The Federal Energy Regulatory Commission late July 2 rejected a request by the ISO New England for tariff waivers that would have allowed it to use existing reliability must-run provisions designed to address transmission security concerns to keep two units of Exelon Corp.'s Mystic Generating Station running.

According to FERC, the ISO-NE filing (FERC docket ER18-1509) essentially sought to create a new process that would allow the grid operator to enter into a cost-of-service agreement to meet regional fuel security concerns, and that cannot be accomplished through a waiver request.

But acknowledging that the Mystic units at issue must continue operating for now to ensure reliability in the region, FERC opened a new proceeding (FERC docket EL18-182) to consider whether the ISO-NE's tariff is unjust and unreasonable because it contains no provision for addressing fuel security concerns.

The agency gave the grid operator 60 days to file interim tariff revisions that would allow it to enter into short-term, cost-of-service agreements aimed at addressing such situations and to propose by July 1, 2019, a permanent market-based solution for dealing with regional fuel security concerns. In the alternative, the ISO-NE must explain within 60 days why its existing tariff is just and reasonable without any changes.

While all five sitting FERC members agreed that rejecting the waiver request was appropriate, Commissioners Robert Powelson and Richard Glick partially dissented from the order. Powelson said he "cannot ... support prematurely clearing a path towards out-of-market, cost-of-service payments to generators without having fully exhausting all other alternatives," and Glick called the decision "a rush to judgment" because it addresses an emergency that does not, and may never, exist.

"Ultimately, I suspect that the most likely outcome of today's order will be a parade of uneconomic generators seeking cost-of-service rate treatment under the guise of fuel security," Glick said.

Commissioners Cheryl LaFleur and Neil Chatterjee issued separate concurrences. Although LaFleur said the order represents "a difficult but necessary step" to ensuring reliability, she acknowledged that the ruling would be used by some to support calls for more widespread subsidization of certain "fuel-secure" resources.

"In my view, today's order does not lend credence to a generic or national resilience need, or an approach to address that need," LaFleur said. "Our 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."

In contrast, Chatterjee suggested that the problem at issue would not have arisen at all had the majority backed his earlier calls to establish interim out-of-market measures to support at-risk generation resources needed for resilience purposes in all regions. Yet Chatterjee, like the other commissioners, stressed that he prefers market-based solutions for ensuring resilience to any out-of-market pricing mechanism.

The need for Mystic

Exelon in March announced plans to retire the combined-cycle, natural gas- and waste heat-fired Mystic River 8 and 9 and two other generating units at the Mystic site May 31, 2022, explaining that the units had become uneconomic to operate. A subsequent ISO-NE study determined that Mystic units 8 and 9 must remain online for fuel security reasons because they are needed to maintain reliability and because the Distrigas liquefied natural gas import facility that supplies those units might also close if its biggest customer, the Mystic facility, retires.

The ISO-NE accordingly asked FERC for a tariff waiver allowing it to enter into a reliability must-run, or RMR, agreement with Exelon to ensure the Mystic units remain operational for an additional two years. The grid operator explained that its tariff allows it to sign reliability agreements with generating units needed to address reliability issues stemming from transmission constraints but not with those that must be retained to address reliability risks related to fuel security.

Many stakeholders opposed the waiver request, expressing concern that the grid operator was being too quick to give up on developing a market-based solution and citing the unprecedented nature of using the RMR provisions of the ISO-NE's tariff to address fuel security concerns.

The July 2 FERC order agreed that a waiver request is "an inappropriate vehicle" for achieving the ISO-NE's goals because the grid operator seeks not just to suspend the tariff provisions at issue but also to substantially alter the conditions under which it may enter into a cost-of-service agreement to retain retiring resources.

However, because the Mystic units are needed to ensure reliability, the agency extended two tariff deadlines so Exelon will not have to decide whether to retire those units or offer them into the ISO-NE's February 2019 forward capacity auction before it can sign a cost-of-service agreement with the grid operator.