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Commissioner Richard Glick
July 2, 2018
Docket Nos. ER18-1509-000, EL18-182-000

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Dissent in Part on ISO New England Waiver Request Regarding Mystic Units 8 and 9

“Few, if any, of the Commission’s responsibilities are more important than ensuring the reliable operation of the bulk power system. That is certainly true during the winter months in New England when the loss of electricity can have dire consequences. But the importance of reliability does not transform every reliability concern into an immediate emergency. To the contrary, because reliability considerations are so important—and, often, so complex—we do everyone a disservice when, absent an emergency, we rush to judgment rather than thoroughly assess the problem and identify the solutions that will best solve it.

“I dissent in part from today’s order because it is a rush to judgment.1 As the Commission itself recognizes, the concern underlying today’s order will not manifest itself for at least four years, even under conservative assumptions.2 Instead of rushing to install new tariff provisions years before the fuel security concern may arise, the Commission, ISO-NE, and stakeholders should engage in a thorough process to evaluate potential fuel security problems and identify durable solutions rather than another series of band-aids.

“This is particularly important in this proceeding because the Commission has not clearly defined the fuel security problem that it believes will be triggered by Mystic’s retirement3 or taken even the first tentative steps toward developing a framework for evaluating the nature of the fuel security problem. Instead, the Commission relies entirely on ISO-NE’s contested fuel security analysis—which identified five critical facilities, only two of which are electric generators—to conclude that ISO-NE’s Tariff appears to be unjust and unreasonable because it does not include generic provisions to permit ISO-NE to retain resources that may be needed for fuel security. As an initial matter, the parties to this proceeding have identified several potential flaws with the assumptions underlying ISO-NE’s analysis4 that deserve more careful consideration than today’s order provides. In addition, a number of parties point out that ISO-NE performed this analysis to “provide[] directional guidance” and begin a discussion of fuel security in the region, not with any intention of creating generic tariff provisions for bailing out any generator that the ISO believes is needed for fuel security. 5

“Although the Commission technically offers ISO-NE the opportunity to show cause why its existing Tariff is not unjust and unreasonable, taking the rationale in today’s order seriously, it is clearly a show cause order in name only. In so doing, the Commission cuts off an opportunity for a real debate about what the ISO-NE analysis actually tells us about fuel security. We can expect that ISO-NE will submit Tariff revisions based on that same analysis, without any further discussion of how that analysis should be used or how it could be improved.

“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. In addition to imposing tremendous costs on ratepayers, by framing the fuel security issue as a series of one-off determinations regarding the need to keep particular resources, this approach will short circuit more serious efforts to fundamentally reform the ISO-NE market to address the drivers of whatever fuel security problem may exist.

“I am also troubled by the fact that the Commission is seizing control of the fuel security debate without a clear understanding of where that debate can or should go. Fuel security is a multi-faceted issue, only certain aspects of which fall under the Commission’s jurisdiction. By preliminarily determining that ISO-NE’s Tariff is unjust and unreasonable, the Commission is prematurely focusing the conversation on the wholesale rates subject to its jurisdiction, potentially cutting off other, potentially more fruitful avenues for addressing fuel security concerns. This might include an examination of the misalignment between gas and electric markets. It could also include reforms to improve the utilization of existing pipeline capacity, which could potentially include additional hourly nomination service to increase both the transparency of market demand and provide improved price discovery. Or it might also include reforms to ISO-NE’s transmission planning process in order to incorporate fuel security considerations. As a result of today’s order, however, I am concerned that the region may be heading down a path of second-best solutions that are overly focused on the wholesale rate and will ultimately raise as many economic, legal, and policy questions as they answer.

“Mystic is a case in point. The record indicates that Mystic’s value lies not so much in the capacity it can provide or in its ability to address transmission constraints, but rather in the fact that Mystic is the largest customer of the Distrigas LNG import facility and the concern that Mystic’s retirement could lead to the loss of Distrigas’s import capacity.6 Exelon Corporation—Mystic’s ultimate parent company—is in the process of purchasing Distrigas. Although not the subject of today’s order, Mystic has filed with the Commission a cost-of-service agreement that would permit Mystic to recover the costs of operating the Distrigas Facility.7 But whether the costs of operating an LNG facility can be recovered through the electric generator’s tariff is, so far as I am aware, an issue of first impression that implicates a range of legal and economic questions—which, as a result of today’s order, the Commission realistically has no choice but to answer on an expedited timeline. Although I hope that stakeholders will have a chance to fully address these and other complex issues implicated by ISO-NE’s fuel security analysis, I fear that today’s order makes that considerably less likely.

