AUSTIN, Texas — Sempra Energy’s proposed $9.45 billion acquisition of Energy Future Holdings and its interest in Oncor took a major step toward reality Thursday before the Public Utility Commission of Texas.
The commission canceled a hearing on the merits of the deal scheduled for next week and directed staff to prepare a proposed order in the proceeding (Docket No. 47675). The PUC is expected to revisit the issue during its next open meeting on March 8.
EFH, which declared bankruptcy in 2014, holds an indirect 80% interest in Oncor, once its crown jewel but now the lone business remaining in its portfolio. Hunt Consolidated, NextEra Energy and Berkshire Hathaway Energy have all come up short in previous attempts to acquire Oncor, the largest electric utility in Texas.
“The fourth time’s the charm!” said an onlooker to a smiling Oncor CEO Bob Shapard, clapping him on the shoulder as he left the PUC’s hearing room.
Shapard and General Counsel Allen Nye, who will both retain positions on the post-acquisition board of directors as chairman and CEO, respectively, were singled out for praise by PUC Chair DeAnn Walker. She thanked them for their work in what she said was a “very painful process” for them.
Walker also apologized to a large contingent of Sempra representatives, which included CEO Debra Reed, for making the long trip from California for a discussion that took less than two minutes. “Come back and see us anytime,” she said.
Walker acknowledged the work of both parties involved in the transaction. San Diego-based Sempra and Oncor have agreed to a list of commitments in settling with all 10 parties that have intervened in the case, rendering a hearing moot. (See Sempra, Oncor Reach Agreement with Texas Intervenors.)
“The unanimous settlement agreement is incredibly positive and demonstrates support for the proposed Sempra transaction from all parties,” Oncor spokesman Geoff Bailey said in an email to RTO Insider. “We look forward to reviewing the proposed order from the commission and answering any further questions that they may have.”
Sempra said it was pleased with Thursday’s developments. The company announced its intentions to acquire EFH last August and received approval from the U.S. Bankruptcy Court for the District of Delaware in September. FERC gave its approval for the acquisition in December, but the transaction remains subject to the PUC’s approval and that of the bankruptcy court.
“If approved by the commission, we will have the opportunity to potentially bring this long ordeal to a close, and Texas will get a terrific partner in Sempra,” Bailey said.
A clean energy consultant told Midwest regulators Tuesday that a future footprint with more renewables would benefit from modern transmission technologies.
Rob Gramlich, president and founder of Grid Strategies, said transmission technologies — dynamic line ratings, flow control devices and network topology optimization — will help manage congestion.
“We’re looking at a future where there are a lot of low-cost but remote resources,” Gramlich told the Organization of MISO States’ Board of Directors at the National Association of Regulatory Utility Commissioners’ annual meeting.
Gramlich said the technologies have improved dramatically and are ready for use today, but they need to be better valued monetarily.
“They’re there and ready, but the incentives aren’t in place,” Gramlich said. “It’s just hard to get low-cost improvements because they can’t be rolled into transmission owners’ rate base. … There’s a gap that state regulators can address.”
Dynamic line ratings are adjusted based on weather conditions, opening up transmission lines for more capacity when temperatures are cooler. Network topology optimization uses software to improve scheduling of transmission outages. Gramlich also said power flow control devices, like phase angle regulators, played a key role in PJM managing loads during the early January bomb cyclone cold snap.
“Operate the existing grid more efficiently and get more out of it,” Gramlich urged.
He expressed surprise at how many line limit and flow thresholds on the bulk power system are not exactly known, only estimated. “It’s not so often measured,” Gramlich said.
It’s time for the industry to develop a technology-managed smart grid, he continued, noting that much of the country’s sewer flows are managed through technology.
Such technologies are more widely used abroad, where incentives are in place, Gramlich said, pointing to Belgium, which makes widespread use of dynamic line ratings.
OMS DER Survey Begins
The board kicked off an effort to collect data from load-serving entities on the volume of distributed energy resources participating in their service territories.
OMS will survey LSEs across MISO through March 30 on the current and projected state of DER in their territories. The group plans to analyze the data to get a better understanding of the “structure, scope and pace of DER development in MISO.”
