June 3, 2014

FERC largely accepts ISO-NE’s Pay-for-Performance proposal and part of NEPOOL’s alternate proposal to help boost resource performance in New England

Unanimous decision of all four commissioners

The Federal Energy Regulatory Commission (FERC) issued an order on ISO New England’s “pay-for-performance” proposal to strengthen performance incentives in the Forward Capacity Market (FCM) and the alternative New England Power Pool (NEPOOL) proposal that sought to make modifications mainly to the region’s energy markets. While FERC found that neither proposal was shown to be just and reasonable on its own, it largely accepted the ISO’s proposal (with modifications), and also accepted a portion of NEPOOL’s proposal to increase the Reserve Constraint Penalty Factor in the energy market during times of scarcity conditions.

ISO New England’s statement

ISO New England is pleased with FERC’s order, issued May 30, because the Commission accepted all of the important elements of the pay-for-performance proposal, which the ISO filed in response to serious challenges to the continued reliability of the New England power grid. These key elements accepted unanimously by the commissioners include the linkage between capacity payments and resource performance in real time; that exemptions from performance requirements are not appropriate; a phased-in performance payment rate; that the performance requirements should apply equally to all resource types; and the proposed factors that should be included in resource offers, including risk premiums and opportunity costs related to pay for performance. The Commission also moved to address the immediate reliability concerns by accepting NEPOOL’s proposal to increase Reserve Constraint Penalty Factor prices, which will help enhance system reliability in the short term by providing an increased incentive for resources to perform.

We’re also very pleased with another Commission order from May 30, that accepts the sloped demand curve proposal filed by ISO New England and NEPOOL, including an extension of the price lock-in for new resources and a limited exemption for renewable resources.

The implementation of a sloped demand curve and the core elements of pay-for-performance are major enhancements to the Forward Capacity Market and will help improve power system reliability in New England by providing appropriate pricing that will attract and retain the resources needed to meet demand, and to compensate resources that meet their performance obligations.

FERC has instructed the ISO to submit a compliance filing within 45 days with Tariff revisions reflecting the provisions directed in the order.