“A better course of action would have been for the Commission to institute a proceeding to thoughtfully examine the potential fuel security problem in ISO-NE rather than rush to impose immediate solutions. I would convene a technical conference or other process to explore fuel security in ISO-NE in order to understand the causes and contours of the issue before dictating solutions.8 Such a proceeding would provide for a full discussion of the analysis and assumptions that underlie ISO-NE’s fuel security analysis.9 As noted, several parties have raised fundamental concerns about ISO-NE’s analysis and I believe we do all stakeholders—other than Exelon, Mystic’s parent company—a disservice by concluding that the study demonstrates that the ISO-NE Tariff is unjust and unreasonable, without addressing those fundamental concerns.

“Additional proceedings would also provide time to evaluate whether market elements, such as ISO-NE’s recent retirement reforms and Pay for Performance construct, can be updated to address fuel security concerns in ISO-NE.10 The Commission approved Pay for Performance in 2014 and, in the same order, directed ISO-NE to increase the Reserve Constraint Penalty Factors for 30-minute operating reserves and 10-minute non-spinning reserves to improve price signals during reserve shortage events.11 These changes, which have not even fully taken effect, were designed to provide suppliers with additional incentives to invest in fuel security12 and improve resource performance. ISO-NE now maintains that Pay for Performance “cannot be expected to resolve the region’s fuel security challenges by itself, especially given the significant opposition in the region to investments in fuel supply infrastructure.”13 But neither ISO-NE nor the Commission adequately explains (1) how the circumstances have changed such that either can conclude that these reforms cannot have their intended effect or (2) why the Pay for Performance design cannot be updated to more effectively address fuel security in the four years before the potential closure of Distrigas could pose a reliability concern. It may ultimately be the case that an out-of-market solution is necessary to address fuel security, but the Commission should reach that conclusion only after a thorough process to examine its market-based options, not before that process has even started.14

“Finally, I agree with my colleague, Commissioner Powelson, that today’s order will impair the long-term viability of ISO-NE’s Forward Capacity Market (FCM) and its Competitive Auctions with Sponsored Policy Resources (CASPR) construct, which the Commission approved this past March. As I explained in my separate statement accompanying that order, “CASPR’s success will ultimately depend on whether it facilitates the entry of state supported resources into the FCM.”15 Under the CASPR design, that can happen only if ISO-NE, and the Commission, permit a sufficient amount of older, uneconomic resources to exit the market so that new, cleaner resources can take their place. Today’s order risks upsetting the careful balance needed to make CASPR work. By requiring ISO-NE to develop generic tariff provisions for cost-of service treatment for resources needed for fuel security, the order provides an incentive for resources to seek that treatment rather than retire once uneconomic. At a minimum, we should expect that retiring resources will use the prospect of a full cost-of-service arrangement as little more than leverage in order to extract a large ransom payment for exiting the market.

“Furthermore, in focusing on the need to maintain the existing “fuel-secure” fleet in ISO-NE, the Commission assumes that the replacement resources will not provide comparable fuel security benefits.16 In fact, however, the state-sponsored resources that CASPR was designed to accommodate can provide a fuel security profile at least comparable to a resource such as Mystic. For example, the Massachusetts clean energy procurement that prompted CASPR will result in the new entry of 1,200 MW of dispatchable hydroelectric capacity from Canada, which is, if anything, more fuel secure than an LNG import facility that depends on the ability of LNG tankers to arrive and successfully offload their cargo. The Commission should be striving to develop a regime that facilitates the introduction of new, innovative approaches to ensuring fuel security rather than one that rewards old, outdated means of ensuring reliability.

