FERC has upheld its ruling on a series of updates to ISO-NE’s Inventoried Energy Program (IEP) which could result in larger payments for generators to keep stored fuel on-site as a grid reliability backstop (ER23-1588).

The commission initially approved ISO-NE’s changes in early August, despite protests from consumer advocates and environmental organizations. (See FERC Approves Updates to ISO-NE Inventoried Energy Program.)

The changes shift the IEP from fixed payment rate format to indexed rates and are intended to “align the program with current market conditions,” according to ISO-NE. The IEP compensates generators for storing up to three days’ worth of stored fuel and covers the winters of 2023-24 and 2024-25.

Climate organizations argue the changes amount to an unnecessary subsidy for fossil fuel generation. The Sierra Club, Union of Concerned Scientists and Conservation Law Foundation filed for a rehearing in early September.

“The order approves significantly increased incentive payments to oil and gas generators with no assurance that these incentives will change those generators’ behavior in ways that improve reliability,” the organizations wrote in their request. “The commission failed to assess whether the benefits to consumers justified the costs.”

FERC denied the request by default due to the lack of timely action in October. In the Nov. 30 order, the commission upheld its ruling while responding to the arguments of the rehearing request.

“The proposed tariff revisions represent a just and reasonable means of updating the program payment rates to ensure that the Inventoried Energy Program provides appropriate incentives and compensation for market participants to participate in the program,” the commission wrote.

FERC also disagreed with the climate groups about how the IEP will affect generators’ behavior, concluding “ISO-NE’s proposed indexed rates are expected to change market participants’ behavior in the manner intended.”

In the rehearing request, the climate organizations argued most relevant generators already are required by their capacity supply obligations to be available to produce energy, making additional payments from the IEP unnecessary.

FERC disagreed, writing that “the capacity supply obligation does not require the same behavior that the Inventoried Energy Program is designed to incent.”

While the climate groups argued recent ISO-NE studies indicate that “even in a severe winter, there is negligible reliability risk, in part due to increased deployment of wind and solar resources,” FERC said ISO-NE’s winter reliability analyses cited by the environmental groups “actually underscore the important role of the Inventoried Energy Program in providing winter reliability in New England.”

“The winter analyses rely on the assumption that the Inventoried Energy Program will ‘operate as intended’ and that the Inventoried Energy Program will fulfill its purpose of enhancing reliability,” FERC wrote.

Casey Roberts, senior attorney at Sierra Club, wrote in a statement that the organization is disappointed with FERC’s ruling.

“Rather than raising costs for ratepayers across the region to pay polluting oil and gas generators, ISO-NE should instead focus its efforts on building a reliable, lower-cost electric system by bringing more wind and solar online and ramping up energy storage,” Roberts said.

Roberts added that the Sierra Club “will continue to review FERC’s order as we consider our next steps moving forward.”