1. SERVICE AND Communications

Pursuant to Rule 203, 18 C.F.R. § 385.203 (2014), the persons to whom correspondence, pleadings, and other papers in regard to this proceeding should be addressed and whose names are to be placed on the Commission’s official service list are designated as follows:

Jason Marshall                                          Benjamin S D’Antonio
General Counsel                                        Counsel & Analyst
New England States Committee               New England States Committee
on Electricity                                            on Electricity
655 Longmeadow Street                           655 Longmeadow Street
Longmeadow, MA 01106                         Longmeadow, MA 01106
Tel: (617) 913-0342                                  Tel: (603) 828-8977
Email: JasonMarshall@nescoe.com          BenDAntonio@nescoe.com

• BACKGROUND

1. Winter Programs I and II

Winter Program III is the third consecutive program proposed to address risks to reliable service during periods of stressed system conditions in the winter months (the “Winter Reliability Programs”).[13] The first two programs covered the winter period from 2013-2014 (“Winter Program I”) and the winter period from 2014-2015 (“Winter Program II”). ISO-NE has identified and implemented market rules changes, primarily market design revisions known as Pay for Performance (“PfP”), as obviating the need for a winter program beyond Winter Program III (i.e., the 2017-2018 winter period).[14]

Winter Program I included four main components. The first two components procured incremental energy provided from resources with oil-fired capability and from demand response resources. Generators were paid in advance to maintain oil inventory.[15] The third component paid certain dual fuel units that conducted a successful test of their ability to switch to oil within a defined time period. The final component put in place changes to market monitoring rules to allow dual fuel units greater flexibility in submitting offers. Winter Program I “supported the procurement of more than three million barrels of oil and generators burned 88% of it[.]”[16]

Winter Program II was similar to the first program but included several important modifications. Among these changes was a shift away from compensating oil-fired resources for inventory procured before the onset of winter, instead paying these resources for unused oil inventory measured as of March 15, 2015 to offset certain carrying costs.[17] Winter Program II also introduced compensation for certain unused Liquid Natural Gas (“LNG”) contract volumes, up to a maximum aggregate of 6 Bcf and subject to other conditions, and added incentives for gas generators to invest in dual-fuel capability.[18] The total cost of Winter Program II was approximately $46 million.[19]

The Commission accepted Winter Program II as just and reasonable. Specifically, the Commission found that the program was a “just and reasonable solution to help address risks to reliability by creating incentives for market participants to provide additional reliability services (i.e. incremental fuel procurement, incremental demand reductions, or dual-fuel switching capabilities) which they would not have provided absent [Winter Program II].”[20]

1. FERC’s Guidance for Winter Program III

Even before the commencement of Winter Program II, discussions among ISO-NE, the New England states, and stakeholders began about the design and implementation of a further Winter Reliability Program for the three subsequent years leading up to PfP. While those discussions were underway, the Commission issued an order in January 2015 directing ISO-NE to develop “an appropriate market-based solution” for future temporary winter programs that ISO-NE determines are necessary.[21]

ISO-NE filed a rehearing request asking the Commission to reverse its decision, stating that “the options for developing a market-based solution in the context of existing obligations are, at best, potentially less effective than the winter reliability program, and, at worst, less effective, inefficient, controversial and expensive to implement.”[22] ISO-NE stated that there was no indication that such an approach, while potentially very costly, would provide reliability benefits that would be greater than or equal to Winter Program II.[23] ISO-NE committed that if rehearing were granted, it “would work with stakeholders to develop an expanded version of the current winter program, which has been proven to be a cost-effective interim means to assure fuel inventory while the ISO completes development and implementation of the full PFP market-based solution.”[24] ISO-NE continued that it would:

discuss with stakeholders ways in which the winter program could be expanded from prior versions to include payments to all resources that can supply the region with fuel assurance; in other words, ISO-NE will work to enhance the current program structure to compensate resources such as coal and nuclear units in addition to the oil, LNG and demand resources that have participated in the past. This expansion would more closely resemble a market-based solution in terms of being available to a majority of resources, while meeting the objective of ensuring fuel adequacy in a targeted, efficient, time-limited manner.[[25]]

Following the Clarification Order, some market participants presented to the NEPOOL Markets Committee an outline of a market-based Winter Reliability Program concept.^[26] However, no market-based proposal was ultimately identified for implementation within the three-year interim period.

The Commission issued a subsequent order on April 17, 2015, granting ISO-NE’s rehearing request. The Commission stated that:

[W]e find that an expanded version of the current winter program might better produce the desired results in terms of reliability than the introduction, at this point in time, of the market-based solutions examined by ISO-NE. Thus, we grant rehearing to allow the possibility that ISO-NE may file additional out-of-market winter reliability programs until the two-settlement capacity market design becomes effective in 2018. However, the Commission expects ISO-NE to abide by its commitment to work with stakeholders to expand any future out-of-market winter reliability program to include “all resources that can supply the region with fuel assurance,” such as nuclear, coal, and hydro resources. To that end, if any future out-of-market program is not fuel neutral, we expect that ISO-NE would provide a detailed description of the options it considered to make the program fuel neutral and why those options were ultimately not included.[[27]]