The Federal Energy Regulatory Commission has approved key details of a deal to keep the 1,700-MW Mystic natural gas-fired plant in Massachusetts from shutting. But the move drew a strong dissent from one commissioner, who said it unfairly bails out the adjacent Everett liquefied natural gas import facility.

The proceeding is significant, in part, because it spurred FERC to require the ISO New England to rewrite its market rules to ensure fuel security. FERC's order also takes the unusual step of using the commission's authority under the Federal Power Act to allow a power plant to recover most of the costs of an LNG terminal.

In March, Exelon Corp. announced that it planned to retire the Mystic facility when the plant's capacity supply obligations expire May 31, 2022, but the ISO-NE subsequently concluded that unacceptable reliability impacts would occur in 2022-2024 if Mystic 8 and 9 retired.

"ISO-NE further concluded that, if Mystic 8 and 9 retired, Everett might no longer be financially viable and that, if Everett also retired, the region's risk of operating reserves depletion and load shedding would increase, as would the length and severity of such events," FERC's order noted.

Mystic in May submitted a cost-of-service agreement for Mystic 8 and 9 to meet the region's fuel-security needs between June 2022 and May 2024. In July, FERC ordered the ISO-NE to make rule changes to address fuel security in the region and also accepted the broad outlines of the cost-of-service deal. On Dec. 3, FERC approved the ISO-NE's short-term fuel-security fixes, including a plan to offer Mystic and similarly situated generators into the capacity market as price-takers.

With that issue resolved, FERC on Dec. 20 ruled on many of the details of the Mystic agreement, but set the return-on-equity issue for hearing.

FERC disagreed with claims that a fuel supply charge to cover the costs of the LNG facility, which is owned by Exelon subsidiary Exelon Generation Co. LLC, goes beyond the commission's jurisdiction. "The fact that Everett is an LNG facility does not render the costs unrecoverable by Mystic, in light of the extremely close relationship between Everett and Mystic 8 and 9," the order said.

But the commission rejected Mystic's proposal to recover 100% of the LNG facility's fixed costs. Instead, FERC found that Mystic should change the deal to recover 91% of the costs of Everett as Mystic fuel costs.

"[W]e are persuaded by participants' arguments that, to ensure that the rates under the agreement are just and reasonable, we must require some portion of Everett's costs to be borne by the third-party customers who also benefit from the Everett terminal."

FERC further directed Mystic to revise the agreement to include a "clawback provision" specifying that if Mystic decides not to retire the facility after the cost-of-serve arrangement ends, it must refund some of the money it was paid under the agreement.

On the ROE issue, the commission asked for input regarding how its recently unveiled policy for transmission ROE should apply to the Mystic deal. The move shows the reach of the new policy (FERC docket EL11-66), which sets ROEs using several different models rather than relying on a single methodology.

The Mystic deal will go into effect June 1, 2022. The ISO-NE's 13th forward capacity auction, which will procure capacity for the commitment period of June 1, 2022, to May 31, 2023, will be held starting Feb. 4, 2019.

Commissioner Richard Glick slammed the decision in his dissent. "I believe that the commission cannot and should not use its authority over wholesale sales of electricity to bail out an LNG import facility," he said.

"Taken to its logical conclusion, the commission's jurisdictional theory would sanction using the FPA to require a generator to cover the cost of financing a natural gas pipeline or even the cost of operating a Russian LNG export facility," he said.

Glick reiterated his belief that FERC took the region down a "deeply misguided path" by prematurely seizing control of the fuel security debate in New England. Instead, FERC should have given the region time to examine more effective solutions, including new transmission facilities and gas demand response, he said.

Newly seated FERC member Bernard McNamee did not participate in the decision.

ISO-NE spokeswoman Marcia Blomberg on Dec. 21 said, "the ISO is pleased that FERC accepted the portions of the cost-of-service agreement that are intended to ensure performance by the Mystic units, given the fuel security benefits provided by both the Mystic units and the [Everett] facility."

The cost-of-service rate is a matter between FERC and Exelon and the grid operator takes no position on the rate of compensation, Blomberg added. (FERC docket ER18-1639)

Kate Winston is a reporter for S&P Global Platts, which, like S&P Global Market Intelligence, is owned by S&P Global Inc.