The survey is part OMS’ ongoing initiative to help state and local regulators make informed decisions as increased DER adoption potentially dictates the need to develop policy around the interaction between distribution and transmission systems. Last year, OMS formed a temporary working group to formulate ideas on incorporating DER into the grid after holding a MISO-wide workshop. (See OMS Discusses Next Steps in DER Policy.)
“The OMS board has made DER a priority because of the inherent jurisdictional overlap raised by future integration of DER connected to the distribution system into transmission-level planning, operations, and energy markets,” OMS President, and chair of the Arkansas Public Service Commission, Ted Thomas said in a statement.
“In a multistate region, it’s critical that cooperation among states and their utilities occurs to provide the necessary visibility to DER deployment that enables the continued efficient and reliable operation of the bulk electric system,” said OMS Vice President Daniel Hall, chair of the Missouri Public Service Commission.
ISO-NE’s 2018 Regional Electricity Outlook released Wednesday reiterates concerns about fuel security that were detailed in a separate report published by the RTO last month.
In a joint preface to the outlook, ISO-NE CEO Gordon van Welie and Board of Directors Chair Philip Shapiro said “the biggest challenge to the reliability of the grid is the lack of fuel infrastructure to supply the fleet of natural-gas-fired generators.”
The RTO’s Operational Fuel-Security Analysis examined 23 fuel-mix scenarios and concluded that power shortages because of inadequate fuel would occur in 19 of them by winter 2024/25, which would require emergency actions such as voluntary energy conservation and involuntary load shedding. (See Report: Fuel Security Key Risk for New England Grid.)
Shapiro and van Welie also cited further emission restrictions on oil-fired generators “and the reality that older oil and nuclear generators are becoming less economically competitive and may retire before the region has added sufficient new energy sources to replace them.”
The outlook pointed to the recent cold snap that hit the region from Dec. 26 to Jan. 7, during which “constrained pipeline capacity resulted in substantially higher natural gas and wholesale electricity prices, leading to less expensive oil and coal power plants operating instead of the usually competitive natural gas-fired generation.”
Oil supplies at plants around New England declined rapidly over the two-week cold spell as gas prices spiked and dual-fuel plants switched to oil, but the RTO avoided serious reliability issues thanks to LNG shipments. (See FERC, RTOs: Grid Performed Better in Jan. Cold Snap vs. 2014.)
Testifying before the U.S. Senate Energy and Natural Resources Committee on Jan. 23, van Welie said that since 2000, oil- and coal-fired generation’s share of ISO-NE’s power production has fallen from 40% to less than 10%, while natural gas has risen from 15% to about 50%.
Projected Changes in Key New England Power Resources and Energy Efficiency | ISO-NE
The outlook noted that wind power last year for the first time surpassed natural gas for the volume of generation seeking interconnection in the RTO’s queue. About 4,000 MW of that proposed wind would be located offshore of Massachusetts, with most of the remaining 4,500 MW slated for Maine.
“Because of the large distances from some of the proposed onshore wind power projects to the existing grid, major transmission system upgrades will be needed to deliver more of this power from this weaker part of the system to far-away consumers,” the report says.
As the amount of wind and solar power continues to grow, in part driven by state policies, the RTO last month proposed a new two-stage capacity auction, Competitive Auctions with Sponsored Policy Resources, to enable its Forward Capacity Market to accommodate state policy-sponsored, clean-energy resources in the wholesale market while maintaining a viable economic model for existing power plants. (See CASPR Filing Draws Stakeholder Support, Protests.)
Major New Generation Projects Clearing in FCM | ISO-NE
The RTO also says it’s keeping an eye on the increased adoption of electric vehicles and electric heating in New England as states in the region pursue decarbonization goals.
“The ISO plans to start working with regional stakeholders to quantify the impact of the states’ decarbonization policies on long-term demand so that we can understand their potential effects on the power system and reflect these in future Regional System Plans,” the report says.
FOLSOM, Calif. — CAISO is moving ahead with major modifications to its congestion revenue rights (CRR) auction even as some stakeholders urge a deeper look into the possible detrimental effects of the plan before it goes to FERC.
CAISO defended its approach during a Tuesday forum on the CRR process. Some commenters are saying the ISO is taking an overly simplistic view of the issue: whether the CRR auction is a legitimate hedging mechanism or a process that forces ratepayers to become unwilling participants in losing transactions.
