Page 1176 – RTO Insider

March 4, 2018

Oklahoma Regulator Sets Sights on Higher Office

By Tom Kleckner

LITTLE ROCK, Ark. — As the chair of SPP’s Regional State Committee in 2015, Oklahoma Corporation Commission (OCC) Chair Dana Murphy would, without fail, compliment her fellow committee members, regulatory and SPP staff, and other stakeholders for their efforts, no matter how small.

But that’s just Dana Murphy.

“I feel very grateful,” she said about her practice of recognizing others. “The thing is, there’s always going to be a healthy tension between regulators and SPP and the utilities, and I accept that. I accept that as part of the job, whether I’m serving as a commissioner in Oklahoma or representing Oklahoma here on the RSC.

SPP Dana Murphy Oklahoma — Murphy visits with SPP Director Harry Skilton | © *RTO Insider*

“I don’t try to avoid [the tension]. The challenge with all of this — and it may be hard to believe — is that I’m an introvert who doesn’t like controversy. Yet, how did I get here?”

After serving on the OCC since 2008, and as its chair since February 2017, Murphy has set her sights on the lieutenant governor’s office.

She opened her campaign last July with a prayer in her hometown of Edmond. “I think all of you who know me know that my faith is the biggest part of pretty much everything I do beyond my family,” Murphy said.

Field of Four

Murphy is competing with three other Republicans — state Sen. Eddie Fields, former state party chair Matt Pinnell and “entrepreneurship consultant” Dominique DaMon Block Sr. — for the GOP’s slot in November’s statewide elections. The primary is June 26.

The commissioner has claimed a significant fundraising edge over her three primary opponents, finishing 2017 with $690,000 on hand after shifting nearly $639,000 from her OCC campaign account. Pinnell had $450,000 on hand, but outraised Murphy in the fourth quarter, $113,000 to her $44,000. Fields finished the year with $65,274 in funds; Block had nothing. Murphy’s donors include oil and gas executives, attorneys, insurance executives, lobbyists, real estate developers, bankers and real estate developers.

Murphy’s campaign website pledges “to address the roots of the longstanding problems facing our state, including the budget, education, health care and infrastructure,” but it is light on policy details.

Instead she highlights her Oklahoma roots and writes of putting more than 180,000 miles on her “little blue truck” to attend events statewide and “visit folks just like you.”

A fifth-generation Oklahoman, Murphy grew up on a ranch, graduated from Oklahoma State University with honors and first worked as a petroleum geologist. As Murphy says on her website, her family encouraged her to “do more and be more,” so she earned a night school law degree from Oklahoma City University while working as a law clerk.

The state’s Sooner Poll has yet to release results of the lieutenant governor’s race, but Pinnell appears to be her strongest opponent. Besides his fundraising prowess, he has built inroads with the national Republican Party by working as a campaign manager for the GOP in all 50 states.

Former Missouri Public Service Commissioner Steve Stoll, who served alongside Murphy on the RSC before cycling off the committee and his state’s commission in January, recalled her as “a very hard worker.”

“I know she cared deeply about the state and wanted to ensure her ratepayers were treated fairly,” he said.

“She has deep knowledge of the energy business, and energy is an integral component to the Oklahoma economy,” said SPP General Counsel Paul Suskie, who works closely with the RSC.

After six years as an administrative law judge for the OCC, Murphy won a seat on the commission in a 2008 special election. She was re-elected to full terms in 2010 and 2016 and has seen her workload grow from normal petroleum and electricity issues to ride-sharing companies and seismic activity related to fracking.

“To make really difficult decisions is something I’ve spent nine years on,” she said, referring to reaching consensus with the OCC’s other two commissioners, Vice Chair Todd Hiett and Bob Anthony. “We don’t have the same opinions on a lot of things, yet somehow, we have to find a way to work together to make decisions. You look at the stakeholders that we deal with, with very divergent opinions and decisions … you have to have the ability to try and process all that and make some really difficult decisions that ultimately, everyone is going to be unhappy with.”

Doing More with Less

Complicating matters, Murphy says, is that the OCC has been asked “to do more with less.”

“Our appropriations from the legislature continue to go down, but our authority and responsibility by statute have increased, just in the nine years I’ve been there,” she said.

Some Oklahoma utilities and petroleum companies have complained about the OCC’s delay in resolving rate cases, which has resulted in interim rates being implemented, subject to refund. Oklahoma law allows the commission to implement interim rates if the cases aren’t resolved in 180 days.

