Docket No. EL22-42-000
I concur with the result of this order because I agree that Complainants have not demonstrated that the ISO New England Inc. (ISO-NE) tariff creates an undue preference for gas resources. But I write separately because I believe that the information before us strongly suggests that the ISO-NE tariff is unjust and unreasonable, and that ISO-NE’s failure to plan for cold weather events and fuel unavailability leaves the region vulnerable to a serious reliability threat. In the face of clear evidence that ISO-NE’s rules fail to ensure the supply of resources when they are most needed, in my view the Commission has a duty to take action to ensure grid reliability.
The Commission dismisses the Complaint essentially due to a pleading error. Complainants have demonstrated that gas resources are at risk of not performing due to correlated unavailability during winter conditions.[1] But while they have focused on undue discrimination, Complainants have failed to address whether other resources are subject to similar risks of correlated unavailability, and failed to present evidence sufficiently demonstrating other resource types are not similarly situated to gas-only resources, given the unique facets of ISO-NE’s accreditation and operating reserves regimes.[2] In other words, similar failures may exist in ISO-NE’s rules with respect to other resource types, and Complainants’ failure to assess data for all resources has left the Commission unable to determine whether undue discrimination is occurring, given the possibility that problems in accreditation and reserves market design are present with respect to all resource types.
But whether the problem is limited to gas-only resources, or more prevalent for all resources, unavailability of resources to produce energy to meet demand and maintain required operating reserves during the times that ISO-NE needs them most is a serious reliability threat for the region that must be addressed. Stakeholders participating in and commenting on the New England Winter Gas-Electric Forum recently held by the Commission have overwhelmingly recognized that urgent action is necessary to address the region’s reliability challenges.[3]
Similarly, while ISO-NE and parties opposing the Complaint contend that the region’s rules are not unduly discriminatory, they affirmatively recognize that the current rules do not accurately measure a resource’s contribution to reliability. For example, ISO-NE “does not disagree with the Complaint’s underlying concern that New England faces gas delivery constraints that can pose significant risks to energy security, in particular during extended extreme winter weather conditions.”[4] And it recognizes that it does not currently accredit resources in proportion to their actual resource adequacy contributions.[5] Parties protesting the Complaint likewise identify a deeper problem. EPSA contends, for example, that ISO-NE rules fail to “consider factors impacting any resource’s expected availability or unavailability during severe conditions for any technology type[,]”[6] and explains that “[t]he reality is that all non-intermittent resources face fuel delivery concerns in severe conditions, and, at this time, those concerns are not accounted for in ISO-NE’s capacity accreditation rules with respect to any resources.”[7]
Given this apparent agreement that ISO-NE’s rules are failing to assess the reliability of resources when they are most likely to be needed, in my view the Commission has a duty to fix the problem via action pursuant to section 206 of the Federal Power Act. We cannot stand idly by as the region heads toward yet more winters for which it is not adequately prepared.
As evidenced above, those who oppose Commission action pursuant to section 206 generally do not try to contend that the region’s rules appropriately ensure reliability. Rather, they argue that we should first let the stakeholder process play out.[8] But there are two problems with that approach.
First, as the New England States Committee on Electricity (NESCOE) recognizes, this “has been a persistent concern for two decades.”[9] In the absence of a clear Commission directive setting forth the particular problems with the region’s tariff, requiring clarification of those problems that remain murky, and directing specific action, the region’s reliability challenges have not been solved.[10] While stakeholders may point to the Commission’s prior section 206 action as a cautionary tale,[11] the Commission’s prior order directing broader market changes was exceedingly vague, instructing ISO-NE to submit “improvements to its market design to better address regional fuel security concerns,” without clearly defining those concerns or delineating the types of tariff changes that would address them, and without setting forth any clear process by which the concerns could be better defined and a solution proposed.[12] I agree that more specific direction is necessary from the Commission.
Second, there is no guarantee that ISO-NE will put forth a just and reasonable and not unduly discriminatory solution. In the wake of the D.C. Circuit’s decision in NRG Power Marketing, LLC v. FERC (NRG),[13] the Commission generally does not have the ability to order significant tariff modifications relating to contested issues as a grid operator implements its proposal.[14] The Commission may choose to initiate a section 206 action at a later date should the results of the stakeholder process result in a deficient proposal, but by that point we will have lost precious time to address what is an urgent problem.[15]
If the Commission were to act now pursuant to section 206 of the Federal Power Act, we could likely require the formation of a just and reasonable and not unduly discriminatory solution along a similar timeline to the one ISO-NE anticipates following with its planned section 205 filing. By waiting and hoping for a sufficient solution to come to us, the Commission backs itself into a corner: defer to ISO-NE even if its future section 205 proposal is deficient, or require further action under section 206, thereby allowing the region’s insufficient rules to ensue for an even longer period of time as that section 206 proceeding plays out, potentially jeopardizing the reliable delivery of electricity for an additional season or more before a replacement rate can be finalized and implemented.