CAISO’s Department of Market Monitoring has become increasingly outspoken about what it calls auction “payment deficiencies” of more than $500 million — the difference between auction proceeds and payouts, which are based on day-ahead market congestion. But some market participants are protesting that the ISO is ignoring other benefits from the transactions. The debate over financial transmission rights is also occurring in other ISOs and RTOs. (See Market Monitors Bring FTR Complaints to Congress.)
CAISO discussed reforms throughout last year and unveiled its initial reform proposal at the beginning of this month. (See CAISO Overhauling CRR Auctions.)
The ISO intends to eventually restrict CRR transactions to only those needed for physical transfer of energy, and limit CRR source and sink pairs to nodes between generators and interties, as well as between trading hubs, loads and interties. It has also proposed to decrease the amount of system capacity released in the CRR auction process from 60% to 40% in the long-term allocation, and 75% to 45% for the annual allocation and auction process — a move intended to reduce overselling of transmission capacity. The ISO would also eliminate disclosure of certain modeling information and align existing outage reporting rules with the annual CRR process.
Track 1 of the effort consists of measures to be put in place for the 2018 auction process this summer, slated for March approval by the Board of Governors. Track 2 will include more significant changes, targeted for board approval sometime in the middle of the year, CAISO Market Design Manager Brad Cooper said in a presentation.
Kolby Kettler, of energy and commodities trader Vitol, has questioned the proposal since it was introduced. On Tuesday, he said the plan could introduce detrimental effects and new risks that CAISO has not considered.
“Other ISOs have also gone down this avenue, looking at removing locations, and have backtracked” because of revenue loss to the market, he said. He urged CAISO to focus on “fixing the model, and not focus on removing what could be a legitimate hedging activity or valuing congestion.”
“We are working to try and quantify the benefits of auction CRRs to the broader market,” Cooper replied, adding that “this isn’t the net effect … because CRRs have a benefit to the bilateral market.”
Speaking for the Western Power Trading Forum, Ellen Wolfe contended that CAISO was operating from a narrow viewpoint. She said the ISO has “narrowed in on the premise of the purpose of the CRRs being this physical hedge,” but that certain hedges might be beneficial for physical supply in ways the ISO is not considering.
“You build these proposals based on that particular premise — it presents a very narrow viewpoint of the world — and present anything outside of that viewpoint as not legitimate,” she said. “It is at least beneficial … to acknowledge that not everybody agrees with your premise.” Previously, there was never a sense that CRRs should be made available only to generators serving a load, she said.
“We are doing all we can to understand the uses,” Cooper said, but the auction revenues are far short of what CRRs are paying. “Sure, we would be eliminating combinations to allow for every type of conceivable hedging opportunity,” but “I think we are striking a reasonable balance,” he added.
CAISO is taking comment on its CRR proposal through Feb. 28.
As far as PJM transmission owners are concerned, the customer doesn’t always know best. They lack the institutional knowledge of the TOs, who have been operating their systems for decades and are responsible for their performance.
PJM transmission customers agree that they don’t have the information the TOs possess. But some are trying to change that imbalance, saying they are no longer willing to pay for replacing aging infrastructure system without assuring themselves that the spending is necessary.
How much more information the TOs will be required to share could be decided at today’s FERC meeting. The commission is scheduled to release a decision on its 2016 show cause order that questioned whether TOs’ procedures for planning supplemental projects provided stakeholders opportunity for “early and meaningful input and participation,” as required by Order 890 (EL16-71). (See FERC Orders PJM TOs to Change Rules on Supplemental Projects.)
The commission is also scheduled to address the TOs’ proposed Tariff Attachment M-3, which they developed to codify the “additional detail and transparency regarding the process for planning supplemental projects” that they’ve agreed to (ER17-179). (See PJM Demands Agreement on Tx Replacement Definitions.)
RTOs Provide Customer Forum
For most of their existence, TOs have had only to persuade state and federal regulators that their infrastructure plans were necessary, under a monopoly structure that entitled them to cost recovery and a margin of profit. The development of RTOs and ISOs has given their customers a forum to voice concerns and seek influence over transmission planning.
