SPP Staff Outline Seams Strategy to SSC

By Tom Kleckner

SPP’s interregional relations staff on Wednesday shared with the Seams Steering Committee their strategic vision for seams efforts through 2021.

The vision is heavy on improving transmission planning across the seams and offering reliability coordination services in the Western Interconnection. Staff referred to the seams strategy as a “living, breathing document” that will eventually be posted on the committee’s website.

The goals include implementing improvements to the SPP-MISO Coordinated System Plan by the end of the first quarter, a process that will begin with a Jan. 31 meeting between RTO staffs and stakeholders.

SPP and MISO have revised their joint operating agreement’s planning criteria in the hopes of agreeing on a first interregional project between the two. Legal staff are currently drafting language for a MISO, SPP Tweak Interregional Criteria.)

The RTOs also plan to begin a new study this year, using the new criteria.

Other strategic goals include:

Implementing agreements between the SPP RC in the West and neighboring RCs;
Developing RC coordination agreements with neighboring western RCs;
Devising a cost-allocation Tariff mechanism for seams projects not driven by FERC Order 1000; and
Defining the coordination of grid-switchable resources with ERCOT during emergency conditions.

Clint Savoy, the RTO’s senior interregional coordinator, told the SSC that staff have begun reaching out to neighbors to evaluate the potential value and benefits of sharing operating reserve responsibilities with other balancing authorities.

The committee also welcomed ITC Holdings’ David Mindham and Corn Belt Power Cooperative’s Kevin Bornhoft as new members.

November M2M Payments Flow SPP’s Way

The MISO-SPP market-to-market (M2M) process resulted in more than $148,000 in SPP’s favor in November, the fourth straight month incurred payments have failed to reach $1 million.

Permanent flowgates accounted for the financial difference, binding for 53 hours. Temporary flowgates were binding for 592 hours but resulted in a $60.11 amount due to MISO.

SPP has amassed $51.8 million in distributions since the RTOs began the M2M process in March 2015, with payments flowing in its direction 21 of the last 26 months.

January 9, 2019

PG&E Stock Plunges, Credit Downgraded to ‘Junk’ Status

By Hudson Sangree

PG&E’s beleaguered stock price sank even lower Monday and Tuesday, dropping by more than 30% over two days because of fears the company could go bankrupt or be broken up by the state after two years of catastrophic wildfires in California. (See PG&E’s Troubles Mount After Camp Fire.)

The company’s share price fell from $24.40 late Friday to a new low of $16.79 as trading started Tuesday morning. It recovered slightly during the day Tuesday and closed at $17.56.

PG&E’s stock began its latest tumble after Reuters, citing unnamed sources, reported Friday the company was exploring filing for bankruptcy.

PG&E’s stock price plummeted after November’s Camp Fire and continued plunging this week amid talk of the company declaring bankruptcy and selling off its gas division. | *PG&E*

S&P Global Ratings dropped the company’s credit rating from investment grade (BBB-) to “junk” (B) status Tuesday and said it might make further downgrades if PG&E does not take clear steps to preserve its creditworthiness, given state officials may be unwilling to help the company.

“Previously, we assumed that given California’s robust renewable portfolio standards and the increasing risks of climate change, legislators and regulators would proactively work with the utility to preserve credit quality to achieve these goals. However, based on recent developments, we no longer believe this to be true given the utility’s own missteps,” S&P said. “We expect that negative public sentiment and the increased political pressure will challenge the regulators’ willingness and ability to implement measures to protect credit quality over the near term.”

Before the wine country fires of 2017, PG&E’s stock price had reached a high of more than $70/share. Just prior to the Camp Fire in November, it had been holding relatively steady for months. On Nov. 7, the day before the Camp Fire destroyed the town of Paradise, Calif., and killed 86 residents, the utility’s stock price stood at about $49/share.

The plunges after the 2017 and 2018 fires resulted in PG&E losing roughly $16 billion in market value over 14 months.

State fire investigators blamed PG&E equipment for starting 17 of the 21 major wine country fires in 2017 but have not determined the cause of the most destructive of those fires, the Tubbs Fire, which wiped out the northern portion of the city of Santa Rosa, Calif.

In recent court filings, PG&E reiterated its argument that a private landowner, who employed an unqualified person to run distribution lines on her property, may have started the Tubbs Fire.

The cause of the Camp Fire hasn’t been determined either, but PG&E reported severe damage to a 115-KV distribution line and flames near the origin of the Camp Fire on the morning it started. (See PG&E Grapples with Line Safety After Camp Fire.)

Also on Tuesday, PG&E reported Patrick M. Hogan, head of electric operations, would be retiring Jan. 28 and Michael A. Lewis had been elected by the board of directors to succeed him as senior vice president.

“Mr. Lewis, 56, has served as Vice President, Electric Distribution Operations of the Utility since August 2018,” PG&E said in a filing with the U.S. Securities and Exchange Commission. “At his previous company [Duke Energy], Mr. Lewis helped the distribution and transmission organizations achieve industry-leading safety benchmarks,” the utility said.

PG&E recently announced a “board refreshment” process in which it would seek to recruit more directors with safety experience, following criticism from the California Public Utilities Commission and lawmakers that its safety culture was deeply flawed.

January 9, 2019

Munis Wary of PJM Rules on Non-Retail BTM Generation

By Rich Heidorn Jr.

VALLEY FORGE, Pa. — A PJM proposal to revise the rules on non-retail behind-the-meter generation met with suspicion from municipal utilities and cooperatives at Tuesday’s Operating Committee meeting.