OGE Energy has led the complaints against the process, which reached a crescendo when its December 2015 request for $92.5 million was implemented on an interim basis of $69.5 million in the summer of 2016. The OCC gave OGE’s Oklahoma Gas & Electric utility customers a $47.5 million refund when the rate case eventually concluded last April.

“We are investing north of $500 million in our system every year. I think it’s my job to be supportive of the state, but we’ve got to be able to come up with a way to recover that in a timely manner,” OGE CEO Sean Trauschke said last month during the company’s most recent earnings call with analysts.

Oklahoma Gov. Mary Fallin (R) has responded to the outcry by forming a task force to suggest ways to improve the commission’s performance. (See OGE Anticipates Legislative Review of Oklahoma Regulators.) For her part, Murphy says she is hopeful the task force will increase awareness of the OCC’s challenges and responsibilities.

Lieutenant governor may not be Murphy’s ultimate goal. Oklahoma media note the position is seen as a stepping stone to the governor’s mansion. Case in point: Lt. Gov. Todd Lamb, an early frontrunner for this year’s GOP’s gubernatorial nomination, is now running second to Oklahoma City Mayor Mick Cornett in a crowded field. They are battling to replace the term-limited Fallin, who was elected governor in 2010 after previously serving as lieutenant governor and a U.S. representative.

Murphy, whose term ends in 2022, said she will continue to represent the OCC on the RSC and serve at the commission during her campaign for higher office. As she put it, “I’m here until I’m not here.”

March 4, 2018

Ex-NSA Cyber Expert: Let Industry Lead on Grid Defense

By Rich Heidorn Jr.

FERC should stop issuing new cybersecurity standards to allow the electric industry to develop innovative defenses to vulnerable industrial control systems — and the National Guard should be ready to respond if an attack succeeds, witnesses told the Senate Energy and Natural Resources Committee on Thursday.

FERC CIP cybersecurity Senate Energy and Natural Resources Committee — Walker

The panel heard from Assistant Energy Secretary Bruce Walker, a former National Security Agency cyber sleuth, the CEO of the National Rural Electric Cooperative Association (NRECA) and two academics in a nearly two-hour hearing. Chairman Lisa Murkowski (R-Alaska) opened the hearing by asking for advice on what Congress should do after giving FERC the power to issue mandatory reliability standards (in the Energy Policy Act of 2005) and making the Department of Energy the federal agency in charge of responding to attacks on the grid (in the 2015 Fixing America’s Surface Transportation Act).

Robert M. Lee, who founded industrial cybersecurity company Dragos with two other former NSA experts on industrial threats, told the committee that the critical infrastructure protection (CIP) standards mandated by FERC through NERC had made “the North American Bulk Electric System the most resilient and well defended in the world.”

But he said FERC and NERC should not issue any new CIP regulations for three to four years. “This would allow companies to catch up with the current regulations … [and] allow the electric asset owner and operator community to spend a period of time innovating and thinking of new best practices informed by experience. At the end of this period DOE, FERC, NERC and the regulated community can then identify best practices and determine if new regulations are appropriate,” he said.

“If this recommendation is not palatable, then I would propose an alternative where the regulations are focused instead on program building, such as regulating that a company implement a threat intelligence program, instead of performance-based auditing,” he continued. “This would satisfy the potential desire to move regulations forward while allowing the electric community to develop their own ways forward inside of those programmatic bounds.”

The problem, Lee said, is that “regulations and standards are the trailing end of best practices and only serve as a base level of security. They are not, nor would any regulation be, adequate in the face of determined adversaries. Malware and vulnerabilities are not the threat. The threat is the human adversary, and we cannot regulate them away.”

OT is not IT

Lee and other witnesses emphasized the differences between attacks on utilities’ information technology systems and those on operational technology systems such as supervisory control and data acquisition (SCADA).

“Fortunately, the successful attacks to date have largely been concentrated on utility business systems, as opposed to monitoring and control systems, in part because the operational technology systems have fewer attack surfaces, fewer users with more limited privileges, greater use of encryption, and more use of analog technology,” said professor William H. Sanders, head of the Department of Electrical and Computer Engineering at the University of Illinois at Urbana-Champaign. “However, there is a substantial and growing risk of a successful breach of operational technology systems, and the potential impacts of such a breach could be significant.”

Walker, who heads DOE’s Office of Electricity Delivery and Energy Reliability, also made the distinction. “Power systems must operate continuously with high reliability and availability. Upgrades and patches can be difficult and time-consuming, with components dispersed over wide geographic regions,” he said. “Further, many assets are in publicly accessible areas where they can be subject to physical tampering. Real-time operations are imperative, and latency is unacceptable for many applications. Immediate emergency response capability is mandatory and active scanning of the network can be difficult.”