As a former stakeholder myself, I appreciate the integral nature of the stakeholder process to successful regional proposals. In light of the magnitude of the reliability challenge and the potential implications that sufficient reform will have for various stakeholders, however, the Commission should balance deference to that process with a recognition that existing rules for accreditation are woefully out of date. Direction informing a process through which ISO-NE could still consult with stakeholders could provide greater certainty that a just and reasonable and not unduly discriminatory solution will in fact be implemented.
Moreover, the Commission’s recent pattern of action on capacity and resource adequacy issues reveals a potential cost of accepting a future proposal, should it fall short of the standard required by text and precedent of the Federal Power Act, but nevertheless be deemed to be a necessary fix to an urgent reliability problem. In my time at the Commission, thus far it has accepted almost every significant capacity accreditation proposal put forward by an RTO or regional framework.[16] My view has been that some of these proposals met the requirements of the Federal Power Act, while others did not.[17] For those that did not meet the standard in my view, perhaps an understandable desire to implement improvements to the status quo and address reliability concerns in a timely manner has played an unspoken role in the Commission’s approval. As these decisions mount, however, they contribute to a slow but steady erosion of the Commission’s bedrock legal standard that rate proposals must be just and reasonable and not unduly discriminatory. In the absence of forward-looking action by the Commission, accepting what comes is potentially the only path to ensuring reliability in the near term.[18]
Improvement to the status quo is not,[19] and should not become, the standard by which the Commission judges rate proposals. It is true that existing tariff rules have generally been approved by the Commission as just and reasonable and not unduly discriminatory at one point in time. However, just as newly updated software may run securely but later become vulnerable to new threats that require urgent changes, intervening circumstances can render these tariff rules unjust and unreasonable and/or unduly discriminatory. At no time in this Commission’s history has the surrounding context informing our just and reasonable determinations changed so quickly.
To be clear, in the absence of Commission action, I of course hope that ISO-NE sends the Commission a proposal that ensures grid reliability that the Commission is able to approve as just and reasonable and not unduly discriminatory. ISO-NE and stakeholders should also keep in mind that the extent to which the Commission’s hands are tied under NRG depends in large part on how ISO-NE presents any proposed tariff revisions to the Commission. For example, should ISO-NE indicate that the elements are severable from one another, then if any single element does not meet the Federal Power Act’s standard, the Commission could approve the other elements while rejecting only the deficient portion(s), consistent with precedent.[20] To the extent that ISO-NE determines that approval is necessary to address an urgent challenge, it may be wise for ISO-NE to frame the proposal in a manner that grants the Commission maximum flexibility.
For these reasons, I respectfully concur.
[1] See, e.g., Complaint at 8 (citing Rourke Aff. ¶ 10 summarizing the findings from ISO-NE Winter Outlook for 2021-2022 indicating that 3,700 MW to 4,500 MW of gas-only resources in New England were at risk of not being able to operate during winter peak conditions due to inadequate gas supply).
[2] Similarly, Complainants have failed to present sufficient data, modeling, or other information demonstrating that resources ISO-NE defines as “intermittent” are similarly situated to gas-only resources for purposes of ISO-NE’s output focused regime.
[3] See, e.g., FirstLight Power, Inc., Post-Forum Comments, Docket No. AD22-9-000, at 2-3 (filed Nov. 7, 2022) (“Commission leadership is needed to push the region onto a more productive path and ‘get off this spin cycle of crisis.’ The scope of the problem is wider than acknowledged so far . . . . There is only so much stakeholders, even as a group, can drive on their own . . . . Commission leadership is needed to . . . initiate a process . . . to assure winter reliability . . . and . . . hold ISO-NE and the region accountable for deliverables and timely required follow-up.”) (citations omitted); New England States Committee on Electricity, Comments, Docket No. AD22-9-000, at 4 (filed Nov. 7, 2022) (“NESCOE Post-Forum Comments”) (“The reliable operation of New England’s regional electric system during the winter months has been a persistent concern for two decades.”) (citation omitted); Connecticut Department of Energy and Environmental Protection and the Connecticut Public Utilities Regulatory Authority, Comments, Docket No. AD22-9-000, at 2 (filed Nov. 7, 2022) (“Connecticut Post-Forum Comments”) (“The status quo— effectively hoping that each winter will not be a severe one— is not acceptable, and a long-term solution must be found.”); Repsol Energy North America Corporation, Comments on the New England Winter-Gas Electric Forum, Docket No. AD22-9-000, at 1 (filed Nov. 7, 2022) (“Repsol believes that there was a broad consensus at the Forum among federal and state regulators and market participants that there is a severe threat to the reliability of electric service for consumers in New England[.]”); Vistra Corp., Comments, Docket No. AD22-9-000, at 1 (filed Nov. 7, 2022) (“The forum placed a bright spotlight on the region’s need to define with specificity the nature and scope of the core challenge—namely, the natural gas supply and energy adequacy gap that could arise in ISO-NE in periods of extreme winter weather . . . . [I]n the wake of the forum, which featured urgent calls to action, it is clear to Vistra that the Commission must provide guidance on the reliability objective[.]”); ISO-NE, Post-Forum Comments, Docket No. AD22-9-000, at 3 (filed Nov. 7, 2022) (“The ISO . . . recognizes the need to more rigorously quantify the scope of the energy security risks facing the region[.]”).
