Monday, February 18, 2019

FERC Denies ISO-NE Mystic Waiver, Orders Tariff Changes

By Michael Kuser

FERC on Monday denied ISO-NE’s request for a Tariff waiver to keep Exelon’s Mystic generating plant running, instead ordering the RTO to revise its rules to allow cost-of-service agreements for facilities needed to address fuel security issues (ER18-1509).

The commission’s July 2 show cause order instituted a Section 206 proceeding (EL18-182), finding that ISO-NE’s Tariff is not just and reasonable because the RTO lacks a way to address fuel security concerns that it said could result in reliability violations as soon as 2022. The Tariff currently allows cost-of-service agreements only to respond to local transmission security issues.

FERC ordered the RTO to submit interim Tariff revisions for a short-term, cost-of-service agreement for Mystic within 60 days, and permanent Tariff revisions to address future fuel security needs by July 1, 2019.

The commission also pushed back the deadline for Exelon to submit its retirement decision for Mystic Units 8 and 9 for Forward Capacity Auction 13 from July 6 to Jan. 4, 2019 — one month before the auction.

Commissioners Cheryl LaFleur and Neil Chatterjee wrote concurring opinions, while Commissioners Robert Powelson and Richard Glick dissented in part.

FERC ISO-NE cost-of-service agreements fuel securityFERC ISO-NE cost-of-service agreements fuel security


The RTO filed its waiver request on May 1, after Exelon said in March that it would retire the 2,274-MW plant when its capacity obligations expire on May 31, 2022.

Exelon later said it “may reconsider” the decision to retire Mystic if the markets could properly value the plant’s contributions to reliability and regional fuel security. (See Mystic Closure Notice Leaves Room for Reversal.) On the same day it issued the retirement notice, the company also announced it would purchase the Everett Marine (Distrigas) Terminal from ENGIE North America “to ensure the continued reliable supply of fuel to Mystic Units 8 and 9 while they remain operating.”

The commission agreed with the RTO that its January Operational Fuel-Security Analysis (OFSA) demonstrated that the loss of Mystic 8 and 9’s 1,700 MW would lead to 87 hours of depletion of 10-minute operating reserves and 24 hours of load shedding during the winters of 2022/23 and 2023/24. (See Report: Fuel Security Key Risk for New England Grid.)

The commission rejected the contention of some intervenors that the RTO had failed to demonstrate a compelling need for out-of-market action. (See Mystic Waiver Request Spurs Strong Opposition.)

‘Inappropriate Vehicle’

But the commission said that the waiver request was “an inappropriate vehicle” because it “effectively creates an entire process that is not in the ISO-NE Tariff” for cost-of-service agreements addressing fuel security. “Such new processes may not be effectuated by a waiver of the ISO-NE Tariff; they must be filed as proposed tariff provisions under [Federal Power Act] Section 205d,” the commission said.

FERC ISO-NE cost-of-service agreements fuel security

Mystic Generating Station, on the Mystic River in Everett, Massachusetts. A wind turbine owned by the local water authority to power a pumping station is on the right.

Powelson said he “strongly” supported denying the waiver request, “which, if granted, would have amounted to an end-run around” the RTO’s stakeholder process.

“I cannot, however, support prematurely clearing a path towards out-of-market, cost-of-service payments to generators without having fully exhausting all other alternatives,” Powelson said in his dissent. “Unfortunately, rather than working through the stakeholder process, ISO New England acceded to the demands of Exelon and chose to file a tariff waiver.”

Powelson acknowledged that New England states have prevented investors from responding to market price signals by blocking new transmission and gas pipelines.

“While I agree that states have certainly interfered with market outcomes, by no means is this indicative of a market failure, nor does it justify a logical leap to the conclusion that out-of-market support to retain certain existing resources may be necessary,” Powelson said.

Glick called the ruling a “rush to judgment,” noting that the reliability concerns identified by ISO-NE are at least four years away.

“Instead of rushing to install new tariff provisions years before the fuel security concern may arise, the commission, ISO-NE and stakeholders should engage in a thorough process to evaluate potential fuel security problems and identify durable solutions rather than another series of Band-Aids,” he said.

Glick said the commission “has not clearly defined the fuel security problem” it is trying to address, quoting from the majority’s acknowledgement that that “fuel security analyses do not currently have an established methodological framework and that there are no industry standards or best practices for conducting such an analysis.”

He said although the commission’s order allows ISO-NE to argue that its existing Tariff is not unjust and unreasonable, “it is clearly a show cause order in name only.”

“In so doing, the commission cuts off an opportunity for a real debate about what the ISO-NE analysis actually tells us about fuel security. We can expect that ISO-NE will submit Tariff revisions based on that same analysis, without any further discussion of how that analysis should be used or how it could be improved.”

Glick said FERC and ISO-NE could find other solutions to their concerns, such as modifying the RTO’s transmission planning process to incorporate fuel security or “reforms to improve the utilization of existing pipeline capacity, which could potentially include additional hourly nomination service to increase both the transparency of market demand and provide improved price discovery.”

He said he agreed with Powelson that the order could undermine the RTO’s capacity market and its Competitive Auctions with Sponsored Policy Resources construct, approved in March. “By requiring ISO-NE to develop generic tariff provisions for cost-of-service treatment for resources needed for fuel security, the order provides an incentive for resources to seek that treatment rather than retire once uneconomic,” Glick wrote. “At a minimum, we should expect that retiring resources will use the prospect of a full cost-of-service arrangement as little more than leverage in order to extract a large ransom payment for exiting the market.”

LaFleur: No Precedent

Chatterjee wrote a concurrence saying the RTO’s predicament illustrates the need for the interim out-of-market measures he proposed when the commission rejected the Department of Energy’s request for bailouts of coal and nuclear generators. The commission instead initiated its resilience docket (AD18-7).

“Had a majority of my colleagues supported that position, we could by now have measures in place to address near-term fuel security and resilience risks in ISO-NE and other RTOs/ISOs,” Chatterjee said.

But LaFleur said that while she supported the waiver denial, “today’s order does not lend credence to a generic or national resilience need, or an approach to address that need. Rather, today’s order rightly responds to documented and specific regional challenges in New England, including its dependence on a unique generation facility that can be served only by imported LNG.”