Energy efficiency resource advocates recently petitioned FERC to block an attempt by the ISO New England to reduce the compensation paid for energy efficiency in its Forward Capacity Auctions. Advanced Energy Economy and Sustainable FERC Project, FERC Docket No. EL19-43-000, Petition for Declaratory Order filed Feb. 13, 2019.

Energy efficiency resources are products such as lighting, HVAC systems, and appliances that use less energy than conventional products. By reducing energy consumption, these products reduce the amount of generating capacity that ISO-NE needs to procure thorough its annual Forward Capacity Action in order to maintain reliable electric service in the region.

Each New England state has adopted financial incentives for its residents to use energy efficiency resources. The ISO-NE Tariff permits an energy efficiency resource program administrator to aggregate the reduction in capacity needs in New England resulting from energy efficiency, and to bid that capacity reduction into each Forward Capacity Auction conducted by ISO-NE. As a result, providers of energy efficiency resources that are successful bidders into a Forward Capacity Auction are compensated for the reduction in regional capacity needs that they provide in the same manner as generators are compensated for providing capacity.

The Petitioners allege that ISO-NE historically has calculated the capacity value of energy efficiency resources based on how much they reduce energy consumption below that which would result from the use of products that only comply with state and federal standards.They further allege that ISO-NE staff intends to change that methodology to one that reduces the capacity value of energy efficiency resources by as much as 65 percent. The Petitioners suggest that the new methodology would instead compare reductions in energy consumption from use of energy efficiency resources to what would have occurred in the absence of the financial incentives provided by the states. In other words, ISO-NE would compensate only for the net savings resulting from the financial incentives.

The Petition raises two interesting questions:

  1. Is it reasonable for ISO-NE to change from measuring capacity associated with energy efficiency resources based on total reduction in energy consumption below that based on compliance with state and federal energy efficiency standards to measuring capacity reductions based on net energy savings?

The Petitioners argue that ISO-NE should not be allowed to abandon its existing compensation methodology for one that would substantially reduce the compensation of energy efficiency resources. Moreover, they believe that the change would have an adverse effect on ratepayers:

The measurement and verification changes proposed by ISO-NE…would substantially impact the energy efficiency market in New England, reducing the value of energy efficiency resources in the FCM, driving up prices, and ultimately forcing ratepayers to pay higher prices.

The Petitioners also suggest that the existing method of measuring the capacity reduction associated with reliance on energy efficiency resources is easier to implement than that being discussed by ISO-NE. Under the current methodology, there is no requirement for bidders to demonstrate that the energy efficiency resources were installed for any particular reason.

In contrast, the Petitioners believe that providers of energy efficiency resources would not be compensated for capacity reductions under the methodology proposed by ISO-NE unless the energy efficiency resource providers could prove that their qualified resources “were installed by consumers only because of the providers’ efficiency programs,” a much more stringent test than a simple comparison to the amount of electricity that would have been consumed under state and federal energy efficiency standards.

The Petition suggests that the ISO-NE Staff has not yet fully developed it alternative compensation methodology. As the discussion proceeds, ISO-NE presumably will explain why it believes a methodological change is appropriate.

  1. May ISO-NE change the method for measuring capacity reductions associated with use of energy efficiency resources without first making a filing with the FERC pursuant to Section 205 of the Federal Power Act?

Insofar as it appears from the Petition, there is nothing in the ISO-NE Tariff or in any of ISO-NE’s business practice manuals which prescribes the method by which the capacity reductions associated with the use of energy efficiency resources should be determined for the purpose of the Forward Capacity Market. Instead, this method has evolved over time based on discussions among stakeholders in New England.

Nevertheless, the Petitioners assert that because “ISO-NE has consistently applied this long-standing approach and approved gross savings as an appropriate measure for the capacity value of efficiency resources,” this methodology may not be modified without a rate change filing at the FERC under Section 205 of the Federal Power Act. A declaratory order finding that ISO-NE may not change the methodology without first making a filing with the FERC pursuant to Section 205 of the Federal Power Act would give Petitioners and other interested parties a forum at the FERC in which to contest the proposed changes.

Petitioners are concerned that energy efficiency resources relied on the existing methodology when they participated in the recently completed Forward Capacity Auction. Because rate changes under Section 205 of the Federal Power Act generally may not be made effective retroactively, a ruling that a rate change filing is required would preclude ISO-NE from using a different methodology to reduce the payments to energy efficiency resources that participated in that Forward Capacity Auction.

The Petitioners also believe that a Section 205 filing would lead to the establishment of clear, uniform rules regarding the compensation paid to energy efficiency providers. Petitioners have asked the FERC to act on the Petition on or before April 12, 2019, so that providers of energy efficiency resources planning to participate in the next Forward Capacity Auction in New England will have the benefits of that decision before they are required to submit a Show of Interest form to participate in that auction. Presumably to accommodate this request, the FERC has established March 7, 2019 as the deadline for submittal of petitions to intervene and protests in this proceeding.

DWT’s Energy Practice Group will be following this proceeding closely on behalf of interested entities.