When Exelon announced that it would retire its 2,001-MW Mystic Generating Station, ISO-NE was forced to amend its Tariff and sign an expensive and controversial out-of-market contract to keep the plant running through May 2024 for reliability.

Now, Exelon has filed interconnection requests to keep the two combined cycle units at the plant in Everett, Mass., running beyond the end of its $400 million cost-of-service agreement for “fuel security” in 2024. Exelon’s April 20 filing with ISO-NE asked the RTO to treat the two gas-fired units — with combined capacity of 1,600 MW in summer and 1,700 MW in winter — as “new” resources.

“The filing preserves an additional option for Mystic 8 and 9 to provide unique fuel security and electric reliability benefits to the region following the cost-of-service period, if ISO-NE decides that it does not need Mystic 8 and 9 in the market for transmission security for at least one more year,” Exelon Generation spokesman Mark Rodgers explained in response to questions from RTO Insider.

News of Exelon’s change of heart provoked outrage among some stakeholders.

“Exelon is looking to keep the Mystic units in the market after holding the region hostage for millions of dollars in pursuit of short-term financial gain,” Katie Dykes, commissioner of the Connecticut Department of Energy and Environmental Protection, told RTO Insider.

“Exelon’s 2018 retirement announcement sought to exploit fuel security weaknesses in the region revealed by ISO New England’s Operational Fuel-Security Analysis. Since then, the continuing failure of ISO-NE to timely address fuel security and recognize, rather than negate, state policies continues to expose our ratepayers to bald exercises of market power today,” Dykes said.

Exelon’s filing “appears to be a cynical ploy premised upon two inherent failings of ISO New England,” said Greg Cunningham, director of Conservation Law Foundation’s Clean Energy and Climate Change program.

“The first failing is to clear not much other than natural gas power plants in its forward capacity auctions. And the other is the risk that it mismanages this RFP for transmission that will provide for an alternative to Mystic,” he said, referring to ISO-NE’s first-ever competitive transmission solicitation, issued in December.

“This absurd result is entirely avoidable,” Cunningham said. “If it manages this RFP well, ISO-NE can select projects that simultaneously address New England’s clear public policy desire for clean resources, while avoiding a dinosaur of a plant like this coming back like a phoenix out of the ashes.”

No Gaming Allowed

“Under the ISO-NE Tariff, the rules are clear that the current Mystic generation must retire once the reliability needs are addressed,” said Theodore Paradise, senior vice president of transmission strategy for Anbaric Development Partners. “Those rules were directed to be put in place by FERC to prevent gaming — seeking the higher of cost-of-service or market prices.”

If the Mystic units try to lock in another high-priced contract triggered by their retirement announcement, that would “continue the injury to New England ratepayers already incurred by the astonishingly high annual cost-of-service agreement to keep both the plant and the LNG terminal,” Paradise said.

“Mystic had its chance and made its decision for an economically challenged plant,” he said. “Exelon has put in the binding retirement request and those uneconomic, rate-inflating fossil units are going to be closed soon. Because of the lack of a gas supply situation, new LNG units at the site don’t make sense economically at current energy and capacity prices.”

Uneconomical

Exelon two years ago said it would retire Mystic as uneconomical, given the plant’s dependence on LNG that costs more than natural gas from pipelines.

The cost-of-service agreement for Mystic Units 8 and 9 and the Exelon-owned LNG terminal that supplies them is scheduled to expire in May 2024. The agreement pays Exelon an annual fixed revenue requirement of almost $219 million for capacity commitment period 2022/23 and nearly $187 million for 2023/24, subject to true-ups for fuel costs.

ISO-NE initially asked FERC to waive Tariff provisions to prevent the retirement because of the region’s fuel-security reliability challenges in winter. FERC rejected the request, ordering the RTO to amend its Tariff — which then allowed cost-of-service agreements only to address local transmission security issues — to now allow such contracts for fuel security issues. The commission also ordered the RTO to develop market-based solutions to address fuel security, setting off a two-year effort that culminated with the RTO’s filing of its Energy Security Improvements (ESI) market design on April 15. Exelon filed its interconnection request five days later.

FCA 15

Exelon’s mention of providing “fuel security” had some observers scratching their heads, considering the RTO’s assertion at the April New England Power Pool Reliability Committee meeting regarding FCA 15, the auction that will be held next year for capacity year 2024/25.

ISO-NE presented the RC with its initial inputs to the fuel security reliability review, which indicate that no resources that submitted a retirement delist bid for FCA 15 or were previously retained for fuel security will be retained for fuel security for the period. (See “FCA 15 Fuel Security Reliability Review” in NEPOOL Reliability Committee Briefs: April 22, 2020.)

