Monday, October 22, 2018

Court Questions FERC Change on ISO-NE Renewable Exemption

By Michael Brooks

A three-judge panel of the D.C. Circuit Court of Appeals on Friday questioned whether FERC had changed its position without adequate explanation in its approval of ISO-NE’s renewable technology resource (RTR) exemption from its minimum offer price rule (17-1110).

New England generating companies — including NextEra Energy Resources, NRG Power Marketing and PSEG Energy Resources & Trade — sued the commission last year over the exemption, which allows 200 MW of renewables annually (up to a 600-MW maximum) to clear ISO-NE’s capacity market without regard to the MOPR. The companies charged that FERC reversed its position from previous orders finding that out-of-market entry into the market can suppress prices and that it never justified the 200-MW cap.

FERC ISO-NE Renewable Exemption MOPR

Meade and Prettyman Courthouse | DC Circuit

The companies previously sued over the issue in 2015, but the court allowed the case to be remanded back to FERC at the commission’s request. FERC affirmed its approval in April 2016 (ER14-1639-004) and denied the generators’ request for rehearing in February 2017 (ER14-1639-005). (See Bay Blasts MOPR on Way Out the Door.)

“The narrowly tailored renewables exemption, in combination with ISO-NE’s sloped demand curves, balances our responsibility to promote economically efficient prices, while accommodating states’ ability to pursue legitimate policy objectives,” FERC said in its order on remand.

As FERC attorney Carol Banta attempted to explain Friday how the RTO’s implementation of a systemwide sloped demand curve — approved along with the RTR exemption — has lessened the price effects of the exemption, Judge David B. Sentelle interrupted her, saying he wanted to focus on “the more mundane aspects of administrative law.” He asked that she defend the charge that FERC had unreasonably changed its position.

He cited FERC saying “the orders cited by [the plaintiffs] and the first two orders in this proceeding demonstrate that the commission’s view on the question of a broad (i.e., not resource-by-resource) exemption for renewable resources has evolved.”

“That’s a lot like saying it ‘changed,’” Sentelle said. “Now we certainly have a lot of precedent that says that an agency can change, but we say that in order to avoid being arbitrary and capricious they have to explain why they changed.” He asked Banta to show where FERC explained its reasoning.

Banta cited a passage in the commission’s last order denying rehearing, in which it said, “Moreover, not only has the commission’s view of the relationship between state-sponsored renewable resources and the capacity market evolved over time, but in the five years since the commission accepted the minimum offer price rule to mitigate buyer-side market power, New England states have continued to intensify their renewable resource development. The commission does not regulate in a vacuum. We recognize that, as ISO-NE stated in its original filing, it is seeking to balance its need to retain and attract capacity with its obligation to meet customers’ needs in an economically efficient manner.”

The commission is “balancing its responsibility to promote economically efficient prices,” Banta said. If the increased entry of state-sponsored renewable resources is not accounted for, “the price signal is actually false if it’s signaling the need for new entry [and] ignoring the new entry that’s there.”

“Wouldn’t any prudent company take that into account before making a multimillion-dollar investment in a new generating facility?” Judge A. Raymond Randolph asked. “They wouldn’t take into account just the so-called ‘false signal.’ They would take into account the fact that there are all these renewables out there.”

“This is about making sure the capacity market is a just and reasonable mechanism,” Banta responded, “and that includes, is it sending accurate price signals? Is it incentivizing new entry that the system needs? And is it ensuring fair prices for consumers? And these all go into the mix.”

CASPR Rehearing Requests

NextEra and NRG cited the RTR exemption case as a reason why FERC’s reasoning was flawed in its approval of ISO-NE’s Competitive Auctions with Sponsored Policy Resources capacity market construct (ER18-619). (See Split FERC Approves ISO-NE CASPR Plan.)

As part of CASPR, the RTO plans to phase out the exemption by allowing accrued exempt megawatts to be used through Forward Capacity Auction 15. The companies cited Commissioner Richard Glick’s dissent on the order, in which he said FERC’s pursuit of “investor confidence” would cause over-procurement of capacity.

“While we agree with Commissioner Glick that respecting settled market expectations are important, the RTR exemption is not based on settled law, as the matter is pending before the D.C. Circuit,” the companies said in their request for rehearing last week. “Prior to the RTR remand order, the justness and reasonableness of the FCA had continuously been based on the principle that ‘over the long run, the average price for capacity should reflect [cost of new entry], in order to attract new entry needed for reliability.’ In the RTR remand order, without any explanation, the commission for the first time stated that ‘the renewable exemption fulfills the commission’s statutory mandate by protecting consumers from paying for redundant capacity.’”

The Eastern New England Consumer-Owned Systems also requested rehearing, criticizing the commission’s accepted definition of sponsored-policy resources, which limits participation in the second auction under CASPR to renewable resources procured by distribution utilities as part of state mandates.

FERC’s “adoption of the discriminatory ‘sponsored-policy resource’ definition results in the exclusion of conventional generating resources developed by New England’s consumer-owned utilities from the eligibility to participate in the Substitution Auction without identifying any rational basis for its conclusion that public power conventional resources are not ‘similarly situated’ to state-mandated renewables purchases by investor-owned distribution utilities,” the municipal utilities said.

Several clean energy advocate groups, including the Natural Resources Defense Council and Sierra Club, reiterated their complaint that the RTO had not justified eliminating the RTR exemption.

“CASPR replaces a proven mechanism for reconciling state policies with competitive capacity markets with a totally unproven construct that offers little likelihood of integrating renewable resources,” the groups said.

Like NextEra and NRG, consumer advocacy group Public Citizen cited Glick, agreeing with his criticism of the commission’s focus on investor confidence in its justification.

“The commission never bothers to define ‘investor confidence’ for the purposes of this order,” wrote Tyson Slocum, the group’s energy program director. “There are many owners of power plants that talk incessantly about the dangers of the ‘erosion of investor confidence’ if power prices aren’t high enough to provide the generous financial returns the owners promised to shareholders. Because hey, we all feel a lot more confident when we get paid more money.”

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