PJM introduced a proposed problem statement, saying current rules are inconsistent with Capacity Performance (CP) requirements and the lack of reserves for this growing class of resources could present reliability problems.

Non-retail BTM generation (NRBTMG) refers to resources used by municipal electric systems, electric cooperatives or electric distribution companies to serve load. They do not participate as supply resources in PJM markets but can be netted against their wholesale load to reduce transmission, capacity, ancillary services and administrative fee charges.

PJM’s rules on such resources resulted from a 2005 settlement agreement (EL05-127), before development of the RTO’s capacity market and CP constructs. NRBTMG resources can be called upon during the first 10 Maximum Generation Emergencies annually, while CP resources are required to perform during all Performance Assessment Intervals (PAIs). BTM operators that fail to perform face reduced netting benefits.

“The right to call upon NRBTMG during an emergency was established to address a concern that if too much generation is designated as NRBTMG and allowed to net against load, system reliability would be compromised since PJM would not be carrying reserves for a large amount of load associated with NRBTMG,” PJM said.

However, non-retail BTMG is not specifically addressed in PJM’s Emergency Procedures Manual (M-13), making it unclear whether such resources would be requested to operate during any emergency.

NRBTMG resources are expected to run at full output. “‘Full output’ was considered a reasonable expectation of performance at the time of the NRBTMG business rule development, when more traditional types of NRBTMG existed,” PJM said. “With the increased development of renewable NRBTMG in the PJM region, the expected performance level of NRBTMG should be reevaluated.”

PJM identified about 400 MW of non-retail BTMG in an outreach in 2006, before East Kentucky Power Cooperative, Duke Energy and American Transmission Systems Inc. (ATSI) joined the RTO, said PJM’s Theresa Esterly. The RTO hopes to get a current tally of such resources through current efforts to update its data on all distributed energy resources.

Closing ‘Loopholes’

Jim Benchek, FirstEnergy | © *RTO Insider*

Jim Benchek, of FirstEnergy, said his company will support the review, provided the scope of the issue is clarified, as a way to “cover up loopholes for avoiding performance requirements.”

“Calpine has been pushing to look at this issue for a while,” said Calpine’s David “Scarp” Scarpignato. While CP resources are penalized for failing to perform, the operators of underperforming NRBTMG will “lean on the rest of the system and they’re not going to face any kind of penalty,” he said.

Scarp also said the review is timely because any rule changes could affect the business models of DERs.

A Solution in Search of a Problem?

But representatives of cooperatives and municipal utilities questioned the need for new rules. “We want to be able to continue to use them the way we’ve been using them,” said Carl Johnson of the PJM Public Power Coalition.

Steve Lieberman, American Municipal Power | © *RTO Insider*

“You have a solution and you’re trying to find a problem,” said Steve Lieberman of American Municipal Power. “… It seems like you’re trying to make an equivalency between NRBTMG and capacity resources receiving capacity payments.”

Mike Cocco, of Old Dominion Electric Cooperative, agreed, saying ODEC would oppose extending CP rules to non-capacity resources. He said any PJM proposal affecting NRBTMG must be comparable to the netting rules for retail BTMG. Cocco suggested expanding the scope of the problem statement to include a review of existing netting rules for both NRBTMG and retail BTMG.

Scarp also suggested the inquiry be broadened to include retail BTMG, saying performance failures by such resources “could give you the same reliability issues.”

Lieberman said expanding the scope could make it impossible to complete the work in the 10-month time frame proposed by PJM. “I don’t want to face another letter from the Board [of Managers]” setting a deadline for action, he said, referring to the Board’s recent ultimatum on market formation changes. (See Section 206 Filing on PJM Reserve Pricing Likely.)

Operating Committee Chair Dave Souder asked stakeholders to propose any changes to the problem statement before the OC’s next meeting, when the RTO hopes to bring the inquiry to a vote.

January 9, 2019

FERC Discloses Data Behind New England ROE Order

By Michael Kuser

FERC on Monday disclosed data underlying its new formula for setting return on equity rates for New England transmission owners (NETOs) and explained how the data influenced the ROE methodology outlined in an October 2018 briefing order.

But the commission’s Jan. 7 order also noted it had not yet made any final determinations and referred complainants to the paper hearing on the issue (EL11-66-001, et al.).

The release of information came in response to a Nov. 16 motion for expedited disclosure by a coalition consisting of Connecticut’s utility regulator and New England power cooperatives. The group sought the data and analyses underlying two graphs the commission referenced in its decision to no longer rely solely on the discounted cash flow (DCF) model but give equal weight to results from the DCF and three other techniques: the capital asset pricing model (CAPM), expected earnings model and risk premium model. (See FERC Changing ROE Rules; Higher Rates Likely.)

The Connecticut Public Utilities Regulatory Authority, Eastern Massachusetts Consumer Owned Systems, Massachusetts Municipal Wholesale Electric Company and New Hampshire Electric Cooperative asked the commission to “identify and, where not already in the record in these four proceedings, release the sources, data sets, and analyses underlying Figure 2 and Figure 3 in its October 16 Order.”

The commission’s new policy came in its long-awaited response to the D.C. Circuit Court of Appeals’ April 2017 ruling vacating FERC’s 2014 order on the NETOs’ ROE rates. (See Court Rejects FERC ROE Order for New England.)

