FERC Reversal Rejects ISO-NE Proposal for Calculating De-List Bids

On March 10, 2020, FERC granted rehearing of its November 9, 2018 order that accepted revisions to ISO New England Inc.’s (“ISO-NE”) Tariff modifying the calculation of the economic life of existing capacity resources seeking to retire or permanently leave the ISO-NE capacity market, to better reflect competitive market behavior. FERC determined the benefits of the Tariff revisions did not outweigh the disruption to capacity market participants’ settled expectations and, therefore rejected the economic life revisions in their entirety, effective August 10, 2018, and declined to rerun any Forward Capacity Auctions (“FCA”) to preserve market certainty.

The Tariff revisions modified the calculation of the remaining economic life of existing capacity resources submitting Retirement De-List Bids and Permanent De-List Bids (collectively “De-List Bids”). Prior to the revisions, the calculation for De-List Bids assumed that generators that had earned positive cash flows in their earlier years would be willing to continue to operate at an annual loss in their later years so long as their overall cumulative cash flow remained positive. The Tariff revisions assumed instead that these resources would elect to retire and exit the capacity market before incurring losses that would reduce their overall cumulative profits.

On December 10, 2018, New England Power Generators Association (“NEPGA”) requested rehearing of the November 9 order. NEPGA argued, among other things, that FERC violated the filed rate doctrine and rule against retroactive ratemaking by allowing an effective date for the revisions after De-List Bids had been submitted because generators prepared those bids without notice that that the Tariff language might change.

FERC also took issue with the timing of the effective date in its rehearing order, noting that that the Tariff revisions sought to address a significant amount of De-List Bids received during the thirteenth annual capacity auction (“FCA 13”), which could have inflated capacity prices. FERC explained, however, that it had erred in determining the benefits of the Tariff revisions outweighed potential disruption from instituting a change to FCA 13 provisions after market participants had made their commercial decisions relying on the existing Tariff language. FERC also determined it was not appropriate to rerun the FCA 13 or FCA 14 auctions because that would further decrease confidence in the market.

Commissioner Richard Glick wrote separately to dissent, finding that the underlying order correctly balanced the harms and benefits of the Tariff revisions. Commissioner Glick argued that the rehearing decision focused solely on the timing of the filing and not on its merits. Commission Glick noted that speculation that more generators might have tried to retire had they known about the plan to fix the irrational assumption underscores the need to make the Tariff revisions.

A copy of the order is available here.