Nescoe

Answer Clarifying Request in Exelon Cost of Service Agreement

Legal Document

Dated: February 14, 2019

Posted in: ,

Authored by:

United States of America Before the Federal Energy Regulatory Commission
Constellation Mystic Power, LLC                       )                               Docket Nos. ER18-1639-001, ER18-1639-002

MOTION FOR LEAVE TO ANSWER AND ANSWER OF
THE  
NEW ENGLAND STATES COMMITTEE ON ELECTRICITY

 Pursuant to Rules 212 and 213 of the Rules of Practice and Procedure of the Federal Energy Regulatory Commission (“Commission” or “FERC”), 18 C.F.R. §§ 385.212 and 385.213, the New England States Committee on Electricity (“NESCOE”) files this Motion for Leave to Answer and Answer in the above-captioned proceeding.  On January 22, 2019, NESCOE filed a Request for Clarification or, in the Alternative, Rehearing of the Commission’s December 20, 2018 order in this proceeding[1] regarding the Commission’s directive to Mystic to include a clawback mechanism in the Mystic Agreement (“NESCOE Clarification Request”).  NESCOE files this answer to clarify the record in response to the answer that Mystic filed in this proceeding on February 6, 2019 regarding the clawback mechanism (“Mystic Answer”).[2]

  1. MOTION FOR LEAVE TO ANSWER

NESCOE seeks leave to answer the Mystic Answer.  Although Rule 213 of the Commission’s Rules of Practice and Procedure generally prohibits an answer to an answer, the Commission has exercised discretion to accept answers where they provide information that assists the Commission in its decision-making process.[3]  NESCOE’s response to the Mystic Answer meets this standard.  It provides the Commission with a more complete and accurate record upon which to base its decision in this proceeding, including correcting Mystic’s misunderstanding of NESCOE’s position.  Accordingly, there is good cause for the Commission to accept this answer.

  1. ANSWER

The Commission should reject Mystic’s answer to the NESCOE Clarification Request.[4]  Mystic now asserts, for the first time in this proceeding, that a clawback mechanism cannot apply to the Everett Marine Terminal (“Everett”).[5]  The record is silent on this claim.  Despite having participated in what Mystic describes as a “robust” hearing process that produced thousands of pages of witness testimony, discovery, and exhibits,[6] Mystic never once contended that the clawback mechanism could only be applied to the Mystic 8 and 9 generating units (“Mystic 8 and 9” or “Mystic Units”) but not to Everett.  Likewise, no party or participant in the proceeding expressed any opposition to this treatment of Everett.  To the contrary, Mystic is on the record confirming “that it is willing to agree to a clawback process to refund certain capital expenditures if Everett continues in service after the Mystic Agreement terminates.”[7]  The hearing process provided the opportunity for Mystic to develop an evidentiary record on the clawback mechanism for the Commission’s consideration.  Mystic cannot rehabilitate its position through a pleading prohibited under the Commission’s rules.[8]  Had NESCOE been aware of Mystic’s position (or, more accurately, its changed position) regarding the clawback mechanism, NESCOE could have sponsored witness testimony responding to Mystic.  That time has passed.  Mystic submitted no evidence on this issue, and there is no evidentiary basis in the record for applying a clawback mechanism to the Mystic Units and not to Everett.  Just as the Commission has consistently rejected attempts by parties to expand the scope of issues by submitting new evidence at the rehearing stage,[9] or by raising new issues at the rehearing stage,[10] the Commission should reject Mystic’s answer on the clawback as procedurally improper.  Mystic had the opportunity to present evidence that the clawback provision should not apply to Everett, and it chose not to do so.

Mystic’s late attempt to re-write the clawback mechanism also fails on the merits.  Its interest, of course, is in a one-way street: under Mystic’s narrative, consumer dollars can flow to Everett for capital expenditures and repairs but there is a jurisdictional dead-end for refunds to flow back to consumers.[11]  The Commission should reject this blatant double-speak.  If the Commission has jurisdiction, through Mystic’s rate, to impose Everett’s costs on consumers, then it likewise must have jurisdiction to order Mystic to refund Everett costs to consumers if the clawback is triggered.

