Commissioner Robert F. Powelson Dissent on Constellation Mystic Power Cost-of-Service Agreement

Commissioner Robert F. Powelson
July 13, 2018
Docket No. ER18-1639-000

Dissent on Constellation Mystic Power Cost-of-Service Agreement

“I write separately to explain my disagreement with today’s order, which, as my colleague Commissioner Glick writes, is yet another rush to judgment. For reasons I cannot understand, the majority accepts and suspends a cost-of-service agreement (Agreement) that is woefully under-supported and lacking in detail. A more prudent approach would have been to reject the Agreement and provide guidance where appropriate. This result would allow ISO New England and its stakeholders to collectively consider the best path forward following the July 2, 2018 Order (Waiver Order).1 Unfortunately, today’s order again puts the interests of one stakeholder above those of all others, and more troubling, paves the way for changes that threaten the long term viability of electricity markets in New England.

“In the Waiver Order, the Commission stated, among other things, that the ISO New England tariff may be unjust and unreasonable due to its failure to address regional fuel security concerns that could result in reliability violations as soon as 2022.2 Further, it gave ISO-New England the option to either: 1) submit “interim Tariff revisions that provide… a short-term, cost-of-service agreement to address demonstrated fuel security concerns [,]” or 2) “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.” 3

“Today’s order, however, prejudges the outcome of the section 206 proceeding by accepting and suspending the Agreement. Despite language in the Waiver Order highlighting a preference for “markets” or “market-based solutions,” the action taken sends a different message. By setting the Agreement for modified settlement and hearing procedures, the majority is expressing a preference for a short-term cost-of-service mechanism to address fuel security. That message may have been implied in the Waiver Order, but after today’s order there is no question as to the majority’s direction.4 I share Commissioner Glick’s frustration that the Commission is not even waiting for stakeholders’ responses to the Waiver Order issued just last week before moving forward with plans to provide short-term out-of-market compensation to Exelon.5

“This is problematic for a number of reasons. First, the Agreement itself is deficient. Perhaps most notably, it is void of any cost allocation proposal. ISO New England has explained that fuel security is a regional, rather than a local issue. Similarly, throughout the Waiver Order, the majority consistently referred to the fuel security issue as regional in nature, as opposed to local.6 While the majority affirmed its expectation that any cost allocation proposal “adhere to our cost causation precedent,” and “identify the beneficiaries of the service rendered,” it is becoming increasingly evident that any ex ante cost allocation proposal that does not allocate costs on a regional basis will be difficult for the Commission to justify.

“What makes this concerning is that numerous parties raised cost allocation concerns – particularly, whether costs should be allocated regionally or locally – in the Waiver Order record, and again in this proceeding. For example, the Maine Public Utilities Commission and the New Hampshire Public Utilities Commission (NHPUC) both argue that the costs associated with the Agreement, or a similar cost-of-service agreement, should be allocated to the local area that caused the need to retain the resource.7 NHPUC argues that if Pay-for-Performance is determined to be unable to mitigate regional fuel security concerns due to environmental mandates imposed by one or more New England states, then that state or states should be allocated the costs of any fuel security cost-of-service agreement.8 I agree.

“Unfortunately, having declared that fuel security is a regional issue, and by finding that “any cost allocation method that ISO-NE proposes and the Commission accepts in [the 206] proceeding will apply to the Agreement here,” the majority has failed to adequately consider a critical element of any short-term cost-of-service proposal – or, for that matter, any just and reasonable rate.9 By accepting and suspending the Agreement, the majority is placing a high degree of faith in the outcome of a stakeholder process – one that it has already prejudged – and could find itself at the center of a controversial cost allocation battle come December.

“The second problem with the direction of the majority’s decision is that today’s order further draws attention away from the real problem. Over the next few months, interested participants will focus time and energy on the Agreement in an attempt to reach consensus on a host of challenging issues.10 Because the Commission has failed to narrow the issues to be addressed in this proceeding,11 today’s order has opened a proverbial can of worms. Thus, instead of working collaboratively to respond to the Commission’s section 206 inquiry or consider more cost-effective alternatives, stakeholders will be working on the Mystic Agreement.

“Another reason the majority’s decision is deficient is because it disregards how expensive a solution Exelon is proposing, particularly in light of the fact that it is only a temporary solution. I am far from convinced that retaining Mystic is the least-cost option. Assume, for the sake of argument, that $400 million is necessary to keep Mystic online for two years.12 At best, New England ratepayers will pay $400 million for a two year solution, after which, Mystic will be gone. For reference, oil procurement for the Winter Reliability Program for the 2015/2016 through 2017/2018 winters cost New England ratepayers roughly $91 million – less than a quarter of the $400 million requested by Exelon.13 Longer-term alternatives, even if done through out-of-market payments, could be more cost effective than retaining Mystic. For example, continuing the Winter Reliability Program could produce similar results as retaining Mystic at a much lower cost. Additionally, transmission alternatives may exist that could solve the problem created by the retirement of Mystic at a lower cost. Unfortunately, these options have been disregarded by ISO New England and the majority.

