United States: FERC Finds ISO-NE's Tariff May Not Adequately Address Fuel Security Concerns

On July 2, 2018, FERC denied ISO New England Inc.'s ("ISO-NE") request for waiver of its Transmission, Markets, and Services Tariff ("Tariff") and instituted a Federal Power Act ("FPA") section 206 proceeding because, according to FERC, the Tariff may be unjust and unreasonable. Specifically, ISO-NE requested waiver of certain provisions in its Tariff in order to delay the retirement of two generating units owned by Exelon Generation Company, LLC ("Exelon") for fuel security purposes. FERC denied the waiver request and preliminarily found that the Tariff did not sufficiently address specific regional fuel security concerns.

Exelon owns four generating units at the Mystic Generation Station. As relevant to the instant proceeding, the Mystic 8 and 9 units are combined-cycle generators with a winter seasonal rating of over 1,700 MW. Both generating units receive fuel from the Distrigas Liquefied Natural Gas terminal ("Distrigas Facility"), which is located near Mystic 8 and 9. On March 23, 2018, Exelon submitted a proposal to ISO-NE to retire all four units at the Mystic Generation Station, including Mystic 8 and 9, and remove them from ISO-NE's capacity resource roster. However, ISO-NE prepared an Operational Fuel-Security Analysis that studied the level of operational risks posed to the bulk power system and found that loss of the Distrigas Facility and Mystic 8 and 9 would lead to 87 hours of depletion of 10-minute operating reserves and 24 hours of load shedding. As a result, ISO-NE determined through its retirement studies that losing both generating units would lead to "unacceptable fuel security risks."

Under its Tariff, ISO-NE may request that a unit remain in service if retirement of that unit would affect local reliability. Furthermore, under ISO-NE's Tariff, a resource that has its retirement proposal rejected can elect compensation under a cost-of-service agreement. Accordingly, ISO-NE proposed to enter into a cost-of-service agreement with Exelon to retain Mystic 8 and 9 from 2022–2024. On May 1, 2018, ISO-NE filed with FERC a request to waive certain provisions of its Tariff "(1) to allow ISO-NE to retain Mystic 8 and 9 for region-wide fuel security and to avoid NERC reliability violations; (2) to exempt Mystic 8 and 9 from the ISO-NE Tariff's local reliability review requirement; and (3) to permit Exelon to delay the date that it must submit its decision of whether to retire Mystic 8 and 9 from July 6, 2018 until January 2019." ISO-NE also explained that the waiver request would ensure that ISO-NE and Exelon could enter into a cost-of-service agreement to retain Mystic 8 and 9 for a two-year term, rather than the standard one-year primary term provided for in its Tariff, and to waive the deadline for Exelon's election of cost-of-service compensation.

In its order denying waiver and instituting an FPA section 206 proceeding, FERC determined that a tariff waiver was an unsuitable tool for preventing the retirement of Mystic 8 and 9. FERC stated that a tariff waiver would stay a tariff provision, but ISO-NE's waiver "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 to enter into such an agreement." FERC also maintained that that ISO-NE's request "effectively creates an entire process that is not in the ISO-NE Tariff," and those "new processes may not be effectuated by a waiver of the ISO-NE tariff" but under "a filed...tariff provision." However, because ISO-NE demonstrated that its Tariff did not sufficiently address fuel security concerns and retirement of Mystic 8 and 9 "would violate mandatory reliability standards as soon as [the year] 2022," FERC found that the Tariff may be unjust and unreasonable—and instituted a section 206 proceeding to study the Tariff. ISO-NE was ordered either (1) to file short-term cost-of-service agreements by September 2, 2018 and file by July 1, 2019 permanent Tariff revisions, addressing regional fuel security concerns, or (2) to show cause by September 2, 2018 as to why the Tariff remains just and reasonable in the short- and long-term such that one or both filings is not necessary.

While FERC's decision was unanimous as to the waiver issue, Commissioners Powelson and Glick issued dissenting opinions as to instituting an FPA section 206 proceeding. Commissioner Powelson expressed concerns that stakeholders would be removed from the process to develop alternatives to the fuel security issue. Commissioner Powelson stated that ISO-NE and its stakeholders should address "whether the current challenges can be addressed through market-based solutions or whether more drastic action is warranted." Commissioner Powelson pointed to the fact that reliability issues would emerge "in the 2024 and 2025 delivery years, more than five years from today," which is more than enough time for stakeholders in the region to address fuel security concerns through the conventional process. Commissioner Glick added that it would have been prudent to "institute a proceeding to thoughtfully examine the potential fuel security problems in ISO-NE" rather than "rush to judgment" to transform "every reliability concern into an immediate emergency."

FERC's order, along with the concurrences and dissents, can be found here.

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Christopher Zentz
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