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FERC affirms Exelon can recover LNG facility's costs from ratepayers


Glick reiterates objection to order

Power generating facility at heart of dispute

  • Author
  • Zack Hale    S&P Global Market Intelligence
  • Editor
  • Richard Rubin
  • Commodity
  • LNG Natural Gas
  • Topic
  • LNG Commoditization

New York — Exelon's Mystic River 8 and 9 natural gas-fired units will be authorized to recover nearly all of the Everett Marine LNG Terminal's fixed operating costs under a series of orders issued July 17 by a split Federal Energy Regulatory Commission.

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At issue is a cost-of-service agreement opposed by state regulators, consumer advocates and one dissenting commissioner that will allow the 1,700-MW power generating facility in Charlestown, Massachusetts, to operate through 2024 due to fuel security and grid reliability concerns raised by the ISO New England (ER18-1639).

After Exelon in early 2018 announced plans to retire the Mystic units in 2022, FERC later that year approved a proposal to keep the generating facility running under a cost-of-service agreement that covers the 2022/23 and 2023/24 commitment periods for ISO-NE's forward capacity auctions. In doing so, FERC also directed to the ISO-NE to develop a long-term fuel security fix.

The December 2018 order drew a sharp dissent from Commissioner Richard Glick, who slammed it as a thinly veiled effort to bail out a struggling LNG terminal that exceeds FERC's authority under the Federal Power Act. The question of whether FERC was effectively asserting jurisdiction over the Everett LNG facility was also raised by opponents in requests for rehearing.

In one of its July 17 orders, however, FERC rejected claims raised by Glick and the Massachusetts Attorney General that it had overstepped its authority by allowing the Everett facility's fixed costs to be reflected in Mystic's cost-of-service agreement.

Specifically, FERC found that because the Everett facility is Mystic's sole source of fuel, Mystic can recover 91% of the LNG plant's fixed operating costs even though just 31% of its total capacity is used to supply units 8 and 9. While Everett makes sales to third parties, those sales benefit Mystic by helping to manage Everett's tanks and therefore "are not trivial," the commission reasoned.

In the same order, the commission granted clarification requested by the Massachusetts AG that Mystic must demonstrate to FERC that any capital expenditures included in its cost-of-service rate are just and reasonable.

2018 order

A concurrent order set aside part of the December 2018 order's requirement for Mystic to true up revenues at the end of the cost-of-service agreement. In doing so, FERC noted that the agreement already contains provisions that will credit revenues Mystic earns against its annual fixed revenue requirement.

And in a third order, FERC sided with protesters by directing Mystic to make an additional compliance filing within 60 days reflecting a cost study that includes Mystic's change of ownership in 2004. Protesters had argued Mystic violated FERC's December 2018 order by failing to account for the ownership transfer, which involved a group of creditors acquiring the units in exchange for extinguishing debt.

'Near-infinite breadth'

During FERC's July 16 open monthly meeting, Glick reiterated his assertion that the real purpose of the Mystic proceeding is to prop up an LNG import terminal struggling amid a glut of cheap domestic natural gas supplies.

"The record since day one makes it unmistakably clear that the real fuel security need in New England is the Everett LNG facility, not the Mystic plant, which is necessary only to keep Everett in business," Glick argued. "In fact, FERC has no jurisdiction at all over LNG projects' sales or finances."

Glick dissents

In his dissents to two of the orders, Glick further argued that the commission's orders and their various justifications would give the Federal Power Act "near-infinite breadth" that the US Supreme Court rejected in an important 2016 ruling (EPSA v. FERC).

But Commissioner Bernard McNamee contended during the meeting that the components of Mystic's cost-of-service agreement fall squarely within FERC's jurisdiction.

"We review the components of the Mystic fuel supply charge, which is in itself a cost of service, and is therefore subject to the commission's review and approval," McNamee asserted.