FERC Agrees With CLF About the ISO’s Big Mistake, Not Counting Renewable Energy

Jerry Elmer

On October 15, 2014, I posted a blog that explained that the ISO, the entity that operates New England’s electricity grid, had made a huge mistake in neglecting to use its own renewable energy forecast in deciding how much electricity to buy for the period 2018-2019.

On January 2, 2015, the Federal Energy Regulatory Commission, the governmental agency that regulates the ISO, issued an Order that agrees with CLF’s position, and tells the ISO to correct its big mistake when it decides how much electricity to buy for the following year, 2019–2020.

Here are the details of what happened. (If you find some of this discussion confusing, read my October blog first, because that explains many of these terms.)

On November 4, 2014, the ISO filed with FERC its projected figure for the Installed Capacity Requirement (ICR) for FCA-9 (that is, Forward Capacity Auction 9, to be held next month, February 2015, for the Capacity Commitment Period that runs from June 1, 2018, to May 31, 2019). CLF voted against the ISO’s figure in NEPOOL, the ISO’s legally mandated stakeholder group. CLF cast this negative vote specifically because that figure (34,189 MW) improperly failed to account for the ISO’s own forecast of renewable energy distributed generation that would be on the New England electricity grid during the relevant period, 2018–2019.

Significantly, a majority of NEPOOL members sided with CLF on this issue. The problem that both CLF and NEPOOL pointed out was that when the ISO calculates an ICR that totally ignores the ISO’s own distributed generation forecast, the resulting rates cannot, by definition, be “just and reasonable” within the meaning of the Federal Power Act, because the ISO is significantly over-procuring capacity.  This yields unjust rates in at least two separate ways. First, ratepayers are procuring extra capacity that they don’t need. Second, the auction clearing price is likely to be higher than it should be because the demand side of the equation is improperly exaggerated. So it is a double whammy: procuring too much of commodity and at a price that is artificially inflated.

FERC discusses this issue in paragraph 7, page 3, of its Order:

NEPOOL states that it does not support the ICR value because NEPOOL believes the ICR value should be reduced to account for distributed generation, especially solar photovoltaic resources, that is forecasted to be available during the 2018/2019 Capacity Commitment Period. According to NEPOOL, some participants contend that failure to reflect the amount of solar photovoltaic capacity in the ICR calculation will lead to over-procurement of capacity in the FCA.

Although the FERC Order does accept the ISO’s ICR filing for this auction, the Commission also tells the ISO to clean up its act before the ICR filing for the next auction, FCA-10. This is an important victory for renewable energy (and for common sense). The language I am referring to appears in paragraph 20, page 8, of the January 2 FERC Order:

[W]hile we are accepting ISO-NE’s proposed values for FCA 9, we expect ISO-NE to fully explore the incorporation of distributed generation into the ICR calculation in the stakeholder process. We expect ISO-NE to do this on a schedule that will allow these factors to be reflected, if determined appropriate, in the ICR calculation for FCA 10.

Over the coming year, CLF will use this language to push the ISO to correct its huge mistake for its next ICR filing in November 2015, for the next auction, FCA-10, to be held in February 2016. If the ISO does not listen to CLF – and to the overwhelming majority of NEPOOL members – on this issue, there is the very real possibility that next time FERC will reject the ISO’s flawed ICR calculation.

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