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January 12, 2025

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PJM MRC/MC Briefs: June 21, 2018

Adequacy Analysis Approved Despite Concerns

WILMINGTON, Del. — Members at last week’s Markets and Reliability Committee meeting approved PJM’s proposed revisions to adjust the methodology for developing the capacity model for winter peak weeks, despite strong dissent from stakeholders concerned about how the modifications might affect capacity procurement.

PJM’s Patricio Rocha-Garrido said the theoretical approach used by the RTO’s PRISM modeling software to derive aggregate outage levels during the winter peak week is not representative of actual aggregate historical outage levels because it relies on historical outage data at the individual unit level rather than the aggregate level.

PJM stakeholders listen to presentations at last week’s MRC meeting. | © RTO Insider

To “better account for the risk caused by the volume of concurrent [outages] observed historically during this week,” the changes to Manual 20 create a “cumulative capacity outage probability table” using the historical forced outage data aggregated across the RTO. Planned outages will be based on the average historical planned outages aggregated across the RTO. (See “Winter Modeling Changes,” PJM PC/TEAC Briefs: May 3, 2018.)

However, several stakeholders expressed concern that the changes would reduce the potential for using seasonal resources.

“Given the summer-dominated loss-of-load-expectation, it is my takeaway that this change isn’t really going to have a measurable impact on the installed reserve margin,” Old Dominion Electric Cooperative’s Mike Cocco said. “However, if FERC orders changes to PJM’s annual capacity construct in response to several FERC [Federal Power Act Section] 206 complaints, then these Manual 20 changes potentially would have an effect by limiting the ability of seasonal capacity market resources to contribute. I would say there’s been a fundamental design change in [Capacity Performance], and I wouldn’t personally put so much focus on historical data but be looking at developing projections based on the design changes.”

“The challenge is making assumptions for the future; the only anchor point we have is the past,” Rocha-Garrido said.

“I believe that the assumption that planned outages is not a PJM-controllable level is not correct. It implies that PJM does not have control of planned outages,” CPower’s Bruce Campbell said.

He explained that lowering the expectations of units’ availability in the winter increases the overall procurement of annual resources, which means there would be less opportunity for seasonal resources to fill in the difference between the baseline amount of always-available resources and seasonal peak demands.

Carl Johnson, who represents the PJM Public Power Coalition, said he would be requesting a review for next year’s analysis of the model’s sensitivities and incorporating a different set of assumptions about how CP resources should be operating.

Some generation owners defended the revisions as necessary.

“We do need to do this. We cannot ignore it,” said Calpine’s David “Scarp” Scarpignato, who said he’s seen windmills in Texas stop working when the weather gets too cold.

Despite the concerns, stakeholders overwhelmingly endorsed the changes with 4.56 in favor and 0.44 opposed in a sector-weighted vote. The threshold for endorsement was 3.33.

The vote came on the same day PJM released a study analyzing the first year of partial implementation of CP in delivery year 2016/17 compared to the previous 2015/16 delivery year, which found that generator performance has improved since implementing CP even though the model has not been extensively tested by the extreme weather it was designed to address.

Unrelated to the MRC, Robbie Orvis of the clean energy consulting firm Energy Innovation, tweeted his own takeaways from the analysis. He noted the report’s acknowledgement of poor performance from coal-fired units during the January cold snap known as the “bomb cyclone.”

“Coal and oil Capacity Performance resources did not perform as well as their non-Capacity Performance counterparts during the cold snap. Understanding the source of this issue requires some additional analysis,” the report said. “Both coal and oil Capacity Performance resources showed no improvement in forced outage rates from the polar vortex to the cold snap.”

PJM said in the report that owners of coal-fired resources are making “major equipment overhauls and upgrades to ensure the longevity of these resources,” winterizing equipment to prevent icing and freezing, and “performing routine testing and inspections to ensure the quality of their equipment.”

Trust in Short Supply

A routine agenda item about cleaning up PJM’s governing documents turned into an impromptu stakeholder referendum on the RTO’s trustworthiness when stakeholders refused staff’s request for authority to file similarly innocuous revisions for FERC approval without stakeholder endorsement.

Members endorsed revisions to the Tariff to clarify cross references with the Operating Agreement and Reliability Assurance Agreement, but they drew the line when staff asked for stakeholders’ consent to file such non-substantive revisions in the future without having to bring them for an endorsement vote. Members allowed that staff wouldn’t need to make a presentation on the revisions but demanded they be on the consent agenda so stakeholders can review the changes.

American Municipal Power’s Steve Lieberman repeated his concerns that PJM was not affording the members sufficient time to review proposed changes to the governing documents and was shocked that the RTO’s response to that criticism was to seek the approval to make future non-substantive changes without prior member approval. Lieberman called into question whether the changes would be deemed non-substantive from a stakeholder perspective even if considered as such by PJM.

“Accidents have been made in the past, and sometimes we catch them for you,” Johnson added.

The reaction prompted Vince Duane, PJM’s general counsel, to weigh in uncharacteristically, saying he was “disappointed” given that members often complain they are overwhelmed by the slow pace of the stakeholder process and the extreme time commitments necessary to meaningfully engage in it.

“If you can’t trust us to make clerical changes … we’ve got a long way to go, and I don’t like the future at all,” he said.

Variable Operations & Maintenance Packages

Voting on whether to allow units to add certain variable costs in their cost-based offers derailed after American Electric Power asked to make several friendly amendments to its own proposal.

