Project Finance Blog

ISO New England Adds Fuel Security to Tariff as a Reason to Extend Operation of Gas Units

Posted by Robert Shapiro

September 07, 2018

Posted in Power Oil and gas Blog article


Due to concerns about fuel security, ISO-NE proposed tariff revisions to induce a large gas-fired generator to continue to operate rather than retire its unit for economic reasons.

ISO-NE for several years has been evaluating the ability of its system to meet the demands of its customers in the winter due to gas transmission constraints. Exelon, owner of gas generation units known as Mystic 8 and 9, with 1700 MW of capacity, filed a request to retire its units in 3 years. The Mystic units are served exclusively by a Distrigas LNG facility adjacent to the units, and Exelon argued that Distrigas facility would close without the operation of the Mystic units. Exelon is also seeking to acquire the Distrigas facility.

ISO-NE determined that, under certain scenarios, the system could violate certain North American Electric Reliability Corporation  reliability criteria in the absence of the Mystic units in 2022-2024 timeframe if certain amounts of natural gas were not available for power generation in the region. Consequently, in light of ISO-NE's determination that retirement would create unacceptable fuel security risks,  ISO-NE offered Mystic an out-of-market agreement that would allow Mystic to continue to operate for a limited period. ISO-NE filed a request to FERC to waive certain of its tariff provisions in order to permit ISO-NE to implement its out-of-market pricing approach.

In July of 2018, FERC rejected the request for waiver. Although it recognized the importance of fuel security in the ISO-NE region and the potential reliability risks identified, it believed that a tariff revision to be effective for a limited period would be preferable to a waiver of tariff provisions, since the existing tariff does not account for such out of market remedy for a fuel security risk.

On August 31, 2018, as suggested by FERC in its July 2018 order,  ISO-NE submitted to FERC a revision to its tariff to provide for a short term tariff revision to accommodate special procedures to permit an otherwise retiring resource to continue operating to address a fuel security constraint that could affect reliability. ISO-NE has proposed that Mystic be allowed to participate in the next 3 forward capacity auctions as a price taker, guaranteeing that it will clear the auction, and that it can either utilize cost of service rates or the price that it used for its request to delist (that is, to retire) its units. ISO-NE also said that it will reevaluate the need for the Mystic units annually and will be working with the system stakeholders to develop a more permanent solution that might eliminate the need to maintain the operation of the Mystic units for all three years.

In a concurring opinion to the July order Commissioner LaFleur emphasized that this fuel security concern was specific to ISO-NE only and did not have broader implications for a generic or national reliance need related to fuel supply. On the other hand, Commissioner Chatterjee, also in a concurring opinion, used this natural gas security issue in ISO-NE to express his continuing support for out-of-market payments in other regions, which is consistent with his support of the administration's earlier efforts to provide assured price recovery for coal and  nuclear plants that have on-site fuel storage, despite the absence of a near term reliability risk.

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