October 17, 2014

State officials have asked the Federal Energy Regulatory Commission (FERC) to grant a rehearing of a notice issued last month that allowed ISO-New England's eighth forward capacity auction (FCA 8) results to go into effect without any determination  that the auction results were just, reasonable and free from the exercise of market power.

In April 2014, Attorney General George Jepsen filed a motion to intervene and protest with FERC, arguing that the results of the forward capacity auction should not be accepted until FERC conducted an investigation into whether the auction prices were the result of an abuse of market power. In September, however, FERC issued a notice that, due to the commission's inaction by September 15, 2014, and pursuant to its rules, the auction results became effective.

The commission failed to rule on any of the objections to the auction prices and failed to determine that the rates were just and reasonable as required under the Federal Power Act.  The commission's failure to act was especially troubling because FERC itself found evidence suggesting the exercise of market power and the FERC Office of Enforcement staff was continuing to investigate the behavior of certain market participants.

In the joint request filed yesterday by the Attorney General, the Office of the Consumer Counsel, the Public Utilities Regulatory Authority (PURA) and the Department of Energy and Environmental Protection (DEEP), the state alleges that FERC "unreasonably failed to resolve the various protests to the rates resulting from FCA 8" and that the commission's decision has "no evidentiary foundation."

"Rates that reflect the unilateral exercise of market power cannot be just and reasonable, and the Federal Power Act requires that all rates must be just and reasonable," said Attorney General Jepsen. "In choosing to take no action and to allow these rates to take effect without determining that the rates were just and reasonable, FERC failed to consider, review and rule on the protests filed in the proceeding. Ultimately, Connecticut ratepayers are the one who will suffer because of FERC's lack of action. We are urging FERC to rehear the protests to FCA 8 and to properly investigate whether these rates are just and reasonable."

The Office of Consumer Counsel, who has also intervened in the FERC proceeding, agrees that FERC needs to take action. Consumer Counsel Elin Swanson Katz notes that "the fundamental responsibility of FERC is to ensure just and reasonable rates for customers. This must include an examination not only of energy market rules but also of market outcomes. Here, there is a substantial fear that the market rules were abused, yet the resulting outcome, costing ratepayers in New England millions of dollars, is so far being allowed by FERC to stand. This is a deeply disappointing result and we hope through this filing that FERC will change course."

"The fundamental principle of due process compels FERC to act on a timely filed request and render a decision," PURA Chairman Arthur H. House said. "Its failure to do so has resulted in an outcome that is unjust for Connecticut ratepayers. We urge FERC to reconsider its inaction."

"Connecticut families and businesses rely on FERC to ensure that our wholesale electricity markets deliver reliable energy at a reasonable cost," said Katie Dykes, DEEP Deputy Commissioner for Energy. "FERC has failed to come to a decision in the face of numerous independent complaints that a private company has manipulated the region’s electric capacity auction to its own advantage, driving up costs for ratepayers and undermining confidence in our market structure. We call on FERC to exercise its legal responsibilities and review the disputed auction immediately."

On February 3, 2014, ISO-New England conducted FCA 8 as required by its Tariff. On February 28, ISO submitted its results to FERC, and it sought FERC's approval of the rates on June 28. The resulting rates from FCA 8 will have a significant impact on Connecticut electric consumers, who will see their capacity costs rise from $277 million per year to $617 million per year beginning in 2017. Six separate groups, including the Attorney General, filed protests and challenges with FERC over the FCA 8 results.

Assistant Attorneys General John Wright, Michael Wertheimer and Robert Snook are assisting the Attorney General with this matter. Assistant Attorney General Clare Kindall, head of the Office of the Attorney General Energy Department, is assisting PURA with this matter.

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