By Rich Heidorn Jr. and Michael Kuser

Comments filed with FERC last week indicate most stakeholders oppose ISO-NE’s Tariff waiver request to keep the Mystic generating plant running despite Exelon’s plans to retire the facility (ER18-1509).

Commenters also questioned the RTO’s rationale that an out-of-market mechanism is needed to financially support the nearby Distrigas LNG terminal being acquired by the company.

Massachusetts Attorney General Maura Healey raised “significant questions regarding the legality of using the commission waiver process in the expansive way ISO-NE seeks to do here.”

The RTO is asking to do something it has never been allowed to do before, Healey said, namely to “retain a generation facility pursuant to the [Forward Capacity Market] process not for capacity needs but to ensure ‘fuel security,’ a term that is not defined in the Federal Power Act, and a concept for which there is no settled or universally accepted definition.”

Healey also opposed the request as “sweeping in its breadth” in seeking to waive for one generator almost all of the Tariff’s FCM retirement requirements and existing retirement deadlines, and take away its existing limits on Exelon’s ability to recover costs under a cost-of-service agreement.

New England local distribution companies supported the waiver request in order to maintain reliability in the region and took no position on the cost-of-service representations made by Mystic.

“The lack of sufficient natural gas infrastructure makes facilities that rely on LNG particularly valuable in the region,” the LDCs said. “There is no immediate, viable replacement should the [Distrigas] terminal shut down and efforts to replace the products and services provided from Distrigas would be lengthy and difficult.”

ISO-NE’s Reasoning

ISO-NE last month announced the plan to keep Mystic running after Exelon said in March that it planned to retire the 2,274-MW plant when its capacity obligations expire on May 31, 2022. (See ISO-NE Moves to Keep Exelon’s Mystic Running.) On May 1, the RTO filed a motion to waive its Tariff to retain resources to address fuel security risks — an option currently allowed only in response to local transmission security issues.

The RTO said the loss of Mystic 8 and 9’s 1,700 MW of combined cycle capacity that don’t rely on pipeline gas would lead to it depleting 10-minute operating reserves — a violation of NERC standards – “on numerous occasions” and shedding load during the winters of 2022/23 and 2023/24.

Shuttering Mystic also would mean the loss of the Distrigas LNG facility’s biggest customer, raising doubts about its financial viability, the RTO said.

Exelon’s proposed cost-of-service agreement for Mystic, filed May 16, seeks an annual fixed revenue requirement of almost $219 million for capacity commitment period 2022/23 and nearly $187 million for 2023/24 (ER18-1639).

ISO-NE asked the commission to approve the waivers by July 2 to meet market participants’ deadlines for committing to Forward Capacity Auction 13.

Exelon said it would continue operating Mystic 8 and 9 only if it receives a two-year reliability-must-run contract ensuring it can recover its full cost of service for 2022/23 and 2023/24.

While ISO-NE will not implement the full payments and penalties under its Pay-for-Performance program until 2025, even then the program “cannot be expected to resolve the region’s fuel security challenges by itself, particularly in light of the significant opposition in the region to investments in fuel supply infrastructure,” the RTO told FERC in its waiver petition.

ISO-NE could implement a market-based fuel security solution as early as 2020, if it is decoupled from the FCM, or as late as 2024 if it’s included in the capacity market, but it’s still unclear what form the solution will take and therefore difficult to predict when the market will mature enough to resolve the fuel security issues that require Mystic 8 & 9’s retention, the petition said.

Market Failure?

New England Power Pool said it took “no substantive position” on the RTO’s request and that its “keen interest is in ensuring that ISO-NE engages fully with its stakeholders before seeking any change to the New England Tariff or market rules.”

NEPOOL said it expected the RTO to honor its commitment that the full participant processes would be completed prior to any filing of a longer-term market-based approach to fuel security issues.

The Environmental Defense Fund said in its filing that “the need for cost of service is indicative of market failure. Cost of service for the purpose of ensuring fuel availability (i.e., maintaining Distrigas’ natural gas supply capability), compels the commission and New England stakeholders to assess whether the market elements relevant to fuel supply for electric generators are functioning effectively. It is clear they are not.”

EDF recognized the Mystic/Distrigas units play a critical reliability role in the region but asserted that the “out-of-market workaround runs counter to ISO-NE’s dual mission of ensuring reliability and the long-term sustainability of competitive markets.”