“Accordingly, I respectfully dissent in part from today’s order. ”



                                               

    1 I agree with the decision to deny ISO-NE’s waiver request. A waiver request is an inappropriate vehicle for developing what the Commission correctly describes as “an entire process that is not in the ISO-NE Tariff.” ISO New England Inc., 164 FERC ¶ 61,003 at P 47.
    2 ISO New England Inc., 164 FERC ¶ 61,003, at P 49 (2018) (“accept[ing] 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”).
    3 Id. P 52 (noting that “fuel security analyses do not currently have an established methodological framework and that there are no industry standards or best practices for conducting such an analysis”).
    4 See, e.g., CEIA Comments at 16-19 (challenging assumptions about the growth of LDC gas usage, LNG imports, new renewable resources expected as a result of state policy, and exclusion of 500 MW of existing demand response, not to mention expected growth); Massachusetts AG Comments at 13 (arguing that many assumptions were biased in favor of finding a fuel security risk, including assuming high LDC gas demand growth, low LNG availability, and that New England states fail to meet their clean energy mandates, and failing to account for existing levels of interconnected renewable generation); New Hampshire PUC Comments at 7-9 (pointing out stakeholder disagreement over ISO-NE’s assumption that New England states will not meet their clean energy mandates and the failure to consider the effect of market responses); PIO Comments at 44-48 (arguing that the following assumptions are flawed: high annual LDC demand for natural gas; low LNG imports; low electricity imports; and exclusion of demand response resources).
    5 See New Hampshire PUC Comments at 6 (“The ISO has conceded that the OFSA [i.e., ISO-NE’s fuel security analysis] merely ‘provides directional guidance; it is not a forecast or prediction of actual future events,’” and “is not capable of modeling state emissions limitations or goals, local constraints on the electric transmission or gas transportation systems, or market response to pricing or state-mandated purchases.”); PIO Comments at 41 (“The lack of transparency and clarity around the OFSA was less of a problem when the ISO was presenting it only as ‘a deterministic analysis that provides directional guidance . . .,’ but now that the OFSA model is being used to justify a reliability agreement and cost-of-service contract, a higher standard of evidence is needed.”).
    6 The External Market Monitor for ISO-NE conducted an evaluation of fuel security issues and found that the key variable is LNG availability, not specific generation units. See Potomac Economics Comments at 4-9.
    7 Constellation Mystic Power, LLC, Filing, Docket No. ER18-1639-000, at 17-21 (filed May 16, 2018) (describing the proposed monthly fuel supply charge).
    8 See Potomac Economics Comments at 3 (“[W]e believe it is essential to clearly define the reliability requirements related to fuel security, and to design market-based solutions to procure the necessary resources to satisfy the requirement.”).
    9 See supra note 3.
    10 Rather than waiting to see if the retirement reforms and Pay for Performance could work, the order supports an out-of-market solution to prop up Mystic that would undermine these recent market design changes by granting Exelon a waiver of the date it must indicate its intent to retire Mystic and reducing, if not eliminating, the number of shortage events in ISO-NE.
    11 ISO New England Inc., 147 FERC ¶ 61,172, at PP 36-40, 107-110 (2014).
    12 New Hampshire PUC Comments at 10 n.23 (“In a 2013 assessment of [Pay for Performance] conducted on behalf of the ISO, Analysis Group, Inc. found that increased dual-fuel capability provides the most cost-effective option for mitigating fuel security risk. Contracting with existing LNG storage resources and procuring new pipeline capacity dedicated to electricity generation were found to be at least twice as costly and therefore less likely to be a factor in the success of [Pay for Performance].”) (citations omitted).
    13 Petition for Waiver at 16.
    14 LS Power Comments at 1 (“When the issue is properly framed as a fuel security issue on a December 2022 timeline, it becomes apparent that ISO-NE’s fuel reliability concerns are not yet ripe for a waiver or other action by the Commission.”).
    15 ISO New England Inc., 162 FERC ¶ 61,205, at 7 (2018) (Glick, Comm’r, dissenting in part and concurring in part).
    16 In fact, ISO-NE assumed in its fuel security analysis that states will fail to meet their clean energy goals, whether in renewable portfolio standards or legislatively enacted procurement mandates.
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