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FERC deadlocked over fairness of rules in power-starved New England  

Credit:  Hannah Northey and Rod Kuckro, E&E reporters • Posted: Thursday, September 18, 2014 via www.governorswindenergycoalition.org ~~

Skyrocketing prices in energy-starved New England – made worse by the closure of the region’s largest coal plant – are now pitting members of the Federal Energy Regulatory Commission against one another in a debate over market rules and consumer protection.

The disagreement could shine a bright light on Norman Bay’s leadership style come next year.

FERC commissioners cast a 2-2 vote yesterday – after months of deadlock – over whether the results of grid operator ISO New England’s annual capacity auction for 2017-2018 were just and reasonable. Ultimately, the commission’s inability to reach an agreement means the results of New England auctions – a sore point for consumer advocates – will remain intact.

On one side, FERC Commissioner Tony Clark and Bay, a new commissioner and former prosecutor slated to take the agency’s helm next year, said FERC’s enforcement arm should be taking a closer look at the auction results released in February, which saw prices jump to a total cost of about $3 billion, up from about $1 billion in 2013 and around $1.8 billion in 2009.

Debate over the underlying retirements and capacity shortages has raged for months, drawing attention from Public Citizen, Connecticut Attorney General George Jepsen (D) and a local union in Somerset, Mass. (Greenwire, April 24).

On the other side, Cheryl LaFleur, the agency’s current chairwoman, and FERC Commissioner Philip Moeller disagreed, arguing that ISO New England followed the agency’s rules – and that the prices are just and reasonable.

Underlying the debate is a shortage of capacity in ISO New England’s annual capacity auction for 2017-2018, which pushed prices from $277 million per year to $617 million per year.

The grid operator pointed out months ago that more than 3,000 megawatts of plant closures – including the announced retirement of the 1,492 MW Brayton Point Power Station – resulted in insufficient resources, triggering “administrative” pricing rules to protect consumers from any one company exercising market power and raising prices. ISO New England also warned in documents to FERC that it had a limited ability to review 1,237 MW of imports – out of 29,435 MW of generation capacity – coming into New England.

Bay, the former head of FERC’s Office of Enforcement, joined Clark in pointing out ISO New England’s admission that prices resulted from a “noncompetitive auction.” The commission, they said, has a responsibility under the Federal Power Act to monitor grid operators and prices and act as a “backstop for protecting consumers,” and question whether the presence of market power – even while complying with FERC rules – has triggered price spikes.

“To the extent any portion of those prices was attributable to an exercise of market power, the auction will have imposed unwarranted costs upon consumers,” Bay and Clark wrote. “Moreover, it is possible that ISO-NE may have violated its tariff in the way it conducted the auction. On this record, we do not believe that ISO-NE has carried its burden of establishing that the auction results are just and reasonable.”

But LaFleur, a former utility executive from New England, argued the regional grid operator conducted the auction – and calculated the prices – in line with its FERC-approved tariff. LaFleur also said FERC is not obliged to determine whether the rates themselves are just and reasonable.

“I believe that the resulting rates, which send clear signals that additional capacity is needed in New England, are both lawful and necessary to ensure reliability,” LaFleur wrote.

Moeller agreed.

“Although the auction may have lacked sufficient competition due to a large number of retirements, I find that ISO-NE properly conducted [the forward capacity auction] in accordance with its Tariff and its independent market monitor and auctioneer both took actions, consistent with the Tariff, to mitigate the possibility for pivotal suppliers to exercise market power or set the capacity price,” Moeller wrote. “Based upon my review of the resulting rates, I find them to be just and reasonable.”

Some experts say the vote signifies Bay may take a more sympathetic approach to consumers when he steps up as the agency’s chairman next year.

“I think this case speaks to the challenges and complex regulatory nature of market power mitigation in the restructured electric markets … and why these markets seem to be a source of continual litigation,” said Paul Patterson, a utilities analyst with Glenrock Associates Inc.

“In addition I think the split among the commissioners highlights the potential for a more consumer-friendly FERC when Commissioner Bay is scheduled to take over as chairman in April,” Patterson said.

The deadlock is the first time a significant issue has resulted in no decision by FERC since LaFleur became acting chairwoman in 2013. In a recent interview with EnergyWire, LaFleur expressed confidence that the commission could function with just four members.

“We’ve had four commissioners for my entire time as acting chairman, and I think we’ve gotten out a large number of cases,” LaFleur said. “We did not in any way reduce the number of orders we were issuing, including significant things. So we’ve shown we can operate with four commissioners.”

The issue is likely to play out in the months and years to come as New England, a region at the end of many a pipeline, struggles with tight capacity and high prices.

LaFleur and the three commissioners yesterday approved an order that asked the grid operator to show why New England’s market monitor should not take a closer look at imports into the region before each annual auction.

Source:  Hannah Northey and Rod Kuckro, E&E reporters • Posted: Thursday, September 18, 2014 via www.governorswindenergycoalition.org

This article is the work of the source indicated. Any opinions expressed in it are not necessarily those of National Wind Watch.

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