FERC’s Inaction Frustrates Opportunities for Offshore Wind in New England

02/15/19

Despite offshore wind developer Vineyard Wind LLC’s emergency request to delay the New England capacity market’s annual auction, the Federal Energy Regulatory Commission (FERC) allowed the auction to go forward as scheduled on February 4, 2019. Vineyard Wind is developing an 800 megawatt offshore wind facility interconnecting to the Massachusetts grid that is expected to begin operating in 2021. Vineyard Wind’s request to delay the auction came only after FERC failed to act on the developer’s earlier request to waive compliance with a flawed rule interfering with its ability to sell into the capacity auction. FERC’s silence has effectively closed off Vineyard Wind’s opportunity to earn greater revenue from capacity sales in the early years of operation.

FERC regulates sales of electric energy and related products like capacity at wholesale in interstate commerce. Capacity is the ability of a generation facility to produce energy when the electric grid needs it most ─ such as during a hot summer day. From a generator’s perspective, revenue from the FERC-regulated capacity market provides an important revenue stream.

In New England, generators’ capacity is bought and sold in one-year blocks, three years in advance, through an auction run by regional grid operator ISO New England, Inc. (ISO-NE). The capacity auction held on February 4, 2019, which Vineyard Wind asked FERC to delay, cleared capacity for the one-year period spanning the 2022-2023 calendar years. ISO-NE is required by law to run the auction according to rules approved by FERC.

Had FERC granted Vineyard Wind’s initial request, the project could have qualified for preferred status as a “renewable technology resource.” This designation in the rules is intended to protect resources like Vineyard Wind, and would have likely helped Vineyard Wind sell more capacity through the auction. Because FERC allowed the auction to go forward without addressing Vineyard Wind’s request, the offshore wind facility secured the sale of only 54 megawatts—just a fraction of its qualified capacity.

FERC’s inaction is unsettling. There is no dispute that a drafting mistake in the auction rules’ qualification criteria precluded Vineyard Wind from achieving its preferred designation. To qualify as a renewable technology resource, the rules require, among other things, that a facility must be recognized as a renewable or alternative energy-generating resource in the state in which it is geographically located. The obvious problem: offshore wind projects sited in federal waters are not “geographically located” in any state. The rule plainly precludes these offshore wind projects from obtaining renewable technology resource status even though those projects are interconnected directly to the electric grid in the state that recognizes their renewable characteristics. According to ISO-NE, the language was an “oversight in drafting,” and there was never any intent to preclude offshore wind from qualifying as a renewable technology resource.

FERC is obliged by federal law to make certain that the rates and terms of wholesale electricity sales in the markets that it regulates are just and reasonable and not unduly discriminatory or preferential. What is so unusual about FERC’s inaction in this case is that just days before the capacity auction, FERC applied the “just and reasonable” standard to approve ISO-NE’s request to fix the defective rule. FERC should have addressed Vineyard Wind’s pending waiver request for the February 4 auction, but it did not.

Instead, two of the four sitting commissioners issued a joint statement expressing disappointment that FERC had “failed to act” on Vineyard Wind’s request. “All parties,” they stated, “including New England’s states, consumers, and auction participants, deserve better.”

While FERC’s failure to act needlessly frustrates opportunities for Vineyard Wind, it should not stop the Commonwealth of Massachusetts from achieving its commendable goal to develop new offshore wind resources. The Governor has stated publicly that Vineyard Wind’s facility will be a cost-effective and clean energy resource for Massachusetts electricity consumers. Vineyard Wind has already entered into agreements with the state’s distribution utilities to purchase energy and renewable energy credits for a twenty-year term. Unlike some controversial state programs that the courts have found unlawful, those agreements do not require Vineyard Wind to sell capacity into the New England market. The Massachusetts utility regulator, the Department of Public Utilities, has already approved those agreements.

This regulatory setback should not cause offshore wind stakeholders in the supply chain serious concern. FERC has remedied the defective language that excludes offshore wind from qualifying as a renewable technology resource, and FERC’s failure to act on Vineyard Wind’s waiver request does not establish binding precedent for future proceedings. We are optimistic that Vineyard Wind’s misfortune will not be repeated in New England, and are hopeful that any problematic rules affecting offshore wind’s access to the capacity market in the mid-Atlantic region will be cleared up well in advance.