Appeals court partly strikes down FERC approval of ISO New England winter reliability program

Source: By Ethan Howland, Utility Dive • Posted: Tuesday, June 21, 2022

  • A federal appeals court partly struck down the Federal Energy Regulatory Commission’s approval of a plan to pay power plant owners in New England an incentive to have three-days worth of on-site fuel during two upcoming winters.
  • Echoing a 2020 dissent of then-FERC Commissioner Richard Glick, the U.S. Court of Appeals for the District of Columbia Circuit on Friday rejected allowing an estimated $40 million a year in “windfall payments” to coal, hydroelectric, biomass and nuclear generators as part of ISO New England’s Inventoried Energy Program, or IEP, saying the incentive wouldn’t affect their behavior. Payments to other types of generators, like gas-fired power plants or oil-burning units, can go forward under the ruling.
  • The court decision could affect other FERC incentives, such as those for transmission development, according to Paul Patterson, an equity analyst with Glenrock Associates. “The D.C. Circuit opinion could provide support for a less generous incentive approach at FERC,” Patterson said Friday in an email.

Dive Insight:

In a 3-1 vote, FERC in 2020 approved ISO-NE’s IEP, a program designed to steer about $150 million a year to certain types of power plants in New England during the winters of 2023-24 and 2024-25. The two-year program aimed to improve grid reliability by offering an incentive for power plants to have on-site fuel while ISO-NE developed a long-term, market solution to bolstering reliability in the winter.

FERC Chairman Glick dissented in the decision over IEP payments to nuclear, coal and hydropower generators without evidence they would change the way they operate. “Handing out money for nothing is a windfall, not a just and reasonable rate,” Glick said.

FERC’s decision was appealed by a group of municipal utilities; the New Hampshire Office of the Consumer Advocate, the New Hampshire Public Utilities Commission, and the Massachusetts attorney general; and, the Sierra Club and Union of Concerned Scientists.

In its decision, the appeals court said coal, hydroelectric, biomass and nuclear generators typically have more than three-days fuel supply on hand and that FERC failed to adequately address arguments that IEP payments to those resources wouldn’t change their behavior.

In part, the court based its decision on a 2016 FERC order on a previous ISO-NE winter energy security program. In that decision, FERC rejected a proposal to make payments to coal, nuclear and hydro plants, saying the extra money wouldn’t act as an incentive.

“Despite evidence in the administrative record indicating that IEP’s payment framework would award a windfall to nuclear, coal, biomass, and hydroelectric generators, FERC approved their inclusion in IEP and abandoned the position it previously took,” the court said, noting the agency failed to adequately explain why it changed its views.

The court left in place IEP payments to resources such as gas-fired, oil-buring and municipal waste power plants as well as wind and solar facilities that have been combined with energy storage. 

The court decision could reinforce arguments from Glick and FERC Commissioner Mark Christie that incentives, such as an additional return on equity for being a member of a regional transmission organization, need to spur the desired behavior, according to Patterson.

“They’re basically saying that if you’re doing the incentive it should change behavior,” Patterson said.

Late last month, Christie said he supported limiting the ROE adder for joining an RTO to three years. “As power prices continue to rise, reducing that unfair cost to consumers is becoming even more important,” Christie said in his concurrence.

Because of the ruling, many New England power plants will go unpaid for providing reliability services, according to the New England Power Generators Association.

The court today cherry-picked its own design carving the market even further into haves and have nots,” Dan Dolan, NEPGA president, said in a statement Friday. “That is inherently unfair and discriminatory.”

The trade group is considering its options, according to Dolan.

The grid operator is reviewing the decision and didn’t have any comment, Matt Kakley, an ISO-NE spokesman, said.

ISO-NE has been struggling to make sure it has adequate winter-time power supplies since the polar vortex of 2014, according to David Littell, a Bernstein Shur attorney and former Maine Public Utilities Commission commissioner.

“The decade of disagreements between FERC, ISO-NE, [the New England Power Pool,] and the state commissions points out that our ISO New England markets are not producing electrical supply that is sufficient, reliable, or for that matter clean,” Littell said in an email.

New England consumers have made billions of dollars in capacity payments for a system that largely relies on natural gas, but gas prices are rising due to supply constraints from the Russian invasion of Ukraine and increased U.S. liquefied natural gas exports, Littell noted.

“New England customers will be paying for the over-reliance on gas this winter – electricity supply prices this January could reach almost 10 times the cost of a decade ago, back when gas was ‘cheap,’” Littell said.