In PJM, American Municipal Power has made controlling its transmission costs a primary focus. Supported by several other RTO members — fellow transmission customers, state consumer advocates and merchant transmission developers — AMP has pushed the issue to confrontation on multiple fronts, including a stakeholder task force focused on end-of-life issues for transmission infrastructure. (See AMP Presses AEP, PSE&G on Transmission Projects.)
The Transmission Replacement Process Senior Task Force (TRPSTF) became a flashpoint almost as soon as it was proposed in January 2016. TOs argue that PJM and FERC rules give them sole discretion over how to maintain their assets — including when and how to replace them. The task force went into a 10-month hiatus after FERC issued its show cause order but reconvened after PJM stakeholders reinstated it last year.
More Transparency Sought
AMP and Old Dominion Electric Cooperative said they have been concerned about transparency in the planning process for quite some time.
“I don’t know if we had a big bang or if we had a slow burn,” AMP’s Ed Tatum said in an interview with RTO Insider. “We just kept asking more questions. … That gave us some traction to continue to ask questions.”
Both sides acknowledge that infrastructure, at some point, needs to be replaced. But the customers argue they aren’t provided enough information to independently evaluate whether proposed replacements are necessary or excessive. “I feel there should be adequate information for us to determine what is needed,” Tatum said.
AMP and ODEC argue that TOs are incentivized by their formula rates to build as much as possible and that regulators’ oversight is not adequate to corral the impulse.
“To me, it’s more of a check and a balance: Before they start replacing something, does it make sense?” ODEC’s Mark Ringhausen said. “Maybe that’s a concern that some of the TOs have: [that customers will] figure out that we’re replacing more facilities than they really need to.”
They point to a sudden rise in supplemental transmission projects, which are projects developed by TOs for their own transmission zones to address their own planning needs. They don’t have to address any PJM criteria, nor do they require the RTO’s sign-off to begin work.
Through 2012, according to a study done for AMP, PJM had planned or in service $21.3 billion in baseline and network upgrades — which are subject to detailed review by the RTO — versus $6.8 billion of transmission-owner identified (TOI) and supplemental projects. Since 2012, the $11.6 billion in baseline and network upgrades have been exceeded by $12.7 billion of TOI/supplemental projects.
“There are more projects outside of the PJM planning process than there are inside,” Tatum said.
“Of the 270 supplemental projects in 2017, when presented at their respective first reads [at Subregional RTEP Committee meetings], 181 of the projects were already in a stage of development ranging from engineering to 100% complete, with five projects already in service at their first reads,” the customers said in a 61-page recounting of their arguments filed on Tuesday. “At the second read, 205 out of 270 proposed supplemental projects were beyond the conceptual/scoping development phase, with nine already in service. Said another way, 76% of supplemental projects were presented to stakeholders in the SRRTEP meetings at a stage of development where meaningful input is unfeasible at best.”
Customers believe TOs have used these opportunities to bypass the stakeholder process and go straight to state and federal commissions, where they say they maintain longstanding political influence, as their best bets for revenue growth. (See Report Decries Rising PJM Tx Costs; Seeks Project Transparency.)
“I think it’s pretty simple economics. They’re not making a whole lot of money on generation right now, and they’re getting [returns on equity] on transmission in the 10 to 12% [range]. We don’t blame them,” AMP General Counsel Lisa McAlister said.
“Part of the reason why [customer input is] so important is because there’s not a lot of other regulatory oversight, and when it does happen, it’s too late in the process to be meaningful,” said McAlister, who signed AMP’s filing. “There aren’t a whole lot of other stopgaps to help.”
In its filing Tuesday, which asked the commission to reject Attachment M-3 and order further changes to achieve compliance with Order 890, the customers said FERC should require TOs and PJM to:
Record and post all questions and answers from proposal reviews;
Provide the power flow study details, including a description of the violations or issue identified;
Provide more detailed descriptions of the proposed facilities, including descriptions and costs of the assets being retired, installed or replaced; and
Provide adequate time for review and analysis.
PJM’s subregional transmission expansion plan process “has no provision to validate a TO’s need for supplemental projects nor the prudency of the project,” the coalition said.