[4] ISO-NE May 2022 Answer at 8.
[5] ISO-NE April 2022 Answer Zheng Aff. at 2:17-3:14.
[6] Electric Power Supply Association (EPSA) Protest at 5 (emphases added). See also LS Power Development, LLC, Ocean State Power LLC, and Wallingford Energy LLC Protest at 21 (“Currently, capacity accreditation does not measure any resource’s ability to respond to a multi-day extreme condition.”).
[7] EPSA Protest at 5 (emphasis in original).
[8] See, e.g., NESCOE Post-Forum Comments at 20-22; Connecticut Post-Forum Comments at 5.
[9] NESCOE Post-Forum Comments at 4.
[10] NESCOE argues conversely, that “[i]f a simple market or operational fix were possible, FERC and the region would have pursued that approach long ago.” Id. at 21. But I am not arguing that the problem is simple, or that a solution should be developed without consultation with stakeholders or the Commission’s active participation. Rather, I believe the opposite is true: a solution has not been developed because the issues are complex and contentious. Stakeholder discussions have historically proven inadequate to untie these challenging concerns and target permissible solutions under the Federal Power Act. Clear direction from the Commission could help to guide that discussion and ensure a just and reasonable and not unduly discriminatory outcome. Such a directive could include a suite of actions, including the formation of an Effective Load Carrying Capability approach that applies to all resources, and the development of a seasonal capacity market structure. See Commissioner Clements’ Statement on Next Steps After the New England Winter Gas-Electric Forum (Sept. 22, 2022), https://www.ferc.gov/news-events/news/commissioner-clements-statement-next-steps-after-new-england-winter-gas-electric.
[11] While not directly referencing the Commission’s prior section 206 action, NESCOE urges the Commission to avoid instituting a proceeding that would trigger ex parte proceedings, arguing that ex parte restrictions would impede communications between the Commission and ISO-NE, states, and other stakeholders. See NESCOE Post-Forum Comments at 20-22. While I am sensitive to the downside of developing a solution in the context of a contested proceeding, I believe that more precise direction from the Commission, as well as structuring the proceeding in a manner that invites formal, on-the-record dialogue, could mitigate these concerns.
[12] ISO New England Inc., 164 FERC ¶ 61,003, at P 55 (2018). The Commission ultimately closed this aspect of its section 206 proceeding without ever arriving at a solution. See ISO New England Inc., 173 FERC ¶ 61,205, at P 23 (2020) (closing the section 206 proceeding as moot). The Commission had also separately required “the filing of a short-term, cost-of-service agreement to address demonstrated fuel security concerns[.]” 164 FERC ¶ 61,003 at P 55. The Commission later accepted ISO-NE’s proposed short-term cost-of-service mechanism. See ISO New England Inc., 165 FERC ¶ 61,202 (2018); ISO New England Inc., 173 FERC ¶ 61,205 at P 23.
[13] 862 F.3d 108 (D.C. Cir. 2017).
[14] Rather, if a section 205 filing is deficient, under NRG, 862 F.3d 108, the Commission’s ability to direct revisions is limited. NRG has led to changes in the Commission’s approach to section 205 filings. Where the failure of existing rules to adapt to changing market conditions has created an urgent problem, the cost of rejecting a proposal is great, and there is a temptation to compare what has been proposed to the status quo. Indeed, stakeholders commonly identify deficiencies with a filing but nonetheless urge us to accept it. See, e.g., Potomac Economics, Motion to Intervene Out of Time and Comments, Docket No. ER22-495-000 (filed Jan. 17, 2022) (identifying numerous flaws with a capacity accreditation proposal put forth by the Midcontinent Independent System Operator (MISO), but nonetheless recommending that the Commission approve MISO’s proposed changes); American Clean Power Association, Comments, Docket No. ER22-2110-000 (filed July 14, 2022) (urging the Commission to approve an interconnection proposal put forth by PJM Interconnection, L.L.C., but recommending that the Commission require certain modifications to correct asserted deficiencies with the proposal); Northwest & Intermountain Power Producers Coalition, Protest, Docket No. ER22-2762-000 (filed Dec. 30, 2022) (recommending the Commission approve the Western Power Pool’s Western Resource Adequacy program, but condition approval on fixing an asserted deficiency with one of its requirements).