Data Details

The Monday order said that Figure 2, “ROE Results from ROE Models,” shows the ROE results from the four models over the four test periods at issue in the proceeding and that in calculating the expected earnings midpoint for Period 2, it had excluded ITC Holdings and Wisconsin Energy from the proxy group “as high-end outliers because their ROEs were more than 150% of the proxy group median for the NETOs,” which was 10.225%.

FERC’s new ROE formula gives equal weight to four models. | *FERC*

ITC Holdings was similarly excluded from the proxy group for Period 3, as was CenterPoint Energy for Period 4. The commission listed all other data effects as “none,” except for its CAPM ROE midpoint, which had been rounded up in Figure 2 to 10.46% from 10.45%, as its exact midpoint is 10.455%.

The motion for disclosure said, “Figure 3, which is titled ‘Regulated Utilities PE Chart’, appears to be excerpted from a report generated by Evercore ISI, an investment banking advisory firm. This report is not in the record for these proceedings and appears from our research to be proprietary and not publicly available.”

The commission responded that Evercore ISI produced Figure 3 and that it “does not have access to the data or analyses that were used to produce that chart and therefore cannot provide that information. The Briefing Order relied on Figure 3 only for the limited purpose of showing that there had been a substantial increase in utilities’ price to earnings ratio during the period [of] October 2012 to December 2017.”

Regulated utilities price/earnings | *Evercore*

Figure 3 was part of the briefing order’s explanation of why, during that period, “utility stock prices appeared to have performed in a manner inconsistent with the underlying premise of the DCF model that an investment in common stock is worth the value of the infinite stream of dividends discounted at a market rate commensurate with the investment’s risk,” said the commission.

Moreover, the commission said it did not rely on Figure 3 for any final determination on the use of the DCF model to determine utility ROEs.

January 8, 2019

Section 206 Filing on PJM Reserve Pricing Likely

By Michael Brooks

VALLEY FORGE, Pa. — PJM stakeholders appeared resigned to a unilateral FERC filing by the Board of Managers, despite an all-day meeting last week on the RTO’s proposed price formation rules.

PJM staff and stakeholders Friday discussed the details of several changes to reserve pricing under development as part of a comprehensive package of revisions sought by the board by Jan. 31.

Stakeholders gave plenty of feedback on PJM’s proposals during the almost seven-hour meeting of the Energy Price Formation Senior Task Force, as well as those from the Independent Market Monitor, James Wilson of Wilson Energy Economics and the D.C. Office of the People’s Counsel. But there appeared to be a general acceptance among attendees that there would not be consensus on any of the proposals at the Jan. 24 meetings of the Markets and Reliability and Members committees.

PJM’s Vijay Shah (left) and Dave Anders | © RTO Insider

The meeting room was silent when Dave Anders, PJM director of stakeholder affairs and chair of the task force, solicited opinions on polling the proposals at the task force’s next meeting Jan. 11.

“I’d be shocked” if the committees passed any proposal in a sector-weighted vote, said Susan Bruce, representing the PJM Industrial Customer Coalition.

Anders also revealed that, after several private discussions, stakeholders are in more disagreement than previously thought about certain components of the package, such as the consolidation of Tier 1 and Tier 2 synchronized reserve products. Voting on individual components was also swiftly ruled out by the task force, as approval of certain elements in one could be contingent on elements in others.

Without stakeholder approval, the board would file PJM’s proposal with FERC under Section 206 of the Federal Power Act, which would require it to demonstrate that the RTO’s current rules are unjust and unreasonable — a higher threshold than under Section 205, which merely requires showing the proposed rules would be just and reasonable. (See PJM Board Demands Action on Energy Price Formation.)

Including the Jan. 11 meeting, the task force will meet three more times before the next MRC/MC meetings, with Anders aiming for votes on the proposals Jan. 17 and reviewing the results of the votes Jan. 23.

“Something passing at the MRC is highly unlikely,” said Adrien Ford, director of RTO and regulatory affairs for Old Dominion Electric Cooperative. “So, getting more granular info would be helpful.”

“Granular info” was exactly what staff provided Friday, unlike the task force’s previous meeting Dec. 14, in which staff presented a general outline of their initial work. (See PJM Moving Quickly to Make Board’s Price Formation Deadline.)

PJM’s proposed changes to its operating reserve demand curve (ORDC), which would be applied to all reserve products, not just synchronized reserves, engendered the most controversy at the meeting.

Under the proposal, the so-called “penalty factor” in the ORDC would increase from $850/MWh to $2,000. The penalty factor is the price paid to resources for meeting the RTO’s minimum reserve requirement (MRR) during a shortage.

PJM’s proposal would increase the penalty factor, or maximum price, in the operating reserve demand curve from $850/MWh to $2,000. | *PJM*

‘Willingness to Pay’

The changes are intended to reflect consumers’ willingness to pay for some level of reserves, including reserves beyond the minimum requirement, said Adam Keech, PJM executive director of market operations.

Stakeholders took exception to this. “Those are fighting words” to industrial customers, Bruce said. She questioned the basis for PJM to opine that the ORDC appropriately reflects what a customer would be willing to pay to procure another megawatt of reserves, given the range of projected price increases.

“You’ve dropped all assertions of marginal reliability,” said Wilson, consultant for consumer advocates in several states and D.C. “We have no evidence the customer is willing to pay that much for reserves. The customer cares about lost load, so the marginal value of reserves depends upon the likelihood that firm load would have to be shed if we have only that level of reserves.”

“It’s misleading to say, ‘customers’ willingness to pay,’” said Catherine Tyler of Monitoring Analytics, the IMM. “Operators may be willing to take more expensive actions than customers are willing to pay for.”

