ISO-NE explores long-term fuel security mechanism

New England's electricity markets are at a crossroads with respect to how the region addresses concerns over "fuel security," or ensuring that power plants have or can obtain the fuel needed to run. Like many sagas, the story includes a preface and multiple chapters (1 through 3, so far) -- and presumably, an ending that has yet to be released.

As described by federal regulators, regional transmission organization ISO New England Inc."has long recognized that maintaining fuel security in the New England region... is particularly challenging in winter when natural gas pipeline capacity is generally more constrained than in other seasons." In January 2018, ISO-NE released its Operational Fuel Security Analysis, evaluating the level of operational risk posed to the bulk power system under various fuel-mix scenarios, which identified a number of scenarios in which the grid operator would violate NERC reliability criteria by depleting operating reserves or need to shed load.

In March 2018, Exelon Generation Company, LLC proposed to retire its Mystic generation units outside Boston as of June 1, 2022. In response, ISO-NE conducted a study which found that the loss of two of these units -- Mystic 8 and 9 -- presented "unacceptable fuel security risks" including numerous violations of reliability criteria and "load shedding -- rolling blackouts -- during the New England winters of 2022-2023 and 2023-2024."

On May 1, 2018, ISO-NE filed a petition to the Federal Energy Regulatory Commission seeking waiver of multiple provisions of ISO-NE's tariff to allow the grid operator to retain the Mystic 8 and 9 units for fuel security purposes. On July 2, 2018, the Commission issued an order denying ISO-NE's waiver request, making a preliminary finding that ISO-NE's tariff may be unjust and unreasonable, and directing ISO-NE to file a proposed long-term fuel security mechanism by July 1, 2019. Soon thereafter, on July 13, the Commission approved a cost-of-service agreement under which regional ratepayers would pay to keep the Mystic units online through May 31, 2024. These activities -- ISO-NE's waiver request and the subsequent cost-of-service agreement -- have been labeled "Chapter 1" by regional stakeholders.

On August 31, 2018, ISO-NE submitted proposed tariff revisions establishing a fuel security study methodology, a short-term cost-of-service mechanism to ensure fuel security, and related provisions governing the allocation of costs for such out-of-market compensation. The Commission accepted those proposed revisions by order dated December 3, 2018. These short-term tariff revisions have been labeled "Chapter 2."

On March 25, 2019, ISO-NE filed tariff revisions with the Commission to implement a short-term program to "recognize the value of resources that can store fuel for use when winter energy security is most stressed." The proposed program would compensate generators for maintaining larger stockpiles of energy or fuels than they would otherwise retain in inventory. Compensation would be available to generators powered by oil, coal, nuclear, biomass, and waste, as well as batteries and certain some hydroelectric resources that can store and release water. It would also be available to natural-gas-fired generators with firm contracts for delivery of natural gas, as well as some demand response resources.

The grid operator says it would run this short-term "inventoried energy program" from December 1 through the end of February during winters 2023/2024 and 2024/2025 as "a bridge to a long-term, market-based solution that more comprehensively addresses the region’s energy security risks."

Meanwhile, the July 2019 deadline to file that long-term market solution -- known as "Chapter 3" -- continued to advance. But on January 18, 2019, ISO-NE asked the Commission for more time to allow for collaboration with New England stakeholders -- until November 15, 2019. No parties opposed the motion, and on March 18, 2019, the Commission granted an extension for ISO-NE's Chapter 3 filing -- but only until October 15, or one month short of the extension that the grid operator had requested. In the interim, ISO-NE and the NEPOOL stakeholder body continue to debate the contours of a long-term fuel security solution.