FERC Directs ISO-NE To Propose Cost-of-Service Treatment For Resources Needed For Fuel Security
In denying a requested waiver sought by ISO New England to allow cost-of-service treatment for Exelon Generation Company, LLC's (Exelon) Mystic 8 and 9 units, FERC said that, "Based on the evidence in this proceeding, including ISO-NE’s OFSA and Mystic Retirement Studies, we are concerned that ISO-NE’s Tariff does not sufficiently address the fuel security issues currently facing the region, which could result in a violation of mandatory reliability standards."
While FERC denied a requested waiver as an appropriate vehicle to allow cost-of-service treatment (discussed further below), FERC directed that, pursuant to FPA section 206, ISO-NE shall either: (1) submit within 60 days interim Tariff revisions that provide for the filing of a short-term, cost-of-service agreement to address demonstrated fuel security concerns and to submit by July 1, 2019 permanent Tariff revisions reflecting improvements to its market design to better address regional fuel security concerns; or (2) within 60 days show cause as to why the Tariff remains just and reasonable in the short- and long-term such that one or both filings is not necessary.
ISO-NE had filed a petition for waiver of multiple provisions of its Transmission, Markets and Services Tariff to permit ISO-NE to retain Mystic 8 and 9 for fuel security purposes.
"We find that ISO-NE’s requested waiver is an inappropriate vehicle for allowing Mystic 8 and 9 to submit a cost-of-service agreement in response to the identified fuel security need. A typical waiver seeks to suspend a tariff provision. By contrast, 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 (for a transmission constraint that impacts reliability) and allow for an entirely new basis (for fuel security concerns that impact reliability) to enter into such an agreement. Although ISO-NE attempts to frame its filing as a request for waiver of existing ISO-NE Tariff provisions, its request effectively creates an entire process that is not in the ISO-NE Tariff in order to allow for a cost-of-service agreement to meet regional fuel security concerns. Such new processes may not be effectuated by a waiver of the ISO-NE Tariff; they must be filed as proposed tariff provisions under FPA section 205(d)," FERC said
"We also institute a proceeding under section 206 of the Federal Power Act (FPA)3 in Docket No. EL18-182-000 because we preliminarily find that ISO-NE’s Tariff may be unjust and unreasonable, based on ISO-NE’s demonstration in this proceeding that its Tariff fails to address specific regional fuel security concerns identified in the record that could result in reliability violations as soon as year 2022. Accordingly, pursuant to FPA section 206, we direct ISO-NE either: (1) to submit within 60 days of the date of this order interim Tariff revisions that provide for the filing of a short-term, cost-of-service agreement to address demonstrated fuel security concerns and to submit by July 1, 2019 permanent Tariff revisions reflecting improvements to its market design to better address regional fuel security concerns; or (2) within 60 days of the date of this order, to show cause as to why the Tariff remains just and reasonable in the short- and long-term such that one or both filings is not necessary. We further act sua sponte to extend the deadline in two tariff provisions to enable Exelon to postpone its retirement decision regarding Mystic 8 and 9," FERC said
"We find ISO-NE’s methodology and assumptions in the OFSA and Mystic Retirement Studies reasonable and accept ISO-NE’s conclusions that the retirement of Mystic 8 and 9, under current ISO-NE Tariff provisions, could cause ISO-NE to violate mandatory reliability standards as soon as 2022," FERC said
"[W]e are persuaded that the record evidence supports the conclusion that, due largely to fuel security concerns, the retirement of Mystic 8 and 9 may cause ISO-NE to violate NERC reliability criteria," FERC said
While FERC said that it maintains its preference for market-based mechanisms, FERC said that, "the existing market rules might not provide a full solution to the fuel security problems identified in the OFSA and Mystic Retirement Studies."
If ISO-NE proposes to revise its Tariff, FERC directed that such proposal should include an ex ante cost allocation proposal for resources retained under fuel security cost-of-service agreements. "We note that, unlike the costs of resources retained for reliability, which are allocated to Regional Network Load of the affected reliability region, ISO-NE explains that fuel security is a regional, rather than a local problem. We would expect any cost allocation proposal to adhere to our cost causation precedent and appropriately identify the beneficiaries of the service rendered," FERC said
In order to provide time for ISO-NE to propose tariff provisions to address fuel security issues, and to avoid foreclosing a cost-of-service agreement for Mystic 8 and 9 as a solution to the identified fuel security concerns, FERC acted sua sponte to provide Exelon with a limited extension of the deadline in ISO-NE Tariff sections III.220.127.116.11.1 and III.18.104.22.168.1.5.1(d), which would otherwise require Exelon to decide by July 6, 2018 whether to retire unconditionally Mystic 8 and 9 rather than enter the units into FCA 13. "Although we note above that ISO-NE could consider allowing a resource to retire while retaining its interconnection rights through a cost-of-service agreement, the decision to retire should still be extended from the July 6, 2018 date. Therefore, we will allow Exelon to postpone its retirement decision regarding Mystic 8 and 9 to and including January 4, 2019, approximately one month prior to the February 4, 2019 start-date of FCA 13. We will also continue to evaluate Mystic’s cost-of-service agreement filing, which includes the capital expenditures, in Docket No. ER18-1639-000," FERC said