New DOE Cyber Office

Last month, DOE announced it was merging its Infrastructure Security and Energy Restoration (ISER) division and Cybersecurity and Emerging Threats Research and Development (CET R&D) division into the Office of Cybersecurity, Energy Security and Emergency Response (CESER).

Walker said CESER “will enable more coordinated preparedness and response to cyber and physical threats and natural disasters. This must include electricity delivery, oil and natural gas infrastructure, and all forms of generation.”

President Trump has requested $95 million in fiscal 2019 for the office “with a focus on early stage activities that improve cybersecurity and resilience to harden and evolve critical grid infrastructure,” Walker said. “These activities include early stage R&D at national laboratories to develop the next generation of cybersecurity control systems, components and devices including a greater ability to share time-critical data with industry to detect, prevent and recover from cyber events.”

Acts of War

Jim Matheson, CEO of the National Rural Electric Cooperative Association (NRECA) and a former congressman (D-Utah), decried “far-fetched scenarios [and] sensationalized claims” about the risks to the grid.

“The scenarios most publicized are rarely reflective of the real threat environment and disproportionately emphasize the highest consequence scenarios that are the least likely to occur,” he said. “Many of the more dramatic scenarios would constitute acts of war on the United States and would directly impact more than just the electric sector.”

No Cyber Fire Departments

Such an event would call for the National Guard, said Barbara Endicott-Popovsky, executive director of the Center for Information Assurance and Cybersecurity at the University of Washington.

Endicott-Popovsky said Congress should pass a bill that would establish National Guard Cyber Civil Support Teams of up to 10 members in every state and territory to serve as first responders following an attack and bridge the gap between federal and non-federal efforts. The cyber CSTs would be under the direction of governors and state adjutant generals, under legislation (H.R.3712) introduced last September in the House of Representatives and referred to the Subcommittee on Military Personnel in October. The bill is modeled after a program created by the Washington National Guard.

“Civilians are used to calling 911 for emergencies of all kinds, but who do you call in the event of a major cyber outage? There are no cyber fire departments,” she said. “The [Department of Defense] is prepared to defend their own networks to support their missions, but who will step in on the civilian and private sector sides to restore power, to assist with maintaining our communities? There is no one. This vacuum is a national security threat.

“Public and private, we have two very different missions: The mission of the military is to protect the Homeland, and the mission of private sector to innovate and maintain profitability for the board and shareholders,” she continued. “Blending missions is not an easy task, but the time has come where the cost of not integrating resources significantly outweighs the benefits of maintaining independent response plans. This is especially true given the workforce shortage of cyber specialists.”

Endicott-Popovsky said it will take a national effort comparable to NASA’s goal of landing on the moon to fill the shortage of cyber talent. “While cybersecurity education has been called a national priority by some, there still are hundreds of thousands of cybersecurity jobs going unfilled, and the gap will take a long time to close,” she said.

The good news: Cybersecurity is becoming a profession, with 32 distinct career paths identified under the National Initiative for Cybersecurity Education (NICE) framework, she said.

How Congress Can Help

In response to Murkowski’s question about Congress’ next steps, Matheson called for more timely information sharing by government after incidents such as the December 2015 attack on Ukraine’s grid.

He also called for legislation allowing the FBI to conduct background checks on utility industry personnel performing critical functions, continued funding for R&D and aid to small and medium utilities for improving their security.

Illinois’ Sanders said DOE, the Department of Homeland Security and researchers should focus their R&D and demonstration projects on developing six capabilities: “continuous data collection, fusion of sensor data, visualization, analytics, restoration and post-event tools.”

“These capabilities can be achieved only if academia, industry and government work closely together in a focused research and development program,” he said.

March 4, 2018

FERC OKs New ISO-NE Bilateral Capacity Trades

By Michael Kuser

FERC on Wednesday accepted ISO-NE’s proposed new capacity bilateral transaction and a revised materiality threshold for determining whether a resource can satisfy its capacity supply obligation (CSO) (ER18-455).

The grid operator proposed the annual reconfiguration transaction (ART) to replace the capacity market’s existing bilateral contracting mechanism, the CSO bilateral. The RTO said the change was needed to accommodate its transition to marginal reliability impact-based demand curves (MRI), which are based on the expected improvement in reliability from adding incremental capacity.

