In 2018 ISO New England announced plans for two new ancillary charges, Mystic Cost of Service & ISO-NE Winter Reliability. These charges were introduced to ensure grid reliability as New England transitions towards clean energy.
With the Mystic Cost of Service costs being unknown or included at a hefty premium, Best Practice Energy wanted to make sure all pricing that was being shown to clients was in direct comparison. Using our proprietary bid evaluator, we were able to quantify the risk of including or passing through this cost, while making sure pricing from all our supplier partners was correctly represented.
With all suppliers on an even playing field, clients are able to make informed decisions based on their business’s needs, and avoid risk – resulting in valuable savings.
Program Overview
Mystic Cost of Service program was put in place in order to keep the Mystic Liquified Natural Gas plant in Everett MA operational. Mystic is the only LNG facility in New England and due to pipeline constraints and lack of infrastructure, New England relies on LNG to meet demand in winter months when gas is the primary fuel being burned for both power generation and heating.
Exelon wanted to shut down the Mystic plant in 2022, however ISO New England deemed this plant critical to the grid’s reliability. So, in response ISO-NE created the Mystic Cost of Service program, the way the program was designed is all clients would pay a portion of their ancillary costs into keeping the Mystic plant operational.
Originally, the program’s costs were minimal; but because the plant is generating power using Liquified Natural Gas, operational costs will be tied into the global LNG market. The actual cost of service in outer years was highly unknown.
The Global LNG Market
In late 2021 the global LNG market quickly rose as Europe was facing a serious natural gas shortage. The EU’s gas shortage was a result of declining natural gas production along with underperforming renewable energy. Heading into winter 2021 EU’s gas storage levels dropped to near critical levels, they were buying gas from Russia as well as LNG to help meet demand.
In March of 2022 when the Russia and Ukraine war stated we saw the global LNG market rise again as a pipeline project that was going to bring more gas into EU from Russia was cancelled.
Moving into June of 2022 EU started to impose sanctions on Russia, in response to this Russia started curtailing gas deliveries causing a lot of fear in the market and again raising global LNG prices even higher. Global LNG pricing came to a head in August reaching $100Dth.
With all of this is going on Mystic is having to buy LNG to be able to run if called upon, this increases Mystic’s operating costs substantially. For these costs to be offset, New England was going to have to have a cold winter with high electricity and gas prices so that Mystic is not selling into the market at a loss. This placed great uncertainty on upcoming costs for this program.
Due to the uncertainty in costs, we saw premiums to lock this price component jump ten times, and most suppliers stopped including this cost component in their pricing entirely. This created a whole new market dynamic for clients, needing to understand how suppliers are managing this component and ensuring that all pricing they are reviewing is in direct comparison.
What Makes Us Different – BPE’s Approach
The most important part of evaluating new costs is ensuring that contract language reflects the product that we have selected. Reading each of our supplier partners’ contracts and explaining the language to our clients ensures that there would not be any surprises down the line.
For example, supplier A could include Mystic Cost of Service at a lower rate than supplier B, however if supplier A’s contract language allows for a true up or recovery of costs their price could end up being higher.
Best Practice Energy’s approach to managing Mystic Cost of Service resulted in valuable savings for our clients. Our deep understanding of the program allowed us to provide clients with accurate budget projections and the ability to audit charges as they come through, resulting in additional savings. Our regulatory team is constantly monitoring these costs as they get posted each month, ensuring all our clients are up to date with what is going on regarding Mystic.
Navigating energy markets can be extremely confusing, as market dynamics across the country continuously change it is important that your consultants have a deep understanding of the effects of these changes. Best Practice Energy is constantly tracking commodities and regulatory news to understand how our clients will be affected – contact us today to learn more.