A recently filed proposal by ISO-NE to increase the collateral requirements for generators with capacity supply obligations (CSOs) has received strong pushback from the New England Power Generators Association (NEPGA), which argued to FERC on Oct. 9 that the proposal would violate the filed rate doctrine (ER24-3071).
The policy changes are intended to reduce risks to the market of generators defaulting on pay-for-performance changes, which are accrued if a generator can’t meet its obligations during a capacity scarcity event.
ISO-NE initiated the updates in the wake of PJM’s struggles with generator defaults following Winter Storm Elliott. (See PJM: Elliott Nonperformance Penalties Total More Than $1.8B.)
“There is a significant risk to the New England Markets caused by the fact that many [forward capacity market] participants do not have adequate corporate liquidity to satisfy their contractual, financial obligations related to the CSOs they were awarded,” ISO-NE said.
The RTO filed three updates to the policy last year, which were all accepted by FERC. However, the last set of changes have proven controversial and faced significant pushback in the NEPOOL stakeholder process. Neither ISO-NE’s proposal, nor two amendments proposed by NEPGA, passed the two-thirds approval threshold required for NEPOOL support. (See NEPOOL Participants Committee Votes to Support Hourly GIS Tracking.)
ISO-NE is proposing to introduce a new corporate liquidity assessment that would assign each participant a risk level to determine the collateral requirements. The RTO projects the changes would increase market-wide financial assurance costs by $72 million to $90 million for the 2025/2026 capacity commitment period (CCP).
In response, NEPGA protested the effective date of the proposal but not the underlying changes. The association argued that the changes should not apply to existing capacity commitments and should instead take effect for the 2028/2029 CCP. The auction for this CCP will likely take place in early 2028, depending on the results of ISO-NE’s ongoing capacity auction reform project.
“The [financial assurance policy] changes, if applied beginning on June 1, 2025, as ISO-NE requests, would alter the legal requirements associated with capacity supply obligations assumed years ago in violation of the filed rate doctrine,” NEPGA wrote.
The filed rate doctrine prohibits retroactive changes to rates that have been approved. NEPGA argued that ISO-NE’s proposal would add costs for generators with capacity commitments which were not accounted for in the auction bids.
“Denying the opportunity to reflect the full cost of providing capacity by post facto changing the rules governing the costs of holding a CSO, is not just wrong from a policy standpoint, but could contribute to accelerated retirements,” NEPGA said.
“With announced retirements in New England already outpacing new entry over the coming years, exacerbating this mismatch undermines confidence in the market and consequently risks reliability and the resource adequacy of the region,” the group added.
NEPGA requested that if FERC accepts the changes, it should either direct ISO-NE to adopt a June 1, 2028, effective date or schedule a hearing to determine an adequate effective date.
ISO-NE argued its proposal “does not constitute a retroactive rate change” because the changes would not affect auction prices or capacity supply obligations.
It added that the changes are prospective, not retroactive, because they would take effect in June 2025 and would “not alter prior credit reviews or supplant previously calculated inputs into the formula for the [forward capacity market] delivery financial assurance requirement.”
