Three owners of gas-fired generation in PJM’s territory have filed a complaint asking FERC to direct the RTO to adopt what they’ve termed a “clean MOPR” to be implemented in time for the May 2019 Base Residual Auction (EL18-169).
The minimum offer price rule sought by CPV Power Holdings, Calpine and Eastern Generation would be applicable to all subsidized resources and wouldn’t include categorical exemptions like those in the Independent Market Monitor’s MOPR-Ex proposal that PJM filed along with its own capacity repricing proposal as part of its “jump ball” proceeding.
While the clean MOPR would also include federal subsidies, it would retain an exemption for unit-specific justifications of offers below the rule’s floor. MOPR-Ex includes exemptions for self supply, states’ renewable portfolio standards, public power and competitive entry. (See PJM Capacity Proposals Widely Panned.)
The generators say they are offering “a vehicle for the commission to initiate a separate proceeding” from the other two proposals and a 2016 complaint, which Calpine and Eastern Generation joined, on how the existing MOPR handles subsidized resources (EL16-49). They say neither of the two previous dockets “allow the commission to take the sort of comprehensive action that is urgently needed at this time,” but they also ask that the records from those two dockets be incorporated into their new complaint.
The complaint, which is more than 600 pages, includes an affidavit by Roy J. Shanker, a well-known industry consultant, who says that “the only realistic fix to subsidies is a clean MOPR” that is “straight-forward, easily understood and, with the elimination of the exceptions and exemptions, administratively simpler than MOPR-Ex.” He goes on to list six attributes that the “clean MOPR” would provide, including facilitating “robust competition,” not impeding or distorting price signals, ensuring least-cost resources are selected, price transparency, shifting risk from customers to private capital or the political entities creating the subsidies, and mitigating market power.
The companies also note that some subsidies “greatly exceed” BRA clearing prices, which Shanker says “should provide the commission great pause.” The subsidies “crowd out” economic resources, causing them to retire early, and discourage new economic resources. Shanker says that the participation of 1,000 MW of subsidized resources in the auction could “depress overall market prices by $1 billion,” and with states considering subsidies for perhaps 10,000 MW or more, “billions of dollars in price suppression is simply not sustainable.”
The complainants make several arguments for why subsidies need to be eliminated from markets completely, lest they irrevocably break them. They mention the Monitor’s warnings that “subsidies are contagious” and “an effort to reverse market outcomes with no commitment to a regulatory model and no attempt to mitigate negative impacts on competition.”
The actions of one state “can have a significant impact on wholesale prices affecting loads in other states,” they argue, urging FERC to “be cognizant of the fact that failure to protect the organized, multistate [Reliability Pricing Model] market from one state’s policy choices inevitably impacts other states.”
The generators say they’ve brought up the issues in PJM stakeholder meetings, but the results lead them to “believe that further discussions between the parties will [not] resolve the concerns.”
FERC agreed last week to postpone a technical conference over PJM’s frequency regulation market and appoint a settlement judge to help resolve a dispute over how the service is compensated (EL17-64, EL17-65, ER18-87).
The Energy Storage Association, Renewable Energy Systems Americas and Invenergy Storage Development, which had opposed PJM’s October 2017 proposal to revise the service, joined with the RTO in asking FERC to postpone the technical conference. They said the delay would allow them “to focus their efforts on settlement proceedings and avoid potentially duplicative information gathering.” They said appointing a settlement judge would “facilitate the expeditious resolution of the issues.”
PJM’s updated regulation rules changed requirements from on- and off-peak to on- and off-ramp | PJM
FERC ordered the technical conference March 30 while also granting in part a complaint by the ESA and rejecting PJM’s proposed changes to improve its regulation market. (See FERC Rejects PJM Regulation Plan, Calls Tech Conference.)
In October 2017, the RTO proposed a four-part plan that included redesigning its two regulation signals to work together to manage area control error. It included a new “regulation rate of technical substitution curve” to replace the “mileage ratio” calculation that the RTO says is problematic, and adjusted calculations for performance scoring, settlements and lost opportunity costs.
PJM’s new regulation signal has helped improve its area control error (ACE) control | PJM
The opponents argued that related operational changes had significant negative impacts on battery storage and are “a symptom of the broader problem that the RTO misuses regulation resources to reduce generation on its system for sustained periods of time.”
In rejecting PJM’s proposal, the commission said the RTO hadn’t addressed the issues for which the commission rejected previous proposals on the topic.
In their May 18 request to delay the technical conference, the parties said they’ve had “preliminary discussions” that “would be best addressed under the direction of a settlement judge and in a forum in which all interested intervenors could participate.” They promised to file a joint update within 90 days of the judge being appointed.
PJM’s Independent Market Monitor opposed the request, saying it’s “premature” because FERC’s most recent rejection remains subject to requests for rehearing.
FERC disagreed, saying its “policy favors settlement.” It ordered the judge to file an update within 30 days of being appointed and every 60 days thereafter if the discussions continue.
CARMEL, Ind. — MISO plans to file a reworked version of its pro forma pseudo-tie agreement this month after FERC rejected a previous proposal earlier this year.
