Revisions to ISO-NE Inventoried Energy Program

On April 7, 2023, the New England Independent System Operator (ISO-NE) submitted proposed changes to its Inventoried Energy Program (IEP), a program to increase electric grid reliability and fuel storage during winter months. Among the proposed revisions were updates to the calculation of the forward settlement rate, the rate that energy providers are paid to maintain inventoried energy for the winter months when the IEP is in effect. Specifically, ISO-NE proposed changes to the methodology for calculating the rate, and using a rate indexed to market conditions, rather than a fixed rate.

An Analysis Group team led by Manager Phillip Ross supported Principal Todd Schatzki in developing the indexed formula for the updated forward settlement rate and submitting written testimony to FERC on behalf of ISO-NE that described the development of the indexed formula and explained the reasons for the proposed revisions. Dr. Schatzki opined that global fuel market conditions have changed substantially since the IEP was initiated, and that those changes have increased the costs of securing the inventoried energy needed to ensure energy reliability. He showed that the proposed indexed methodology could appropriately adjust for evolving market conditions and yield rates that would better reflect the actual costs of securing inventoried energy than the previous fixed-rate formula. He also indicated that an indexed rate could improve market participants’ ability to predict rates and hedge their own program participation costs. Finally, Dr. Schatzki explained that failing to adjust the forward settlement rate in this way “could diminish the program’s ability to cover Market Participants’ costs to secure fuel supply, and limit the incremental inventoried energy incented by the program to improve winter reliability” in New England.

The proposed revisions to the IEP were accepted by FERC on August 4, 2023.