The commission’s Feb. 28 order said that the ART will give resources looking to replace their CSO through a bilateral contract more flexibility. “The ART mechanism will accommodate even or uneven exchanges within the same zone or across constrained zone boundaries, even where exchanges previously were prohibited, while accounting for the actual net impact on reliability in a manner that does not disadvantage suppliers or consumers,” the commission said.

FERC ISO-NE bilateral transactions — | *Energyzt, ISO-NE*

FERC also agreed to ISO-NE’s proposal to change how it determines when to submit demand bids in the third Annual Reconfiguration Auction (ARA) for resources that have a significant decrease in capacity. The RTO said its previous threshold — 20% of its CSO or 40 MW, whichever is lower — produced outcomes that focus on relatively small deficiencies and ignore relatively large deficiencies. For example, a 35-MW deficiency from a 100-MW resource would be subject to the RTO’s mandatory demand bid rule, while the same deficiency from a 200-MW resource would be exempt.

Under the new rules, the RTO will intervene when a resource’s capacity decreases by 10 MW, or 10% (but at least 2 MW), whichever is lower.

The commission dismissed FirstLight Power Resources’ request to eliminate the minimum 2-MW floor for the threshold. “We do not find any evidence that the proposed changes will result in undue discrimination among resources or compromise the integrity of the capacity markets, as FirstLight claims,” it said. The proposed thresholds “reasonably balance the impact on large and small resources, while reducing ISO-NE’s administrative burden.”

FERC also rejected a request from New England generators Exelon, CPV Towantic and NRG Power Marketing that the mandatory demand bid changes take effect in Forward Capacity Auction 9, rather than FCA 11.

Because it found the “proposal, including its implementation date, to be just and reasonable, we need not consider whether an alternative proposal is also just and reasonable,” the commission said.

There was no evidence that the new threshold will undermine the integrity of the capacity market, the commission said. “For all resources, regardless of the significant decrease threshold, the general obligations associated with having a CSO continue to apply.” The existing thresholds have not undermined the integrity of the capacity market or sent a signal that it is appropriate to intentionally overstate a resource’s capacity values, it said.

“We find it is reasonable to expect that the revised rules, which ISO-NE expects to affect a similar amount of capacity as the existing rules, likewise would not undermine the integrity of the market,” the commission said.

March 4, 2018

FERC Denies Rehearing on NextEra NYISO Adder

FERC last week rejected the New York Public Service Commission’s request to rehear a November 2017 decision granting NextEra Energy Transmission New York (NEET NY) a 50-basis-point adder for participating in NYISO.

The ISO in October selected the company’s Empire State Line proposal to address a need for new transmission in western New York.

FERC NYISO NextEra Energy undiversified credit adder — Empire State Transmission Line | *NextEra Energy Transmission*

FERC’s Feb. 28 order dismissed the PSC’s argument that a participation adder — or membership incentive — was unnecessary because NYISO selected NextEra as part of its transmission planning process, leaving the company no choice but to turn over operational control of its transmission to the ISO (ER16-2719).

The federal commission countered that the incentive recognizes the consumer benefits, including reliability and cost benefits, that flow from ISO membership.

Section 219 of the Federal Power Act provides for incentives to each transmitting utility or electric utility that joins an RTO/ISO, and incentive-based rate treatments benefit consumers by ensuring reliability and reducing the cost of delivered power, FERC said.

Empire State Transmission Line | *NextEra Energy Transmission*

“We consider an inducement for utilities to join, and remain in, transmission organizations to be entirely consistent with those purposes … and the best way to ensure those benefits are spread to as many consumers as possible is to provide an incentive that is widely available to member utilities … and is effective for the entire duration of a utility’s membership in the transmission organization,” FERC said.

FERC granted NEET NY’s request subject to the return on equity with the adder being within the zone of reasonableness, it noted.

— Michael Kuser

March 4, 2018

PJM Chief Confident on Western Market Proposal

By Jason Fordney

SAN DIEGO — A joint effort between Peak Reliability and PJM offers Western industry players a chance to design their own market, one that will operate with more transparency than CAISO, PJM CEO Andy Ott said last week.

“The whole key here is the ability of the West to build up its own rules,” Ott said.

The CEO added that PJM’s expertise in coordinating markets and dealing with regional differences in the East will be a major asset in developing a Western market in partnership with Peak.

Having traveled west last week to attend a meeting of the Western Power Trading Forum, Ott sat down with RTO Insider to discuss the new Peak Reliability/PJM Connext market proposal. (See Peak Touts ‘Independent’ Western Market Plan.)

