FERC on Friday approved a series of updates to ISO-NE’s Inventoried Energy Program (IEP), replacing the IEP’s fixed forward and spot rates with indexed rates intended to reflect natural gas price changes (ER23-1588).

The commission sided with ISO-NE over the protests of the official consumer advocates for Massachusetts, Connecticut, New Hampshire and Maine, as well as a group of environmental nonprofits, which argued that the changes would increase electricity costs for consumers.

“The revisions maintain the overall structure of the commission-approved Inventoried Energy Program, while updating the tariff to help ensure that the Inventoried Energy Program can fulfill its purpose of incenting resources to maintain inventoried energy during periods when reliability is most threatened,” the commission wrote, making the revisions effective Aug. 4, as requested.

The goal of the IEP is to pay generators — mostly oil and gas power plants — to keep up to three days of stored fuel on-site during the winter to ensure reliability for the region.

FERC agreed with ISO-NE that the updated rates more accurately reflect market conditions, noting that the changes will do away with fixed payment rates based on 2019 fuel price data. (See Gas Volatility Leads ISO-NE to Seek Update to Inventoried Energy Program.)

“Current fuel prices exceed these fixed payment rates, which could reduce incentives to participate in the Inventoried Energy Program,” FERC said.

In joint comments to FERC opposing ISO-NE’s IEP proposal, the Sierra Club, the Conservation Law Foundation and the Union of Concerned Scientists argued that the changes to the program would lead to substantially increased costs for ratepayers. The organizations noted the IEP updates could increase the total cost of the program from $300 million to $800 million over two years according to the upper-bounds analysis of ISO-NE, “all for suggested, but deeply uncertain, benefits to consumers.”

The state consumer advocates pressed the commission to consider the high costs of the Mystic cost-of-service agreement before authorizing the likely increase of costs related to the IEP. (See Public Power Groups Seek Information on Mystic Agreement.)

“The commission cannot and should not ignore the magnitude of impact that the Mystic COSA has had on consumers in determining the justness and reasonableness of the IEP Redesign,” the consumer advocates wrote. “The IEP Redesign includes very little support despite imposing potentially massive costs on ratepayers, which is especially egregious in the context of the COSA’s similarly massive costs.”

The commission said it had already settled many of the issues the protestors raised.

“The proposed revisions at issue here reflect only narrow modifications and provide no basis to revisit past findings related to the Inventoried Energy Program’s core structure, which will remain unchanged,” it said.

FERC also disagreed with the contentions that ISO-NE did not adequately demonstrate the need for the IEP, that the IEP could result in windfall payments for oil generators and that the costs to consumers would likely outweigh the benefits.

‘Funny Fuel Supply’

ISO-NE applauded the commission’s ruling.

“With the commission’s acceptance, we’re moving forward on promptly implementing these updates into the upcoming winter,” the grid operator said in a statement to RTO Insider, adding that the updates “will align the program with current market conditions.”

Meanwhile, the Sierra Club, the Conservation Law Foundation and the Union of Concerned Scientists expressed displeasure with the ruling.

“CLF is disappointed by the commission’s decision, which approves changes to an ISO-NE program that extends our region’s overreliance on expensive, imported and polluting fossil fuels at a time when we need to be deploying clean energy resources,” Phelps Turner, senior attorney for the Conservation Law Foundation, told RTO Insider.

“The fossil-fuel-fired generators that it seeks to incentivize appear to already have a legal obligation to be fuel-ready and, in any event, they have substantial economic incentives to be ready and to perform, without the need for consumer subsidy,” Turner added.

Casey Roberts, senior attorney for the Sierra Club, said the FERC-approved changes could ultimately amount to a handout to the gas and oil generators covered in the IEP.

“A major vulnerability of gas and oil generators … is that they have this funny fuel supply situation that it can be challenging to get their fuel during the times it matters most,” Roberts said. “FERC is basically compensating them for that, instead of having those generators bear that risk and pay those true costs.

“That really distorts the market.”

Roberts and Turner said the environmental groups are still considering next steps, including whether to file a request for rehearing.