Saying that ISO New England’s Transmission, Markets and Services Tariff fails to address specific regional fuel security concerns that may result in reliability violations as soon as 2022, the Federal Energy Regulatory Commission said the grid operator needs to submit interim tariff revisions that will allow for the filing of short-term, cost-of-service agreements to address “demonstrated fuel security concerns.”
And, by next summer, ISO-NE will need to submit permanent tariff revisions reflecting improvements to its market design to better address regional fuel security concerns, FERC said in launching a proceeding under section 206 of the Federal Power Act.
As an alternative, FERC said the grid operator can submit a filing explaining why it thinks the tariff remains just and reasonable in the short- and long-term such that one or both filings is not necessary.
FERC’s 3-2 order came in response to a filing made by the grid operator this past spring in which ISO-NE sought a waiver of certain provisions of the tariff that would allow ISO-NE to arrange a cost-of-service agreement in order to retain Exelon Generation power plant units (Mystic 8 and 9) in Massachusetts.
While the Commission rejected the waiver request sought by ISO-NE, FERC also took steps that it said will allow Exelon Generation to delay a retirement decision related to the two generation units.
ISO-NE made filing in early May
ISO-NE on May 1 submitted a filing in which it sought a waiver of certain provisions of its Transmission, Markets and Services Tariff in order to retain the units.
“The ISO submits this petition reluctantly, because it hesitates to turn to out-of-market arrangements of any kind,” the grid operator told FERC in its filing. “However, the ISO has concluded that, in this instance, its responsibility to ensure the reliability of the New England electric grid is paramount.”
It said that retirement of Mystic 8 & 9 in 2022 “presents unacceptable risks that the system will have inadequate supplies of electricity to serve all customers during the coldest days of New England’s winters.”
Exelon Generation in late March said that it had filed with ISO-NE a request to retire the generating units at its Mystic Generating Station in Massachusetts, although the company said it could reconsider the retirement decision if market rule changes were implemented in the region.
Specifically, Exelon Generation filed with ISO-NE a request to retire Mystic Generating Station’s Units 7, 8, 9, and the Jet unit on June 1, 2022. “Absent any regulatory reforms to properly value reliability and regional fuel security, these units will not participate in the Forward Capacity Auction scheduled for February 2019,” Exelon Generation said.
Mystic Generating Station is a 2,000-megawatt natural gas- and oil-fueled power plant. Mystic Units 7, 8 and 9 are the operating units at the plant. Units 1-6 are decommissioned. The Jet unit is an 8-MW oil fueled peaking unit which is run during periods of high demand.
New England fuel security and ISO-NE studies
In its order, FERC said that ISO-NE “has long recognized that maintaining fuel security in the New England region -- ensuring that power plants have or can obtain the fuel needed to run -- is particularly challenging in winter when natural gas pipeline capacity is generally more constrained than in other seasons.”
In early 2018, the grid operator published an Operational Fuel-Security Analysis (OFSA), which evaluated the level of operational risk posed to the bulk power system under various fuel-mix scenarios.
The OFSA, which was completed prior to the Mystic 8 and 9 Retirement de-list bids, shows that the loss of both the Distrigas Facility and Mystic 8 and 9 would lead to 87 hours of depletion of 10-minute operating reserves and 24 hours of load shedding. In general, the study supports the need for Mystic 8 and 9 for the 2024-2025 winter period.
Subsequent to the OFSA and Exelon’s submission of retirement de-list bids for Mystic 8 and 9, ISO-NE performed additional studies (using the same OFSA model) to evaluate operational risks associated with the retirement of Mystic 8 and 9 during the 2022-2023 and 2023-2024 winter periods.
In these subsequent studies, ISO-NE presented 18 scenarios covering a range of possible system operation circumstances if Mystic 8 and 9 were to retire. Seventeen of the 18 scenarios showed that ISO-NE will deplete its 10-minute operating reserves and eight of the 18 scenarios demonstrated that ISO-NE will need to shed load. ISO-NE noted that depletion of 10-minute reserves is a violation of North American Electric Reliability Corporation reliability criteria.
ISO-NE also presented an additional 16 scenarios that showed both the number of hours when 10-minute reserves would be depleted and that the need for ISO-NE to shed load would increase if the Distrigas Facility were to close as a result of the Mystic 8 and 9 retirements.
