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Commissioner Richard Glick
July 13, 2018
Docket No. ER18-1639-000

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Dissent on Constellation Mystic Power Cost-of-Service Agreement

“Today’s order continues the Commission’s needless rush to judgment on a series of significant questions regarding the potential retention of the Mystic units and the Distrigas LNG facility.1 Although this approach may provide Exelon with certainty in the near-term, the fundamental economic and legal questions created by today’s order will ultimately create far greater uncertainty for every other market participant. The eventual consequence of the Commission’s action will be New England ratepayers bearing significant additional costs without even a cursory examination by the Commission of other options for addressing potential fuel security concerns more efficiently.

“The fact that reliability is among the Commission’s most important responsibilities does not transform every reliability concern into an emergency. This is particularly true here, where the reliability concern created by Mystic’s potential retirement will not manifest itself for at least four years, even under conservative assumptions.2 But rather than giving this important issue the consideration that it deserves, the Commission is again jumping to conclusions without adequately evaluating the causes and contours of the fuel security issues in New England or identifying a comprehensive set of potential solutions.3 Indeed, the Commission is not even waiting for stakeholders’ responses to the Show Cause Order it issued last week before plunging ahead with its plans to bail out Mystic and Distrigas. In setting this cost-of-service agreement for hearing, the Commission is moving forward under the assumption that ISO-NE will respond to the Show Cause Order by filing tariff provisions that will permit Mystic to recover its full cost-of-service—and maybe more. Or, regardless of what ISO-NE files, the Commission will revise ISO-NE’s tariff to produce the same result. Rather than rushing to address a cost-of-service agreement for implementing tariff provisions that ISO-NE has not yet proposed and that the Commission has (at least nominally) not yet approved or even found to be necessary, the Commission should be encouraging ISO-NE and its stakeholders to engage in a thorough process to evaluate fuel security issues and identify the most cost-effective solution(s). I agree with my colleague Commissioner Powelson that today’s order and the Show Cause Order disregard alternative options that may be considerably more cost-effective at addressing New England’s fuel security issues than paying $400 million for a temporary solution.4

“In addition to pre-judging the outcome of the show cause proceeding, today’s order sweeps aside fundamental legal questions raised by the Commission’s actions. In addressing what appears to be a question of first impression, the Commission concludes that it has authority to allow Mystic to recover through its wholesale electric rate the cost—perhaps the entire cost—of operating the Distrigas facility. Mystic should be able to recover certain costs associated with purchasing fuel from Distrigas, such as the prudently incurred variable costs of fuel burned to produce electricity, because those costs are sufficiently related to the wholesale sale subject to the Commission’s jurisdiction. However, it is not at all clear that the Commission has jurisdiction to permit Mystic to recover all of the costs of operating Distrigas in its wholesale electric rate, even if they are arguably just and reasonable.

“In its haste to respond to Exelon’s threat to retire Mystic, the Commission is making a results-oriented jurisdictional claim without taking the time to seriously address its implications. Rather than summarily deciding this sole issue, I would further examine the question and its implications. The Commission should have included this jurisdictional question within those to be addressed in participants’ briefs after the hearing procedures established by today’s order.5 Or the Commission could have instead ordered a further paper hearing to run in parallel to that proceeding. Neither would have delayed the Commission’s expedited schedule and would have allowed the Commission to methodically consider the jurisdictional question before it.

“It cannot be the case that the FPA permits the Commission to authorize a generator to recover through a wholesale rate any but for cost of producing electricity. That would mean that the Commission could permit a natural-gas fired generator to recover the costs of any upstream expense, even the cost of financing the construction of a natural gas pipeline or operating a Russian LNG export facility.6 I believe that a cost can be recovered through a wholesale rate only if that cost bears a sufficiently close relationship to the wholesale sale over which the Commission has jurisdiction. Thus, the critical question in this proceeding is whether the costs to be recovered are sufficiently related to Mystic’s jurisdictional sales.7 In concluding that the Commission has jurisdiction over every component of Mystic’s cost-of-service agreement, today’s order makes no effort to develop a framework for determining which costs are sufficiently related to the wholesale sales over which the Commission has jurisdiction and those which are not. This is particularly concerning given the lack of a fully developed record that would permit us to understand the practical implications of the Commission’s theory.8

“Today’s order asserts jurisdiction over all of Distrigas’ operating costs because of the “extremely close relationship” between Mystic and Distrigas. The order relies on Mystic’s statement that it will incur costs related to Distrigas’ operation “to effectuate a jurisdictional sale,” and that Distrigas is “fully integrated” with Mystic 8 and 9 and that “each depends on the other to operate economically.”9 The argument appears to be that because ISO-NE’s answer suggests that “Distrigas likely would not be a viable enterprise without the Mystic units,”10 the Commission is authorized to enable Mystic to recover the costs of the Distrigas facility in Mystic’s wholesale rates. This logic suggests that the Commission has the authority to require customers to pay the full cost of operating any facility simply because a public utility is that facility’s biggest customer and the facility might not exist without the public utility’s business. But the Commission identifies no precedent to support this assertion. At the very least, the Commission should be exploring in greater detail the actual relationship between Mystic and Distrigas to determine where the line should be drawn between jurisdictional and non-jurisdictional costs. In short, although the Commission keeps focusing on the need for certainty—in this case to keep Mystic 8 and 9 (and Distrigas) from retiring—today’s order does the opposite by introducing a novel interpretation of the FPA without building a record to support that decision.