The commission’s February order rejecting the earlier agreement in part found fault with MISO’s proposed suspension and termination provisions. (See FERC Rejects MISO Pseudo-Tie Pro Forma.)
This time MISO will file two separatepro forma agreements with FERC: one for generators pseudo-tying into the RTO and one for generation pseudo-tying out, Principal Engineer Kyle Abell said during a May 31 Reliability Subcommittee meeting. He said the two separate agreements will clarify the responsibilities of both MISO and the external balancing authority.
Additionally, MISO says it will coordinate the suspension and termination of pseudo-ties with external BAs and follow suspension processes outlined in joint operating agreements with those BAs, if they exist.
Identical provisions in both versions of the agreement would allow MISO to suspend a pseudo-tie if it poses a reliability risk, violates the Tariff or any applicable joint operating provisions, breaches the pro forma, or fails to provide required real-time data to the RTO. MISO may also terminate pseudo-ties when they are subject to two or more suspensions during a 30-day period.
Each of the agreements provides pseudo-tie owners up to 30 days to resume normal operation from suspended status when they provide “a remedy for the cause of the failure.”
MISO could also terminate an agreement after a 60-day notice if it determines that the “existing market design does not accommodate the pseudo-tie.” It also retained provisions to suspend or terminate pseudo-ties that do not maintain firm transmission service from source to sink for the life of the pseudo-tie or cannot maintain a generation-to-load distribution factor within 2% between MISO and an external balancing authority area.
During a May 30 MISO-PJM Joint and Common Market meeting, PJM’s Tim Horger said there wasn’t much left to report on the RTOs’ overall pseudo-tie coordination plan, which he called a “good thing.”
“A lot of the pseudo tie initiatives have come to a conclusion,” Horger said.
MISO and PJM hope to implement the first phase of a previously announced fix to the double-counting of pseudo-tie congestion charges by Aug. 1, although FERC has not yet ruled on the RTOs’ rebate solution filed in late October 2017. (See MISO, PJM Pursue Pseudo-Tie Double-Charge Relief.)
Potomac Economics, ERCOT’s Independent Market Monitor, released its annual State of the Market report last week, saying the wholesale market “performed competitively” in 2017.
The Monitor said higher natural gas prices led to higher energy prices last year, with ERCOT’s load-weighted average real-time energy price rising 14.7% to $28.25/MWh. The average price for natural gas jumped 22%, from $2.45/MMBtu to $2.98/MMBtu.
| Potomac Economics
Market conditions were rarely tight last year, the Monitor said, noting real-time prices did not exceed $3,000/MWh and broke $1,000/MWh for only three and a half hours.
However, total congestion costs in the real-time market almost doubled to $967 million. The Monitor attributed the increase to continued limitations on export capacity from the Panhandle, planned outages associated with the Houston Import Project’s construction and “unusual operating conditions” after Hurricane Harvey.
Although the market performed competitively, the Monitor made seven recommendations — all but one of them repeats from prior years — to improve the system’s operation and resources and price formation in the energy and ancillary services markets.
The Monitor’s new recommendation is to pay locational prices to all generators with output that affect a transmission constraint. Generators less than 10 MW and connected to the transmission system don’t bear the same obligations as larger generators and are settled at the load zone price, not a location-specific nodal price.
“Small generators … should settle in a manner consistent with the effect they have on the system,” the Monitor said in its report. “The output of some small generators can significantly affect transmission congestion.”
The Monitor suggests that when the smaller generators relieve a constraint, they be paid a much higher price than they are currently. When they aggravate a constraint, they would generally settle at a lower price.
“Settling with this generator [at] a zonal price fails to provide efficient incentive for it to operate in a manner consistent” with the system’s reliability needs, the Monitor said.
The report’s repeat recommendations are:
Implementing real-time co-optimization of energy and ancillary services.
Evaluating policies and programs that create incentives for loads to reduce consumption for reasons unrelated to real-time energy prices.
Modifying the real-time market software to better commit load and generation resources that can be online within 30 minutes.
Consider including marginal losses in LMPs.
Pricing future ancillary services based on the shadow price of procuring the service.
Evaluating the need for a local reserve product.
The Monitor has called real-time co-optimization the “most vital” market improvement and “foundational” to efficient pricing. The Public Utility Commission of Texas in December approved ERCOT’s proposed plan to further assess the benefits of implementing real-time co-optimization and marginal losses (Project No. 47199). As part of the project, the Monitor developed software to simulate co-optimization for 2017, and it intends to make the software, data and results available to all market participants.
Dallas as shown on the cover of the State of the Market report | Potomac Economics
The Monitor usually reviews the State of the Market report during the June Board of Directors meeting. Beth Garza, the Monitor’s director and Potomac Economics vice president, is also scheduled to detail the market’s performance during the Gulf Coast Power Association’s June 21 luncheon in Houston.
System Sets New Demand Records for May, June
The ERCOT system began June the way it concluded May, registering a new monthly demand record in the face of sweltering Texas heat.