[15] ISO-NE states that the proposed revisions pertaining to capacity accreditation and operating reserves will be submitted as part of a more comprehensive market design revision for implementation in FCA 19, which covers the capacity commitment period for 2028-2029. See ISO-NE, Updated 2022 Annual Work Plan (Apr. 2002), https://www.isone.com/staticassets/documents/2022/04/2022_awp_update_for_04_07_22_pc.pdf, at 5 (cited by ISO-NE April 2022 Answer at 12 n. 36) (explaining that ISO-NE’s capacity market revisions will “proceed as one initiative for FCA 19”). While this is already too slow to address risks to the region in upcoming winters, waiting for ISO-NE to make its proposal only to risk having to reject it could compromise this timeline and delay a solution until even further in the future.
[16] See N.Y. Indep. Sys. Operator, Inc., 179 FERC ¶ 61,102, at PP 46, 75-82, 105-114 (2022) (accepting a proposal from the New York Independent System Operator to calculate capacity accreditation for all resources using a system ELCC or equivalent methodology); Southwest Power Pool, Inc., 180 FERC ¶ 61,074, at PP 1, 5, 12 (2022) (accepting, subject to a compliance filing, a proposal to accredit capacity of wind and solar resources using an ELCC methodology); Midcontinent Indep. Sys. Operator, 180 FERC ¶ 61,141 at P 1 (accepting MISO’s proposal to establish a seasonal capacity construct), order on reh’g, 182 FERC ¶ 61,096 (2023); Northwest Power Pool, 182 FERC ¶ 61,063, at PP 1, 77 n. 136 (2023) (accepting the proposed Western Resource Adequacy Program, which among other features, includes a proposed ELCC method, or “Qualified Capacity Contribution,” for variable resources and energy storage resources). The lone exception to this near universal acceptance is that the Commission initially rejected an ELCC accreditation proposal for wind, solar, and energy storage resources put forward by PJM, before later accepting a revised version of that proposal. See PJM Interconnection, L.L.C., 175 FERC ¶ 61,084, at PP 1, 17-18, 115-118 (2021) (rejecting PJM’s initial proposal, but restarting a paper hearing in ongoing proceedings to further examine capacity accreditation issues); and PJM Interconnection, L.L.C., 176 FERC ¶ 61,056, at PP 1-3 (2021) (accepting a revised version of PJM’s ELCC proposal).
[17] Specifically, I voted with the Commission to accept the proposals put forth by NYISO, the Western Power Pool, and PJM (after it executed revisions), while dissenting from the Commission’s acceptance of Southwest Power Pool’s ELCC proposal and MISO’s seasonal capacity construct. See Southwest Power Pool, 180 FERC ¶ 61,074 (Clements, Comm’r, dissenting); Midcontinent Indep. Sys. Operator, Inc., 180 FERC ¶ 61,141 (Clements, Comm’r, dissenting).
[18] Stakeholders responding to the New England Winter Gas-Electric Forum have recommended a variety of actions, short of opening a section 206 proceeding, that the Commission can take to help facilitate solutions. See, e.g., NESCOE Post-Forum Comments at 22-24 (requesting “that the Commission exercise its authority under section 304 of the FPA, 16 U.S.C. § 825c, to direct that ISO-NE file annual reports on winter reliability until a long-term solution is in place”); Public Interest Organizations, Comments, Docket No. AD22-9-000, at 11-12 (filed Nov. 7, 2022) (encouraging “FERC to schedule at least one subsequent technical conference or regional forum to discuss the results” of the study of extreme weather risks being carried out by ISO-NE and the Electric Power Research Institute). I strongly support examining every tool in the Commission’s toolbox as we confront the challenge at hand, and accordingly I welcome the decision to convene another forum to explore potential next steps. See Order at P 52. That said, section 206 is the only tool that empowers the Commission to set a just and reasonable and not unduly discriminatory rate.
[19] See PJM Interconnection, L.L.C., 180 FERC ¶ 61,089, at P 47 n.111 (2022) (finding that even if PJM’s contention that its Intelligent Reserve Deployment proposal is an improvement over its current approach is correct, that does not render the proposal just and reasonable).
[20] See PacifiCorp, 179 FERC ¶ 61,089, at PP 35, 39, 51 (2022) (accepting several components of a PacifiCorp interconnection proposal despite a finding that one aspect of the proposal had not been demonstrated to be consistent with or superior to the Commission’s pro forma LGIP, where PacifiCorp expressly indicated that the components of its proposal were severable from one another).