Dive Brief:

• The Federal Energy Regulatory Commission on Monday rejected a waiver request from ISO-New England to save a large natural gas plant from retirement, instead ordering the grid operator to quickly issue a short-term cost recovery proposal for the plant and broader market changes to address fuel security.

• ISO-NE in May asked FERC to waive its market rules to allow it to keep the 1700 MW Mystic Generating Station online because its retirement would mean the closure of an adjacent gas import facility critical to the grid. FERC rejected the request in a 3-2 vote, writing that ISO-NE’s request is too broad, but its fuel security concerns are valid.

• Commissioners Robert Powelson and Richard Glick dissented, writing that ISO-NE should address new market rules through its normal stakeholder process, not the 60-day expedited period requested by the FERC majority

Dive Insight:

ISO-NE's May waiver filing was unprecedented in U.S. wholesale power markets.

Typically, grid operators ask FERC for cost recovery when the retirement of a certain generator would threaten the reliability of the grid. ISO-NE’s filing went a step further, asking FERC to allow it to keep the Mystic plant online not for the generator’s reliability characteristics, but because of the impact its retirement would have on a nearby import terminal for liquefied natural gas.

The Everett Marine Terminal is the sole fuel source for two units at the Mystic plant that Exelon, which owns both facilities, said it would retire. In that case, ISO-NE and Exelon argued the LNG import facility would enter an "economic death spiral" and close as well.

If that happens, ISO-NE said its recent fuel security analysis indicates a risk for blackouts in the winter months, so the grid operator asked FERC to waive market rules to allow it to keep both facilities online.

FERC late Monday rejected that request, saying the ISO-NE waiver would "allow for an entirely new basis" to enter into a cost-of-service agreement based not on immediate reliability impacts of generators, but their indirect fuel security implications.

"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," FERC wrote. "Such new processes may not be effectuated by a waiver of the ISO-NE Tariff."

The ruling will not mean the Mystic units and LNG facility will have to retire, as FERC also released Exelon from filing deadlines to allow it to postpone the decision. In that time, FERC ordered ISO-NE to issue both an interim cost support proposal for Mystic, as well as longer term market changes that take fuel security issues into account — all within 60 days.

"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," FERC wrote.

The majority issued a number of recommendations for those broader market changes, urging that ISO-NE’s filing “should include a mechanism that addresses how resources retained for fuel security (e.g., under cost-of-service agreements) would be treated in the [forward capacity market].”

Should ISO-NE and stakeholders file on schedule, FERC wrote that it “would be able to render a decision” on a short-term Mystic bailout and broader market changes before ISO-NE’s next capacity market auction.

The dissenting commissioners say that is too much, too fast. Powelson and Glick argued that any reliability problems stemming from the Mystic retirement are still years in the future, and FERC's "rush to judgment" on fuel security could lead to more plants requesting cost recovery outside of the market.

"[T]he reliability concerns identified in the Study could materialize in the 2024 and 2025 delivery years, more than five years from today," Powelson wrote. "This is more than enough time for stakeholders in the region to address the problem through the standard processes."

"Ultimately, I suspect that the most likely outcome of today's order will be a parade of uneconomic generators seeking cost-of-service rate treatment under the guise of fuel security," Glick warned.

No matter how ISO-NE and its stakeholders respond, the commission will evaluate their proposals without one of the dissenting voices in this docket. Last week, Powelson announced he would retire from FERC in mid-August, potentially opening the door for split, 2-2 decisions on fuel security issues and others.