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Washington — New England generators are telling regulators that ISO-New England's current plan to keep 1,700 MW of gas-fired units at Exelon's Mystic plant in Massachusetts running could unfairly reduce prices in the capacity auction and spur more retirements.

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"The price suppression that would occur from the ISO's action could exacerbate the very problem they are trying to deal with by retaining the Mystic units," Dan Dolan, the president of the New England Power Generators Association, said Monday.

NEPGA's request echoes a complaint they filed earlier this year, but now they say a recent order shows the US Federal Energy Regulatory Commission shares their concerns. In May, ISO-NE sought a tariff waiver (ER18-1509) for an out-of-market remedy, in the form of a cost-of-service agreement with Exelon, to keep Mystic units 8 and 9 operating to ensure reliability in 2022 and beyond. The units use LNG from the Distrigas import terminal, rather than pipeline gas, for fuel supply.

FERC on July 2 threw out ISO-New England's request -- saying it was too big a change to be done through a waiver -- and required the ISO to make short- and long-term fixes to its rules to address fuel-security concerns. FERC on July 13 then accepted and suspended Mystic's cost-of-service agreement in case ISO-NE's short-term tariff accommodates the deal.

ISO-NE'S PLAN

The grid operator is working on a short-term proposal to file by the end of August. ISO-NE is planning on treating resources retained for fuel security as price-takers in Forward Capacity Auction 13, and will review treatment for later periods, said Marcia Blomberg, a spokeswoman for the ISO.

This means the Mystic units' 1,700 MW of capacity would be offered into the auction for the 2022-23 period at a price of zero, ensuring they clear the market.

NEPGA claims FERC's July 2 order mirrors the positions NEPGA took in a May complaint on the issue (EL18-154).

"The commission's clear preference is for ISO-NE to treat fuel security resources in a way that avoids offering them into the FCA at uncompetitive offer prices," NEPGA said.

Generators asked FERC to clarify that ISO-NE's plan is at odds with the commission's directives. FERC should also clarify that the ISO should file a proposal that either offers fuel security resources at their competitive offer price, or procures the resource outside of the forward capacity market, with the obligations and compensation for the service dictated solely by a cost-of-service agreement, NEPGA said.

Repricing the Mystic units as price-takers in FCA 13 could suppress capacity prices by more than $600 million and displace up to 1,285 MW of otherwise economic resources, NEPGA explained in a footnote.

RETIREMENT WORRIES

"Uncompetitive pricing will drive existing resources to exit the market and, in those cases where exiting resources are needed to maintain local or regional reliability, cause additional [cost-of-service] agreements," Bruce Anderson, vice president of market and regulatory affairs at NEPGA, said in a recent presentation.

However, Connecticut regulators asked FERC to clarify that its statements on fuel security resource pricing were not intended to be a predetermine policy or a binding directive to ISO-NE. The ISO tariff requires reliability units to be price takers to ensure they are counted as capacity in the FCA, they said. "The fact a unit may be retained for fuel security rather than local transmission security fails to draw a reasoned distinction supporting disparate FCA pricing treatment," the Connecticut request said. --Kate Winston, kate.winston@spglobal.com

--Edited by Richard Rubin, richard.rubin@spglobal.com