The grid operator, which manages the energy flow for about 90% of the state’s electric load, recorded a new demand record for June on Friday with a load of 67.9 GW between 4 and 5 p.m. That broke the previous June record of 67.6 GW, set last year.
Real-time average prices peaked at $54.02/MWh in the interval ending at 2 p.m.
ERCOT established a new record for May for three consecutive hours on May 29, reaching 64.8 66.3 and then 67.3 GW during the intervals ending at 3, 4 and 5 p.m. The new mark is a 13.5% increase over the May record set last year.
Prices were as high as $92.95/MWh.
Texas has been beset with triple-digit temperatures. The National Weather Service issued a heat advisory for areas northwest of Fort Worth over the weekend, with predicted highs of 105 degrees Fahrenheit.
ERCOT said it had no plans to appeal for conservation, saying it has sufficient generation to meet demand.
| Potomac Economics
The grid operator has now set monthly demand records for four months this year. It has projected a summer peak of 72.8 GW in August, which would break the 2016 record of 71.1 GW. It says it has 78.2 GW of capacity available, with a planning reserve margin of 11%. (See ERCOT Gains Additional Capacity to Meet Summer Demand.)
MISO is asking stakeholders if they would like the RTO to provide generators an additional emergency notification declaring a maximum generation alert.
Manager of Unit Commitment and Dispatch Phil Van Schaack said MISO is considering creating a new capacity advisory or expanding its maximum generation criteria to include more conditions in order to provide market participants more advanced notice of possible emergency declarations for unit operators.
MISO was prompted to consider the move after forecasting possible emergency conditions for May 14 (a Monday) on May 11 (a Friday). The RTO ultimately declared an emergency alert just ahead of the weekend.
“Load, weather, very warm temperatures, outages made things very tight on May 14,” Van Schaack said at a May 31 Reliability Subcommittee meeting.
However, MISO terminated the maximum generation event May 13 as conditions changed.
The RTO said stakeholders were mixed in their reactions to the advanced alert.
Some stakeholders attending the RSC meeting questioned MISO calling conservative operations on a Friday for tight operating conditions on Monday. They said weather forecasts beyond 36 hours become unreliable and predicting load patterns so far in advance is an uncertain business.
But Van Schaack said this May was likely the RTO’s warmest on record, especially in MISO South. He predicted more emergency operating procedures over summer, in accord with the RTO’s official spring predictions. (See MISO: Summer Reserves Adequate, but Emergency Likely.)
“The footprint capacity margin is tighter, and we anticipate more emergency procedures,” Van Schaack said. He asked stakeholders if MISO should add a communication step “to improve awareness” prior to issuing a maximum generation alert.
Following emergency conditions during an extreme cold snap in January, multiple stakeholders asked the RTO to distribute more real-time electronic communication to its members when it faces near-emergency or emergency conditions. (See MISO Breaks down Recent Cold Snap.)
But some stakeholders at the meeting pointed out that declaration of a maximum generation alert might already pre-empt any plan to create an additional emergency notice, as an alert is issued before a maximum generation warning, which is followed by declaration of a maximum generation event when conditions worsen.
“To go into an alert, you do have to go into conservative operations. … We need to discuss the implications of more frequently going into conservation operations,” Van Schaack said, asking stakeholders to provide written feedback on an intermediary communication before a maximum generation alert. He also noted stakeholders could suggest MISO adopt no change to its emergency notice system.
Stakeholders pointed out that the RSC doesn’t hold another meeting until Aug. 2, which is likely to be well after the summer peak. Van Schaack responded that MISO would by then have more past alerts and emergency conditions to review and determine the best approach with stakeholders.
“Part of the reason we’re here is that it’s going to be hot in a few days. We’ll have a few opportunities to try things out,” Van Schaack said.
LMR Performance in January
MISO has concluded that it could improve its load-modifying resource performance after completing a detailed evaluation of the mid-January emergency, which identified issues with LMRs communicating their availability.
While the RTO requested 700 to 900 MW of LMRs throughout the emergency, it only received the requested amounts during five of the 10 hours of the emergency, with just 70% of LMRs that were called up by MISO meeting measurement and verification criteria. LMRs met scheduling instructions in 23 of 161 LMR interval hours, MISO said, while two LMRs missed instruction signals altogether. In total, the RTO assessed $123,000 in penalties to six market participants for underperformance, MISO Manager of Resource Adequacy John Harmon said.
Harmon said market participants continue to provide inaccurate LMR availability reports to MISO operators.
“There continues to be a trend of the load reduction availability in the MISO communication system not matching up with actual load reduction capability,” he said.
Vistra Energy’s Mark Volpe asked Harmon to give overall LMR performance during the event a letter grade.
“I’ll give it an elementary grade: ‘needs improvement,’” Harmon replied.
But Customized Energy Solutions’ Ted Kuhn asked the RTO to grade LMRs in terms of “how many megawatts were requested and how many were received,” not simply the “yes or no” of whether LMR volume was met in a specific hour.
