FERC Requires New England Generators to Reveal How Bids Formulated
On August 8, 2016, the Federal Energy Regulatory Commission (FERC) issued its order on remand from the D.C. Circuit on FERC’s approval of ISO New England’s (ISO-NE) 2013-14 winter reliability program, results, and rates. (TransCanada Power Marketing Ltd v. FERC, No. 14-1103). In a ruling that could have a significant impact on the rates that were charged, as well as the rules that will be applied to subsequent winter reliability programs in the region, FERC required generators to disclose how they formulated their winter reliability program bids.
ISO-NE adopted its winter reliability program to help assure reliability during periods of stressed system conditions by providing compensation to oil-fired and dual-fuel generators, as well as demand response resources, agreeing to provide oil inventory service or demand response for the duration of the program. Resources were selected through a bidding process and were compensated based on their prices “as-bid,” rather than by using a uniform market clearing price. Although ISO-NE’s estimated cost for the program was $16-$43 million, it ended up costing $78.8 million. The court found that without evidence regarding how much of that cost was attributable to profit and mark-up, FERC could not make a reasoned determination as to the justness and reasonableness of the rates charged.
In its order on remand, FERC directs ISO-NE to obtain from each bidder the basis for its bid, including the process it used to formulate the bid. FERC further requires that, within 120 days, ISO-NE make a compliance filing consisting of: (1) a compilation of this bidder information; (2) an analysis of the bidder information by ISO-NE’s Independent Market Monitor (IMM), including the IMM’s conclusions as to the competitiveness of the program and the exercise of market power; and (3) ISO-NE’s recommendation as to the reasonableness of the bids that were accepted.