The proposed changes were a combination of proposals made by AEP and PJM that would allow units to include variable maintenance costs in cost-based energy offers as part of variable operations and maintenance (VOM). The package was endorsed at the Market Implementation Committee earlier this month. (See “Accounting for Maintenance Costs in Cost-Based Offers,” PJM Market Implementation Committee Briefs: June 6, 2018.)

PJM capacity performance winter peak
PJM’s MRC and MC met on June 21, 2018 | © RTO Insider

The revisions appeared to be an effort to ensure the proposal is the first option to be voted on related to the matter. With the revisions, the proposal much more closely resembled a proposal brought for consideration at the meeting by Rockland Electric Co., which had previously expressed interest in a largely unpopular proposal from the Independent Market Monitor that eliminated all maintenance costs from energy offers. While RECO’s proposal was not as strict, it eliminated some double counting that the PJM/AEP proposal overlooked.

Because the proposal had been endorsed by the lower committee, AEP was no longer allowed to revise it, so it had to offer “friendly amendments” that required endorsement from the membership to be included in the proposal. When some stakeholders balked at being asked to consider last-minute amendments, others suggested the vote be deferred to a later meeting to give everyone a chance to review the changes.

PJM pushed members to commit to voting on the changes at the July MRC, explaining that the outcome affects the quadrennial review of the variable resource requirement curve in capacity auctions, which must be finalized in August. NRG Energy’s Neal Fitch questioned that argument, saying the parameters are cemented in August but the actual calculations don’t happen until January.

“I remain unconvinced that they’re tied together,” he said.

AMP’s Ed Tatum echoed that, saying the MRC “does have the ability to make changes to VOM as it sees fit,” irrespective of any “urgency” PJM desires to put on the timeline.

Stakeholders eventually agreed to defer the vote to the August MRC meeting, maintaining the current voting sequence for the proposals and declining to remand it to the MIC.

Waiting to make the revisions until after the quadrennial review is finalized will mean that these variable costs continue to be included in the cost of new entry calculation that is part of the foundation of PJM’s capacity auction for the next four years. Any subsequent changes that would include them in the VOM component of energy offers would mean that generators could be paid for those costs in both the energy and capacity markets until the VRR can be revised again in four years.

Credit and Default

Staff announced two member issues that will impact market participant accounts.

On Thursday, PJM declared GreenHat Energy in payment default for failing to pay its weekly invoice from June 5 of $1.2 million. The RTO will liquidate the financial transmission rights portfolio GreenHat defaulted on by bidding the balance of the 2018/19 positions into the auction that opens on July 16. Any remaining positions that aren’t liquidated there will be offered into the Aug. 16 auction.

Positions for 2019/20 and 2020/21 will be offered into the long-term FTR auction on Sept. 4. Those that aren’t liquidated will be offered into the Dec. 3 long-term auction.

The net loss or gain on these liquidated positions will be added to the actual unpaid net charges or net credits that accumulate on these positions prior to being liquidated and will be included in the total default amount that will be allocated to PJM’s members. Staff said they can’t estimate the amount of the default allocation assessment but believe it is likely to be “in the tens of millions of dollars.”

PJM will calculate each member’s estimated default allocation assessment percentage that will be applicable to GreenHat’s default after the June 2018 month-end invoices are issued on July 9, which staff hope to post by July 13. Staff said they will pursue “reasonable avenues of collection of GreenHat’s default amounts” and that any money recovered would be allocated back to members that are charged a default allocation.

Staff stressed that they have made revisions to the credit policy that they estimated would have created a $60 million credit requirement for GreenHat to acquire its portfolio had they been in place at the time. Stakeholders are also considering additional revisions to the credit policy. (See “DC Energy FTR Credit Policy Complaint to FERC,” PJM Market Implementation Committee Briefs: June 6, 2018.)

Staff also outlined a plan for allocating funds disgorged by PSEG Energy Resources and Trade as part of a FERC enforcement settlement. The more than $31 million — $26,905,736 plus interest of $4,494,264 — will be allocated as a negative operating reserve charge to market participants that received operating reserve charges during the period covered by the settlement. (See PSEG to Pay $39.4M to Settle FERC Investigation.)

The allocations will be made using a formula “consistent with the methodology utilized to allocate the original PSEG operating reserve credits” and staff hope to have the allocations credited by either June or July.

Stakeholder Process Revisions

During the Members Committee meeting, Chairman Mike Borgatti of Gabel Associates detailed several different initiatives to consider revising the stakeholder process, which had been a source of confusion.

First, he outlined an “academic” exercise being performed by Christina Simeone at the University of Pennsylvania’s Kleinman Center for Energy Policy. Earlier last week, Simeone sent a letter to the committee explaining that her Aug. 2 workshop is outside the stakeholder process and had been planned prior to the announcement at May’s committee meeting of similar initiatives within the stakeholder process. Simeone said she invited approximately 20 undisclosed PJM stakeholders that formed a “representative sample” of the membership and that “increasing the number of invitees risks distorting the representative sample and inhibiting in-depth group dialogue.” The chosen few will discuss “data analysis pertaining to PJM governance trends,” receive a presentation on the topic from Pennsylvania State University researchers and consider “a mock FERC-proposed rule on governance.”

Borgatti offered no endorsement of the workshop.

“I don’t control what Christina does. PJM doesn’t. I didn’t tell her I think this is a good idea,” he said. “In my opinion, this is exactly what it states to be: It’s an academic exercise.”

He assured members that the workshop wouldn’t be used to redesign the stakeholder process without their involvement and input.

PJM CEO Andy Ott echoed that view.

“I don’t believe her scholarship has any direct impact on what we’re going to do here,” he said.