The partnership is galvanizing interest across the industry around a new Western market, but it comes amidst several other major recent developments shaking up the region.

Among them: competing efforts by CAISO to provide reliability coordinator (RC) services and extend its day-ahead capability into the Energy Imbalance Market (EIM). (See ‘Horse is out of the Barn’ for CAISO RC Effort and CAISO Plan Extends Day-Ahead Market to EIM.)

PJM’s executive spoke frankly about the shortcomings he sees in CAISO, including what he characterized as a relatively closed-door process for addressing market issues, compared with the more stakeholder-driven approach he envisions for the Peak market.

In California, “they have a discussion about a specific issue they are going to change, then they go in a room and make a decision, and they come out and they have a decision,” Ott said. “It’s not done that way everywhere.”

Ott touted PJM’s experience in operating a 13-state, multibillion-dollar energy market in the East. The RTO brings that experience to the effort, while Peak has the real-time reliability model of its territory already completed, he said.

Aside from the market proposals, Peak and CAISO are competing to provide NERC-certified RC services. Shortly after Peak and PJM announced their effort, CAISO dropped Peak as its RC and announced it would offer Western utilities RC services at a lower cost.

Peak CEO Marie Jordan, who also attended the WPTF event, noted that the only non-revocable notice of departure that the organization has received so far is from CAISO. Several Peak customers have announced they will leave, after CAISO issued its notice of withdrawal at the beginning of the year.

Late last month, the Bonneville Power Administration and Western Area Power Administration separately announced they have signed nonbinding notices signaling their intent to depart Peak by the end of 2019. BPA said it is exploring receiving RC services from CAISO, while WAPA is considering SPP and CAISO for some of its balancing authorities.

Andy Ott PJM Connext Western Market — A business plan for the Peak Reliability/PJM Connext proposal is due at the end of March

That move, along with a possibly rejuvenated effort to regionalize CAISO, represent other pieces of a shifting landscape. (See Calif. Lawmakers Relaunch CAISO Regionalization.)

Ott noted that the EIM was designed with the specific purpose of giving California a way to export renewable generation and get services back. The market benefits California customers, and he called outside regional participants “guests” in the market.

“I see the EIM, frankly, as a stopgap,” Ott said. “It was created to solve a problem.”

Ott said the business case for the market is being studied and is due to be issued March 30. Peak executives have publicly discussed the potential for the effort to evolve into a full RTO, something Ott says will depend on input from market participants.

“Our mindset is that if we put the PJM name on something, it’s not going to fail. We cannot afford to let it fail,” Ott said.

March 4, 2018

PJM, TOs Propose FERC Order 890 Compliance Plan

By Rory D. Sweeney

PJM and its transmission owners released a joint proposal last week to address FERC’s decision last month that the TOs are not in compliance with Order 890 (EL16-71, ER17-179).

The commission ruled that the TOs were failing to provide stakeholders with adequate notification, information and enough opportunities to engage on “supplemental” projects —transmission expansions or enhancements not required for compliance with reliability, operational performance or economic criteria. The projects are part of PJM’s Regional Transmission Expansion Plan but not subject to staff’s oversight and approval. (See FERC Orders New Rules for Supplemental Tx Projects in PJM.)

PJM FERC Order 890 supplemental projects compliance — PJM and its transmission owners have proposed several meeting changes to address FERC’s recent decision that TOs don’t comply with Order 890. The changes could impact how the Transmission Replacement Processes Senior Task Force is run. | © *RTO Insider*

FERC ordered the TOs to define nine time-period minimums that were previously vague. In response, TOs have proposed there be a minimum of 25 days between meetings on the three parts of project planning: assumptions, needs and solutions. They also offered to post information to be discussed at that meeting 10 days ahead of time and allow 10 days after meetings to receive comments. Finally, they proposed a 10-day waiting period to consider written comments before incorporating their local transmission plans into the RTEP.

“The minimum time periods proposed are designed to complete the consideration of supplemental projects in time for the PJM board meeting to approve the Regional Transmission Expansion Plan in July and in subsequent RTEP approval cycles throughout the year,” PJM and the TOs wrote in the joint proposal.

PJM is giving stakeholders until March 9 to comment on the proposal. But some have already said they aren’t yet ready to sign off.

“We are carefully reviewing the filing with a view of the current planning process as well as the language in the order,” said American Municipal Power’s Ed Tatum, who has been a vocal critic of the process. “Absent discussion with the TOs, PJM and other stakeholders, it is difficult to determine if the time frames and process proposed will yield any improvement to the current process.”

