On November 20, 2014, FERC issued an order requiring regional transmission operators (RTOs) and independent system operators (ISOs) to file reports describing their efforts with respect to fuel assurance. The order defines “fuel assurance” as involving generator access to fuel supplies and the firmness of generators’ fuel arrangements and notes that lack of fuel assurance has been identified as a contributing factor in poor generator performance and inefficient market outcomes.

FERC states that the capacity markets in the eastern RTOs do not take into account factors such as generator type, fuel supply arrangements, or operational characteristics.  In addition, following last winter’s Polar Vortex, market participants raised concerns that offer caps and other market characteristics made it more difficult for generators to recover their fuel costs.  The order concludes that failure to address fuel assurance may require RTOs and ISOs to take costly actions to ensure electric reliability and may lead to price volatility.  While FERC acknowledges that certain RTOs and ISOs are taking steps to address the issue of fuel assurance, it would like to examine the issue on a more comprehensive basis.

The order indicates that RTOs and ISOs can take varying approaches to address fuel assurance issues.  For example, RTOs and ISOs could reform their capacity markets to provide greater price incentives for resources to be available and impose stiff penalties if resources are not available when called.  FERC notes that ISO-NE’s “pay for performance” proposal, which FERC recently approved, is an example of this approach.  On the other hand, RTOs and ISOs could adopt administrative solutions, such as requiring a certain type of fuel arrangement in place in order to qualify as a capacity resource.  RTOs and ISOs also could adopt an approach combining market and administrative solutions.  The order recognizes that each approach will involve trade-offs and will have price consequences for consumers.  Finally, the order encourages RTOs and ISOs to consider whether reforms to their energy markets to provide adequate fuel cost recovery would enhance fuel assurance.

In order to evaluate fuel assurance on a more comprehensive basis, FERC is requiring all RTOs and ISOs to file reports, within 90 days of the order (Feb. 18, 2015) regarding the status of their efforts to address fuel assurance concerns.  Other interested participants will then have 30 days to comment on the reports.