TOs’ Response
The customers’ requests ignore PJM’s function on supplemental projects, says Exelon’s Gloria Godson.
“PJM’s process is a planning process, not a prudency review,” Godson said in an interview with RTO Insider. The correct venue for cost complaints is at FERC and state commissions, not PJM, she said.
To best understand the conflict, Godson said, think of TOs as car manufacturers and their networks as their own unique vehicle that they lease to customers. Customers get to use the car for their needs and must pay for improvements and maintenance, but ownership, knowledge about and ultimate responsibility for it remain with the manufacturer.
Customers want to understand the car’s engineering so well that they can independently confirm the need for the expenses the owners want them to incur. But the owners fear customers are more focused on cost because they’re not on the hook for the car’s reliability.
PJM, in Godson’s analogy, is the company that builds and maintains roads. But the RTO can’t tell TOs what tires to install on the car or when to replace the radio, she said, any more than it can tell TOs how much that work should cost.
In a combined statement to RTO Insider, PPL, Public Service Electric and Gas (PSE&G), Exelon and Duquesne Light said replacement costs have increased in response to new obligations, such as higher security demands and increased efficiency and reliability standards.
“Shared final decision-making with a diverse set of stakeholders each with differing priorities would negatively impact the safety, reliability, security and efficiency of the transmission network. It would also lead to lack of clarity as to who has the responsibility for the impact of adverse events,” the TOs said.
Order 890, the TOs said in their October 2016 response to the order to show cause, “affirmed that the ultimate responsibility for planning remains with transmission providers and that it was not requiring transmission providers to engage customers in the transmission planning process on a ‘co-equal basis.’”
Godson pointed to her experience at Potomac Electric Power Co. (Pepco) with the failed Mid-Atlantic Power Pathway project as an example of regulators’ exercise of cost discipline. Pepco attempted to recover $87.5 million in costs after the project was canceled by PJM, but intervenors protested and FERC eventually approved a $80.5 million settlement (ER13-607).
No Bright Line
It’s not possible, TOs say, to develop a standardized way for customers to replicate the analysis that they would be able to endorse because it would require modeling so detailed and exact — on variables ranging from terrain and weather to population density, local regulations and load types — as to be impractical, along with institutional knowledge that they say only exists at the TO.
“There is no bright-line criteria for determining when an asset should be replaced, as it is based upon a variety of factors that require engineering and operational judgement,” the statement said.
“A company may be willing to take a different type of risk in a rural area than they may be willing to take in Washington, D.C., for example,” Godson added. “That goes from one TO to another, so it’s … not possible to have a cookie-cutter approach to system design. … My question would be, for what basis? PSE&G knows their system better than anybody can. … This is what they do for breakfast, lunch and dinner.”
More can be Done, Customers Say
Customers acknowledge the issues but say there’s more that can be done.
“There’s judgment to this, but those are discussions that need to happen,” Ringhausen said. “They need to present us enough information that we can understand their criteria.”
“One of my large concerns with this is [the industry] creating the exact same situation we’re in now for the next generation down the road,” AMP’s Ryan Dolan said. The transmission infrastructure was largely built at the same time, and TOs are “in a mad rush” to replace everything at the same time. Dolan argues that with some foresight and consideration, the replacements, and their costs, could be rolled out over time.
“Should we have a long, sustained capital investment?” he asked.
“TOs don’t have anything that predicts the longevity of assets. … Age is simply a bucketing mechanism, but whether and when an asset is actually replaced depends on the condition of that asset,” Godson responded. “So, you may have a transformer that is relatively newer, but if it begins to [break down], you cannot defer maintenance [just] because it’s not old enough. Conversely, there are assets that are 70 years old and still going strong. So it depends on the condition and performance of the asset.”
While TOs’ primary strategy is monitoring and replacing based on condition and performance, there are some times when equipment targeted for replacement can be addressed while repairs are being made to infrastructure nearby.
Improvements
TOs argue they have worked to improve information sharing in the monthly meetings that focus on PJM’s Regional Transmission Expansion Plan, as documented in Attachment M-3. “The PJM process is far and away the most transparent of any process in the country,” Godson said.
Tatum contends the sides are “fairly close” and that a solution to the dispute “doesn’t need a quantum shift.”