The initiative within PJM will begin with a half-day discussion in late July to consider “target-rich opportunities to improve our process,” Borgatti said. He said the goal won’t be to fix any problems identified, but rather to decide whether they’re worth pursuing. The goal of the July session is to develop a recommended path forward that could be voted on at a future MC meeting.

Ott said he is aware of concerns about the stakeholder process and a “resignation” that nothing can be done to improve it.

“I think that feeling may not be the best situation,” he said.

“On the thorny issues, I think we do have opportunities to do better,” Tatum said, adding that collaboration will require opponents to not “immediately dig in their heels” and instead move forward without “preconceived notions.”

Stakeholders Approve Manual, Operational Changes

Stakeholders endorsed by acclamation several manual revisions and other operational changes:

— Rory D. Sweeney

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Cost Containment Clears MC Vote Despite PJM Plea

By Rory D. Sweeney

WILMINGTON, Del. — A controversial proposal to bring cost-containment measures into PJM’s transmission planning cleared its final hurdle in the stakeholder process last week despite a late attempt to block it by CEO Andy Ott.

The proposed Operating Agreement changes have been among the most contentious in recent memory. Originally developed by LS Power, the proposal gained sponsorship from several consumer advocates and PJM’s Independent Market Monitor, withstanding strong opposition from transmission owners. (See Cost Containment Coming to PJM Transmission Bids.)

It was queued up for one final endorsement vote at last week’s Members Committee meeting when Ott took the unusual step of addressing the membership to seek a delay on the vote. “I think this might be the first time I’ve ever done this,” he said.

Ott used his platform to make one final plea to stakeholders that his staff can’t handle much more.

“I think it risks the [Regional Transmission Expansion Plan] getting so complex that it becomes even more burdensome than it is today,” he said. “If you all would just take a step back. My planning staff is not infinite. … We’ll deploy our resources and do the best we can. But I think it’s unreasonable to expect that the next day we should make the baseline process more transparent. … Certainly, we can do things over time, but if you’re saying do things quickly … we cannot do all of this in the same time frame.”

He argued there are other areas in which increased efficiency would provide greater savings than the transmission cost caps. He suggested the Liaison Committee consider the issue.

“I don’t think there has been constructive engagement from all stakeholders,” he said. “I think there’s room to have more constructive engagement.”

Several of the proposal’s supporters responded to Ott’s comments. American Municipal Power’s Ed Tatum said Ott made “good observations” about the need for transparency for end-of-life projects in the RTEP process — a discussion that has been ongoing in the Transmission Replacement Processes Senior Task Force since March 2016. But, he added, “we are not proposing that PJM do the impossible.” He asked that staff “facilitate those [task force] meetings.”

“We think we’re asking for things TOs have already done to justify these discretionary projects to their management; no more, no less,” he said.

“It’s precisely because PJM and CAISO are national leaders on Order 1000 that it’s extremely important to get this right,” said LS Power’s Sharon Segner, who has shepherded the proposal from the beginning.

Susan Bruce, representing the PJM Industrial Customer Coalition, said even a 1% improvement would be “tremendous” and that the comparisons of financial significance might change as more projects become competitively bid instead of awarded to incumbent TOs.

“This will not stop us from demanding improvement in all spheres,” she said. “If I went back to my members and said [the cost-containment proposal] was deferred, they would be very disappointed in that.”

If PJM needs more staff to complete the intent of the proposal, “that’s an investment they’re willing to pay,” she said of her members.

Dominion Energy and Exelon requested and received approval for a friendly amendment to forbid PJM from requiring bidders to include cost-containment measures in their bids. That was immediately followed by a point of order challenge from PPL’s Frank “Chip” Richardson, who noted a section in the OA that required input from the Board of Managers before the MC can vote. He noted that the board hasn’t responded to a letter TOs sent to it more than a month ago to block action on the proposal. Richardson’s motion initiated a parliamentary process requiring that MC Chair Mike Borgatti, of Gabel Associates, determine whether the vote could proceed.

Ott said the board has seen the letter but hasn’t deliberated on it. Because it was sent right after the board held one of its bimonthly meetings, Ott considered whether it was of enough consequence to reconvene the board to discuss it. He decided it was not, he said.

pjm transmission planning cost containment
Left to right at the PJM Members Committee meeting June 21, 2018: Chris O’Hara, PJM; Dave Anders, PJM; Mike Borgatti, Gabel Assocs; Andy Ott, PJM

Chris O’Hara, PJM’s legal counsel for the MC, said the board has been briefed on the topic and provided comments to the RTO. Board members attending the MC meeting in addition to Ott were Mark Takahashi and Dean Oskvig. O’Hara said the OA provision noted by Richardson “should not provide a legal impediment to stop the vote today” given his interpretation of the OA language and PJM’s practice since its inception of holding MC votes without the board weighing in beforehand. However, he said the final call was up to Borgatti.

“Don’t worry; the bus tires don’t hurt at all,” Borgatti responded.

Greg Poulos, executive director of the Consumer Advocates of the PJM States, said he was “disappointed” that Richardson waited until the last second to unveil his challenge and suggested that TOs and PJM were playing a “game.”

“I don’t think the conversation is advanced by suggesting there was a surprise,” O’Hara said.

“What I can offer you is that [if you think] this was a backdoor dealing, it was not. This is a real-time issue,” Borgatti said. “I have been advised that Roberts Rules require me to render a decision before we continue the meeting.”

Bob O’Connell of Panda Power Funds announced he would challenge Borgatti’s ruling either way to force a membership vote on the issue and relieve Borgatti of the weight of the decision.

