Exelon blasts ISO-NE proposal to put an early end to fuel security retention mechanism

Washington — Exelon is pushing back on ISO New England's proposal to sunset one year early tariff provisions that enable the grid operator to retain resources for fuel security purposes, charging that the move would exacerbate uncertainty while a long-term market solution to the region's fuel security needs remains under development.

"There is simply no reason to shorten the life of the fuel security provisions now when doing so would unnecessarily limit ISO-NE's options for addressing fuel-security needs when it is not clear that market reforms will be in place in time for" the region's 15th forward capacity auction to be held in 2021, Exelon said in a protest filed with the Federal Energy Regulatory Commission.

The fuel-security retention mechanism at issue was implemented in 2018. It prevents the retirement of resources deemed necessary for fuel security, requiring those resources to continue operating under a cost-of-service agreement and to be entered into FCAs as price takers, which submit offers at a price of zero to ensure they clear the market. ISO-NE's tariff stipulated a two-year maximum retention period for these resources, and prohibited use of the mechanism beyond June 1, 2025, the start of the capacity commitment period for FCA 16.

Only one resource — Exelon's natural gas-fired Mystic Units 8 and 9 — has been retained for fuel security to date. The Mystic cost-of-service agreement covers a two-year term from June 1, 2022, through May 31, 2024, which coincides with capacity commitment periods for FCAs 13 and 14.

Exelon notified ISO-NE Thursday that it would not seek early termination of the agreement through an amendment it had filed at FERC, Exelon spokesman Mark Rodgers said in an email Monday. The company had until Friday to notify the ISO of its decision, ahead of a ruling on the matter from FERC.

FERC late Thursday rejected Exelon's early termination amendment that would have given the utility an option to leave the agreement a year early. FERC's decision to maintain the duration of the cost-of-service agreement "has the same effect" as the company voluntarily agreeing to stick with it, Rodgers said.

LACKING JUSTIFICATION

Exelon expressed hope last June that, upon the expiration of its cost-of-service agreement, ISO-NE would "appropriately recognize" that the Mystic plant and adjacent Everett LNG import facility that fuels the plant and is also owned by Exelon "provide a cost-effective solution for meeting regional reliability and fuel security requirements as part of its fuel security compensation proposal."

Instead, ISO-NE has twice sought tariff changes "in recent months to erode the fuel security provisions without adequate justification," Exelon told FERC last week.

First, in October, ISO-NE proposed to clarify that a resource retained for fuel-security reasons will not be relied upon past the two-year maximum retention period should a different reliability need arise (ER20-89). Exelon opposed that proposal in a filing submitted in November.

Then, ISO-NE contended in a December 19 filing (ER20-645) that market improvements addressing regional fuel security would be filed in April and implemented by June 2024, rendering the out-of-market mechanism to retain resources for fuel security unnecessary beyond the May 31, 2024, end of the capacity commitment period for FCA 14.

"The ISO believes these market improvements will address the underlying issues that may otherwise trigger a resource retention," the grid operator said. "Furthermore, in the event the ISO is not able to implement the market solution for June 2024, the ISO has available other temporary mechanisms that it will be able to utilize at that time, on a short-term basis, to address any remaining fuel security concerns until the market solution is implemented."

ISO-NE requested a February 17 effective date for new tariff language eliminating the originally intended third and final year for the fuel-security-retention mechanism that coincided with the 2024-25 delivery year of FCA 15. If approved by FERC, the fuel-security-retention sunset would be in place for the start of the FCA 15 qualification period in March, when the fuel-security-retention review is scheduled to be performed.

REGULATORY DELAY

Exelon's protest stressed the many factors that could delay implementation of ISO-NE's long-term fuel-security mechanism, which is still being worked on as the twice-extended April 15 due date to the commission approaches.

"Litigation and delay are common to market redesigns, even for a discrete element like fuel security," Exelon said, adding that it "actively participated in the efforts to develop the long-term solution and anticipates the commission process to be controversial."

Further, there "is no guarantee" that FERC will accept the proposal "without change or the need for additional filings, or that other delays to implementation will not occur," Exelon said. "Furthermore, although ISO-NE suggests the Inventoried Energy Program could be used to address fuel security needs that arise due to a delay in implementation of the broader fuel security market reforms, the order allowing the IEP to take effect by operation of law has been appealed to the [US Circuit Court of Appeals for the District of Columbia]."

Exelon's plea for FERC to reject ISO-NE's early sunset proposal added that the potential for the fuel security provisions to distort market prices in FCA 15 was speculative. "So far, the application of the fuel security provisions has been extremely limited ... and it is possible that no resources will be identified as being needed for fuel-security purposes for FCA 15."