ISO-NE cost recovery proposal opens new front in fuel security debate
ISO-New England on Tuesday asked the Federal Energy Regulatory Commission for a waiver from its market rules so it can keep two units of the Mystic Generating Station, a gas plant near Boston, online beyond 2022.
ISO-NE said enacting cost recovery for the 1,700 MW of generation is necessary because the units' retirement would likely mean the closure of an adjacent liquified natural gas (LNG) import facility the grid operator says is essential for "fuel security." The waiver is needed because current rules do not allow cost recovery for such risks.
Critics said approving the waiver could set a dangerous precedent of granting cost recovery for plants based on their fuel supplies, rather than the usual rationale of power system reliability, and called into question ISO-NE's assessment of fuel security, which they say is unnecessarily pessimistic.
ISO-NE's Tuesday waiver filing is unprecedented in the history of U.S. wholesale power markets.
Typically, grid operators ask for cost recovery — commonly known as reliability-must-run designations — due to direct threats to power reliability stemming from a potential retirement, such as transmission constraints or generation shortfalls.
ISO-NE's filing is different. The grid operator doesn't envision direct reliability threats due to Mystic's closure, but is concerned that the Everett Marine Terminal, a neighboring LNG import hub, will close if the plant goes offline.
The LNG terminal is the sole source of fuel for Mystic units 8 and 9, and can also contribute 435 million cubic feet of gas per day to New England pipelines and gas utilities. Exelon, which owns the Mystic plant, is in the process of acquiring the terminal from ENGIE North America.
If Mystic 8 and 9 were to retire, the import facility would likely enter an "economic death spiral" and close, ISO-NE said in its filing, because it would have to share its operating costs across a smaller customer base.
If that happens, ISO-NE said its recent fuel security analysis and retirement studies for Mystic point to the risk for blackouts in the winter months.
"[R]etirement of Mystic 8 & 9 would cause the ISO to deplete 10-minute operating reserves (a violation of mandatory reliability criteria) on numerous occasions and, further, to instigate load shedding — rolling blackouts — during the New England winters of 2022-2023 and 2023-2024," the ISO wrote.
Critics say the fuel security study that underpins that assessment is unnecessarily conservative. After the ISO filed that report at FERC, 14 members of the Northeast Power Pool (NEPOOL), a group of market participants, asked the grid operator to adjust its reference case scenario, which they said presents an unrealistic view of future grid conditions.
The ISO did not change its filed report, but a smaller group of stakeholders commissioned Synapse Energy Economics, a Boston-based consulting firm, to publish results of other scenarios. They differ markedly from the ISO's assumptions, made without stakeholder input, said David Ismay, senior staff attorney at the Conservation Law Foundation, one of the groups behind the report.
"The most likely scenario for 2024 to 2025 is the following: we meet our [renewable portfolio standards], we import some clean energy from Canada, we have a few hundred megawatts of offshore wind online," Ismay said. "[The ISO] said 'we're not going to correct our report ... but we'll run the other scenarios for you' and what's really striking is how very different the subsequent analysis is that we requested from them."
While the ISO report envisions rolling blackouts in 19 of 23 scenarios, the Synapse report includes only one scenario where the ISO would have to institute Operating Procedure 4, which happens when there is insufficient generation to meet demand.
"Now the chickens are coming home to roost and they are using this overly pessimistic model as justification" for a cost recovery proposal, Ismay said.
Regardless of the analysis, other critics say ISO-NE is out of bounds with its cost recovery request based on fuel security.
"This has nothing to do with the original purpose of reliability-must-run agreements which was to address local market power due to a generator's unique ability to provide a local reliability service," said Rob Gramlich, an energy consultant and former advisor to Republican FERC Chair Pat Wood III.
"A hundred resource alternatives could exist that FERC would have to decide are all non-viable before it could reasonably confer this cost-of-service payment," Gramlich wrote via email. "That is, if it had a policy on fuel security, which it does not."
FERC could be moving toward such a policy, however. The commission's grid resilience docket, opened after regulators rejected a Department of Energy plant subsidy proposal in January, will likely assess fuel supply as some aspect of system resilience. The PJM Interconnection, another grid operator, last week announced an initiative to reward "fuel secure" generators with higher capacity market payments, calling it an aspect of grid resilience.
If FERC does approve the ISO-NE request, environmentalists worry it could set a dangerous precedent for large uneconomic plants to receive cost recovery based on fuel attributes, rather than reliability impacts — a similar model to the DOE proposal FERC unanimously rejected.
"Exelon could be the first of many who use this open invitation to obtain a cost-of-service agreement for 'fuel security' in New England," Liz Delaney, director of energy market policy at the Environmental Defense Fund, said on Twitter. "Who is to say that nuclear or oil units won't soon make the same argument?"
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