“I don’t believe I or any other MC chair should be asked to dictate when the MC can vote on an issue. This is a very uncomfortable position to be in,” Borgatti acknowledged, before siding with O’Hara’s opinion and allowing the vote to proceed.

O’Connell challenged the ruling as promised, and it went to a vote, requiring a simple majority. It was taken as a sector-weighted vote, which meant it had a 2.5 threshold out of 5. It passed easily with 4.5.

The subsequent vote on the proposal also received overwhelming support with 4.28 in favor. The total was later adjusted to 4.17 with votes that hadn’t been recorded at the time, but it was still well above the 3.33 threshold necessary for endorsement.

The RTO must now work with the Monitor to develop the comparative frameworks, the first of which on construction costs is expected to be introduced in September and endorsed at the Markets and Reliability Committee on Dec. 6. It would be effective for long-term transmission proposal submission window, which runs from November to March. The second framework comparing return on equity and capital structures is expected by May 1, 2019, to be effective for all submission windows going forward.

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Counterflow: Pigs are not Flying

By Steve Huntoon

ICF Nuclear Energy Institute PJM
Huntoon

As you may have read, the nuclear industry is promoting a new “study” by the consultancy ICF, purporting to show that failure to bail out nuclear plants would cause widespread blackouts in the Mid-Atlantic region of PJM.[1]

There are glaring fatal flaws. Let me offer just 10 (please email me with stuff I missed):

  1. The Nuclear Energy Institute — not ICF — came up with the study assumptions, thus giving us the classic GIGO — garbage in, garbage out — problem. The study admits this: “NEI specified the scenarios for the analysis and the key assumptions for those scenarios” (page 1). So when you read below about all the unrealistic scenarios and assumptions, please keep in mind that they are the self-serving creations of the nuclear industry.
  2. The study assumes that all the nuclear units (13 GW) in the PJM Mid-Atlantic region will retire if not bailed out (see App. A). No analysis supports this assumption. It is directly contradicted by PJM’s Independent Market Monitor, which has demonstrated, using NEI’s own cost data, that all these nuclear units except one cover their going-forward costs.[2] In other words, instead of 13 GW retiring, 1 GW retires.
  3. The study assumes that retiring nuclear capacity is not fully replaced by other capacity resources, such that PJM overall suffers a capacity reduction of 10 GW (page 36, going from 152 GW to 142 GW). No analysis supports this assumption. It is directly contradicted by experience with PJM’s capacity market, which is designed to, and does, replace retiring capacity with new, more reliable capacity. In the last capacity auction, 67 GW cleared in the PJM Mid-Atlantic region, and there were another 6 GW that offered but didn’t clear — meaning they are available at a higher price if, for example, more nuclear units were to retire (which they won’t, as discussed in #2 above).[3]
  4. The study assumes two gas pipeline incidents happen to occur at the same time, happen to occur during the highest winter demands in history and happen to affect only gas-fired generation (no other pipeline customers), causing the sudden loss of 13 GW of generation, and the outage persists for 60 days. Please note how absurd this scenario is: (a) two incredibly rare incidents happen at the same time; (b) during the highest winter demands in history; (c) only gas-fired generation is curtailed (despite the study’s premise that this curtailment is causing power blackouts); and (d) nothing is restored for 60 days (again, despite the study’s premise that there are blackouts). There is no legitimate basis for these wild assumptions, or for cobbling them together.
  5. The study assumes that all demand response resources fail to perform. No analysis supports this assumption. It is simply buried in a footnote (fn. 22) questioning whether DR would perform, despite enormous penalties for failure to do so.
  6. The study assumes that no oil inventories at dual-fuel gas generators could be restocked over a 60-day period. There is a half-hearted effort to support this assumption with statements about how difficult it might be (page 33). Given enormous penalties for failure to perform, generators would move heaven and earth to resume gas delivery and to restock oil inventories. And, of course, if oil inventory levels are problematic, adding a few more oil tanks would be an infinitesimal cost relative to the subsidies demanded by the nuclear industry.
  7. The study assumes no gas pipeline expansion projects are built, despite the many projects underway like Transco’s Atlantic Sunrise project (1.7 Bcfd) and the PennEast Pipeline (1.1 Bcfd).[4] The study makes an argument that increased pipeline capacity somehow doesn’t increase pipeline capacity (pages 34-35).
  8. The study implicitly assumes zero capability to transmit electric generation from the western and southern regions of PJM into the Mid-Atlantic region. There are 4 GW of such capability in the summer, and more in the winter when circuit ratings are higher because of lower temperatures.
  9. The study implicitly assumes PJM has no tools to mitigate a temporary generation shortfall other than customer outages. No analysis supports this assumption. In a potential emergency, PJM has tools like maximum emergency generation, load management, imports, voluntary conservation and voltage reduction.[5]
  10. I saved the best for last. The nuclear industry is claiming that without a bailout there will be hundreds of hours of blackouts. You would think that if this claim had a shred of credibility that customers facing this prospect would be screaming for a nuclear bailout. Instead, customers are diametrically opposed.[6] Why? Maybe it’s #1 through 9, above.

Let me give you a realistic take on the PJM Mid-Atlantic region. Seventy-three gigawatts offered in the last capacity auction, and there is a conservative 4 GW of transfer capability from western and southern regions of PJM, for a total of 77 GW of resources. The PJM Monitor says 1 GW of nuclear is expected to retire, for 76 GW of resources. Now let’s take the totally unrealistic scenario (see #4 above) of suddenly losing 13 GW of gas-fired generation at the worst possible time. That would leave us with 63 GW, 13 GW more than ICF’s historic peak-hour demand of 50 GW depicted on Figure 6.4 of its study. And that’s before considering pipeline expansion projects, PJM’s emergency tools, etc.

