By Michael Kuser

FERC on Thursday rejected Constellation Mystic Power’s request to allow it or ISO-NE the option to terminate the second year of its two-year cost-of-service agreement to keep Mystic Units 8 and 9 in operation until May 31, 2024 (ER19-1164).

The commission in December 2018 approved the agreement, which ISO-NE sought to prevent plant owner Exelon from retiring the 2,274-MW plant when its capacity supply obligations expire in May 2022. (See FERC Approves Mystic Cost-of-Service Agreement.)

Mystic said it sought to amend the agreement because matters pending before FERC left it uncertain about recovering its investment in assets related to the operations of its on-site Everett LNG terminal — formerly known as Distrigas — during the term of the agreement.

The proposed amendment would have allowed ISO-NE to terminate the agreement on May 31, 2023 — after the first year of the agreement — while permitting Mystic to end the agreement on the same date after giving the RTO notice by Friday.

Protesters argued the termination provision would give Mystic the unilateral right to end the agreement even if ISO-NE determined that the units are still needed for fuel security purposes for Forward Capacity Auction 14, which covers the second year. They contended that termination would allow Mystic to renegotiate the terms of a commission-accepted agreement and exert market power by threatening to withdraw the units from service.

Mystic countered that those concerns would be addressed by ISO-NE’s future fuel security market mechanisms and a clawback provision in the agreement.

In rejecting the amendment, FERC recounted that it had pushed back the deadline for Exelon to submit its retirement decision for Units 8 and 9 for FCA 13 from July 6, 2018, to Jan. 4, 2019 — one month before the auction. In response to Mystic’s early delist bids in 2018, ISO-NE had studied the impact of retiring the units and determined that their loss would present an unacceptable fuel security risk, it said.

The commission noted ISO-NE sought to avoid potential load shedding and violation of NERC reliability standards that the RTO’s modeling showed would occur if Units 8 and 9 were to retire. Based on this modeling, the commission opened an investigation under Federal Power Act Section 206 that pushed ISO-NE to begin to address the reliability threat posed by the region’s fuel security challenges. Because the RTO’s modeling showed a need to retain Units 8 and 9 for a two-year period, it proposed Tariff provisions for a two-year term.

The commission said that although several components of the agreement have yet to be finalized, “we find that this uncertainty has not changed substantially from the time that Mystic executed the [agreement] for a two-year term.”

Commissioner Richard Glick concurred in part and dissented in part.

“As protesters explained, granting Mystic’s request to add a unilateral termination provision to its cost-of-service agreement would give Mystic another opportunity to extract every last penny from the region’s customers without any countervailing benefit,” Glick said. “Given that customers are already on the hook for Mystic’s full cost-of-service, I do not see how adding a ‘heads I win, tails you lose’ provision to the agreement would be a just and reasonable result.”

Glick agreed with the commission’s conclusion but said it mistakenly repeats its belief that Mystic is needed for fuel security and, therefore, cannot be allowed to back out of its cost-of-service agreement.

“Because I do not share that belief, I dissent from the portions of today’s order that rely on that rationale to support the outcome,” Glick said. “Instead, I would reject Mystic’s proposed amendment on the basis of its potential to further harm the region’s customers.”

Fuel Cost Violation

In a separate order Friday, the commission approved a consent agreement requiring Exelon to pay a civil penalty of $32,500, disgorgement of $101,156 and interest of $15,324 for an error that resulted in Mystic Unit 7 being overcompensated in some cases (IN20-3).

The unit can run on either natural gas or No. 6 fuel oil and requires a blend of both to start up. But beginning in December 2014, Unit 7’s supply offers said the generator used fuel oil only to start up, the result of an error in an internal spreadsheet, FERC said.

As a result, the unit was overcompensated when it was not dispatched economically but then was called on by ISO-NE to operate for reliability, FERC said.

The error was not recognized until August 2016, when the ISO-NE Internal Market Monitor began an investigation of the unit’s fuel use.

FERC said Exelon corrected the problem after the Monitor’s inquiry and cooperated with the subsequent investigation by the commission’s Office of Enforcement.