The TOs disagree with the magnitude of the change they say AMP and its allies are requesting.
“AMP’s proposal that PJM and the PJM stakeholders take over the TOs’ responsibility for asset replacement and managing the supplemental project planning process violates the [Consolidated Transmission Owners Agreement] and would breach a fundamental contract that forms the basis upon which TOs joined PJM,” the TOs said. “PJM does not have the expertise, experience or resources to take over the TOs’ asset management function. PJM has stated repeatedly that they do not consider this an appropriate role for PJM.”
CARMEL, Ind. — MISO is weighing how it can improve its interregional process and joint operating agreement with SPP to make it easier to develop cross-seams projects that have so far remained elusive.
“The assumption is the coordinated system plan is not setting us up for success,” Eric Thoms, MISO manager of interregional planning and coordination, told stakeholders at a Feb. 14 Planning Advisory Committee meeting.
Planning staff for both RTOs have agreed to meet this spring to devise ways to improve their joint study process.
Thoms said MISO is considering lowering hurdles for interregional projects, including removing the $5 million cost threshold and eliminating the joint model study requirement, which he said is unnecessary when the RTOs’ separate regional evaluations can adequately examine prospective interregional projects.
He also said the RTOs might identify more joint benefit metrics that could better illustrate the value of potential transmission projects and clarify to stakeholders the process for approving interregional projects.
However, some stakeholders said the RTOs must first address their disparate transmission usage charges before working toward interregional project approval.
“I’m glad to see MISO is trying for constituency between seams, but MISO and SPP have incompatible [unreserved usage charges],” said Minnesota Public Utilities Commission staff member Hwikwon Ham. Until the RTOs have comparable transmission usage charges, interregional projects will be difficult to approve, Ham said.
Xcel Energy’s Drew Siebenaler agreed the RTOs must discuss transmission service charges and resolve the issue of MISO consistently bearing more costs for potential projects that stand to benefit both sides of the seam.
Adam McKinnie, chief economist with the Missouri Public Service Commission, asked that the charges not be the lone hang-up in approving a possible near-term interregional project. Thoms promised to return to the PAC in April to further discuss the topic.
The next Interregional Planning Stakeholder Advisory Committee meeting will be held Feb. 27. Officials from both RTOs plan to present a more detailed coordination plan during the meeting.
CARMEL, Ind. — MISO will expedite review of a proposal to interconnect Foxconn’s massive electronics plant planned for southeastern Wisconsin months ahead of the RTO’s usual year-end approval schedule, stakeholders learned Wednesday.
The $140 million interconnection project to plug Foxconn’s $10 billion plant into We Energies’ network will move ahead “as needed to meet the December 2019 in-service date,” Lynn Hecker, MISO manager of expansion planning, said at a Feb. 14 Planning Advisory Committee meeting.
Foxconn manufacturing plant in the Czech Republic | Syner
American Transmission Co. submitted the request for accelerated approval late last year, insisting that its proposed project cannot wait until usual approvals at the end of the year as part of MISO’s 2018 Transmission Expansion Plan. ATC has proposed constructing a 14-mile, 345-kV transmission line; a new 345/138-kV substation; and new underground 138-kV lines to connect the substation to a smaller Foxconn-owned substation near the plant. (See MISO Seeks Stakeholder Input on Foxconn Decision.) MISO’s decision was based on ATC’s forecasted load of 230 MW, although Foxconn says there’s potential for campus expansion at the site, possibly adding another 200 MW of load.
Stakeholders had little to say about the project, although some asked the RTO to make more widely circulated announcements when it wraps up expedited review studies and when it plans to announce expedited decisions.
New York’s Integrating Public Policy Task Force (IPPTF) on Monday debated a proposal seeking to align the state’s effort to price carbon with the Regional Greenhouse Gas Initiative. It also discussed an alternative to NYISO’s capacity market.
Representatives from the Long Island Power Authority (LIPA) and National Grid made presentations as part of the ongoing process to develop a straw proposal for pricing carbon into the state’s wholesale electricity market, a joint effort by NYISO and the state’s Department of Public Service (17-01821) that aims to deliver a workable plan by year’s end.