As a compromise, the D.C. OPC’s Erik Heinle proposed a two-step penalty factor: maintaining the current $850 figure for reserves up to the MRR and increasing to $2,000 for the last 500 MW of reserves.

Wilson said the OPC’s curve is better than PJM’s, as it associated the penalty factor with a low reserve level.

How PJM classifies reserve products | *PJM*

Staff also explained how they would align the reserve products, which would introduce the ability to procure primary reserves (those able to respond within 10 minutes) in the day-ahead market and secondary reserves (10 to 30 minutes) in the real-time market.

There was some debate about whether to allow virtual trading of reserve products to arbitrage in the two markets. Wilson said he could imagine “phantom” shortage pricing in the day-ahead market when the situation in the real-time is better, and virtual trading would help alleviate that. Keech, however, responded that the ORDCs for each of the markets will not be different enough to necessitate virtuals, but that staff would consider it.

Staff are also considering whether there needs to be a synchronized requirement for secondary reserves, as there is with primary reserves. That will likely be among the topics discussed at the next meeting, along with other details of the market alignment.

January 8, 2019

Cancel Transource Line, Md. Panel Says

By Rich Heidorn Jr.

Maryland officials have recommended the state’s Public Service Commission reject Transource Energy’s controversial Independence Energy Connection, saying the company and PJM failed to examine alternative solutions, as required by state law.

The Power Plant Research Program (PPRP) of the Maryland Department of Natural Resources asked the PSC on Dec. 20 to dismiss Transource’s application for a certificate of public convenience and necessity (CPCN) or put the filing on hold until the company and PJM review proposals to add capacity to existing transmission lines in the eastern segment of the project in Harford County (Case 9471).

The $372 million project would add two 230-kV double-circuit lines totaling about 42 miles across the Maryland-Pennsylvania border: a western line between the Ringgold substation in Washington County, Md., and a new Rice substation in Franklin County, Pa.; and an eastern line between the Conastone substation in Harford County, Md., and a new Furnace Run substation in York County, Pa. It would be PJM’s largest-ever market efficiency project.

Once referred to as the AP South Congestion Improvement Project, Transource’s Independence Energy Connection project would consist of two lines. The western portion would run from the Ringgold substation in Maryland to the Rice substation in Pennsylvania. The eastern line would run from the Conastone station in Maryland to the Furnace Run station in Pennsylvania. | *Transource*

The PPRP said Transource had failed to meet state law requiring the examination of alternatives if an existing transmission line “is convenient to the service area; or the use of the transmission line will best promote economic and efficient service to the public.”

“After substantial discovery,” the PPRP said, “it is clear that there was no examination to consider an existing transmission line as an alternative for the eastern segment of the project … prior to filing the CPCN for the project, even though the existing transmission lines appear likely to be both convenient to the service area and to best promote economic and efficient service to the public.”

The agency said the need for the eastern segment of the project could be met by the existing Furnace Run-Conastone and Furnace Run-Graceton 230-kV double-circuit transmission tower lines, which each have only one 230-kV circuit and could carry a second.

“Transource’s application did not identify, nor consider, these nearby existing tower lines as an alternative to the project,” the PPRP said.

The PPRP said it provided a “conceptual alternative” using the spare tower capacity, but Transource rejected it after initial modeling by PJM identified two single-contingency thermal criteria violations. The PPRP said the violations don’t eliminate the nearby lines as a viable alternative.

“It is not uncommon for PJM to identify thermal violations in its transmission planning process and then to seek out solutions. In fact, on the west segment of this project, transmission system enhancement projects were necessary to allow the IEC-West project to connect into Maryland,” the agency said. “With regard to the IEC-East project, there are other transmission line configurations using these existing tower lines that very well may not produce reliability concerns while providing regional benefits in a manner that minimizes the environmental and socioeconomic impacts to the state.”

The PPRP said PJM and Transource also rejected two other conceptual alternatives as “going beyond considering the use of existing transmission corridors [and representing] significant material changes to the electrical configuration of the project.”

“Alternatives utilizing the existing tower lines have not yet been examined in a manner that will allow the commission to complete its review under [state law]. Transource and PJM’s apparent unwillingness to investigate these existing tower lines leaves unresolved whether there is a viable and preferred alternative to the IEC-East project.”

Transource Response

In a response Monday, Transource insisted its application is complete and that it has made a prima facie case that the project is needed and “will provide enormous economic benefits to Maryland customers.”

“The application includes substantial evidence for the commission to carry out its obligation … including the consideration of existing transmission lines,” Transource said. “A dispute over the consideration, or lack of consideration, of any one hypothetical alternative, with no evidence whatsoever regarding its feasibility, among an infinite universe of similar ‘alternatives’ is not the proper subject of a motion to dismiss.”

The company said state law does not require applicants to conduct engineering analyses of every possible alternative. “Rather, disputes over whether the commission should consider an alternative are properly the subject of competing testimony at the evidentiary hearing.”

Reliability Value?

The state officials also said the commission should reject Transource’s attempt to justify the project — approved by PJM in 2016 to relieve transmission congestion — on reliability grounds.

PJM said in a November white paper re-evaluating the project that it would reduce load costs by $707.3 million in net present value over 15 years, producing a benefit-cost ratio of 1.4, exceeding the minimum 1.25 ratio required for inclusion in the Regional Transmission Expansion Plan. (See PJM Reiterates Support for Embattled Transource Project.)