“Finally, I agree with Commissioner Powelson that what is being proposed amounts to an unprecedented exercise of market power by Exelon that will let a single market participant fundamentally alter the course of the wholesale electricity markets.11 As I previously stated, I suspect that the most likely outcome of the Commission’s approach to addressing fuel security in ISO-NE will be a parade of uneconomic generators seeking cost-of-service rate treatment under the guise of fuel security.12 Today’s order is yet another step in the direction of addressing the fuel security issue through a series of one-off determinations regarding the need to keep particular resources, which I fear will short circuit efforts to fundamentally reform the ISO-NE markets to address the drivers of whatever fuel security problem may exist.

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



                                               

    1 It is particularly troubling that the rush is one of Exelon’s making. See, e.g., Constellation Mystic Power, LLC, 164 FERC ¶ 61,022, at P 11 n.14 (2018) (explaining that the Commission is establishing an expedited hearing schedule due to the deadline for Exelon to determine whether to unconditionally retire Mystic 8 and 9); id. P 6 (stating that the cost-of-service agreement “provides as conditions precedent that the Commission must issue an order accepting the Agreement and the [annual fixed revenue requirement] by December 21, 2018”).
    2 ISO New England Inc., 164 FERC ¶ 61,003, at P 49 (2018) (Show Cause Order) (“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. at 1 (Glick, Comm’r, dissenting in part).
    4 See Constellation Mystic Power, LLC, 164 FERC ¶ 61,022 at 3-5 (Powelson, Comm’r, dissenting). Even if out-of-market action is shown to be necessary to address fuel security issues in New England, alternative options that may be more cost-effective include continuing the Winter Reliability Program, developing transmission alternatives, expanding dual-fuel capability, and pairing renewable resources such as offshore wind with energy storage.
    5 See id. P 12.
    6 See, e.g., Jon Chesto, Russian LNG is unloaded in Everett; the supplier (but not gas) faces US sanctions, Boston Globe (Jan. 30, 2018), https://www.bostonglobe.com/business/2018/01/29/tanker-unloads-lng-everett-terminal-that-contains-russian-gas/rewj1wKjajaKtLp79irzTI/story.html (“A giant tanker of liquefied natural gas that unloaded at the Distrigas terminal in Everett over the past two days included fuel from a plant in Siberia owned by a Russian company under US sanctions.”).
    7 The order cites a number of cases for the proposition that the Commission’s review of Mystic’s cost-of-service agreement does not turn on whether the Commission has regulatory authority over all aspects of that agreement. Constellation Mystic Power, LLC, 164 FERC ¶ 61,022 at P 37 n.54. None of these cases support the Commission’s conclusion that it may assert jurisdiction over all of the costs of operating Distrigas. For example, in BP West Coast Prods., LLC v. FERC, 374 F.3d 1263 (D.C. Cir. 2004), the court upheld the Commission’s decision to reject a pipeline’s recovery of certain civil litigation expenses because that litigation lacked the “requisite nexus” to the pipeline’s Commission-jurisdictional service to justify inclusion in the wholesale rate. Id. at 1294-95. The court also explained that its precedent provided a test for determining whether a utility’s litigation costs were recoverable, namely whether the underlying “litigation serves the interests of ratepayers.” Id. at 1296-97. But that conclusion sheds no light on whether the costs of operating a separate facility can be recovered through a public utility’s wholesale rate. Similarly, in Grand Council of Crees v. FERC, 198 F.3d 950 (D.C. Cir. 2000), the court noted that environmental costs associated with developing and operating a facility whose rates were subject to Commission regulation under sections 205 and 206 of the FPA could potentially be recovered through the facility’s wholesale rate, even though the Commission does not regulate the underlying environmental issues. Id. at 957. But the environmental costs of developing and operating a particular facility are without question costs directly related to the rates that that facility charges. The case thus provides no foundation for the Commission’s more sweeping theory of its jurisdiction.
    8 For example, today’s order appears to approve of Mystic’s recovery of Distrigas’ capital expenditure costs despite the fact that the record does not indicate what those expenditures would be or whether they are sufficiently related to Mystic’s wholesale sale of electricity to warrant their recovery through Mystic’s wholesale electric rate. And the Fuel Supply Agreement, which describes the Distrigas costs that will flow to Mystic, refers to unspecified services (e.g., the indeterminate administrative services fee) and to agreements not provided as part of the record (e.g., the LNG Terminal Service Agreement). In fact, the order leaves open the possibility that Mystic could recover, through Mystic’s wholesale electric rate, the entire cost of operating Distrigas, even though Mystic’s LNG purchases represent only 31 percent of Distrigas’ maximum send-out capacity. NESCOE Comments at 36.
    9 Constellation Mystic Power, LLC, 164 FERC ¶ 61,022 at PP 35 n.50, 36.
    10 ISO-NE June 7, 2018 Answer, Docket No. ER18-1509-000, at 27 n.99 (emphasis added).
    11 See Constellation Mystic Power, LLC, 164 FERC ¶ 61,022 at 5 (Powelson, Comm’r, dissenting).
    12 Show Cause Order, 164 FERC ¶ 61,003 at 3 (Glick, Comm’r, dissenting in part).
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