The ISO’s Funding and Budgeting Process

ISO New England is a not-for-profit company that serves as the Regional Transmission Organization for New England. To fund the services we provide, we collect fees from the buyers and sellers in the region’s wholesale electricity markets and from the customers that use regional transmission services. Those service rates are set at a level that lets us recover only what we need to operate. And that amount is determined each year through the budget process described below.

The Budget Development Process

The annual budget process gets underway well before the budget will take effect. Our commitment to cost accountability and transparency starts with judicious internal budget development. A robust external stakeholder review process follows. After the budgets are approved by our independent Board of Directors, we file our budgets with the Federal Energy Regulatory Commission (FERC), which judges whether our collections are just and reasonable.

$0.98 per Month

The services and benefits we provide to keep the power flowing will cost the average New England residential electricity consumer just $0.98 per month in 2019, based on 750 kilowatt-hours per month usage.

Learn about how wholesale costs are reflected in consumers’ electricity bills.

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Laying the Foundation: The Business Plan

Before any actual budgeting begins—the ISO Board of Directors and senior management create the ISO’s business plan. The business plan defines objectives for the next five years, as well as the projects and activities needed to achieve those objectives. Three central goals underpin all of our business objectives:

  • Keep New England’s bulk power system reliable in both the short and long term.
  • Keep the wholesale electricity markets competitive and efficient.
  • Ensure business operations are well-managed, cost-effective, and responsive to New England’s market participants, state officials, and other electricity stakeholders.
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Creating a Budget Proposal: Defining Operating Needs and Capital Expenses

Once our business plan is set, we use it to create an operating budget. This involves:

  • Defining objectives, activities, and goals for the coming year, with reference to the business plan
  • Identifying efficiencies for each ISO department
  • Determining resource requirements
  • Developing budget estimates for each department
  • Adjusting department budgets to ensure that staff resources and activities are aligned with the business plan
  • Conducting a senior staff review to ensure alignment of the budget with the business plan and overall fiscal constraint
  • Developing priorities

We also develop a capital budget each year to cover projects that add or improve services for our stakeholders, to purchase IT hardware or software, or to fund other items beyond our typical day-to-day services that align with our the business plan strategies and priorities. While we use private financing for capital projects, the related debt service costs are recovered through our operating budget as depreciation and amortization costs. The cost of each capital project is recouped and paid once.

Once we know our revenue requirement (how much it’ll cost to serve the region in the budget year), we calculate the service rates we’ll need to set in the coming year to collect that amount from our customers. Those rates—as well as how the revenue requirement is allocated among various service customers—are shared with stakeholders when they are finalized in late September, and are an integral part of our operating budget fling to FERC. The ISO Tariff will reflect those revised rates as of January 1, assuming that FERC approves them.

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Engaging the Region: The Stakeholder Review Process

Next, we make sure key stakeholders have multiple opportunities to review and provide feedback on our proposed budgets:

  • Late May/June: At least one week before the annual June symposium of the New England Conference of Public Utilities Commissioners (NECPUC), we provide information on the budget to agencies from the six New England states; the New England Power Pool (NEPOOL), the association of regional market participants; and other interested parties.
  • June: At the June symposium, we present the budgets to the attending state utility commissioners and state agencies.
  • Late June/July: We consider any feedback provided by state agencies after the June symposium.
  • August: We create a highly detailed document explaining our budgets, which we present to the NEPOOL Budget and Finance Subcommittee. Within three business days, we also meet with state agencies to deliver and discuss this presentation, as well as additional information agreed upon.
  • September: The state agencies can submit questions within two weeks of our August meeting. We respond to their questions within a week.
  • Late September/October: By the earlier of September 25 or five weeks after the August meeting, stage agencies may submit comments regarding any proposed adjustments on the budget. We respond in writing within two weeks (but not later than five business days before the ISO Board votes on the budget). These comments and our answers are included in our budget fling to FERC.

The NEPOOL Participants Committee simultaneously reviews the budgets over one or two meetings, then holds an advisory vote on the budget. The results are reported to the ISO Board and FERC for consideration.

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Checks and Balances: Reviews by the ISO Board and FERC

The Board Review Process

While we consider feedback from state agencies and NEPOOL in our budget development, authority to approve our budgets rests solely with the ISO Board. The Board’s Audit and Finance Committee advises ISO management throughout the budget development process and provides updates to the Board. Accordingly, while external stakeholders are reviewing the budget proposal, the ISO Board of Directors undertakes its own intensive review:

  • The Audit and Finance Committee reviews the complete operating and capital budgets, while other specialized Board committees review particular areas. For example, compensation matters are reviewed by the Compensation and Human Resources Committee, and projects with reliability implications are reviewed by the System Planning and Reliability Committee.
  • The full Board follows the stakeholder review process through regular updates from ISO management, then does an in-depth review of the budgets at its September meeting.
  • Finally, the Board votes on whether to approve the budgets, after receiving feedback from stakeholders in the form of the states’ comments and the NEPOOL Participants Committee’s vote. If approved, the budgets can then be filed with FERC.

The FERC Filing

At least 60 days before the operating year starts, the budgets are filed with FERC. FERC reviews the budgets—along with hundreds of pages of supporting documents, testimony, and stakeholder comments. Then FERC determines whether the rate changes are just and reasonable—and if necessary, resolves any concerns from regional stakeholders. Once FERC OKs our budget, the revised service rates become part of the ISO Tariff.

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Implementing the Budget

After the budget is approved, we develop a detailed work plan for the year, then share this with state officials and NEPOOL. See our Annual Work Plan. Together, we discuss common objectives and resource limitations, aiming to reach consensus on regional priorities. Generally, priorities are categorized as related to markets, planning and operations, or capital projects. These priorities are ultimately reflected in the Wholesale Markets Project Plan.

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Ongoing Budget Review Process

Budget “True-Up”: Reconciling Our Estimates

Despite our rigorous budget development process, our budgets are an estimate of anticipated costs and of the amount we will collect. Many factors can affect the cost side, such as a required shift in work priorities due to regulatory rulings or stakeholder input. On the revenue side, we collect our rates as a charge on energy consumed or numbers of transactions, and the amount of those units may be more or less than anticipated. For reasons like these, a true-up calculation is performed once the year is complete and is reflected in a future budget. If we collected:

  • Less than we needed to serve the region, we add that to future operating expenses
  • More than we needed, our market participants get a refund (remember, we’re non-profit)

Once the operating year starts, stakeholders have a number of opportunities to review and comment on the ISO’s performance compared to its budgets:

  • Quarterly FERC filings on capital spending: Given the competing and often changing requirements from FERC and stakeholders, our capital program is inherently fluid. So, each quarter, we update FERC on our year-to-date and forecasted future spending by capital project, plus a schedule of the unamortized costs of the ISO’s funded capital expenditures at the end of the quarter and the allocation of those costs to the ISO’s rates.
  • Quarterly NEPOOL updates: In advance of the quarterly FERC filings, we meet with the NEPOOL Budget and Finance Subcommittee to discuss our capital forecast with stakeholders, as well as to review our actual performance against our operating budget.
  • Annual August meeting with state agencies: When we meet to present our budget proposal for the coming year (see above), we also present budget variance information for prior years.

Learn More

You can find recent budget filings and updates on the Budget page. The details, rights, and responsibilities related to our budgeting process are detailed in the following documents:

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