The Everett Marine Terminal -- commonly known as “Distrigas,” for the facility’s original owner -- is adjacent to the Mystic units. Distrigas is a liquefied natural gas import terminal, and the sole source of fuel for Mystic Station Units 8 and 9. Exelon is in the process of acquiring Distrigas from its current owner, ENGIE North America Inc. in order to ensure the continued reliable supply of fuel to Mystic Units 8 and 9 while they remain operating.
FERC rejects waiver request
In its July 2 order, FERC denied ISO-NE’s waiver request, saying that the requested waiver is “an inappropriate vehicle for allowing Mystic 8 and 9 to submit a cost-of-service agreement in response to the identified fuel security need.”
FERC said that a typical waiver seeks to suspend a tariff provision. “By contrast, ISO-NE’s request would not only suspend tariff provisions but also alter the existing conditions upon which a market participant could enter into a cost-of-service agreement (for a transmission constraint that impacts reliability) and allow for an entirely new basis (for fuel security concerns that impact reliability) to enter into such an agreement.”
It said that ISO-NE’s request effectively creates an entire process that is not in the ISO-NE tariff in order to allow for a cost-of-service agreement to meet regional fuel security concerns. Such new processes may not be effectuated by a waiver of the ISO-NE tariff, but rather they must be filed as proposed tariff provisions under FPA section 205(d), FERC said.
At the same time, the Commission said it was launching a proceeding under section 206 of the FPA (Docket No. EL18-182) “because we preliminarily find that the ISO-NE tariff may be unjust and unreasonable based on ISO-NE’s demonstration in this proceeding that its tariff fails to address specific regional fuel security concerns identified in the record.”
FERC found that ISO-NE’s methodology and assumptions in the OFSA and Mystic retirement studies are reasonable, and the agency accepted “ISO-NE’s conclusions that the retirement of Mystic 8 and 9, under current ISO-NE tariff provisions, could cause ISO-NE to violate mandatory reliability standards as soon as 2022.”
Based on the evidence in the proceeding, “we are concerned that ISO-NE’s tariff does not sufficiently address the fuel security issues currently facing the region, which could result in a violation of mandatory reliability standards.”
FERC therefore directed ISO-NE to either:
- Submit within 60 days of the date of the order interim tariff revisions that provide for the filing of a short-term, cost-of-service agreement to address demonstrated fuel security concerns and to submit by July 1, 2019 permanent tariff revisions reflecting improvements to its market design to better address regional fuel security concerns; or
- Within 60 days of the date of the order, show cause as to why the tariff remains just and reasonable in the short- and long-term such that one or both filings is not necessary.
The agency said that if the grid operator opts to submit tariff revisions providing for short-term, cost-of-service agreements to address demonstrated fuel security concerns, those revisions should address the possibility that the owner of a resource that needs to be retained for fuel security reasons may need to decide, prior to receiving approval of its cost-of-service agreement, whether to unconditionally retire the resource.
As an example, FERC said the tariff revisions could allow ISO-NE to retain such a resource outside of the ISO-NE Forward Capacity Market (FCM) construct, even though it has opted to retire, and allow the resource to retain its interconnection rights through the term of the cost-of-service agreement.
“In addressing a possible solution, we note that there appear to be material differences between retaining resources through cost-of-service agreements for local transmission needs and retaining resources through cost-of-service agreements for regional fuel security concerns,” the Commission noted. Therefore, it may be reasonable for resources retained for fuel security purposes to be offered into the FCM at an offer price that is above zero, but still subject to mitigation by the internal market monitor, the order went on to say. (Such IMM mitigation is performed as a means to prevent the exercise of market power when retirement bids are above a certain threshold. Offering above zero is a mechanism to address concerns expressed by some parties about “price suppression” resulting from the participation of unit subject to a cost-of-service agreement in the capacity market.)
If ISO-NE enters the resource into the FCM at a price that is above zero but still subject to IMM review, and the resource clears the Forward Capacity Auction, it would be treated as any other capacity resource with a capacity supply obligation while still receiving additional out-of-market revenues to make it whole per the terms of its cost-of-service contract.
If the resource does not clear the Forward Capacity Auction, the resource would be compensated under a cost-of-service agreement and would also be subject to the performance and penalty risks pursuant to the terms of that agreement.