ICF FERC PJM Nuclear Energy Institute
Case specifications and findings for an ICF study commissioned by the Nuclear Energy Institute. The study warns that major gas pipeline outages could result in extended blackouts in PJM if the region continues to lose nuclear generation. Columnist Steve Huntoon says the study’s assumptions are unrealistic. | ICF, Nuclear Energy Institute

There are plenty of things in this world to worry about. Blackouts from not bailing out nuclear plants? No, those pigs aren’t flying.

  1. https://www.nei.org/CorporateSite/media/filefolder/resources/reports-and-briefs/icf-study-fuel-security-grid-resilience-201806.pdf. ↑
  2. http://monitoringanalytics.com/reports/PJM_State_of_the_Market/2018/2018q1-som-pjm-sec7.pdf (page 324) (Please note that of the four plants shown as uneconomic, Oyster Creek is committed to retire and is no longer included as a potential resource, and the Davis-Besse and Perry plants are not in the PJM Mid-Atlantic region.) ↑
  3. http://www.pjm.com/-/media/markets-ops/rpm/rpm-auction-info/2021-2022/2021-2022-base-residual-auction-report.ashx?la=en (page 15). ↑
  4. A complete list of FERC-approved pipeline expansion projects is here, https://www.ferc.gov/industries/gas/indus-act/pipelines/approved-projects.asp. ↑
  5. See PJM Manual 13, http://pjm.com/-/media/documents/manuals/m13.ashx. ↑
  6. e.g., https://elcon.org/letter-congressman-greg-walden-seeking-oversight-hearing-doe-nopr-grid-resiliency-pricing/; https://states.aarp.org/dont-bamboozled-just-say-no-special-nuclear-subsidies-higher-electric-bills/; https://www.standunited.org/petition/no-nuclear-bailout-for-pennsylvania-nuclear-companies. ↑
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FERC Partially OKs CAISO Commitment Cost Enhancements

By Michael Brooks

Use-limited resources will be allowed to attach opportunity cost adders to their bids in CAISO’s energy market under a proposal approved by FERC on Thursday.

The change was the only significant part of a package of Tariff changes — proposed in March in phase 3 of CAISO’s Commitment Costs Enhancements initiative — that the commission approved (ER18-1169). FERC rejected the ISO’s proposals to alter the information generators are required to submit to its Master File (a database of all resources participating in its markets and their characteristics) and to remove all ramp rates as components of daily bids.

The initiative is separate from, but related to, CAISO’s Commitment Costs and Default Energy Bid Enhancements; both involve better reflecting resources’ costs in their offers, thus improving market efficiency.

Use-limited resources are those that have limits on the number of start-ups and runtime hours, or on energy output, over a certain period. Small hydro facilities, for example, are automatically classified as use-limited resources by CAISO, while other resources must submit a request that includes certain data to be classified.

use-limited resources caiso ferc commitment costs
The 3-MW New Hogan Dam in Calaveras County, Calif. Small hydro facilities such as Hogan are automatically classified by CAISO as use-limited resources. | U.S. Army Corps of Engineers

But because the ISO’s market optimization software makes unit commitment decisions only one day ahead, it cannot take into account that dispatching a use-limited resource may hinder its ability to run later. As a result, the resources’ opportunity costs are not reflected in their offers.

CAISO said the changes are necessary because of the increase of variable energy resources on its system, making supply more unpredictable and use-limited resources necessary at any given time.

The opportunity cost adder that FERC approved “will capture the value of a use-limited resource’s limited availability so that the use limitation is not reached until the end of the monthly or annual use limitation period and the resource may be dispatched when it is valued most,” it said.

As part of the changes, effective Nov. 1, CAISO will all but eliminate one of the two methodologies under which use-limited resources are able to bid — the registered cost method. Under that approach, resources can elect to submit fixed commitment costs on a 30-day basis. CAISO told the commission that most use-limited resources use this method because it better reflects their opportunity costs and limitations, but because the costs are fixed, it cannot reflect variables such as the daily fluctuations of natural gas prices.

Use-limited resources will be required to use the proxy cost method, in which resources submit bids based on their start-up, minimum load and transition costs at a 125% cap. Resources less than a year old may still employ registered costs because, CAISO said, it needs a sufficient price history to calculate the adder.

“We find that the proposal is an improvement over the existing commitment cost recovery mechanism because the market optimization tool will be able to dispatch use-limited resources when they are most needed,” FERC said.

However, FERC agreed with NRG Energy’s protest of CAISO’s method for calculating opportunity costs. The commission ordered CAISO to submit within 30 days more details on its calculations as part of its Tariff revisions; the ISO had proposed to include them in its business practice manual.

The Master File

FERC rejected CAISO’s proposal to replace resources’ listed physical characteristics in the Master File with “design capability values,” information that reflects their capabilities when operating at maximum sustainable performance over a minimum run time. The ISO also proposed to allow scheduling coordinators to register “market values,” such as maximum daily start-ups, maximum daily number of transitions, operational ramp rates, operating reserve ramp rates and regulation ramp rates. CAISO said this would allow the market to consider, for example, that “a resource may be designed to start up five times a day, but starting it up more than twice a day could dramatically increase wear and tear and increase the probability of catastrophic failure.”