It also “resolves burgeoning reliability issues,” PJM said. Although the project was not needed to address reliability violations when it was approved, the RTO said, it noted “that the project would inherently enhance system reliability by introducing additional transmission network paths.”

“In parallel with the September 2018 benefit-cost ratio re-evaluation, PJM assessed the extent to which the Transource project provides identifiable reliability benefits. Power flow results have confirmed that the Transource project does indeed solve identified 2023 overloads on a 500-kV line, a 500/230-kV transformer and other transmission facilities,” the RTO said.

The PPRP suggested PJM’s shift was a bait and switch. “If PJM has now determined that there are reliability concerns and an associated need for transmission system enhancements, it would be more appropriate to first investigate reasonable alternatives within the relevant PJM processes rather than latching solutions on to this discretionary market efficiency project,” it said.

Transource denied it was changing its position on the reason for the project. “The additional analysis provided by PJM was routine and anticipated, and the results of the analysis only add to need for the project, they do not substitute the purpose for the project.”

A group of residents who live in or near the proposed path supported the PPRP’s motion to dismiss. STOP Transource Power Lines MD said the line would disrupt existing farm and agricultural operations and damage land under permanent preservation easements.

“The failure on the part of the applicant and, to a lesser degree, PJM to consider alternative routes is particularly galling considering the substantial sums expended by the members of STOP Transource in the instant matter to date, which will increase significantly if this matter proceeds to a hearing,” the group said. “If, in fact, the existing towers can accommodate the lEC-East project, thus avoiding its devastating impacts to the members of STOP Transource and other individual property owners, they must be seriously considered.”

Pennsylvania Proceeding

Pennsylvania regulators will be receiving written testimony on Transource’s siting request until Feb. 11, with evidentiary hearings set for Feb. 21-22 and Feb. 25 to March 1 (A-2017-2640195).

January 8, 2019

Rice Study on Renewables’ Potential Has its Believers

By Tom Kleckner

A recent Rice University study that suggests Texas renewable power production could become more reliable by combining different resources and locations did not surprise independent developer Mannti Cummins.

He’s been there and done that, having helped bring the Peñascal Wind Farm project in South Texas online in 2010. The 404-MW facility also happens to be one of the sites used in the Rice study.

“This kind of confirms the rustic logic of common-sense folks who don’t have the ability to do the necessary calculations and analytics,” Cummins said from Mexico, where he is working on another project in Baja California Sur. (See Energy Wildcatter Hopes to Make His Mark in Emerging Mexican Market.)

“This kind of confirms, with an academic methodology, what we’ve all thought is going to be the future,” he said.

In their study, Renewables: Wind, Water, and Solar, Rice researchers Dan Cohan and Joanna Slusarewicz analyzed data from five wind and seven solar sites across West and South Texas. Because of the state’s varying wind patterns and solar irradiance, they found that pairing solar power with either West Texas winds or South Texas winds will increase renewable power production.

West Texas winds peak during early night hours (6-10 p.m.), while South Texas winds tend to follow load patterns and peak in the late afternoon. The researchers said that pairing solar with western wind farms provides the highest levels of firm capacity with an 87.5% threshold, increasing reliable power production on an annual basis.

South Texas’ late-afternoon wind peaks suggest that combining solar with wind “might increase reliable power production over the course of a summer day during hours of high demand,” they wrote.

Cummins said the Peñascal development team in the early 2000s chose the barren scrub of South Texas because the wind peaks at the right time. “It’s just perfect with the load profile,” he said.

The Peñascal site is also situated between the Corpus Christi and Rio Grande Valley population centers, where it could take advantage of under-used transmission facilities without taking part in the state’s Competitive Renewable Energy Zones process. (The wind farm did benefit from more than $220 million in federal stimulus funds.)

“But nobody ever thought about pairing [wind] with solar,” Cummins said. “You can start talking about it because [solar is] economical.”

He said that prices for installed solar are 50% below where they were three years ago, dropping from $2,000/kW to $900/kW. Solar is crushing natural gas, Cummins said, a situation he expects to continue as battery storage becomes more commonplace.

“As the price of battery storage drops like a rock, that’s the future,” he said.

Cummins is following that concept of wind-integrated solar energy with his Coromuel project at the tip of the Baja California peninsula. The 50-MW wind facility, named for the local weather phenomenon, will include 600-kV solar panels at the foot of each turbine.

“When the wind has its own name, it’s probably consistent enough for wind generation,” he said, comparing the afternoon peak to South Texas winds.

“The rise of clean energy appears to be everywhere across Texas,” said developer John Billingsley in a statement following the Rice study’s release. Billingsley is CEO of Global Energy and also launched Sunfinity Renewable Energy three years ago.

Billingsley agrees with Rice’s Cohan, who said the research shows “nowhere else in the world [is] better positioned to operate without coal than Texas is.”

As it is, coal only accounts for 15.5 GW of ERCOT’s existing resources, with wind and solar combining to account for 22 GW. No coal projects are listed in the ISO’s latest generator interconnection report, while there are 14.3 GW of wind, 4.3 GW of solar and 2.7 GW of gas projects with signed interconnection agreements.

During a recent appearance in Houston, ERCOT CEO Bill Magness said, “It’s all gas, wind and solar. There are no other resources coming along.”

ERCOT expects to have as much as 5 GW of solar energy on the system by 2021, much of it in West Texas.

“We’ve only begun to scratch the surface in terms of truly harnessing our clean, renewable resources,” Billingsley said. “The next several years will see amazing strides forward.”

