DARD Pumps and other electric storage based DARDs) and Real-Time Load Obligation associated with Coordinated External Transactions

"We agree with ISO-NE that the goal of the proposed revisions is similar to that of the Winter Reliability Program and therefore should have a similar cost allocation method," FERC said

"With respect to commenters’ concerns that cost allocation based on Real-Time Load Obligation may cause load serving entities to include new risk premiums, we note that the Commission has dismissed similar arguments in the past," FERC said

FERC quoted a prior finding which had stated, concerning risk premiums, "an important purpose of the LSE supply contracts is to shift supply cost risks from [Local Distribution Companies] to the LSEs. Such risks include those from unanticipated as well as anticipated events. . . . [T]he risks associated with load-serving obligations should have been anticipated and reflected in the rates incorporated in [those] contracts."

The ISO's ability to retain plants for fuel security purposes, and allocate costs to LSEs, will only be in effect for the 13th, 14th, and 15th Forward Capacity Auctions, which run for Capacity Commitment Periods 2022/23, 2023/24 and 2024/25, pending resolutions of a long-term approach to such issues

FERC accepted the ISO-NE’s proposal to enter fuel security resources into the FCM as price-takers. ISO-NE explained that procuring a fuel-secure resource in the capacity market, without ensuring that its resource adequacy contributions are counted, may result in a market outcome that inefficiently over-procures the resource adequacy product at excessive prices. "We agree that the year-round resource adequacy contributions of resources retained for fuel security should be counted in the capacity market and therefore find that such resources should be entered into the FCA as price-takers to ensure that they clear," FERC said

FERC Chairman Neil Chatterjee dissented in part due to the Commission's acceptance of the ISO-NE’s proposal to enter fuel security resources into the FCM as price-takers, as Chatterjee stated that such a design will lower capacity prices and exacerbate pressures faced by marginal units, potentially leading to a decline in fuel security

Docket Nos. ER18-2364-000 and EL18-182-000

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