March 4, 2018

Overheard at ISO-NE’s Consumer Liaison Group Meeting

By Michael Kuser

NEW CASTLE, N.H. — More than 100 people gathered with ISO-NE’s Consumer Liaison Group (CLG) at the historic Wentworth by the Sea hotel to discuss the rapid changes overtaking New England’s electricity market.

The CLG holds quarterly meetings around the region to provide a chance for residents, state officials and energy experts to learn more about the grid operator.

ISO-NE Consumer Liaison Group Cold Snap — Tepper | © *RTO Insider*

CLG Chair Rebecca Tepper, chief of the energy and telecommunications division in the Massachusetts attorney general’s office, said the group is “thinking about additional opportunities for members of the CLG to talk directly to ISO New England professionals and staff, just so there’s more direct communication available.”

Here’s more of what we heard at the CLG’s most recent meeting.

From Consumer Boon to Market Boom

New Hampshire Public Utilities Commissioner Michael Giaimo said that New England’s market restructuring has benefited consumers.

“No longer can a utility build a generation facility solely on the backs of ratepayers,” Giaimo said. “The system of captive ratepayers being susceptible to stranded costs has been replaced by developers and their shareholders bearing the risks and the rewards associated with building, operating and maintaining a generation facility.”

Anne George, ISO-NE vice president for external affairs, said the RTO’s 2017 average wholesale energy prices were the second lowest since 2003, while last month’s Forward Capacity Auction 12 marked the third consecutive decline in clearing prices. (See ISO-NE Capacity Prices Hit 5-Year Low.)

George reiterated the RTO’s concerns about fuel security, a challenge brought home during two bitter cold weeks around New Year’s Day when New England generators burned through nearly 2 million barrels of oil, more than twice the amount used by the region’s power plants during all of 2016. (See Van Welie: ISO-NE in ‘Race’ to Replace Retirements.)

Giaimo noted that the cold snap saw the value of the region’s energy transactions surge to about $1.1 billion during the first three weeks of January, equal to 25% of the entire energy market value in 2015. (See FERC, RTOs: Grid Performed Better in Jan. Cold Snap vs. 2014.)

Markets Misalignment

Jonathan Peress, director of energy market policy at the Environmental Defense Fund, said the Northeastern power price spike observed Jan. 5 was not driven by New England gas pipeline constraints but by New York City power demand, which was symptomatic of a misalignment between gas and electric pricing.

Peress (left) and Bodell | © *RTO Insider*

“Very high LNG sendout kept Algonquin [gas hub] prices lower than would otherwise have been the case on Jan. 5,” Peress said. “LNG was the key resource that allowed consistent access to gas.”

The value of gas supply and pipeline delivery service fluctuates over the course of the day, but the gas market primarily relies on a single daily index price. Non-ratable takes are valuable to generators, but the variable flow and pipeline flexibility service is not priced, he said.

“It’s really not good to be relying on 50-year-old oil steam boilers for our reliability in New England,” Peress said. “I used to manage some of them — not pretty.”

New Hampshire Sen. Andy Sanborn (R) said “virtually every woe you have, when it comes to your ability to run your company and energy policy, actually solely starts at the legislature.”

The legislature controls the energy conversation, and discussion ends up being a debate between left and right, Sanborn said, when the region has systemic problems.

“It is specifically the legislature that determines whether we’re going to let that market run freely, all the way from our ability to sign off on long-term plan purchase contracts … to what percentage of our business needs to be renewable or non-renewable, and whether or not we are allowing companies to bring gas in or bring power down,” Sanborn said.

Market-Based Solutions

Carl Gustin, a communications strategist with consultancy Salient Point, brought a historical perspective to the discussion by recalling how the 1978 Power Plant and Industrial Fuel Use Act banned the use of natural gas by power plants.

The ISO-NE Consumer Liaison Group met on March 1, 2018 | © *RTO Insider*

The first energy-efficiency measures elicited disbelief among utility executives who could not envision “un-selling” their product.

“We called it conservation back then,” Gustin said.

But now: “You’ve got renewables coming up and coming on quickly and you’ve got to manage that system both for voltage and for reliability,” Gustin said. “You’ve got a big problem in front of you.”

Tanya Bodell, executive director of consultancy Energyzt, said that, coming from the Chicago school of economics, she always favors market-based solutions.

“Right now, there’s not an incentive through the price signal for most customers to adjust their consumption, so we’re really not tapping into the demand response,” Bodell said. “And customers can make money — those who are able to make those adjustments. I would say that’s a market solution.”

Pricing carbon is another market-based solution, she said.