“We are concerned that, outside of exceptional dispatch, CAISO’s proposal does not include a mechanism to ensure that market values cannot be used to undermine the market’s economic resource dispatch when transmission constraints or other supply limitations create opportunities for the exercise of market power,” FERC said.

Using the market values instead of the design capability values may reduce available capacity, the commission said. “Permitting market participants to make less capacity available to the market raises the potential for physical withholding, which can affect dispatch and increase energy and ancillary service prices that may benefit the market participants’ affiliated resources. At times of tight supply conditions, it is more likely that withholding capacity could be a profitable action.” FERC also noted that CAISO proposed no new market mitigation measures to address this concern, and that its existing measures would be insufficient to handle the change.

Because CAISO predicated its proposal to remove ramp rates from daily bids on the changes to the Master File, FERC summarily rejected this as well. “If we were to accept the ramp rate proposal and reject the Master File proposal, scheduling coordinators would lose the flexibility currently afforded to them by the existing daily bid-in ramp rate functionality,” it said.

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PJM: MISO Monitor Lacks Standing in Pseudo-tie Complaint

By Amanda Durish Cook

PJM has again moved to dismiss Potomac Economics’ complaint against its pseudo-tie construct, citing a recent court ruling that describes a limited role of RTO/ISO market monitors in legal proceedings.

Pseudo-tie MISO PJM Potomac Economics
Patton | © RTO Insider

MISO’s Independent Market Monitor filed a Section 206 complaint in April 2017 asking FERC to eliminate PJM’s existing pseudo-tie definition, claiming that the increasing use of pseudo-ties degrades reliability, hampers efficient dispatch and raises costs. (See Pseudo-Tie Feud Rises as Patton, NYISO Protest PJM Proposal.)

PJM is pointing to a June 15 D.C. Circuit Court of Appeals ruling that confirms FERC’s 2017 decision that Old Dominion Electric Cooperative cannot recover its operating costs incurred in excess of its filed rate during 2014’s polar vortex. The commission said such a move would constitute retroactive ratemaking (16-1111).

In its June 19 filing in the pseudo-tie complaint (EL17-62), PJM said the ODEC decision importantly included a denial of its own Independent Market Monitor’s motion to intervene. PJM said the court’s opinion shows that “a market monitor does not have standing to intervene in a proceeding on judicial review of commission orders” and that the case is “instructive” in its motion to dismiss the MISO Monitor’s complaint. PJM asked FERC to consider the precedent in its upcoming decision.

The court said that the PJM Monitor “has no legally cognizable interest” in the ODEC case and denied its motion to intervene.

The Monitor’s role, the court said, “is much in the nature of an auditor — it is largely confined to observing the market’s operations and then offering recommendations to PJM. The Monitor has no authority to enforce or to interpret the PJM [Operating] Agreement or Tariff, to direct changes in the market’s operations, to alter market rules or to police individual members’ compliance.”

The court added that “other than making some regulatory filings,” the Monitor is confined to informing FERC, other government agencies and RTO participating members “if it disagrees with PJM’s implementation of the market rules or operation of the PJM market.”

“Beyond its contractually assigned tasks, the Monitor has no independent legal interest of its own in the PJM markets,” the court determined. It characterized the PJM Monitor as “an outside observer hired to study and report objectively on the market’s operations … not a creature of statute, and operates under no affirmative duty imposed by public law.”

PJM originally asked FERC to dismiss the complaint last May on the grounds that Potomac “lacks the capacity by statute, order, contract or tariff to bring such a complaint in its role as an independent market monitor against PJM.”

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CPUC Denies Pipeline, Inquires About Others

By Jason Fordney

The California Public Utilities Commission on Thursday denied a request to build a new natural gas pipeline after questioning Southern California Gas about why other major pipelines have been sitting out of service.

CPUC SDG&E SoCalGas
The CPUC denied a request by San Diego Gas & Electric and Southern California Gas to build a new pipeline | © RTO Insider

The commission rejected an application by San Diego Gas & Electric and SoCalGas to build a $639 million pipeline that would have stretched from Rainbow Station to Miramar, replacing the current Line 1600 built in 1949.

“The CPUC determined that the utilities’ most recent natural gas supply forecast and the CPUC’s reliability standard for gas planning do not demonstrate that there is a need for the proposed pipeline,” the commission said as it approved its proposed decision.

The commission directed SDG&E and SoCalGas to pursue other supply options for smaller amounts and for shorter periods of time than would have been provided by the proposed pipeline near San Diego. It also directed the utilities to ensure the safe continuing operation of Line 1600.

The applicants had said the sole purpose of the line was not to meet any short-term supply deficits but for emergency situations such as unplanned outages on Line 3010 or at the Moreno substation. They had also proposed derating Line 1600 from transmission service to distribution service.

The commission last week asked SoCalGas why it had not restored to service two pipelines, Line 3000 and Line 235-2. Line 3000 went out of service on July 29, 2016, and Line 235-2 ruptured and exploded on Oct. 1, 2017.

CPUC SDG&E SoCalGas
California Public Utilities Commissioners left to right: Martha Guzman Aceves, Carla Peterman, Chairman Michael Picker, Liane Randolph, Clifford Rechtschaffen | © RTO Insider

“Though such outages are to be expected periodically, the significant volumes associated with these facilities and the fact they have been out for lengthy periods during peak demand periods — nearly two years for one and over eight months for another — are causes for concern,” CPUC Energy Division Director Edward Randolph told SoCalGas President Bret Lane in a June 18 letter. Randolph questioned whether rates should be reduced if the lines are not providing benefits to ratepayers.

