On July 13, 2018, pursuant to section 205 of the Federal Power Act (“FPA”), FERC accepted and set for hearing a cost-of-service agreement between Constellation Mystic Power, LLC (“Mystic”), Exelon Generation Company, LLC (“Exelon”), and ISO New England Inc. (“ISO-NE”) providing cost-of-service compensation to Mystic for continued operation of two gas-fired generating units (“Mystic 8 and 9”) to ensure fuel security in New England. Commissioners Powelson and Glick dissented.

On March 23, 2018, Exelon submitted Retirement De-List Bids for four units located in Boston, Massachusetts, including its Mystic 8 and 9 units, indicating that unless it obtained cost-of-service compensation for Mystic 8 and 9, it would retire those units.

On May 1, 2018, in a separate proceeding, ISO-NE sought waiver of several provisions of its Tariff to enable it to enter into this cost-of-service Agreement with Mystic. In its filing, ISO-NE recognized that its Tariff does not provide for cost-of-service agreements to ensure fuel security, but submitted evidence demonstrating that, if Mystic 8 and 9 do not provide capacity during certain commitment periods, ISO-NE will not be able to ensure fuel security in the region. On July 2, 2018, FERC denied the requested waiver but initiated a proceeding under section 206 of the FPA based on a finding that the ISO-NE Tariff may be unjust and unreasonable for failing to address specific regional fuel security concerns (see July 11, 2018 edition of the WER).

The agreement filed by Mystic, Exelon, and ISO-NE provides for the continued operation and compensation of Mystic 8 and 9 for two years, beginning on June 1, 2022, and omits a provision of the pro forma cost-of-service agreement regarding cost allocation, noting that ISO-NE proposes to address cost allocation at a later date. The agreement also contains enhanced performance penalties as incentives for Mystic’s generating units to be available to meet fuel security needs during the term of the agreement.

FERC’s preliminary analysis determined that the agreement was not shown to be just and reasonable under section 205 of the FPA. As a result, FERC accepted the filing, suspended it for a nominal period to become effective June 1, 2022, subject to the outcome of the ISO-NE section 206 proceeding, and set the agreement for hearing.

Commissioner Powelson, in his dissent, noted that the cost-of-service agreement is “under-supported and lacking in detail,” and that the majority’s order prejudges the outcome of the section 206 proceeding by accepting and suspending the agreement. He also expressed concern that the agreement lacks a cost allocation proposal, and that the costs associated with the agreement should be allocated to the local area that caused the need to retain the resource.

Commissioner Glick’s dissent contended that the majority acted too quickly, without adequately evaluating the fuel security issues in New England and attempting to find cost-effective solutions. He also stated that the majority’s order could lead to “a parade of uneconomic generators seeking cost-of-service rate treatment under the guise of fuel security.”

A copy of the order is available here.