January 8, 2019

Counterflow: Reliability Costs, Fox-Henhouse Regulation

By Steve Huntoon

I want to begin with a note about FERC Commissioner Kevin McIntyre’s passing. He and I (and my wife) worked together for years at the law firm Reid & Priest. He was a talented attorney and an all-around great guy. Kevin, thank you for your contributions to the energy bar, to the work of the commission, and to the lives of those who have known you. You will be missed.

Four years ago, I began writing on subjects in our industry that I hoped would be of interest. Mostly heresy about conventional wisdom.

I thought it might be worthwhile to take a look back at some of those scribblings, see what I got right, what I got wrong and what’s happened since.

Reliability Standards: Reality Check

My first article^[1] challenged the conventional — and intuitive — wisdom that mandatory reliability standards had improved reliability. I argued:

Mandatory reliability standards have had little apparent effect on reliability.
Relatively few outages can be avoided/mitigated by reliability standards.
Outage avoidance provides relatively little value to consumers.
Mandatory reliability standards impose costs and potential adverse consequences.
We should focus more on actual causes of outages and work backward on a true cost-benefit basis.

Since that article, NERC data suggest that transmission-related load losses have declined over the years. Its chart is below.

BPS transmission-related events resulting in load loss (excluding Criteria 4) | *NERC*

The apparent trend in transmission-related load loss is good. But it’s also worth pointing out that Transmission Availability Data System (TADS) outage events haven’t declined at all. There were 3,705 in 2009 and 3,790 in 2017.^[2] The key reason for this, as I discussed in the article, is that the vast majority of outage events have causes beyond anyone’s control: e.g., lightning, other weather, equipment failure, foreign interference.

My basic concerns seem to remain valid. A meaningful reduction in transmission-related outages is questionable. Transmission-related outages are a small percentage of overall outages and, despite the media attention they receive, actually amount to relatively few dollars in terms of the value of lost load (VOLL). There also are compliance costs, and there can be potential adverse consequences if resource allocations are largely driven by compliance considerations.

Capital Spending Without Cost-benefit Analysis

But I think my last point from the article four years ago is the most important today. We now spend more than $20 billion on transmission infrastructure every year.^[3] Each $20 billion of capital spending adds about $3 billion to consumer bills every year for decades into the future. The consumer cost keeps adding up. And virtually none of the cost is supported by cost-benefit analysis.^[4]

This is not rocket science. In a competitive industry, investment is justified by the return expected to result from customer demand based on what customers are willing to pay. The parallel in a regulated industry should be investment justified by customer demand based on what customers are willing to pay.

In the electric utility industry, the proxy for customer willingness to pay must be the VOLL. In other words, every dollar of regulated utility investment should be explicitly supported by the customer VOLL that is produced by that investment. Nothing else makes sense.

Yet, cost/VOLL-benefit analysis continues to be ignored by regulators who bless $20 billion of new transmission capital costs every year.

Again, without a clue whether the cost imposed on consumers is actually worth it to consumers.

The Double and Triple Whammies

There’s a double whammy at work here. As I’ve pointed out before, regulators are allowing returns on equity vastly in excess of utilities’ true cost of capital.^[5] Not only do the excessive returns burden consumers directly, but they create an enormous incentive for utilities to overspend on capital projects. You can follow the money on quarterly utility conference calls with Wall Street analysts — slides and talk about future capital spending, which drives earnings growth, which drives higher stock valuation.

There’s actually a triple whammy because the excessive returns also create an enormous incentive for utilities to fight competition in all forms, including competition in transmission. There is no doubt that competition in transmission is a staggering success (where it has been faithfully implemented), for reasons I’ve discussed before.^[6] But because of excessive returns, utilities have added incentive to fight that competition by all possible means. And naturally they do.

Gotten Far Worse

This situation has, if you can believe it, gotten far worse in the past few years. It used to be that transmission capital costs would be justified for mitigation of reliability criteria violations. In other words, the transmission grid would be modeled for the future, and if the model forecasted overload of a given line, or other transmission element, then upgrade or other mitigation of the overload would be prescribed.

Nowadays, in PJM for example, most transmission capital costs are completely divorced from reliability criteria violations and instead are supported by violation of criteria unilaterally set by transmission owners. Here is a shocking chart showing this phenomenon:^[7]

Cost of PJM TO’s baseline vs. supplemental projects | *American Municipal Power*

The dark blue is what the TOs unilaterally decide; the light blue is what is needed for reliability.

Now, you might ask: Isn’t allowing TOs to unilaterally decide the criteria for how much capital to spend, on which they get excessive allowed returns, putting the fox in charge of the henhouse? And you would be right to ask that question.

