FERC recently issued an order approving ISO-New England’s 2014-15 Winter Reliability Program, but ordered ISO-NE to commence stakeholder discussions by January, 2015, to develop a longer term solution to reliability problems in the region. (http://www.ferc.gov/CalendarFiles/20140909165718-ER14-2407-000.pdf). ISO-NE’s Winter Reliability Program is designed to ensure electric system reliability during the winter months through out-of-market payments to generators making arrangements to run their plants on oil or LNG or to participants who provide demand response when dispatched.
More than 50% of electric generation capacity in the ISO-NE region is gas-fired, but the region has inadequate firm interstate pipeline capacity to meet the demand of generators and local distribution companies (LDCs) during the peak winter heating season. As a result, ISO-NE fears that electric generators may be unable to obtain gas deliveries during the winter. ISO-NE instituted a Winter Reliability Program for the winter of 2013-14, which essentially made out-of-market payments to generators in order to encourage them to purchase fuel oil for oil-fired or dual-fuel generating units. Last year’s program also provided for out-of-market payments to certain demand response providers.
The 2014-15 Winter Reliability Program is similar to last year’s program, but differs in at least one important respect. ISO-NE proposed to make out-of-market payments to generators who contract for LNG deliveries during the winter, as well as payments to generators to purchase fuel oil. Certain commenters, including GDF Suez, which operates an LNG facility in the region, informed FERC that the level of payments ISO-NE proposed to provide for LNG contracts was grossly under the market price for LNG and would not permit generators to fully recover costs associated with LNG purchases. In response, ISO-NE claimed that the LNG price was based on the price of fuel oil, and that ISO-NE felt that LNG purchases should be compensated at the same level as fuel oil purchases.
Other parties expressed concern about the ongoing use of out-of-market programs to address electric reliability concerns in the region. Certain parties urged the Commission to commence a proceeding under Section 206 of the FPA to examine the issue, while other parties suggested that the Commission require ISO-NE to institute stakeholder discussions to resolve the issue.
The Commission approved ISO-NE’s 2014-15 Winter Reliability Program, including the LNG price. The Commission declined to institute a Section 206 proceeding to examine reliability concerns in the region, but did order ISO-NE to commence stakeholder proceedings by January, 2015, to discuss the issue. ISO-NE must submit reports regarding the stakeholder discussions, but FERC did not impose an obligation upon ISO-NE to file or implement a solution.