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Tuesday
Jul312018

Update on ISO-NE’s operational fuel security initiatives

Market changes are fast-tracked to address serious challenges

Soon after releasing its Operational Fuel-Security Analysis (OFSA) in January 2018, the ISO began meeting with stakeholders to discuss the results and developing plans to address the region’s fuel security risks in the short- and long-term. However within a few months of issuing the analysis, Exelon Generation announced that it intended to retire its Mystic Station generating units effective May 31, 2022. These units and their fuel source, a neighboring liquefied natural gas (LNG) import terminal, were explicitly identified in the OFSA as critical to the region’s fuel security. Given the increased urgency of the region’s fuel-security challenges, the ISO accelerated efforts already underway to address these risks.

Feedback on OFSA; Reference Case Remains Unchanged

In meeting with stakeholders to discuss the analysis and its results, the ISO agreed to run more than 150 additional scenarios, based on assumptions designed by stakeholders, on its fuel-security model. While this array of stakeholder assumptions led to a variety of results, the ISO has not altered the Operational Fuel-Security Analysis, its original assumptions, or results of its 23 scenarios, including its base case. The ISO continues to believe that the OFSA is a realistic projection of future outcomes if current power system trends continue.

Mystic Retirements Pose Unacceptable Fuel Security Risk

On March 29, 2018, Exelon Generation announced that it intended to retire its four Mystic Station generating units in 2022. The station includes Mystic 8 and 9, two natural-gas-fired generators that are fueled solely by LNG stored at the neighboring Distrigas import terminal in Everett, MA. The Mystic units are Distrigas’s largest customer; as such, their retirement is expected to significantly impact Distrigas’s financial viability.

The ISO determined that losing Mystic 8 and 9, with a maximum winter output of 1,700 megawatts (MW), would pose an unacceptable risk to power system reliability in winter. That conclusion is supported by the OFSA, which included a scenario analyzing the loss in winter 2024/2025 of the Distrigas facility and Mystic 8 and 9, which it fuels, and subsequent additional analyses of the potential impacts of losing Mystic 8 and 9 in winters 2022/2023 and 2023/2024.

The conclusion is also informed by the ISO’s actual experiences operating the power system during extremely cold winters, when natural gas pipeline constraints hinder natural-gas-fired generators’ ability to get fuel from pipelines. The ISO’s analyses show the potential for depletion of 10-minute operating reserves, which is a violation of mandatory reliability standards set by the North American Electric Reliability Corp., and also potential load shedding (rolling blackouts).

Two Tracks to Address Fuel-Security Risks

To address these reliability concerns, the ISO filed a waiver request at FERC on May 1, 2018, seeking permission to waive various provisions of the ISO New England tariff in order to allow the ISO to retain Mystic 8 and 9 for fuel security reasons for 2022/2023 and 2023/2024. Existing tariff provisions allow retention of resources only for reasons of transmission security.

On July 3, 2018, FERC rejected the ISO’s waiver requests. FERC’s order validates the ISO’s concerns about the fuel-security risks that challenge power system operations in New England but changes the approach to addressing the risks. FERC ordered the ISO to accelerate its two-stage approach to addressing risks in the short and long term:

  1. File interim tariff provisions by August 31, 2018, outlining a process to retain generators needed for fuel security in the near term. Before the order was issued, the ISO had planned to file interim tariff provisions in November 2018.
  2. Develop and file long-term market rule changes by July 1, 2019 that would create a market-based mechanism to address the region’s fuel-security risk. Before the order was issued, the ISO had planned to file long-term market rule changes in summer 2019. With market-based incentives ensuring resources have sufficient fuel, there should be no need to retain resources on fuel security grounds.

The ISO and stakeholders are meeting frequently over the coming weeks and months before making these filings with FERC.

Cost-of-Service Request

Resources that apply to retire but are retained to ensure transmission security can file for compensation that will cover their costs until the region addresses the reliability concern. Along these lines, Exelon filed a cost-of-service compensation request at FERC on May 16, 2018. ISO New England doesn’t have a role in reviewing the financial figures outlined by Exelon in the filing, and takes no position on the requested level of compensation, but the ISO does support the request for a cost-of-service agreement because losing the two LNG-fueled Mystic units and potentially the Distrigas LNG import facility would present a very real risk to power system reliability, particularly in winter. On July 13, 2018, FERC issued an order establishing hearing procedures to determine the proposed compensation.

Improvements for Winter 2018/2019

Meanwhile, the ISO continues working on all fronts to address the risks that insufficient fuel could pose to power system reliability during winter. The latest initiative proposes to add an energy forecasting and reporting framework to Operating Procedure #21 (OP-21) - Energy Inventory Accounting and Actions During An Energy Emergency. The current operating procedure is designed to alert the region when a fuel shortage is expected to result in a capacity scarcity condition that will last beyond the current operating day.

The addition would provide an energy assessment over the next 21 days of operation that would cover the availability of fuel and emissions limits, as well as anticipated fuel infrastructure availability and supplies. The goal is to provide regional market participants with systemwide situational awareness, which may encourage them to take proactive measures to avoid running short of fuel or emissions credits, or needing to take maintenance outages and the like. Working with stakeholders, the ISO hopes to complete the revisions to OP-21 before winter 2018/2019 begins.