“If you put a price on carbon, the cost of the oil-fueled units will become more expensive and other alternatives, LNG for example, can come in and help to solve that. We saw LNG flowing into New York. If the price signal is there, it will come.”

March 2, 2018

FERC Greenlights Great Plains-Westar Merger

By Amanda Durish Cook

FERC on Wednesday approved the proposed $14 billion merger between Great Plains Energy and Westar Energy, ruling that it would not have an adverse impact on market competition or rates in SPP.

The deal is still subject to approval by Kansas and Missouri regulators.

Missouri-based Great Plains owns Kansas City Power & Light, and Kansas-based Westar owns Kansas Gas and Electric. Kansas regulators last year pushed back on Great Plains’ original plan to buy out Westar, spurring the companies to recast the transaction as a “merger of equals.”

Under a revised plan filed with the Kansas Corporation Commission in late August, Great Plains proposed that the two companies would combine under a $14 billion holding company operating in both Kansas and Missouri. Westar shareholders would own about 52.5% of the company with Great Plains shareholders holding the rest, according to the amended merger application (18-KCPE-095-MER). The companies have pledged that the holding company will maintain separate debt and capital structures for each subsidiary. (See Great Plains, Westar File Revised Merger Plan.)

The deal would entail no cash exchange or transaction debt, and retail customers would receive $50 million in upfront bill credits across all rate jurisdictions. The combined company would serve about 1 million customers in Kansas and almost 600,000 customers in Missouri.

In approving the deal, FERC made clear that a five-year hold-harmless commitment agreed to by the two companies would not cover any costs related to Great Plains’ failed bid to buy out Westar (EC17-171). Under that commitment, Great Plains and Westar have agreed not to seek to recover any costs related to integrating the companies unless they can demonstrate, through a Section 205 filing, that a merger activity yielded savings in excess of costs incurred.

Greta Plains Energy Westar Energy merger SPP — | *Great Plains and Westar*

But the commission clarified that because Great Plains’ original acquisition strategy was “pursued but never completed,” costs related to the transaction “should not be included as part of the hold-harmless commitment and cannot be recovered from ratepayers pursuant to it. The costs related to the 2016 transaction are instead subject to the commission’s ordinary ratemaking principles under [Federal Power Act] Sections 205 and 206.”

Additionally, FERC said it was not persuaded by a protest by Kansas Electric Power Cooperative, which asked the commission to apply an equally strong hold-harmless commitment to wholesale customers as it would for retail customers, using pre-merger common equity levels to calculate rates, shielding the co-op from merger-based rate impacts. It also asked that all hold-harmless commitments be indefinite.

FERC said ordering extra hold-harmless protections without evidence would be “speculative” and noted that it doesn’t require merger plans to include hold-harmless commitments for market-based wholesale power sales.

The commission also declined the co-op’s request that Great Plains and Westar provide it with a detailed list of all merger-related costs through a new compliance filing.

The proposed merger is still in prehearing stages at the KCC until March 19, when the first evidentiary hearing is scheduled. A public comment period on the merger ends March 29.

The Missouri Public Service Commission is also reviewing the proposed merger and will hold evidentiary hearings March 12 to 16 (EM-2018-0012).

March 2, 2018

ERCOT: Tight Summer Margins No Cause for Alarm

By Tom Kleckner

ERCOT said Thursday it expects the recent retirement of coal-fired and aging units to result in tight operating reserves this summer — an unnerving proposition for some observers when the ISO is also projecting record-breaking peaks during the summer heat.

According to ERCOT’s preliminary seasonal assessment of resource adequacy (SARA) for the summer (June-September), the grid operator expects a total resource capacity of 77.7 GW. That doesn’t leave much wiggle room when the report also forecasts a summer peak load of almost 73 GW, which would break the 2016 record of 71.1 GW.

“The name of the game is performance,” ERCOT Manager of Resource Adequacy Pete Warnken said during a media call, repeating a message CEO Bill Magness delivered to the ISO’s Board of Directors last week. “We need to make sure all our resources are available and that we have situational awareness. If everyone is diligent about doing their job, we should be fine.”

ERCOT ORDC operating reserves — ERCOT operators monitor the Texas grid. | © *RTO Insider*

Warnken highlighted ERCOT’s operating reserve demand curve (ORDC), a real-time price adder that reflects the value of available reserves, as one of several pricing mechanisms available for use this summer. He said the ISO will be “centrally testing” the ORDC for the first time this summer.