Mystic’s confusion is grounded in its misplaced focus on whether the Commission has authority over Everett.[12]  This is, to borrow a phrase Mystic uses elsewhere in its answer, a “category mistake.”[13]  NESCOE is not asking the Commission to regulate Everett.[14]  Rather, NESCOE understands that refunds under the clawback provision would be made through Mystic’s rate, in the same way that Everett’s costs are recovered from consumers under the Mystic Agreement.[15]  This is entirely consistent with the Commission’s holding of its jurisdictional authority regarding Everett’s costs[16] and Mystic’s perspective on that authority.[17]

Contrary to Mystic’s assertion, there is also no practical hurdle to applying the clawback mechanism to Everett’s costs.  Mystic’s proposed cost recovery structure provides the vehicle for refunds under a clawback provision.  Under Schedule 3A of the Mystic Agreement, there is a lag between the end of the cost-of-service period and the true-up of costs related to the Mystic Units and Everett, including capital expenditures and operations and maintenance expenses.[18] (In fact, there are yearly true-up filings beginning in 2023).[19]  Schedule 3A requires Mystic to make a true-up filing by April 1, 2025 to cover Mystic 8 and 9 and Everett expenses incurred one year earlier, from January 2024 through the termination of the Mystic Agreement on May 31, 2024.[20]  Accordingly, when the Mystic Agreement is terminated (including if a termination occurs earlier than 2024), accounting reconciliations continue to take place well beyond the termination date.  Such accounting reconciliations are not unusual in the closings of any type of facility.  In short, the Mystic rate survives termination of the Mystic Agreement under the structure Mystic proposed and the Commission accepted.  Applying this structure to Mystic’s hypothetical scenario where Mystic 8 and 9 retire but Everett remains in operation,[21] settlements would still take place between ISO-NE and Mystic pursuant to the Mystic Agreement and there would be no impediment to flowing refunds back to consumers in accordance with a clawback mechanism.  Indeed, NESCOE understands that the specific clawback mechanism that the Commission directed in this proceeding, modeled after the Midcontinent Independent System Operator’s tariff, requires the immediate refund of capital expenditures and repairs upon a return to merchant operations.[22]  Given this requirement and the accounting reconciliations that will continue to occur between Mystic and ISO-NE beyond the termination date, there is no practical impediment to ensuring that consumers receive the refund of Everett costs they are entitled to under the Commission’s clawback policies and its directives in this proceeding.[23]

Alternatively, if Mystic’s claim is that the true-up and cost recovery structure under the Mystic Agreement is insufficient to enable refunds to consumers for Everett upgrades and other costs, the Commission has the authority to—and should—condition any cost recovery for Everett’s capital expenditures and repairs on Mystic’s development of an appropriate mechanism to flow such refunds back to consumers.  In seeking a cost-of-service rate, Mystic undertakes the responsibility to ensure that the rate it ultimately recovers from consumers does not unjustly enrich resource owners “for years after the contract ends.”[24]  That responsibility remains unsatisfied so long as Mystic is accorded special treatment for a corporate affiliate that is inexplicably exempted from the Commission’s clawback policies.

  • CONCLUSION

For the reasons discussed herein, NESCOE respectfully requests that the Commission accept and consider NESCOE’s answer in this proceeding and reject the Mystic Answer as it pertains to the clawback.

Respectfully Submitted,
/s/ Jason Marshall
Jason Marshall
General Counsel
New England States Committee on Electricity
655 Longmeadow Street
Longmeadow, MA  01106
Tel: (617) 913-0342
Email:  jasonmarshall@nescoe.com

Dated: February 14, 2019

 

 

Document Source Citations

 

[1]     Constellation Mystic Power, LLC, 165 FERC ¶ 61,267 (2018) (“December 2018 Order”).  The December 2018 Order related to the cost-of-service agreement among Constellation Mystic Power, LLC (“Mystic”), Exelon Generation Company, LLC (“ExGen”), and ISO New England Inc. (“ISO-NE”) (the “Mystic Agreement”).  Mystic and ExGen are subsidiaries of Exelon Corporation (“Exelon”).  For convenience, NESCOE will refer to Exelon in this answer as Mystic.