The Energy Division also issued a new report that cited the pipeline outages as a main reason it is recommending an increase in the allowed storage level at the Aliso Canyon facility from 24.6 Bcf to 34 Bcf. Comments on the proposal were due Monday.

Last month, the commission allowed SoCalGas to increase gas injections into Aliso Canyon but denied a request to increase the allowable capacity. (See CPUC OKs Temporary Increase in Aliso Canyon Injections.)

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SPP: No Need for Joint Study with AECI in 2018

SPP staff told stakeholders last week that the RTO will not conduct a joint transmission planning study with Associated Electric Cooperative Inc. this year, saying they were unable to find any “reasonable projects on either side of line.”

spp aeci joint transmission planning study
Savoy | © RTO Insider

“The next shot will be in 2020,” said SPP’s Clint Savoy during a June 21 conference call of the SPP-AECI Interregional Planning Stakeholder Advisory Committee. “We will have plenty of time to get our hands around what we want to look at in the next study.”

A needs assessment along the seams identified more than 200 violations, but most were eliminated through model corrections or system adjustments, or because they were invalid contingencies. Most AECI violations were voltage issues, SPP said.

The RTO is proposing that one identified project, a 161-kV transmission line, be included in its 2018 near-term assessment.

A final report will be published at the end of July.

SPP and AECI have been performing joint studies every other year since 2010, as outlined in their joint operating agreement. Their only success was in 2016, when their study identified two projects near Springfield, Mo.: a new 345/161-kV transformer at AECI’s Morgan Substation and uprate to an existing 161-kV Morgan-to-Brookline transmission line, and installation of a new 345-kV 50-MVAR reactor at City Utilities of Springfield’s existing Brookline substation.

spp aeci joint transmission planning study
New Madrid Power Plant transmission lines | AECI

SPP would have been responsible for $17.1 million of the projects’ estimated $18.75 million cost, but FERC last year rejected the proposed cost allocation for both projects. The Brookline reactor project is now being addressed through the RTO’s regional planning process as part of the 2018 near-term assessment, and the Morgan transformer project is being prepared for another filing at FERC.

spp aeci joint transmission planning study
| SWEC

AECI, based in Springfield, is owned by and provides wholesale power to six regional generation and transmission cooperatives.

— Tom Kleckner

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NYISO Business Issues Committee Briefs: June 20, 2018

RENSSELAER, N.Y. — NYISO power prices dropped in May but are up 37% year-to-date, Nicole Bouchez, ISO principal economist, told the Business Issues Committee on Wednesday.

Prices averaged $28.78/MWh in May, lower than $35/MWh in April and $31.74/MWh the same month a year ago.

Year-to-date monthly energy prices averaged $50.20/MWh through May, up from $36.54/MWh a year earlier. May’s average sendout was 397 GWh/day, compared with 390 GWh/day in April and 383 GWh/day a year earlier.

Transco Z6 hub natural gas prices averaged $2.55/MMBtu for the month, down 9.4% compared with last month and 8.8% year-over-year.

Distillate prices gained 6.4% compared to the previous month but were up 49.7% year-over-year. Jet Kerosene Gulf Coast and Ultra Low Sulfur No. 2 Diesel NY Harbor averaged $15.96/MMBtu and $15.92/MMBtu, respectively.

nyiso fixed price transmission congestion contracts
| NYISO

Total uplift costs and uplift per megawatt-hour rose from April with the ISO’s local reliability share 22 cents/MWh in May, up from 12 cents/MWh the previous month, while the statewide share climbed from -57 cents/MWh to -17 cents/MWh.

ISO Reviewing Rules on PJM Imports

Reviewing the Broader Regional Markets report, Bouchez described the ISO’s work on item 26, an effort to clarify the minimum deliverability requirements for capacity from PJM, the subject of three joint meetings of the Installed Capacity (ICAP) Working Group and Market Issues Working Group since February.

The ISO has prepared a detailed overview of the supplemental resource evaluation (SRE) process for external resources, the existing nonperformance penalties for external ICAP suppliers, and a draft proposal regarding SRE process improvements for external capacity resources.

Bouchez also reviewed item 28, a complaint filed with FERC in December by the New Jersey Board of Public Utilities challenging PJM’s and NYISO’s implementation of the mutual benefits provisions of their joint operating agreement and requesting amendments to the JOA.

FERC rejected the complaint on May 24 (EL18-54). The commission found that because the Bergen-Linden Corridor Project was planned by PJM, and without a voluntary commitment to share cost responsibility by NYISO, “it is just and reasonable for the costs of the project to be allocated solely within PJM.” (See PSE&G on the Hook for Bergen-Linden Costs.)

Proposal to Extend TCCs Advances

The BIC voted to recommend that the Management Committee approve Tariff revisions to provide extensions of historic fixed-price transmission congestion contracts (HFPTCCs), following a presentation by Gregory R. Williams, manager for TCC market operations.

FERC Order 681 requires that long-term firm transmission rights be made available to allow load-serving entities to support long-term power supply arrangements.

The HFPTCCs initiated by NYISO in 2008 allow LSEs to obtain such contracts for up to 10 years, with some service grandfathered for up to 12 years; 1,748 MW of HFPTCCs are currently active. Those offered in 2008 are now approaching the end of their 10-year term and will expire after Oct. 31.

As part of developing the HFPTCCs, the ISO had committed to explore an option to renew the contracts after the initial term.

Contract extensions would be made available to LSEs that convert existing transmission agreements to HFPTCCs and continued to purchase them throughout the entire 10- or 12-year term.

