FERC Order 904 Compliance
ISO-NE has revised its compliance proposal for FERC Order 904 to allow generators to be compensated for reactive power outside the standard power factor range, the RTO told stakeholders at the NEPOOL Transmission Committee meeting Feb. 27.
Order 904 prohibits compensation for reactive power within the standard power factor range. ISO-NE sought to keep its existing system of reactive power compensation in response to FERC’s Notice of Inquiry and Notice of Proposed Rulemaking prior to the final rule, but the commission rejected the RTO’s arguments (RM22-2).
At a prior meeting of the TC in early February, the RTO proposed to end all compensation for reactive power, while several stakeholders argued for a more limited compliance plan strictly focused on removing compensation for the standard range. The RTO delayed the vote and ultimately accepted the suggestion. (See NEPOOL Markets Committee Briefs: Feb. 11, 2025.)
“The revised compliance proposal will eliminate VAR [volt ampere reactive] capacity cost credits to qualified reactive resources within the power factor range of 0.95 leading to 0.95 lagging at continuous rated output but will now continue to compensate for reactive power provided outside this range,” said Kory Haag, principal operations analyst at ISO-NE.
ISO-NE estimated that the total annual compensation for reactive power is about $16 million, with $3.4 million for reactive power outside the standard range.
The TC voted to support the proposal, with no opposition and 55 abstentions. Multiple stakeholders expressed concern about the order itself, arguing that it undermines grid reliability.
“We are frustrated by the underlying order but appreciate the steps ISO-NE [has] taken to comply with the order,” said Bruce Anderson, general counsel for the New England Power Generators Association. “We also appreciate that ISO-NE took the broadly shared NEPOOL feedback on its original proposal and made changes to that proposal that look to carry out FERC’s directives.”
Economic Study Process Improvements
The TC also voted to support updates to ISO-NE’s Economic Study process, centered around requests for proposals to address the issues identified during the process.
The updates “incorporate revisions to identifying system efficiency issues and needs by establishing a clear trigger for when to issue an RFP, defining benefit metrics for evaluating RFP responses and streamlining the RFP process into a single stage,” said Patrick Boughan, supervisor of economic studies and environmental outlook at ISO-NE.
ISO-NE plans to run a System Efficiency Needs Scenario (SENS) every two or three years, looking at 10 years into the future. SENS tests would be used to identify potential transmission solutions. The RFP process will be triggered if ISO-NE’s modeling shows savings of at least $4.3 million from congestion relief.
In feedback submitted prior to the meeting, RENEW Northeast criticized the proposal’s method of modeling imports, arguing that it “may be artificially reducing the quantity of imports in the model and as a result having the opposite effect of underestimating the benefits of congestion relief.”
ISO-NE responded that its modeling approach “is consistent with practices in NYISO, PJM and MISO,” adding that valuing imports at the border locational marginal price “is the most logical way to value imports in the modeling context.”
RENEW also argued that SENS test should include some projection of capacity market savings and asked the RTO to consider creating a process for smaller solutions that do not meet the $4.3 million savings threshold.
ISO-NE said estimating capacity market savings would introduce a significant amount of uncertainty and added that the cost threshold was calculated based on the cost of projects on the Regional System Plan and asset condition lists.