MISO recently released a white paper documenting LMR characteristics in order to evaluate a growing reliance on LMRs in the footprint. The RTO concluded that it rarely sees the volume of LMRs that clear in the Planning Resource Auction made available in real time. The white paper recommended MISO take steps to:
Increase awareness of when market participants voluntarily call on their LMRs;
Ensure accurate reporting of LMR availability in the communication system;
Consider price incentives for LMRs;
Ensure MISO’s notifications are in tune with actual LMR need, with special attention on LMRs that require a 12-hour notification before responding to emergencies; and
Contemplate mandatory LMR access outside summer, the only season that LMRs are required to respond to emergencies.
MISO relies on LMRs’ self-reported availability in the communication system in both summer and non-summer months.
Executive Director of Market Operations Jeff Bladen said the RTO will re-evaluate LMR rules and requirements as part of its larger effort to respond to changing resource availability. (See MISO Looks to Address Changing Resource Availability.) Bladen said “it may be true” that MISO could end up needing something more than LMR response to meet increasing regularity of emergency conditions.
American Electric Power must provide PJM’s Independent Market Monitor with requested cost data for a gas-fired plant the company owns in West Virginia, FERC ruled Tuesday (EL17-22).
In October 2016, the Monitor asked AEP to furnish the variable operations and maintenance (VOM) cost data the company used to develop its Sept. 1, 2016, cost-based offer for the 505-MW Ceredo generating station. The Monitor said it was seeking the data to determine whether the level of the cost inputs for the plant raised market power concerns in PJM’s energy markets.
Ceredo Generating Station | AEP
Attachment M of PJM’s Tariff authorizes the Monitor to “review upon its own initiative at any time” the incremental costs included in a generator’s offer price cap to ensure the seller is complying with the RTO’s cost development guidelines. The Tariff also permits the Monitor to “make reasonable requests” for additional cost information from a seller after providing “an explanation of the need for the information and the [Monitor’s] inability to acquire the information from alternate sources.”
Attachment M also stipulates the Monitor can initiate legal or regulatory proceedings to compel disclosure, including petitioning FERC, if requested information is not provided within a reasonable amount of time. The Monitor filed its petition in November 2016.
AEP asked FERC to dismiss the Monitor’s petition, arguing it “is not about the exercise of market power or any violation of a Tariff provision or market rule” but instead focused on the Ceredo plant’s VOM calculation, which was then subject to a broader pending dispute before the commission regarding day-ahead offers that vary by hour (ER16-372, et al.).
Rather than probing market power concerns, AEP contended, the Monitor is really seeking to impose a VOM standard that differs from PJM’s current rules. The company noted the Monitor and PJM have taken opposing positions related to the appropriate calculation of VOM costs in the hourly offers docket. If the Monitor wishes to pursue changes to the calculation, it should pursue the FERC-approved process set out in Attachment M, the company argued.
But the Monitor “should not be permitted to make an example of AEP for purposes of advancing its agenda to impose the ‘short run marginal cost’ standard,” the company said.
AEP also argued the Monitor’s request for information was not reasonable given it had neither identified a potential market rule violation nor alleged the company had exercised market power. Furthermore, the burden of producing the request information outweighed any benefit, and the IMM’s effort is an impermissible audit, the company said.
Drift
In its comments to FERC, PJM largely sided with AEP’s position, contending that the Monitor is seeking to compel AEP to provide data supporting the exact type of costs the Monitor has called into question in the hourly offers docket. The ongoing conflict stemming from that proceeding prompted PJM to initiate a stakeholder process over the issue.
“To the extent the IMM would seek to refer AEP to the commission Office of Enforcement while the very matter itself is being contested before the commission on a generic basis, issues could arise as to the relationship of such referrals to the commission’s formal process, pursuant to [Federal Power Act] sections 205 and 206, to take comments on and ultimately rule on proposed tariff submittals based on a formal written record,” PJM said.
The RTO urged FERC to “provide guidance” on whether the Monitor’s request is reasonable “both in type and scope” to avoid future disputes and assure market participants “that the IMM’s authority to make requests for information is not boundless.”
The RTO also asked the commission to require the Monitor “to explain how the information it seeks relates to concerns other than the disagreement it has with how the PJM rules regard short-run marginal costs, adding it has concerns that the Monitor could “drift” into auditing market participants.
Commission Decision
But FERC’s ruling came down solidly in favor of the Monitor, noting that it has “broad authority” to review cost inputs and incremental costs and that its request for Cerredo’s total VOM costs — including identification of costs by category — was reasonable.
The commission also dismissed the concerns of both AEP and PJM regarding the potential conflict with the parallel hourly offers proceeding.
“The pendency of a PJM stakeholder process to clarify certain aspects of the PJM rules governing cost-based offers does not render unreasonable this specific request for cost data. The IMM retains its ongoing authority and responsibility set forth in Attachment M to review sell offers, cost inputs and incremental costs,” the commission said.
“In response to concerns that the IMM may be seeking to impose a cost standard that is inconsistent with the PJM Tariff or current PJM rules, we note that the IMM does not have the authority to enforce the PJM Tariff or PJM rules,” FERC concluded.
