Opinion
    Next Score View the next score

    Opinion | Raymond L. Gifford and Matthew S. Larson

    Why federal regulators shouldn’t save the Mystic power plant

    Everett MA (Apr 14, 03) - The Mystic Power Plant, owned by Exelon Corporation, viewed from Charlestown MA. (PHOTO BY SARAH BREZINSKY) Library Tag 04152003 Business Library Tag 12202005 Business
    Sara Brezinsky/The Boston Globe
    The Mystic power plant.

    The fate of a power plant in Everett has become the unlikely center of national controversy, and a potential turning point in American energy policy. At stake is whether customers in New England will pay above-market rates for electric output from the Mystic Generating Station — and more broadly, whether the 20-year experiment with trading electricity through regional exchanges can survive. It may seem like an arcane debate, but the outcome will affect customers’ bills and billions in investment in the electric sector.

    A sprawling facility across the river from Assembly Row, Mystic is the largest power plant by generating capacity in Massachusetts. Mystic’s owner, Exelon, announced in March its intent to retire the plant for economic reasons in 2022. ISO-New England, the electric market operator for New England, reacted swiftly by asking the Federal Energy Regulatory Commission for a two-year waiver from market rules to keep two of Mystic’s units online until 2024. The costs of the unprecedented intervention would be recovered from customers via their electric bills — up to about $1 a month if distributed to all New England customers, according to Exelon.

    The application is being closely watched, because how FERC rules on the Mystic plant will plot the direction of electricity markets — not just in New England, but nationwide. A decision could come as soon as this week.

    Advertisement

    If federal regulators allow ISO New England’s request, they will open the floodgates for out-of-market interventions to prop up other favored power generators. By rejecting it, though, FERC would signal that restructured electricity markets will no longer be permitted to operate this way, with out-of-market interventions developed and layered one on top of another to fix the continued problems in these markets.

    Get Arguable in your inbox:
    Jeff Jacoby on everything from politics to pet peeves to the passions of the day.
    Thank you for signing up! Sign up for more newsletters here

    Electricity markets like those in New England are fairly recent. For most of the 20th century, monopoly utilities, regulated by state utility departments, built power plants and also distributed electricity to customers. Then, during a period of so-called “deregulation” in the 1990s, New England, New York, Texas, and major swaths of the Mid-Atlantic states adopted “fully restructured” electric markets. These regions unbundled their utilities, and required utilities to divest generation resources. The distribution “wires” business remains a regulated monopoly, but customers can more or less exercise “retail choice” to select their electricity provider.

    The notion of choice and markets seems compelling. In theory, in a restructured market the market operator would design and build the market mechanism and then superintend its functioning to yield competitive outcomes — including the closure of uneconomic power plants like Mystic.

    But electric markets are not really markets. They are “make-believe markets,” as the outgoing chair of the PJM Board of Managers said last month (PJM is the market operator in the mid-Atlantic states). When market outcomes yield results that jeopardize grid reliability, or favor certain resources over others, or yield outcomes thought politically unacceptable, the interventions come.

    State policies in particular seek to drive outcomes that lawmakers and stakeholders desire, like the preservation of nuclear generation or development of renewables. The market operators are developing programs and patches to address resiliency, carbon emissions, and accommodation of state actions. The notion of competitive outcomes is becoming a distant memory, obviated by this crazy quilt of programs that ultimately pick winners and losers. At the federal level, the Trump administration wants to throw a lifeline to coal and nuclear generators. The outcry over the mere potential for this proposal fails to account for the fact that doling out dollars to support uneconomic electric sources is an everyday event in today’s restructured markets.

    Advertisement

    Even amidst this torrent of market interventions, though, Mystic stands out. ISO-New England has taken the step of seeking cost recovery for Mystic citing an unprecedented reason: fuel security. ISO-New England is worried that the Everett Marine Terminal, the nearby liquefied natural gas import hub that fuels Mystic, will close if Exelon shutters its power plant. New England’s basic problem: The region keeps increasing its reliance on natural gas-fired generation without adding new gas pipeline capacity needed to move the fuel to power plants. The LNG terminal, in ISO-New England’s view, helps fill the resulting gap and must be preserved.

    But that’s going beyond ISO New England’s role as market operator. And if federal regulators grant ISO New England’s application, it would signal to the operators of restructured electricity markets that interventions are welcome from all comers, whether the states or the market operators themselves, and for all reasons. If the Mystic application is approved, for instance, a market operator could use the same reasoning to retain a coal mine. Instead of just managing a marketplace, operators like ISO New England get the green light to make wide-ranging policy decisions, too.

    By denying ISO-New England’s filing, FERC could end the market charade and force states to face the facts: Restructuring, with unbundled utilities and retail choice, looked good on paper but is a failure in practice. States and regulators should move on from the fully restructured market model and reassert public control on matters like price and fuel mix before this broken system has negative cost consequences or reliability impacts. It is time to put customers first — and stop making them take a backseat to an unabiding adherence to restructured markets.

    Ray Gifford is the managing partner and Matt Larson a partner in the Denver office of Wilkinson Barker Knauer LLP.