FERC Denies Retail Suppliers' Requested Cost Allocation in ISO-NE

FERC has denied the request of retail suppliers to allocate costs of demand response to Network Load during a transition period in which an interim set of rules to comply with Order 745 are in effect.

ISO-NE proposes to allocate demand response costs hourly, proportional to the Real-Time Load Obligation, on a system-wide basis.

Constellation Energy and the Retail Energy Supply Association favor allocating costs to Network Load because (1) the demand response market participations were not cleared in the day-ahead markets and (2) it is more appropriate to allocate the costs to transmission customers operating with regulated rates who may be able to recover these costs from retail customers.

Constellation stated that load serving entities that hedge in the day-ahead market will experience no benefit in terms of lower day-ahead LMPs from cleared demand response, despite being allocated such demand response costs.

Additionally, Constellation said that it will be impossible for load serving entities to hedge these costs and that it is likely that the risk premiums load serving entities will have to assign to these "new unpredictable and unhedgeable charges" during the transition period will be greater than the pass-through of the actual charges to retail customers through network load charges. Constellation said that load serving entities will have a better understanding of the market impacts of implementing Order No. 745 after the transition period concludes.

FERC said that it accepted ISO-NE's proposal, "because it results in an appropriate allocation of costs to those that benefit from demand response resource participation, as required by Order No. 745."

"Specifically, we agree with ISO-NE that, within ISO-NE, price impacts in one area tend to affect all other areas. Therefore, we expect that demand reductions in one zone of ISO-NE will affect the LMPs in all other zones in the New England footprint," FERC said.

"We disagree with Constellation and RESA that ISO-NE should continue with its existing cost allocation methodology by allocating costs to Network Load during the Transition Period," FERC added.

"We reject as beyond the scope of this proceeding the argument that, during the Transition Period, load serving entities that hedge day-ahead will receive no benefit from lower day-ahead LMPs from cleared demand response resources, despite potential reliability benefits from such lower LMPs," FERC held.

"We further find as beyond the scope protesters' speculations as to how load serving entities might pass on potential risk premiums to retail customers," FERC added.