The commission directed AEP to provide the Monitor the requested cost information within 15 days of the order.
WASHINGTON — FERC was given no advance notice of President Trump’s directive Friday ordering Energy Secretary Rick Perry to prevent further nuclear and coal plant retirements and has been provided no details since, officials said Tuesday.
FERC Chairman Kevin McIntyre and Department of Energy Undersecretary Mark Menezes had few answers for reporters’ questions in brief press conferences after speaking at the Energy Information Administration’s 2018 Energy Conference in D.C. on Tuesday morning.
Menezes told reporters DOE is still working out the details of the plan. He said the department would not necessarily be ordering RTOs and ISOs to purchase energy or capacity from at-risk plants — as was detailed in a DOE memo leaked last week — but that it was one of the options under review.
“We’re still evaluating the problem and what the options are,” Menezes said. “It was a leaked document that was in the process of being drafted.”
He did not respond when asked why Trump had made the directive last week when the details were uncertain.
McIntyre told reporters that he has not been briefed by DOE nor seen a list of plants that might be affected.
“We had no idea” the directive was coming Friday, an exasperated senior FERC official told RTO Insider afterward.
Asked about DOE’s contact with FERC, Menezes said, “We talk to FERC on a fairly regular basis. We have not got into any specific proposals with FERC because we’re still working on specific proposals.
“This is a process that is bigger than the Department of Energy. … We’re getting input from all of … the agencies as to how they assess this,” he continued — an apparent reference to the National Security Council’s Policy Coordinating Committees. FERC is not a principal in the process.
McIntyre said the Trump administration’s directive is within the law under Federal Power Act Section 202c.
“The opening phrase uses something along the lines of, ‘In a time of continuing war’ … and so it has the feel of a kind of a wartime emergency. It then does go on …to have more inclusive emergency-type or urgent circumstances-type language that in my view avowedly could be invoked to capture this situation,” he said. “That is a decision not for me or anyone at the FERC, but rather for the secretary of energy.”
FERC Role in Question
McIntyre said FERC might not be involved in setting prices on rescued generators if they can reach agreements on compensation with RTOs.
“Under the [Federal Power Act] as it’s written, and the regulations of the DOE, there are different scenarios that could develop that would not involve a rate proceeding before the FERC. We’re looking at those details now as you can imagine.”
If FERC is not involved, the contracts would be judged on an “easier standard” than FERC’s traditional determinations of “just and reasonable,” he said.
[Editor’s Note: An earlier version of this article incorrectly quoted the chairman, saying FERC would use a lesser standard. A FERC spokeswoman said that was incorrect but that she did not know who would enforce the lower standard for settlements.]
McIntyre also discussed Trump’s directive in response to audience questions moderated by EIA Administrator Linda Capuano after his speech to the EIA conference.
If the 202c “trigger is pulled,” McIntyre said, generating plants could attempt to work out a contract with the entity providing it compensation. “If that effort should fail, then the matter could [come] up to the FERC for what FERC would regard as — for lack of a better term — a rate case … which the FERC has been handling for decades. So, from that standpoint it wouldn’t be a dilemma. In a sense it would almost be bread and butter. We’d have to figure out how to get the dollars and cents right, that would be probably the biggest [challenge]. We’ve got a very talented staff” to do that.
“If it comes to us a rate proceeding it would indeed be subject to [just and reasonable],” McIntyre added in the press scrum later. But a contract negotiated between an RTO and a generator — “something [that’s] worked out almost in a settlement fashion [is] subject to … effectively an easier standard … fair and reasonable,” he explained.
Asked whether FERC would have to mitigate the impact of power plant subsidies on the wholesale markets, the chairman responded, “I think there are a number of different ways we could approach it as long as we’ve satisfied ourselves that it meets our standards of justness and reasonableness.”
McIntyre said he didn’t know whether the directive would affect the resilience rulemaking FERC opened in January after rejecting Perry’s Notice of Proposed Rulemaking to provide cost-of-service payments to coal and nuclear plants with on-site fuel. The NOPR was submitted under Section 403 of the Department of Energy Organization Act. (See FERC’s Independence to be Tested by DOE NOPR.)
‘Not a New Issue’
In his remarks to reporters earlier, Menezes indicated the policy initiative was far less settled than the memo suggested. He said there is no deadline for DOE’s next step.
Asked whether ordering capacity and energy purchases — as spelled out in the memo — was the main option under consideration, he said DOE is considering “as many [options] as people can come up with. … It’s an iterative process.”
“This is not a new issue that we’ve been trying to address. Right?” Menezes continued. “I mean, we sent a [Section] 403 letter over to FERC … We’ve identified this issue for some time. So, we have continued to look at our options.”
“Why did the president announce this Friday if you don’t know what you’re doing?” Menezes was asked.
“I didn’t say we don’t know what we’re doing. I said we are considering options, is what we’re doing,” he responded. “We want to make sure that whatever we do works and is upheld by courts.”
