ISO-NE Inventoried Energy Program, Called "Pay-And-Pray" By LSEs & Retail Supplier, Becomes Effective Due To Lack Of FERC Quorum, Action

Costs Will Be Allocated To Retail Suppliers, Load

August 7, 2019

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Copyright 2010-19 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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Due to the lack of action by FERC, ISO New England's proposed Inventoried Energy Program has become effective by operation of law.

FERC said that, "The Commission did not act on ISO-NE’s filing because of a lack of quorum at this time."

ISO-NE said that its inventoried energy program, for the winters of 2023-2024 and 2024-2025 (in the Capacity Commitment Periods associated with the 14th and 15th Forward Capacity Auctions), "will provide incremental compensation to resources that maintain inventoried energy during cold periods when winter energy security is most stressed."

See background on the program here

Inventoried Energy Program costs will be allocated on a regional basis to Real-Time Load Obligation. "This is consistent with how costs were allocated under the earlier winter reliability programs and with the retention of resources for fuel security," the ISO has said

"[C]osts associated with the inventoried energy program shall be allocated on a regional basis to Real-Time Load Obligation, excluding Real-Time Load Obligation associated with Storage DARDs and Real-Time Load Obligation associated with Coordinated External Transactions. Costs associated with base payments shall be allocated across all days of the months of December, January, and February; costs associated with spot payments shall be allocated to the relevant Inventoried Energy Day," the ISO has said

"The total costs associated with the forward sale of inventoried energy will be evenly distributed across each day in the December through February delivery period. The spot settlement could result in a net charge to load if the total inventoried energy maintained for the Inventoried Energy Day exceeds the quantity sold forward, or a net credit to load if the total inventoried energy maintained for the Inventoried Energy Day falls below the quantity sold forward. In either case, this charge or credit is assigned to Real-Time Load Obligation on the Inventoried Energy Day," the ISO has said

In a jointly filed protest of the ISO's proposal, the New England Consumer-Owned Systems and Direct Energy Business, LLC had noted that ISO-NE’s previous Winter Reliability Programs (in effect from 2014 through 2018) paid generating resources operated on oil, natural gas and liquefied natural gas to secure firm winter fuel supplies, and thereby provided load incremental benefits in terms of available energy. In contrast, the Consumer-Owned Systems and Direct Energy Business said that ISO-NE’s proposed Inventoried Energy Program increases payments to those resources, and then adds payments to nuclear, coal, biomass and hydroelectric resources, which the protesters characterized as, "generating resources whose fuel procurement behavior is unlikely to be influenced by such payments to provide New England with additional fuel security."

The Consumer-Owned Systems and Direct Energy Business have said, "In reality, and largely because it is fundamentally lacking in quantitative analytical support, ISO-NE’s Inventoried Energy Program is simply a pay-and-pray program that broadly spreads unjustified levels of revenue across various types of generating resources – including those unlikely to provide incremental improvement in regional fuel security in response to the substantial additional compensation created by the Inventoried Energy Program."

The Consumer-Owned Systems and Direct Energy Business have said, "ISO-NE’s own estimates indicate that proposed Inventoried Energy Program would cost New England consumers approximately $168 million over December, January and February of each of the 2023-2024 and 2024-2025 Capacity Commitment Periods, or a total of $336 million in the hope of addressing the winter energy security concerns addressed by out-of-market solutions at a cost of between $25 million and $46 million per year."

As originally proposed, the inventoried energy program consists of five core components that work together to provide compensation for resources that maintain inventoried energy during stressed winter conditions. These five components are: (1) the two-settlement structure; (2) the forward rate; (3) the spot rate; (4) the trigger conditions; and (5) the maximum duration.

As originally proposed, the program employs a two-settlement structure to determine program settlements. Participation in the inventoried energy program is voluntary, and a Market Participant may elect to participate in both the forward and spot components of the program, or only in the spot component of the program. A Market Participant electing to participate in both the forward and spot components is paid the forward rate for each MWh of inventoried energy that is sold forward. The spot rate is then applied to deviations between the MWh of inventoried energy maintained for each trigger condition (called an “Inventoried Energy Day”) and the MWh of inventoried energy sold forward

As originally proposed, the forward rate represents the payment that a Market Participant receives for each MWh of inventoried energy sold forward. In exchange for this compensation, the Market Participant takes on a financial obligation to maintain its elected amount of inventoried energy for each Inventoried Energy Day during the program delivery period (December through February). The program specifies a fixed forward rate of $82.49 for the entire delivery period for each MWh sold forward

As originally proposed, the spot rate represents the payment rate that is applied to deviations between the inventoried energy maintained by a participant for each trigger condition, and that sold forward. For example, a resource that does not sell any inventoried energy forward will get paid the spot rate for each MWh of inventoried energy maintained each time the trigger conditions are met. This spot rate is set at $8.25 per MWh for each trigger condition in the delivery period, and it is derived from the forward rate

Docket No. ER19-1428

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