[2]     NESCOE’s silence on other issues addressed in the Mystic Answer should not be construed as agreement with Mystic’s positions.

[3]     See, e.g., ISO New England Inc., 161 FERC ¶ 61,123 at P 17 (2017); HORUS Central Valley Solar 1, LLC, et al. v. California Independent System Operator Corp., 157 FERC ¶ 61,085 at P 29 (2016); New England Power Generators Ass’n, Inc. v. ISO New England Inc., 146 FERC ¶ 61,039 at P 45 (2014).

[4]     Mystic Answer at 2, 14-15.

[5]     Id. at 14-15.

[6]     Initial Post-Hearing Brief of Constellation Mystic Power, LLC, Docket No. ER18-1639-000 (Nov. 2, 2018) (“Mystic Initial Brief”), at 3.

[7]     Exhibit NES-004 at 3, attached herein as Attachment A.  In addition, as the NESCOE Clarification Request discussed, Mystic conditionally agreed to accept NESCOE’s clawback mechanism that applied both to the Mystic Units and to Everett.  See NESCOE Clarification Request at 5, citing to Mystic Initial Brief at 163-164.  Mystic never raised jurisdictional issues as impediment to such a clawback provision.

[8]     See Rule 213(a)(2) of the Commission’s Rules of Practice and Procedure, 18 C.F.R. § 385.212(a)(2) (prohibiting an answer to a rehearing request unless ordered by the decisional authority).

[9]     See, e.g., PJM Interconnection, LLC, 108 FERC ¶ 61,187 at P 49 (2004) (“Parties seeking rehearing of Commission orders are not permitted to include additional evidence in support of their position, particularly when such evidence is available at the time of the initial filing…The rule limiting new matters raised on rehearing [is] particularly important, since answers to rehearing requests are not permitted and other parties, therefore, will not have an opportunity to respond to newly submitted information.”) (citations omitted).

[10]   See e.g., Transcontinental Gas Pipe Line Co., LLC, 161 FERC ¶ 61,250, at P 40 (2017) (“As a rule, we reject requests for rehearing that raise a novel issue, unless we find that the issue could not have been previously presented.”) (citing Algonquin Gas Transmission LLC, 154 FERC ¶ 61,048, at P 250 (2016) (“novel issues raised on rehearing are rejected ‘because our regulations preclude other parties from responding to a request for rehearing and such behavior is disruptive to the administrative process because it has the effect of moving the target for parties seeking a final administrative decision’”)) (additional citation omitted).

[11]   Mystic Answer at 14.

[12]   Id.  Everett is owned by Constellation LNG, LLC, which is Mystic’s corporate affiliate.

[13]   Id. at 9.

[14]   Id. at 2.  See also id. at 14.

[15]   See, e.g., NESCOE Clarification Request at 3 (describing cost recovery in connection with Everett’s costs).

[16]   See December 2018 Order at P 106, citing Constellation Mystic Power, LLC, 164 FERC ¶ 61,022 (2018) (footnotes omitted) (“. . . the fact that Everett is an LNG facility does not render the costs unrecoverable by Mystic, in light of the extremely close relationship between Everett and Mystic 8 and 9.  However, the Commission clarified that this finding of jurisdiction does not entitle Mystic to recover all costs that it claims in connection with Everett.”).

[17]   Mystic Answer at 9-10 (“. . . the Commission has acted squarely within its jurisdiction in regulating the effect of [fuel supply] costs on Mystic’s rates, by deciding what portion of those costs may be passed through to wholesale customers.”)

[18]   Schedule 3A, Exhibit MYS-0052, at 8-9.  This section of Schedule 3A is included herein as Attachment B.  The cover page and first page of Schedule 3A are also included for context.

[19]   Schedule 3A, Exhibit MYS-0052, at 4-9.

[20]   Id. at 8.

[21]   Mystic Answer at 14.

[22]   December 2018 Order at P 208.  See id. at n. 425.

[23]   See NESCOE Clarification Request at 4.

[24]    December 2018 Order at P 210.  See id. at PP 208 and 212.