The undersecretary dismissed the suggestion that the administration is threatening to disrupt RTO power markets. “FERC has to figure out a way to keep the so-called ‘markets’ operating. But they are voluntary,” he said.
“These markets have not been mandated by Congress. … It’s important for the RTOs to keep their states happy. If the states are not happy with the RTOs in which they participate, the RTOs won’t exist. … These are not natural markets. In fact, electricity is a natural monopoly,” he said.
Losing ‘Energy Security’
During his address to the EIA conference, Menezes decried the grid’s “growing dependence on pipeline-dependent and intermittent resources,” noting that there are no mandatory reliability standards for gas pipelines.
He also said the premature closures of nuclear plants has Saudi Arabia and other nations “questioning our commitment to remain leaders in nuclear technology.” He said that has opened opportunities for South Korea, which won nuclear generation contracts with the United Arab Emirates, and China, which he said does not require clients to sign the antiproliferation protections the U.S. mandates.
“So, we’re losing more than grid resilience. We’re losing energy security,” he said. “… Imagine a world where the U.S. sits on the sidelines while other countries can dictate what other countries can do with their nuclear fuel. Think about that for a few minutes.”
By Jason Fordney, Amanda Durish Cook and Rich Heidorn Jr.
WASHINGTON — FERC officials and RTO executives still had more questions than answers this week regarding the Department of Energy’s plans for rescuing at-risk nuclear and coal plants.
Shortly before RTO Insider went to press Tuesday morning, FERC Chairman Kevin McIntyre told reporters at the Energy Information Administration Energy Conference in D.C. that he has not been briefed by DOE since President Trump ordered Energy Secretary Rick Perry to prevent further plant retirements.
He spoke minutes after DOE Undersecretary Mark Menezes told reporters at the conference that the department is still working out the details of the plan. He said the department would not necessarily be ordering RTOs and ISOs to purchase energy or capacity from at-risk plants — as was detailed in a DOE memo leaked last week — but that it was one of the options under review. He did not respond when asked why Trump had made the directive last week when the details were uncertain. (See related story, FERC Blindsided by Half-Baked Trump Order.)
“It’s certainly something I am watching very closely, because depending on what direction they go, there could be various implications for FERC and the organizations we oversee,” FERC Commissioner Cheryl LaFleur said in an interview at the Western Conference of Public Service Commissioners in Boise, Idaho, on Monday. “But the devil is in the details in these things — what actually issues.
“I will say when I got here [at the conference], everyone was talking about it, and we’re fairly far from the scene of the action. It’s a big energy story, so we’ll see what this week brings,” LaFleur continued.
Asked about the prospect of legal challenges to the administration’s action, LaFleur observed: “It is pretty easy to file a complaint at FERC if you’re unhappy with something.”
No Details from Perry
Perry commented favorably on Trump’s directive in a speech at a DOE cybersecurity conference in Austin, Texas, Monday but did not elaborate. “Fuel-secure units are retiring at an alarming rate that — if unchecked — will threaten our ability to recover from intentional attacks or from natural disasters,” Perry said. “The president is right to view grid resilience as a serious national security issue, and he’s directed me to prepare immediate steps to stop the loss of these critical resources.”
PJM and MISO officials said Monday they were caught off guard by President Trump’s directive Friday and said they had received no information since then.
“At this time, we have seen no official communication from DOE,” said Shawna Lake, MISO’s senior director of communications and stakeholder affairs.
“I saw it when it flew in my inbox Friday,” Craig Glazer, PJM’s vice president of federal government policy, said before speaking at the EIA conference Monday.
FirstEnergy’s Lobbying Bill Revealed
Perhaps the most interesting development in the story Monday came from the Energy and Policy Institute, which published a blog post on a new filing in the bankruptcy case for FirstEnergy Solutions. The 174-page report shows Akin Gump billing FES $3.8 million in fees and expenses during April, including more than $753,000 in fees for “Energy Regulatory Issues” and federal and state “Government Affairs” work.
Akin Gump billed FirstEnergy Solutions $3.8 million in fees and expenses during April, including more than $753,000 in fees for work on “Energy Regulatory Issues” and federal and state “Government Affairs” work. | Energy Policy Institute
Including the $230,000 Akin Gump disclosed in a federal lobbying report for January-March, it has billed FES almost $1 million in lobbying expenses since January.
On April 13, for example, lobbyist James Romney Tucker, a former aide to Newt Gingrich, reported a “call to DOE re potential 202c determination” and a “call with White House staff re 202 status.” Tucker alone billed FES $54,312 at $930/hour for his “Public Law & Policy” work during April.
The institute is a self-described watchdog “exposing the attacks on renewable energy and countering misinformation by fossil fuel interests.” Akin Gump is D.C.’s top-earning lobbying firm.
Lifeboat Revived?
One RTO official who asked not to be identified suggested the administration’s plan may be like the “lifeboat” then-acting FERC Chairman Neil Chatterjee suggested last November in response to DOE’s Notice of Proposed Rulemaking, which the commission rejected in January. Chatterjee had contemplated a “show cause” order requiring grid operators to compensate at-risk resources that provide resilience benefits as an interim measure while the commission conducted a longer-term rulemaking. (See Chatterjee to Push Interim ‘Lifeboat’ for Coal, Nukes.)