“Other alternatives, such as additional dual fuel capability should also not be foreclosed by the region. In a 2016 study, the U.S. Department of Energy’s National Energy Technology Laboratory (NETL) highlighted the potential for dual fuel capability to limit gas and electric system interdependences during stressed system conditions in New England.14 According to the analysis, six power plants (totaling 3,572 MW, which is double the output of Mystic) have space for fuel storage tanks.15 The analysis further found that 80 percent of all gas-fired generation and 75 percent of non-dual fuel capable generation lie within 10 miles of a current non-natural gas pipeline that could transport a secondary fuel.16 In the same report, dual fuel conversion costs were estimated to be between $16,000/MW and $54,000/MW 17 , or between $12.8 million and $43.2 million for a hypothetical 800 MW facility. This is yet another option that would address the issue at a price tag well below the $400 million requested by Exelon.

“Pay-for-Performance was explicitly designed to provide financial incentives to resources to ensure availability through, for example, dual fuel capability. If, for some reason, these incentives are insufficient, or market participants are unable to adequately respond to them, spending $400 million outside of the market to add dual fuel capability could substantially increase the region’s fuel security by having resources with onsite fuel located across the New England region – not just in downtown Boston. While I am not advocating for any out-of-market payment, I think it is important to understand what $400 million could buy, other than a two-year contract with Mystic. The region should not abandon dual fuel as a potential solution, particularly when it is a viable, potentially economic, option with built-in redundancies.

“Alternatively, given the New England region’s environmental goals, two other options to consider are: 1) pairing variable energy resources such as off-shore wind – which has a considerably higher capacity factor than on-shore wind – with natural gas-fired peaking resources; or, 2) in a few years, pairing variable energy resources and/or natural gas peaking facilities with energy storage. These examples make progress toward state renewable energy targets and energy storage mandates while simultaneously increasing fuel security. Unfortunately, no one is considering these options because ISO New England, Exelon, and now the Commission, all agree that Mystic – or something similar – is necessary in the short-term.

“Finally, I am troubled that the majority and ISO New England appear beholden to the timelines demanded by Exelon. While the majority is willing to waive certain tariff provisions and allow Exelon to defer its retirement decision until January 2019, it is troubling that they are unwilling to question Exelon’s December 21, 2018 ultimatum. Although the Agreement will be set for modified settlement and hearing procedures, there are decisions made in today’s order that reflect a striking level of confidence given the divisive nature of the issues, limited record, and short timeframe in which stakeholders have been on notice.

“Never has the Commission more clearly let one stakeholder – a single market participant – fundamentally alter the course of wholesale electricity markets as it has both in today’s order and the Waiver Order. In what has amounted to an unprecedented exercise of market power, using lack of fuel security as its threat, Exelon has, yet again, crafted a creative solution simply because they are unable to compete in the market.

“Accordingly, I respectfully dissent.”


 

• 11 ISO New England, Inc., 164 FERC ¶ 61,003 (Waiver Oder) (2018).
• 22 Id. at P 2.
• 33 Id. at P 2.
• 44 See Waiver Order at P 54: “In short, if a state, through policy or permitting authority, prevents investors from adequately responding to the price signals sent by the market, there may be instances where the market alone does not address the problem. As a result, in some circumstances, it may be necessary to consider reliance upon short-term, out-of-market mechanisms to retain certain existing units, while ISO-NE continues to develop longer-term market solutions.” (emphasis added).
• 55 See Constellation Mystic Power, LLC, 164 FERC ¶ 61,022 (Glick, Comm’r, dissenting).
• 66 See Waiver Order at PP 47, 49, 54, 55, 57, 58.
• 77 Maine Public Utilities Commission June 6, 2018 Protest at 1-2; New Hampshire Public Utilities Commission (NHPUC) June 6, 2018 Comments at 4.
• 88 NHPUC June 6, 2018 Comments at 4.
• 99 See Constellation Mystic Power, LLC, 164 FERC ¶ 61,022 at P 41.
• 1010 Issues raised include: Mystic’s annual fixed revenue requirement, future capital expenditures, return on equity and proposed capital structure, fuel supply charge, fuel supply agreement, whether Mystic is the “least-cost” option, etc. See NESCOE June 6, 2018 Comments.
• 1111 Due in part to the volume and complexity of the issues, the NESCOE requested that the Commission “narrowly define the scope of the proceeding and establish a process to resolve any issues on an expedited basis.” See NESCOE June 6, 2018 Comments at 1.
• 1212 The proposed annual fixed revenue amount for Mystic 8 and 9 is $218,974,263 for 2022-2023 and $186,951,485 for 2023-2024 for a total of $405,925,748. See Constellation Mystic Power, LLC May 16, 2018 Transmittal Letter at 8.
• 1313 See ISO New England Winter Program Payment Rate at https://www.iso-ne.com/markets-operations/markets/winter-program-payment-rate/.
• 1414 See ISO New England Dual Fuel Capabilities to Limit Natural Gas and Electric Interdependencies (NETL Study) (2016), available at https://www.eenews.net/assets/2017/11/21/document_gw_11.pdf .
• 1515 Id. at 17.
• 1616 Id.
• 1717 Id.