You just won’t get a good answer.^[8]

http://www.energy-counsel.com/docs/Have-Mandatory-Reliability-Standards-Improved-Reliability-Fortnightly-January2015.pdf. ↑
https://www.nerc.com/pa/RAPA/PA/Performance%20Analysis%20DL/NERC_2018_SOR_06202018_Final.pdf, pdf pages 84-85. ↑
http://www.eei.org/issuesandpolicy/transmission/Pages/default.aspx. There is $130 billion in planning or under construction. https://www.tdworld.com/transmission/drivers-and-challenges-transmission-investment. ↑
FERC has developed “transmission metrics” but none of them involves cost-benefit analysis or the Value of Lost Load. https://www.ferc.gov/legal/staff-reports/2017/transmission-investment-metrics.pdf. At least one metric, “load-weighted transmission investment,” seems to imply that more transmission spending is inherently good. ↑
http://www.energy-counsel.com/docs/Nice-Work-If-You-Can-Get-It-Fortnightly-August-2016.pdf. ↑
http://www.energy-counsel.com/docs/FERC-Order-1000-Need-More-of-Good-Thing.pdf. ↑
https://pjm.com/-/media/committees-groups/committees/mrc/20181220/20181220-item-08a-transmission-replacement-process-amp-odec-presentation.ashx, slide 7 (“Baseline” are upgrades driven by NERC reliability criteria violations; “Supplement” are upgrades attributed to unilaterally set transmission owner criteria.) ↑
Unfortunately, the most recent FERC orders on unilateral transmission owner spending will further embolden the fox. California Public Utilities Commission v. Pacific Gas and Electric Co., 164 FERC ¶ 61,161 (2018); Monongahela Power Co., 164 FERC ¶ 61,217 (2018). Somewhere along the line, the basics seem to have been lost: The utility fiduciary obligation is to shareholders to extract maximum monopoly rents from consumers. The commission’s statutory obligation is to protect consumers from this utility fiduciary obligation to shareholders. ↑

January 7, 2019

Counterflow: Reliability Costs, Fox-Henhouse Regulation

Counterflow

Reliability Standards, Costs and Benefits, Fox-Henhouse Regulation

By Steve Huntoon

Four years ago, I began writing on subjects in our industry that I hoped would be of interest. Mostly heresy about conventional wisdom.

I thought it might be worthwhile to take a look back at some of those scribblings, see what I got right, what I got wrong and what’s happened since.

Reliability Standards: Reality Check

My first article ¹ challenged the conventional — and intuitive — wisdom that mandatory reliability standards had improved reliability. I argued:

Mandatory reliability standards have had little apparent effect on reliability.

Relatively few outages can be avoided/mitigated by reliability standards.

Outage avoidance provides relatively little value to consumers.

Mandatory reliability standards impose costs and potential adverse consequences.

We should focus more on actual causes of outages and work backward on a true cost-benefit basis.

Since that article, NERC data suggest that transmission-related load losses have declined over the years. Its chart is below.

[insert M-2-BPS graphic here]

The apparent trend in transmission-related load loss is good. But it’s also worth pointing out that Transmission Availability Data System (TADS) outage events haven’t declined at all. There were 3,705 in 2009 and 3,790 in 2017.² The key reason for this, as I discussed in the article, is that the vast majority of outage events have causes beyond anyone’s control: e.g., lightning, other weather, equipment failure, foreign interference.

Capital Spending Without Cost-benefit Analysis

But I think my last point from the article four years ago is the most important today. We now spend more than $20 billion on transmission infrastructure every year.³ Each $20 billion of capital spending adds about $3 billion to consumer bills every year for decades into the future. The consumer cost keeps adding up. And virtually none of the cost is supported by cost-benefit analysis.⁴

Yet, cost/VOLL-benefit analysis continues to be ignored by regulators who bless $20 billion of new transmission capital costs every year.

Again, without a clue whether the cost imposed on consumers is actually worth it to consumers.

The Double and Triple Whammies

There’s a double whammy at work here. As I’ve pointed out before, regulators are allowing returns on equity vastly in excess of utilities’ true cost of capital.⁵ Not only do the excessive returns burden consumers directly, but they create an enormous incentive for utilities to overspend on capital projects. You can follow the money on quarterly utility conference calls with Wall Street analysts — slides and talk about future capital spending, which drives earnings growth, which drives higher stock valuation.

There’s actually a triple whammy because the excessive returns also create an enormous incentive for utilities to fight competition in all forms, including competition in transmission. There is no doubt that competition in transmission is a staggering success (where it has been faithfully implemented), for reasons I’ve discussed before.⁶ But because of excessive returns, utilities have added incentive to fight that competition by all possible means. And naturally they do.

Gotten Far Worse

This situation has, if you can believe it, gotten far worse in the past few years. It used to be that transmission capital costs would be justified for mitigation of reliability criteria violations. In other words, the transmission grid would be modeled for the future, and if the model forecasted overload of a given line, or other transmission element, then upgrade or other mitigation of the overload would be prescribed.

[insert Cost of PJM TOs graphic here]

The red is what the TOs unilaterally decide; the blue is what is needed for reliability.

You just won’t get a good answer.⁸

http://www.energy-counsel.com/docs/Have-Mandatory-Reliability-Standards-Improved-Reliability-Fortnightly-January2015.pdf.

https://www.nerc.com/pa/RAPA/PA/Performance%20Analysis%20DL/NERC_2018_SOR_06202018_Final.pdf, pdf pages 84-85.

http://www.eei.org/issuesandpolicy/transmission/Pages/default.aspx. There is $130 billion in planning or under construction. https://www.tdworld.com/transmission/drivers-and-challenges-transmission-investment.

FERC has developed “transmission metrics” but none of them involves cost-benefit analysis or the Value of Lost Load. https://www.ferc.gov/legal/staff-reports/2017/transmission-investment-metrics.pdf. At least one metric, “load-weighted transmission investment,” seems to imply that more transmission spending is inherently good.

http://www.energy-counsel.com/docs/Nice-Work-If-You-Can-Get-It-Fortnightly-August-2016.pdf.

http://www.energy-counsel.com/docs/FERC-Order-1000-Need-More-of-Good-Thing.pdf.

https://pjm.com/-/media/committees-groups/committees/mrc/20181220/20181220-item-08a-transmission-replacement-process-amp-odec-presentation.ashx, slide 7 (“Baseline” are upgrades driven by NERC reliability criteria violations; “Supplement” are upgrades attributed to unilaterally set transmission owner criteria.)