Chatterjee had said his plan would not alter RTO dispatch practices or distort markets, though he acknowledged a lot of details remained undetermined. The idea was apparently forgotten after Kevin McIntyre joined the commission in December, replacing Chatterjee as chairman.
RTOs Caught in the Dark
RTO/ISO executives speaking at the Mid-America Regulatory Conference in Kansas City, Mo., Monday had similar reactions to the memo, with all offering assurances that reliability is well under control in their footprints.
Panel moderator and Missouri Public Service Commission Chairman Daniel Hall characterized the memo as a “possible intrusion into the markets” and asked executives for their reactions.
MISO President and Chief Operating Officer Clair Moeller said he thinks an order is unnecessary but added that the RTO keeps out of retirement decisions. He said the decision whether to close a plant in MISO is between the plant owner and the state in the mostly vertically integrated footprint. “We like to say we’re policy takers, not policymakers,” Moeller said.
However, he offered that the proposed 90 days of on-site fuel supply is not a historical standard. “We’ve never had 90 days of coal on site in the 40 years I’ve been in the industry,” Moeller said. He offered that resilience is “how you take the stuff you have and make it work to keep people safe.”
SPP Executive Vice President and Chief Operating Officer Carl Monroe also said his mostly vertically integrated RTO likely won’t see plants directly impacted, though an order could cause energy prices to rise in its footprint.
“I don’t think I get to say that it won’t affect us,” laughed Suzanne Daugherty, PJM’s chief financial officer and treasurer, noting that most states in the RTO’s territory have adopted retail choice.
But she said PJM will exceed its current resource adequacy standards in the foreseeable future. “We’ve done the planning studies, and we’re going to hit targets well above what we were trying to reach.”
The move is a “drastic step” that could become a financial burden for ratepayers, Daugherty said. “Each type of resource, whether it’s intermittent, hydro, coal, nuclear, all have [fuel supply] issues.”
She also said it would be a “challenge” for independent power producers to make queue investment decisions if generators expected to retire instead begin receiving revenue streams. She pointed out that PJM has already initiated a fuel security study to examine how efficiently fuel is delivered to all plant types during times of peak demand.
ERCOT CEO Bill Magness said he is waiting on the full order to understand the possible impacts. “We’re not sure if this is applicable to ERCOT,” Magness said. “The Defense Production Act is not something I’m that familiar with, but I’m learning about it now,” he added, smiling.
“We’re trained to run security-constrained economic dispatch,” Magness said. “And if this [order] fits into security-constrained economic dispatch, well, we can do that.” But he cautioned that fuel security issues — like ensuring rail cars arrive on time — is outside of ISO/RTO control.
PJM’s Glazer told the EIA conference Trump’s directive will “probably complicate” his RTO’s struggle to deal with state nuclear subsidies.
He said he fears a “half slave/half free” industry in which generators dependent on market revenues increasingly compete with those receiving cost-of-service payments or subsidies.
“I’m not sure that’s sustainable, to be honest,” he said. “I worry as we move down this path that we’re ignoring the lessons of the past” — the 1970s, before electric restructuring.
The California State Senate passed legislation Wednesday that would allow the state’s investor-owned utilities to pass through the costs of wildfires to ratepayers if they conform with safety plans approved by the Public Utilities Commission.
Dodd | U.S. Army Corp. of Engineers
SB 1088, introduced by Sen. Bill Dodd (D), would require electric and gas utilities beginning in 2019 to submit annual safety, reliability and resilience plans, which the commission could approve “with or without modification” within 18 months.
If a utility is in compliance with its plan, “the utility’s performance, operations, management and investments addressed in the plan may be deemed reasonable and prudent for purposes of any subsequent CPUC proceeding and are prohibited from affecting any civil action and any previous events.”
Dodd said that “by mandating that utilities meet new safety, reliability and resiliency requirements, we can avoid these catastrophic fires before they start.” He introduced the legislation in April. (See Calif. Legislation Shields Utilities from Wildfire Costs.)
The bill passed the Senate on Wednesday on a 34-2 vote with three legislators not voting, including U.S. Senate candidate Kevin de Leon (D). Friday was the deadline for bills to pass out of their house of origin. The deadline for bills to be passed this year is Aug. 31, and the last day for the governor to sign or veto them is Sept. 30.
The measure comes amid a decade-long debate over utility liability for wildfires, which heightened last year as more than 170 fires swept across California. The Department of Forestry and Fire Protection recently found that Pacific Gas and Electric had caused four Northern California fires, and investigations continue into much larger fires that hit the state last year. (See CalFire Says PG&E Caused 4 Wildfires Last Year.)
Utilities argue that climate change and drought are compounding the effects of the fires. Some observers also blame forest management practices for exacerbating the problem. Last November, the CPUC rejected San Diego Gas & Electric’s request to recover $379 million in wildfire-related costs for fires in 2007, drawing swift reaction from all three of the state’s investor-owned utilities. (See Besieged CPUC Denies SDG&E Wildfire Recovery.) In addition to their concerns over recovering fire costs, utilities also face civil suits by property owners blaming the power companies for fire losses.