Dan Woodfin, ERCOT’s senior director of system operations, joined with Warnken in explaining to anxious Texas media how emergency response and other ancillary services, demand response, the 1.2 GW of emergency capacity available over five DC ties, and the availability of generators that can switch between neighboring grids will help prevent rolling blackouts in a worst-case scenario.

“We certainly have the tools and processes in place,” said Warnken, who also dismissed the likelihood of blackouts.

“In general, the whole market is set up in such a way that it encourages all generators to be online and resources to be available,” Woodfin said. “During these tight conditions, when prices are higher, there are lots of economic incentives to reduce demand or produce power.”

ERCOT said in its SARA announcement that the wholesale market provides “strong financial incentives” for generators to be available when demand rises and for retail electric providers to prepare for price fluctuations. It also raised the possibility of voluntary load reductions and injections of energy into the market by industrial facilities during peak demand.

In a somewhat unusual move, the Public Utility Commission of Texas, which oversees ERCOT, issued a statement following the SARA release, saying it continues to “closely monitor” this summer’s supply and demand forecasts. It noted generation owners’ decisions to retire large coal-fired power plants have “significantly reduced the excess supply of electricity” ERCOT has “enjoyed over the past five years.”

“It is important to note that the ERCOT market is designed with a number of mechanisms and tools to incentivize increases in supply or temporary reductions in demand to maintain the reliability of the system,” PUC spokesman Mike Hoke said, referring to the many different tools at the ISO’s disposal.

ERCOT attributed the tightening operating reserves to increased load from the state’s strong economy and the recent retirements. In a statement, Magness noted a series of monthly, winter and all-time peak demand records during recent years “as Texas’ economy continues to grow at record pace.”

“We expect high demand will continue this summer,” he said.

The ISO’s year-end Capacity, Demand and Reserves (CDR) report projected a 9.3% planning reserve margin for 2018, half of what it was in May and 4 percentage points below a 13.75% target ERCOT established for itself in 2010, following the wave of plant retirements last year. (See ERCOT: Tightening Reserve Margins no Cause for Concern.)

ERCOT said 3,800 MW in new generation resources began operating in 2017 and more than 14,000 MW of resources are planned to be in service by 2020.

The ISO also released its final assessment for the spring season (March-May), adjusting its spring peak forecast to 59.5 GW. It said it has sufficient generation on hand to meet demand.

March 2, 2018May 31, 2024

NRG Announces $1 Billion Stock Buyback, $70 Million Sale

By Peter Key

NRG Energy said Thursday that its board has authorized the company to spend $1 billion to repurchase its own shares.

The company also said it has agreed to sell its Boston Energy Trading and Marketing subsidiary to Mitsubishi’s Diamond Generating unit for $70 million.

The moves are the latest in a series of steps NRG has taken to boost its share price in response to pressure from Elliott Management, a hedge fund run by billionaire Paul Singer, and Bluescape Energy Partners, a private investment firm, which announced in January 2017 that they had taken a 9.4% stake in the company.

NRG last July announced a transformation plan that it said would improve its recurring costs and margins by $1.1 billion; raise from $2.5 billion to $4 billion in cash through asset sales; and remove $13 billion in debt from its balance sheet. The company took major steps to execute that plan last month when it agreed to sell its renewables business, its stake in NRG Yield and its South Central Generating subsidiary in transactions that will bring it $2.8 billion in cash and take $7 billion in debt off its books.

The company also said last month that it expects to announce more sales this year and has revised its total asset sales cash proceeds target under the transformation plan to $3.2 billion. (See NRG Selling Renewables, Other Assets for $2.8 Billion.) With the announcement of the Boston Energy sale, the company has reported sales totaling more than $3 billion, all of which are on track to close by the end of the year, CEO Mauricio Gutierrez said during the company’s earnings call Thursday. As the closings progress and NRG completes the initial $500 million portion of its share repurchase program, it will look to kick off the second $500 million round of buybacks, he said.

Gutierrez also said NRG’s GenOn Energy subsidiary, which is operating under bankruptcy protection, could transition to becoming a standalone company as early as September. GenOn’s reorganization plan was approved by the U.S. Bankruptcy Court in Delaware in December, and its financial results are no longer included in NRG’s. On Tuesday, Platinum Equity said it has agreed to buy an 810-MW combined cycle gas-fired plant in Gettysburg, Pa., from GenOn for $520 million.

NRG posted a loss of $1.67 billion from continuing operations on revenue of $2.46 billion in the fourth quarter of 2017, compared to a loss of $891 million on revenue of $2.48 billion in the same quarter of 2016.