FERC sides with ISO New England in dispute over meeting capacity supply obligations

FERC on Aug. 27 granted in part and denied in part a complaint alleging that ISO New England (ISO-NE) had interpreted its tariff in a way that required generators to secure firm fuel capacity (FERC Docket No. EL13-66).

The order comes amidst discussions around the country about how to synchronize and integrate the electric and natural gas systems, as natural gas is more heavily relied upon to meet electricity needs.

The New England Power Generators Association (NEPGA) on May 17 filed a complaint with FERC alleging that ISO-NE had interpreted its tariff in a way that gave it unjustifiable latitude in requiring that generators meet a firm fuel obligation on all capacity resources through the ISO’s forward capacity market. 

“The commission agrees with ISO-NE that the tariff imposes a strict performance obligation on capacity resources and that capacity resources may not take economic outages, including outages based on economic decisions not to procure fuel or transportation,” FERC said in the order. “However, we agree in part with NEPGA that the November 5 memo’s interpretation of the tariff impermissibly narrowed the circumstances under which a capacity resource may be excused from its performance obligation.”

ISO-NE on Nov. 5, 2012, issued a memorandum, “Market Participant Performance Obligations,” explaining its interpretation of its tariff’s performance obligations of market participants that have undertaken capacity supply obligations in the forward capacity market.

“What the ISO did, based upon stakeholder requests and after observing over one hundred failures of generators to comply with the terms of their offers by failing to make fuel arrangements, was to reinforce, through specific reference to the applicable tariff provisions, that the tariff requires generators to make supply offers in the day-ahead energy market (which can be updated in the re-offer period), that offers must remain open for the entire operating day, and that generators must honor the terms of their offers throughout the operating day,” the ISO said in its June 6 answer to NEPGA’s complaint.

NEPGA in its complaint contended that the interpretation of the tariff constituted a new interpretation that functionally required generators to procure firm fuel capacity.

However, ISO-New England said that such a reading is erroneous.

“We aren’t requiring firm fuel arrangements and the tariff hasn’t changed,” a spokesperson for ISO-NE told TransmissionHub on Aug. 28. “Generators with a capacity supply obligation have a strict obligation to perform when called on by the ISO, and resources with a capacity supply obligation may not take economic outages, including those based on their decisions not to procure fuel or transportation for economic reasons. FERC clearly stated that there is ‘an important distinction between being unable to procure fuel or transportation and making an economic determination not to procure fuel or transportation.’ Our primary concern in this matter has been to ensure that there are clear expectations for generators’ performance, and this order provides that clarity and that certainty. This order will ensure that generators with capacity supply obligations meet those obligations when called upon by the ISO.”

ISO-NE conducts forward capacity auctions to procure enough capacity to meet forecasted demand plus reserves three years in advance. For each resource that clears in a forward capacity auction, the forward capacity market provides a future revenue stream in exchange for a capacity supply obligation.

“In general terms, a capacity supply obligation represents a resource owner’s assurance that the resource will be available to supply capacity and energy three years in the future,” FERC said in the order.

According to ISO-NE, its tariff contains three terms under which a resource may be rendered unavailable — “forced outage,” not being “physically available,” and “force majeure.”

The ISO also argued that the outage scheduling procedures contained in its Operating Procedure No. 5 provide the only means for a generator owner to remove a generator from service.

Operating Procedure No. 5 states, “Generators should not be taken out of service for maintenance without ISO approval, unless there is a danger to personnel or a risk of equipment damage.”

FERC agreed with ISO-NE, saying that a decision not to comply with ISO-NE dispatch instructions for economic reasons – for example, if the price of fuel is too high – does not constitute a reasonable excuse for rendering a resource unavailable and is in violation of the tariff.

However, FERC said that ISO-NE’s tariff does not allow appropriate cost-recovery for fulfilling a capacity supply obligation in all circumstances, and determined that there are circumstances beyond a generator’s control that warrant removal from service.

“If a capacity resource cannot procure fuel or transportation in real time in order to run at dispatch levels beyond its day-ahead commitment (or when not scheduled in the day-ahead market), then the resource is not physically available to perform for a reason beyond the resource’s control for those additional hours and/or incremental [megawatts]; thus the resource may be excused for non-performance,” the commission said.

Finally, FERC said that it will not pursue any pending enforcement referrals from the Independent Market Monitor that are based “solely on an alleged inability to procure natural gas,” as stakeholder discussions on market design issues are ongoing.




Definition of a forced outage:

A forced outage is defined in Operating Procedure No. 5 as follows: “Forced outage (FO): Means any outage or inability, in whole or in part, of a generator or DARD [Dispatchable Asset Related Demand] to provide its claimed capability or nominated consumption limit (NCL) that has not been approved by the ISO in the form of a PO [planned outage] or MO [maintenance outage]. An FO incident preceding a PO or MO shall not eliminate the requirement of the market participant to report an FO for the entire actual/estimated period to repair the component(s) associated with the FO. Among other things, an FO may occur by reason of an emergency or threatened emergency, unanticipated failure, or other cause beyond the control of the owner or operator of the facility, as specified in the relevant portions of the Market Rule 1 and ISO New England Manuals. An FO requires the notification of the ISO Control Room Generation Desk with an appropriate redeclaration for the current operating day. The ISO generation coordinator should also be contacted at (413) 535-4378 for the purpose of providing an expected FO return date, and to provide any necessary redeclaration of any future days for which the bidding deadline has passed.  These notifications should be made as soon as practicable.”

About Rosy Lum 525 Articles
Rosy Lum, Analyst for TransmissionHub, has been covering the U.S. energy industry since 2007. She began her career in energy journalism at SNL Financial, for which she established a New York news desk. She covered topics ranging from energy finance and renewable policies and incentives, to master limited partnerships and ETFs. Thereafter, she honed her energy and utility focus at the Financial Times' dealReporter, where she covered and broke oil and gas and utility mergers and acquisitions.