The role of utilities in wildfires has received an increased focus in California.
The bill would require the state Office of Emergency Services to adopt standards and model policies that utilities and local governments should employ for reducing fire risks, including defining “defensible space.”
The Utility Reform Network had opposed the bill, saying that “rather than enhancing safety, SB 1088 would reduce current energy utility incentives to operate their systems safely and prudently and would effectively grant the utilities a blank check,” according to a May 29 bill analysis.
The Consumer Federation of California said that the 18-month CPUC timeline “undermines the possibility for a review that is fully vetted by the regulator and the public” and that the legislation “leaves almost no room for the regulator to reject a utility plan.”
Another Dodd bill passed by the Senate on Thursday, SB 901, requires utility wildfire mitigation plans to include a description of the factors the companies use to determine when they should de-energize distribution lines and procedures for notifying customers and first responders, who could encounter live lines.
Dodd’s two proposals were part of a seven-bill package approved by the Senate last week, which also dealt with homeowner insurance coverage, controlled burns and landslides. President Pro Tempore Toni Atkins (D) said the Senate has also proposed a budget that includes $483 million for fire-prevention efforts and $551 million for wildfire mitigation.
The D.C. Circuit Court of Appeals on Friday denied the Arkansas Public Service Commission’s request that it review a 2016 FERC order directing Entergy Arkansas to continue sharing settlement proceeds under the Entergy System Agreement (16-1305).
FERC approved Entergy Arkansas’ withdrawal from the agreement in 2009. In 2016, FERC held that the utility must continue to share the proceeds of its predeparture settlement with Union Pacific with the system’s other member companies (ER13-432).
The PSC contended that the commission’s order to share the settlement benefits and its method of allocating the benefits was unlawful and unsupported by substantial evidence.
The D.C. Circuit concluded that FERC had a lawful basis to order the sharing of the benefits and was “reasoned” in its allocation methodology.
The PSC pointed to Entergy Arkansas’ withdrawal proceeding in arguing that FERC’s order “essentially amounts to the imposition of an unlawful exit fee or post-withdrawal continuing obligation.”
Writing for the three-judge panel, Senior Circuit Judge David Sentelle rejected the argument, saying FERC was right to conclude “that sharing the Union Pacific settlement benefits was necessary under the principles of equity and was not a penalty or recompense for the company’s exit from the system.”
The court also disagreed with the PSC’s contention that FERC violated the filed rate doctrine by ordering Entergy Arkansas to share the settlement benefits. Under that doctrine, public utilities may only charge rates filed with FERC.
Sentelle said FERC had determined it was not overriding a filed rate, “but merely effectuating the purpose of a non-jurisdictional contract.” He noted Entergy Services was a party to the settlement, and that “FERC found [Services] entered into the settlement on behalf of all the operating companies while they were under FERC’s jurisdiction through the system agreement.”
The court also agreed with FERC’s use of its allocation method, noting the commission found it likely “Entergy Arkansas would have entered into a multiyear transportation contract in 2011 and not benefited from [a] price dip in 2012” without the Union Pacific settlement.
“There was no evidence that Entergy Arkansas could have anticipated the 2012 drop in coal transportation prices and made different contracting decisions,” Sentelle said.
The proceeding stemmed from a 2008 settlement in Arkansas state court between Entergy Arkansas, Entergy Services and other parties against Union Pacific. The settlement locked in a below-market rate for rail delivery of coal by extending an Entergy Arkansas contract with Union Pacific to a three-year period ending June 30, 2015.
Under Entergy’s system agreement, which expired in 2016, its operating companies purchased excess energy from their sister companies at cost, incorporating coal transportation as a component. Union Pacific failed to make coal deliveries at one point, leading to the settlement.
Entergy Arkansas passed a portion of the increased coal costs to the other operating companies under the agreement’s service schedule, and also shared its beneficial coal transportation costs under the Union Pacific settlement.
However, the settlement did not address Entergy Arkansas’ impending withdrawal from the agreement, which FERC approved in 2009.
The Louisiana Public Service Commission filed a Section 206 complaint with the commission, arguing that FERC should allocate the Union Pacific settlement benefits as part of the case. The D.C. Circuit eventually upheld the commission’s decision, but it held FERC “must still review the post-withdrawal arrangements.”
The Louisiana commission again raised the Union Pacific issue when Entergy Services filed a post-withdrawal successor plan with FERC. In response, the Arkansas commission and Entergy Services challenged FERC’s authority to order Entergy Arkansas to share the settlement benefits, because the utility was no longer participating in the system agreement.
Following settlement discussions and a hearing, an administrative law judge determined that the settlement benefits should be allocated among the operating companies and adopted an allocation methodology. FERC affirmed the findings in 2016 and ordered Entergy Arkansas to make a compliance filing refunding the settlement benefits to its sister companies.