Unfortunately, the most recent FERC orders on unilateral transmission owner spending will further embolden the fox. California Public Utilities Commission v. Pacific Gas and Electric Co., 164 FERC ¶ 61,161 (2018); Monongahela Power Co., 164 FERC ¶ 61,217 (2018). Somewhere along the line, the basics seem to have been lost: The utility fiduciary obligation is to shareholders to extract maximum monopoly rents from consumers. The commission’s statutory obligation is to protect consumers from this utility fiduciary obligation to shareholders.

January 6, 2019October 31, 2023

Mass. Inaugurates Clean Peak Standard

By Michael Kuser

Massachusetts electricity suppliers won’t have any trouble this year meeting the state’s new mandate for serving a certain portion of their sales with “clean peak” resources.

That’s because the state’s Department of Energy Resources (DOER) last week set the 2019 minimum to zero while it attempts to work out the details of the Clean Peak Minimum Standard.

“After reviewing available information, the statutory definition of clean peak resources, and a number of other factors, DOER determined that approximately 0 MWh were being served by existing clean peak resources during peak load hours as of December 31, 2018, and established the Minimum Standard percentage requirement for retail electricity suppliers in the 2019 compliance year at 0%,” Director Michael Judge said in a Dec. 31 email to industry stakeholders.

Passed into law last September (H4857), the standard requires DOER to mandate that a baseline minimum percentage of retail electricity sales be met with clean generation resources or load reductions during seasonal peak periods.

Under the law, clean peak resources include qualified renewable portfolio standard and energy storage resources, with an in-service date on or after Jan. 1, 2019, but no such resources could have existed as of Dec. 31, 2018. Demand response resources can also qualify without any specified in-service date, but DOER has yet to establish the eligibility requirements for DR.

The rule is also designed to build on previous performance, with every electricity retailer in the state required to provide a minimum of an additional 0.25% of annual sales with clean peak certificates. But that baseline hasn’t been established yet, nor have any clean peak certificates that would allow for compliance.

In his email, Judge told stakeholders his agency will take the similar tack to how it established the state’s RPS program in 2002.

“At that time, DOER established an ‘early compliance year’ for calendar year 2002, in which the Minimum Standard percentage requirement was established as 0%, but allowed certificates to be generated, purchased, and settled at NEPOOL GIS by retail electricity suppliers for use towards requirements in subsequent calendar years,” Judge wrote. “This allowed the market to commence, but delayed actual compliance filings from retail electricity suppliers by one year.”

ISO-NE generation mix, winter 2017-2018 | Massachusetts Department of Energy Resources

Defining Peak Hours

The idea behind the clean peak standard is to reduce high-cost peak hours and incentivize renewable energy generation to be available to meet winter and summer peaks without emissions. (See New England Clean Energy Legislative Roundup.)

The DOER plans to begin designing the Clean Peak Energy Standard this month, starting with questions for stakeholders that will be posted on the Clean Peak Standard webpage. Following review, the agency will release a detailed straw proposal and solicit comments prior to filing a draft regulation.

The law defines a “clean peak certificate” as “a credit received for each megawatt hour of energy or energy reserves provided during a seasonal peak period that represents a compliance mechanism.”

“Seasonal peak periods” are the daily time windows during any of the four seasons when the net demand of electricity is the highest. Those periods would be no less than one hour and no longer than four hours in any season, as determined by the DOER.

In addition, a qualified RPS resource may generate both a clean peak certificate and a renewable energy certificate under section 11F for electricity generated and delivered to the electric grid during a seasonal peak period.

The stakeholder process is intended to help state regulators establish seasonal peak periods and the methodology for setting clean peak certificate values. Electric service providers may eventually procure such certificates from clean peak resources and enter into long-term contracts, subject to approval by the state’s Department of Public Utilities.

The DOER will also establish a minimum percentage of clean peak certificates to be derived from demand response resources, an alternative compliance mechanism for retailers and procedures for each electricity supplier to demonstrate compliance.

ISO-NE generation mix (2016) | Massachusetts Department of Energy Resources

Comprehensive Energy Plan

The state Comprehensive Energy Plan (CEP) published last month says increased electrification in the transportation and thermal sectors may increase electric load — and peak load, depending on the timing of energy use, especially the charging of energy storage and electric vehicles.

The clean peak standard and technologies such as storage that shift peak flatten this load, “especially as load shifts due to increased EVs, heat pumps, and behind-the-meter solar,” the plan said. “Flattened load enables generators to run at more efficient heat rates, reducing costs and emissions. Further, it reduces the need for future investments in transmission and distribution infrastructure, helping to lower costs of implementing future policies.”

At a public forum last summer, Asa Hopkins of Synapse Energy Economics, a consultant on the CEP said, “Once those clean peak resources are there, it’s not like they’re only there on the peak day; they also run all the rest of the time around the year and are impacting what’s going on with dispatch of different resources.” (See Massachusetts Seeks Input on Energy Plans.)

Demand for natural gas on a peak winter day forces the electric sector to rely on LNG or other stored fuels such as oil for generation, which puts the region at risk for price spikes and emission increases during extended cold weather events, the CEP said. (See ISO-NE Fuel Security Measures Approved.)