FERC said that if ISO-NE proposes to revise its tariff, its proposal should include a mechanism that addresses how resources retained for fuel security (e.g., under cost-of-service agreements) would be treated in the FCM.
Also, if the grid operator proposes to revise its tariff, such a proposal should include an “ex ante” cost allocation proposal for resources retained under fuel security cost-of-service agreements.
“We note that, unlike the costs of resources retained for reliability, which are allocated to regional network load of the affected reliability region, ISO-NE explains that fuel security is a regional, rather than a local problem. We would expect any cost allocation proposal to adhere to our cost causation precedent and appropriately identify the beneficiaries of the service rendered.”
FERC extends deadline for Exelon Generation decision on units
FERC also moved to provide Exelon Generation with a limited extension of the deadline in ISO-NE’s tariff, which would otherwise require Exelon to decide by July 6, 2018 whether to retire unconditionally Mystic 8 and 9 rather than enter the units into ISO-NE’s Forward Capacity Auction 13.
“Although we note above that ISO-NE could consider allowing a resource to retire while retaining its interconnection rights through a cost-of-service agreement, the decision to retire should still be extended from the July 6, 2018 date,” FERC said. “Therefore, we will allow Exelon to postpone its retirement decision regarding Mystic 8 and 9 to and including January 4, 2019, approximately one month prior to the February 4, 2019 start-date of FCA 13.”
The Commission will also continue to evaluate Mystic’s cost-of-service agreement filing in Docket No. ER18-1639.
Commissioners weigh in on order
Commissioners Richard Glick and Robert Powelson submitted partial dissents to the decision, while Commissioners Neil Chatterjee and Cheryl LaFleur offered concurrences to the order.
For his part, Glick said he was dissenting in part because he believes the order is a “rush to judgement.” The Commissioner wrote, “As the Commission itself recognizes, the concern underlying today’s order will not manifest itself for at least four years, even under conservative assumptions. 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.”
Glick argued that this is “particularly important in this proceeding because the Commission has not clearly defined the fuel security problem that it believes will be triggered by Mystic’s retirement or taken even the first tentative steps toward developing a framework for evaluating the nature of the fuel security problem.”
Rather, FERC “relies entirely on ISO-NE’s contested fuel security analysis — which identified five critical facilities, only two of which are electric generators — to conclude that ISO-NE’s Tariff appears to be unjust and unreasonable because it does not include generic provisions to permit ISO-NE to retain resources that may be needed for fuel security,” wrote Glick.
Powelson, who recently announced his plans to depart the Commission in August, said he partially supports the order “because it seeks to find a legitimate, just and reasonable solution to a real problem in the New England region.”
He said he strongly supports the decision to reject the waiver of certain ISO-New England tariff provisions, “which, if granted, would have amounted to an end-run around the ISO-New England 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.”
Commissioner Chatterjee said he believes the aggressive deadlines specified within the order “should position ISO-NE to deploy timely measures to address the concerns identified in its analysis.”
He said that “even more importantly, today’s order signals the Commission’s endorsement of ISO-NE’s proposed two-pronged approach to addressing those fuel security concerns. ISO-NE has concluded that its existing market-based, reliability-centered framework is unable to ensure adequate fuel security. In particular, fuel security risks beyond the control of market participants may demand near-term, out-of-market support until any long-term, market-based solutions that are identified as necessary can be implemented.”
Chatterjee noted that similar logic animated his preference for the consideration of interim out-of-market measures to support at-risk, resilience-critical generation resources pending the conclusion of the Commission’s resilience proceeding (Docket No. AD18-7-000).
“As underscored by today’s order, 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,” he wrote.
In her concurrence, LaFleur said she recognizes that the order “will be injected into the national debate regarding the asserted need for subsidization of certain ‘fuel secure’ resources to ensure that our nation’s electric grid remains resilient.”
In her view, the decision “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.”
FERC’s responsibility to oversee regional efforts to ensure continuous reliable service to customers “requires that we address specific situations as needed, but not draw inaccurate generalizations when they are not justified,” she wrote.
LaFleur said that while it appears that a short-term, out-of-market approach to ensure fuel security might be necessary, she continues “to strongly believe market-based solutions are the best means to ensuring reliability in the region at the lowest cost for customers. Thus, I urge ISO-NE and stakeholders to work expeditiously to identify a market-based approach that will hopefully obviate, or at least limit, the need for out-of-market solutions that are more costly for customers.”