The ISO is required to make all transmission capacity not used to support existing TCCs available for sale in its centralized TCC auctions. The bidding and offering period for the first round of the fall 2018 centralized TCC auction is expected to begin in mid-August.

Assuming the current proposal is accepted by FERC, the ISO would need to seek a waiver for permission to reserve 256 MW of transmission capacity from the upcoming auction to support the potential award of HFPTCC extensions that would begin on Nov. 1, 2018, and ensure feasibility issues do not arise from offering such extensions to qualifying LSEs.

— Michael Kuser

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CORRECTED: FERC Seeks More Info on CPV Plant’s Ownership

By Rory D. Sweeney

Competitive Power Ventures must provide additional information to prove it adequately mitigated market power to continue making market-based sales at its newly opened Towantic Energy Center, FERC ruled Thursday (ER13-343-008, et al.).

FERC’s ruling came in response to CPV’s triennial market power update, which it filed on June 30, 2017, for Towantic, a 785-MW generator in Oxford, Ct., and three other gas-fired plants in CPV’s Northeast region.

CPV FERC pension funds
CPV Towantic Energy Center in early May, with construction nearly complete. | CPV

The commission’s market-based rate rules require applicants to provide information regarding affiliates and upstream ownership. It considers as affiliates any entity that owns at least 10% of the outstanding voting securities of the applicant.

Two pension funds indirectly own more than 10% of Towantic, but CPV argued that they are only allowed to vote 9% of their shares in an upstream entity. FERC said that doesn’t account for their entire ownership.

“Because the pension funds are included among the stockholders whose votes determine how the votes of the excess shares will be allocated, the sum of votes by the pension funds of their 9% of the shares plus the proportional vote of their excess shares gives the pension funds an effective vote greater than 10%,” the commission said.

It instructed the applicants to update their horizontal and vertical market power analysis with their affiliates’ generation and transmission assets and inputs to electric power production. FERC gave them 30 days to comply.

The updated market power analysis included Towantic and the 680-MW CPV Valley in Wawayanda, N.Y., both of which began operating this year and were granted market-based rate authority (MBRA) in March 2016 (ER16-700, ER16-701). (See CPV: Subsidies, not Gas Fears, Challenge for New Plants.)

The other plants are the 725-MW CPV Woodbridge Energy Center in Keasbey, N.J., and the 725-MW CPV St. Charles Energy Center in Waldorf, Md., which were granted MBRA in February 2013 (ER13-342, ER13-343).

[Editor’s Note: An earlier version of this story incorrectly stated that FERC was questioning the ownership of all four CPV plants and that they did not already have MBRA.]

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FERC Broadens Challenge to TOs’ Tax Calculations

By Amanda Durish Cook

FERC on Thursday identified 13 additional transmission owners it said should change accounting practices that could inflate rates by underestimating tax credits.

The commission ordered a Section 206 proceeding investigating the companies’ use of a double averaging formula to calculate accumulated deferred income taxes (ADIT) (EL18-155, et al.). The utilities include two Ameren subsidiaries, American Transmission Co., GridLiance West Transco, ITC Midwest, Northern States Power, Public Service Company of Colorado, Southern California Edison, TransCanyon DCR, Southwestern Public Service and Virginia Electric and Power Co.

In April, FERC opened a similar investigation of five MISO TOs after rejecting proposed formula rate template revisions that would have applied the two-step averaging methodology in annual true-up calculations of ADIT balances.

The commission signaled it would probe whether the practice makes deferred income tax credits appear lower than they should be, possibly raising rates (ER18-224, EL18-138). The filers were ALLETE, Montana-Dakota Utilities, Northern Indiana Public Service Co., Otter Tail Power and Southern Indiana Gas and Electric Co.

The commission said that the TOs’ practice of averaging the prorated ADIT value for the year with the beginning-of-year ADIT balance “produces a result that is disproportionately skewed towards the beginning-of-year balance.”

“Because most companies tend to continuously make investments in plant[s], which in turn generates ADIT, plant and ADIT balances typically increase throughout the year,” the commission said.

MISO TOs Offer New Formula

On June 4, the five MISO TOs submitted revisions to remove the proposed double averaging and instead apply the IRS’ proration methodology in calculating the annual transmission formula rate true-up.

In last week’s order, FERC suggested that the 13 newly identified utilities would need to similarly revise their rates.

“Upon initial review, the concerns we identify might be addressed by revising respondents’ transmission formula rates to eliminate the use of the two-step averaging methodology to determine ADIT balances,” FERC said. “In particular, respondents could modify their transmission formula rates to apply the first step of the two-step averaging methodology to generate a prorated ADIT value for the year, without taking the second step of averaging the prorated value for the year with the beginning-of-year balance.”

Change of Heart

FERC noted that, in previous proceedings, it had allowed TOs to use the two-step methodology “based on the understanding that this methodology was necessary to comply” with the IRS’ normalization rules, an accounting system the Department of Treasury uses for regulated public utilities to reconcile accelerated depreciation of their public utility assets or investment tax credits with regulatory treatment.

However, FERC said in April that its opinion on the matter has since changed, guided by private letter rulings from the IRS. FERC said it now interprets updated IRS rules to “not require that any averaging convention applied to other elements of rate base also apply to taxpayer’s prorated [ADIT] balance.”

“We conclude that if the IRS’ proration methodology is applied to calculate ADIT balances in forward-looking formula rates — such as the Attachment O formula rate templates of certain MISO TOs — then the additional averaging step need not also be applied in order to comply,” FERC said.