Citing the unprecedented nature of the ISO New England's request for permission to enter into a reliability must-run agreement to keep two units of Exelon Corp.'s Mystic Generating Station operational, stakeholders warned federal regulators about the potential pitfalls of expanding the use of those agreements to address fuel security concerns.
For instance, the Electric Power Supply Association expressed concern that the grid operator was being "too quick to give up" on a solution to the fuel security problem that might cause less market distortion or harm to other generators.
"ISO-NE should prioritize the development of an in-market approach for valuing fuel security," EPSA told the Federal Energy Regulatory Commission in its May 23 comments filing. "However, if these expedited efforts are unsuccessful, then ISO-NE can seek an appropriate tariff waiver or other [reliability must-run]-type agreement aimed at the actual reliability need."
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 on May 31, 2022, explaining that the units had become uneconomic to operate.
In the wake of that announcement, the ISO-NE said it had determined Mystic units 8 and 9 need to remain online for fuel security reasons, both because those units are needed to maintain reliability and because the Distrigas liquefied natural gas import facility that supplies those units might also close if it loses its biggest customer, the Mystic facility.
The ISO-NE subsequently 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 a waiver is required because its tariff allows it to sign reliability agreements with generating units needed to address transmission security concerns but not with those that must be retained to address reliability risks related to fuel security.
Since then, Exelon requested that FERC accept a cost-of-service compensation agreement (FERC docket ER18-1639) the company said would allow it to postpone retiring the two units.
Venturing into uncharted territory
Many weighing in on the ISO-NE's waiver request stressed the novelty of the proposal. Noting that even the ISO-NE acknowledges it is asking to do something that never before has been allowed, the Massachusetts Attorney General questioned the legality of using FERC's waiver process to essentially grant the grid operator "a right that does not currently exist."
The Industrial Energy Consumer Group similarly said the ISO-NE's request does not meet FERC's criteria for granting tariff waivers because it is not limited in scope. Instead, it would "implement broad new policy and substantial deviations from existing market rules and practices with wide-ranging implications that can only properly be considered in a more comprehensive proceeding."
The Environmental Defense Fund noted that the review the ISO-NE traditionally has used to determine whether a retiring generating unit is needed for reliability looks at the impact of removing that generator's capacity from the wholesale market. But fuel security is entirely different because it deals with energy, not capacity, the EDF said.
The EDF noted that the ISO-NE in 2010 in a proceeding (FERC docket ER10-186) related to its forward capacity auction, or FCA, stated that fuel supply issues with the Mystic units "'are not within the planning authority of the ISO and the ISO is not the appropriate entity to report on how and if this issue will be resolved.'"
Yet the grid operator now "seeks extraordinary relief from the commission, requesting a waiver of several tariff provisions so that it can retain retiring resources to address reliability risks related to fuel security," the EDF said. "ISO-NE's unprecedented request would apply ISO-NE's authority over transmission security in a fuel security context — a significant augmentation of its role and one it previously sought to disavow."
According to the EDF, granting that request would open the door for other generators to seek out-of-market fuel-security compensation and would clear the way for a more widespread use of the operational fuel security analysis the ISO-NE used to assess whether the Mystic units are needed to maintain reliability.
"There are limitations in using the OFSA as a tool for answering market design questions, namely because it is a deterministic, not a probabilistic assessment; it does not explain how existing market mechanisms could address fuel security risk; and its base assumptions are overly conservative," the EDF said.
The EDF accordingly asked FERC to direct the ISO-NE to develop a market-based fuel security solution "by a date certain" and to undertake a "rigorous review" of Exelon's related cost-of-service agreement, especially given the "relative bargaining positions" of the parties to that agreement.
"ISO-NE is entering into a new frontier by proposing to socialize fuel security costs on a system-wide basis," the EDF said.
The Natural Gas Supply Association likewise urged FERC to look carefully at the cost-of-service agreement between Exelon and the ISO-NE to ensure that the grid operator's focus on reliability did not allow the utility "to extract unreasonable contract terms."
Some worry about precedent to be set
And also like the EDF, the NGSA said FERC should "proceed cautiously" in considering the ISO-NE's proposed waiver — granting it only if the units' retirement would result in a true reliability problem and even then refusing to subsequently extend it beyond the proposed two-year period — and should not expand the use of RMR agreements based on fuel security concerns. Doing so would set "bad precedent" and encourage grid operators to shift their attention away from developing a market design that adequately incentivizes reliable performance, the NGSA said.
"It is a generator's job — not the RTO's — to ensure it has the fuel security it needs to perform and holding up the retirement of specific units in the name of fuel security is well outside the bounds of what a regional operator should do," the NGSA said.
More generally, the NGSA took issue with the ISO-NE characterizing the Mystic unit retirements as a fuel security issue. "It is the loss of power, not fuel, associated with the proposed retirements that would, at least theoretically, create a system reliability problem and as long as there is generation to replace Mystic 8 and 9's megawatts, the type of fuel that supports the generation replacing those units should be inconsequential," the NGSA said.
EPSA said the waiver request as filed should be rejected as "premature and overbroad" and the ISO-NE instead should be instructed to explore other ways of ensuring reliability.
"As the ISO's petition concedes, the issue at hand is not an immediate reliability concern, and therefore does not warrant the extreme proposed approach which is not contemplated in the ISO tariff or system rules, does not comport with FERC RMR policies or precedent, is and has not been available to any other generation resource in ISO-NE," EPSA said.
The New England Power Generators Association Inc. did not question the ISO-NE's findings with respect to the need to retain the Mystic units or specifically challenge the waiver request. But it did say the grid operator should not be allowed to follow through on its intention of repricing those units as price takers "as if they were resources retained for local transmission reliability."
To justify doing so, the ISO-NE relies on the same section of its tariff that it seeks to have waived in order to enter into the RMR agreements with Exelon, NEPGA said. "It is contradictory to assert that 'reliability' does not include 'fuel security' for one purpose (retaining a resource) but does so for another (the re-pricing of a fuel security resource in the FCA)."
The Northeast Gas Association filed comments strictly to stress the importance of LNG in general — and the Distrigas LNG facility in particular — to the New England energy marketplace and to urge FERC to take that factor into consideration when deciding on the ISO-NE's request. (FERC docket ER18-1509)