But maintaining interconnection access would allow Exelon to extend Mystic’s stop-gap role if there were delays to either the planned transmission upgrades or the approval and implementation of ESI. ISO-NE asked FERC to approve ESI effective Nov. 1, 2020.

Exelon also would face an obstacle from the commission’s requirement in its December 2018 order accepting the Mystic agreement that it include a “clawback” mechanism.

The order said that if Mystic re-entered the market after the agreement ends rather than retiring, Exelon would have to refund to the RTO “all costs, less depreciation, for repairs and capital expenditures that were needed to continue operation” of Mystic during the agreement (ER18-1639). The commission said the clawback “will not apply if ISO-NE chooses to extend the agreement.”

The commission disputed Mystic’s contention that cost-of-service agreements used for fuel security purposes merit different clawback treatment than those for transmission. “We disagree. At the end of a cost-of-service agreement’s term, the need for the unit to provide relief for a transmission constraint would be replaced by a transmission upgrade,” the commission said.

“In this case, the need for cost-of-service treatment for Mystic will have been replaced by a market-based mechanism for fuel security,” the commission said. “Under a market-based mechanism, if Mystic is not the most economic alternative to meet a fuel security need, then Mystic will not be selected to provide capacity and/or fuel security. The clawback mechanism helps place Mystic on similar footing with other resources that would not have benefitted from a cost-of-service agreement in the new market-based mechanism.”

Under ISO-NE’s Tariff, to qualify as a “new” capacity resource, Mystic would have to add 40 MW of capacity over its last summer qualified capacity number or invest at least “$200 per kilowatt of the whole resource’s summer qualified capacity after re-powering … (in base year 2008 dollars).”

RFP

ISO-NE received 36 proposals in response to its December 2019 solicitation to address reliability concerns over Mystic’s retirement, specifically transmission facility overloads under peak load conditions in the Boston area and system restoration concerns with the underground cable system in the area.

The RTO said the proposals ranged from $49 million to $745 million with in-service dates from mid-2023 to 2026. The RTO said it would not disclose proposal details for 175 calendar days (until Aug. 26, 2020), after verifying details in the proposals. The ISO expects to make a final selection in summer 2021. (See ISO-NE Planning Advisory Committee: March 18, 2020.)

The only proposal made public so far is one from Anbaric, which announced details for the 900-1,200-MW Mystic Reliability Wind Link project to bring offshore wind energy interconnecting in southeastern New England to Boston. It includes empty cable conduits for an additional 1,200 MW from offshore wind farms.

Massachusetts Department of Public Utilities Chair Matthew Nelson seemed unconcerned that Mystic might not retire as scheduled, saying the DPU “is encouraged by the ISO-NE competitive process for transmission and continues to be focused on ensuring Massachusetts ratepayers are provided with the most reliable service at the lowest possible cost.”

ESI

The Energy Security Improvements market design will allow ISO-NE to procure energy call options for three new day-ahead ancillary service products to improve the region’s energy security, particularly in winter when natural gas shortages can leave generators without fuel. Option awards will be co-optimized with all energy supply offers and demand bids in the day-ahead market. (See ISO-NE Sending 2 Energy Security Plans to FERC.)

Based on a related proceeding at FERC in March, Exelon apparently believes that it is now free to pursue a separate cost-of-service agreement based on “transmission security” rather than fuel security.

While all six New England states pay for the cost of a fuel security cost-of-service agreement, the Tariff says the cost of a transmission security agreement for Mystic would be paid by the northeast Massachusetts — or “NEMA” — capacity zone, which includes Boston.

FERC in March rejected Tariff revisions filed jointly by the RTO and the New England Power Pool to clarify that resources retained for fuel security reasons will not be retained for other reasons once the fuel security retention period ends (ER20-89). (See FERC Rejects ISO-NE Fuel Security Tariff Revisions.)

Exelon in that proceeding argued that the proposal “unduly discriminates” against fuel security resources in general and the Mystic units in particular. The company contended that “the proposal results in different treatment for transmission security resources based on whether the resource has previously provided fuel security service, despite the fact that transmission security and fuel security resources are similarly situated for purposes of retirement.”

The RTO’s desire to develop a long-term market-based fuel security solution and competitively develop transmission solutions for the Boston area do not constitute substantial evidence that it is just and reasonable to eliminate a reliability safeguard, Exelon said.

In rejecting the revisions, the commission found that “instead of retaining such a resource for transmission security (as it would any other resource that was not previously retained for fuel security), ISO-NE would need to address this issue through either real-time operating procedures, such as shedding load, or through the use of a gap [request for proposals] solicitation.”