On December 3, 2018, the Federal Energy Regulatory Commission (FERC) approved ISO New England’s proposed interim revisions to its tariff provisions to allow it to sign cost-of-service agreements to retain power plants that are scheduled to retire, yet are critical to the grid for fuel security reasons.
At issue is the fate of the the Mystic Generating Station in Massachusetts, a natural gas and petroleum power plant near Boston. Exelon, the plant’s owner, announced in a statement in March 2018 that it would retire Mystic’s four generating units in 2022. Exelon maintained that it was no longer cost effective for it to operate the units, given market rates for electricity in the region.
Two of the generating units, Mystic 8 and 9, with a combined 1414 MW capacity, are critical to grid reliability in New England in the winter. Natural gas is in high demand for both electric generation and home heating during New England’s cold winters, but regional pipeline capacity is insufficient to supply that demand. Past attempts to expand natural gas supply to New England by expanding pipeline capacity leading into the region have met with opposition, including from New England states themselves. Mystic, which does not rely on pipeline gas, helps ensure adequate generating capacity in New England during the winter. If Mystic 8 and 9 were retired, ISO North East would deplete 10-minute operating reserves in violation of mandatory reliability standards for the grid. Yet ISO Northeast maintains that it lacks the authority to encourage natural gas infrastructure development.
ISO New England sought to head off the closure, but Exelon, which owns the power plant, said it would keep units 8 and 9 open only if it received a two-year “reliability-must-run” (RMR) contract that ensured it would recover its full cost of service for 2022 to 2024. On May 1, 2018, ISO sought from FERC a waiver of several provisions of its existing tariff structure to pay Exelon approximately $200 million extra a year to keep the units open. FERC turned down ISO New England’s initial request in July, saying that a waiver to the existing tariff structure was the incorrect vehicle for resolving the problem, because “ISO-NE’s request would not only suspend tariff provisions but also alter the existing conditions upon which a market participant could enter into a cost-of-service agreement … and allow for an entirely new basis (for fuel security concerns that impact reliability) to enter into such an agreement.”
Instead, FERC found that “the ISO-NE Tariff may be unjust and unreasonable based on ISO-NE’s demonstration … that its Tariff fails to address specific regional fuel security concerns identified in the record.” It instructed ISO New England to submit interim tariff revisions that “provide for the filing of a short-term, cost-of-service agreement” to address those concerns in time to avert a shutdown, and to submit permanent tariff revisions improving its overall market design to better address its regional fuel security concerns. ISO New England sought approval for such interim tariff revisions in August 2018, and the December 2018 Order accepts those revisions. The next step will be for ISO New England to submit a permanent revision its tariff to address the region’s enduring fuel security issues to FERC for approval.