The Northeast Gas Association said that while the waiver is a short-term solution supporting market reliability, “a longer-term remedy still needs to be enacted.” It urged the commission to consider “the importance of maintaining regional LNG access” over the coming capacity commitment periods.

Price Suppression

The Electric Power Supply Association said the “premature and overbroad” request should be rejected without prejudice, allowing the RTO to submit another short-term proposal if it is unable to develop a market-oriented solution.

The RTO “is being too quick to give up on such a solution for the nearer term and, specifically, for the 2022-2023 and 2023-2024 commitment periods,” EPSA said. “Additionally, this near-term fix may have the adverse effect of hastily establishing a new reliability criteria to be used to underpin RMR-type arrangements going forward, in the absence of any formal process, stakeholder input or Tariff revision proceeding.”

While the two-year term of the proposed RMR or cost-of-service agreement “is both unprecedented and will severely suppress capacity prices over that longer term,” EPSA said it also risked, by artificially dampening capacity prices, creating “the very dynamics” that cause the fuel security concerns raised by the RTO.

The New England Power Generators Association said allowing the RTO to offer the Mystic units as $0/kW-month price takers in FCA 13 would suppress prices by $214 million to $652 million, displacing 1,050 to 1,285 MW of other resources, “with the potential for even greater price suppression and displacement in FCA 14.”

Instead, NEPGA said ISO-NE should conduct a Substitution Auction to reprice Mystic, the same way it plans to reprice state-sponsored renewable resources under the Competitive Auctions and Sponsored Policy Resources design approved by the commission. The trade group made the same arguments in a Section 206 complaint (EL18-154) also filed last week.

Why Hurry?

Calpine said it did not oppose the RTO’s request but questioned the need for action now, as the Mystic units have capacity supply obligations through May 31, 2022.

Nevertheless, Calpine said the waiver request “is a symptom of broader price formation issues that are preventing” the FCM from attracting sufficient investment in new and existing resources to maintain reliability.

Until these issues are resolved, Calpine said, it is likely that New England “will continue to experience premature retirement of resources critical to ensuring fuel security and that ISO-NE will increasingly be forced to rely on out-of-market procurement to maintain reliability.”

NRG Energy said waiver of the RTO’s capacity market rules “is not the appropriate approach to address the lack of fuel security in New England” and that the commission should order the RTO to develop a market response to procuring the necessary attributes.

Rejecting the waiver “does not mean blacking out New England,” NRG said. “Even should efforts to develop a market-based solution to the fuel security conundrum fail, the Federal Power Act includes a reliability ‘fail safe.’”

NRG concluded that the reliability product the RTO wants is not what the waiver aims to procure: “ISO New England argues that the waiver will allow it to procure additional winter energy production from non-pipeline gas-fired resources; yet the waiver is focused on allowing Mystic to continue selling a capacity product.”

Pipeline Constraints

The Industrial Energy Consumer Group said the RTO has warned of the danger of gas pipeline constraints since 2001. “Despite the obvious nature of this need, ISO-NE has repeatedly either brought forward market-based solutions that have failed to provide sufficient financial support to promote the construction of necessary pipeline facilities or offered interim out-of-market solutions, such as its Winter Reliability Program and the waivers requested in this proceeding,” the group said. “None of these have succeeded in causing pipeline capacity to be built.”

It asked FERC to order ISO-NE to file Tariff amendments allowing electric utilities to collect gas pipeline capacity costs.

“In addition, the commission should open a proceeding to facilitate new gas pipeline capacity resources into and within the New England region,” the group said. “Such a proceeding could also address, if necessary, the apparent refusal of New York to issue federally delegated permits for pipelines from Pennsylvania to New England.”

The Eastern New England Consumer-Owned Systems said the proposal could cause “permanent, structural damage” to ISO-NE’s capacity market.

“The waiver requested by ISO-NE is actually a stalking horse for injecting an untested, undefined and undebated construct of ‘fuel security’ into the pricing of capacity in New England,” the group said.

It said it believes Exelon is overstating Mystic’s financial problems and that the company’s planned acquisition of Distrigas from ENGIE raises competitive concerns because of the facility’s role in providing east-to-west gas when high heating demand constrains west-to-east capacity.

“The market power implications of consolidating that kind of critical-period capability with significant regional generation ownership deserve careful evaluation before the consolidation occurs,” the group said.