The IPPTF’s work plan includes five issue tracks: 1) straw proposal development; 2) wholesale energy market mechanics and interaction with other wholesale market processes; 3) policy mechanics, such as setting the carbon charge; 4) interaction with other state policies; and 5) customer impacts. (See NYC, Goals Dominate Talk on Carbon Pricing.) The effort is still in the first track, slated to conclude March 19.
Regional Circuit Breaker
During his presentation, LIPA Director of Power Markets Policy David Clarke asked that “NYISO and DPS think about the carbon abatement cost curve throughout the RGGI region, what it might look like, what it might cost to buy and retire allowances along the curve and how far we might go to narrow differences by doing so, especially considering the roles of the cost-containment reserve.” The RGGI reserve contains allowances only released if allowance prices exceed predefined levels.
New York could reduce its carbon emissions at a lower cost by drawing on the broader region and a wider geographic set of abatement alternatives, Clarke said.
Projected RGGI allowance prices in constant 2015 and nominal dollars | ICF
“RGGI has a 10-million-ton reserve, priced in 2025 a little over $17 a ton. Essentially, it’s a circuit breaker,” Clarke said. “So RGGI states have agreed to this circuit breaker, a price increase they can live with if the market’s carbon price went too high.”
LIPA considers the state’s Clean Energy Standard (CES) goals — principally, an 80% emissions reduction by 2050 — as a starting point for pricing carbon and wants NYISO to consider an approach that increases the state’s carbon prices to the RGGI cost-containment reserve price. The power agency noted that the draft 2017 Policy Scenario Overview, prepared by ICF International for RGGI in June 2017, pointed to a “wide range” of projected 2025 allowance prices, “the lowest of which accompany high renewable build-out scenarios, but most are well below $17/ton for 2025.”
CES Impact on RGGI Prices | The Brattle Group
Clarke noted that, in The Brattle Group’s report on the social cost of pricing carbon in New York, the “starting point was a $40 adder above the assumed $17 price, so they were looking at $57-58/ton as the carbon adder.”
“The Brattle proposal is to take the carbon price and raise it into the marketplace and get some marketplace reductions, and it raises it quite a lot,” said Mark Reeder of the Alliance for Clean Energy New York. “And [LIPA] seems to be proposing as an alternative to that — [that] New York retires RGGI allowances and raises the price in the market for carbon that New York sees. But it’s not just New York; it’s everybody else [that sees a higher price], and it’s an alternative way of getting the market to see a higher price of carbon.”
Clarke agreed that was “a more or less” accurate summary of LIPA’s thinking.
“We observe that the RGGI prices are likely to trade well below the cost-containment reserve level if nothing changes,” Clarke said. “And from a loads perspective, buying and retiring allowances below this price can be significantly less expensive than the average cost loads would pay under an approach that sets a carbon adder at the social cost of carbon.”
Under current regulations, any entity, including a state or load-serving entity, can set up an account to buy allowances. RGGI regulations also provide for retiring allowances from voluntary reductions, so there are a couple mechanisms to buy or retire allowances up to the cost-containment reserve price, Clarke said.
Alternative Market Design
Ben Carron, National Grid’s senior analyst for regulatory strategy and integrated analytics, presented the company’s Dynamic Forward Clean Energy Market (DFCEM) concept, an alternative to the capacity and renewable energy credits markets in New York. Under the idea, the state would use an auction to procure the clean energy attribute from a resource, but not the energy itself. The model is designed to incentivize development of new clean energy resources and retain existing ones in order to reduce emissions.
Carron noted that “the concept is being discussed in the [Integrating Markets and Public Policy] process in New England,” but he emphasized that he was speaking on behalf of National Grid and not the other consortium members that created it. (See NECA Panelists Talk Carbon Pricing, Northern Pass.)
“We share similar concerns to those presented last week by the city of New York, which is that this needs to be considered on an economy-wide scale,” Carron said.
Locational Incentives for Clean Energy | The Brattle Group
While the task force is only addressing how to harmonize wholesale energy markets with public policies in the energy sector, Carron said a wider approach could avoid creating perverse incentives and ensure that stakeholders understand how it is going to interact with other components of the state’s energy plan.
“Doing some upfront work to establish the cost of carbon abatement in each sector would be a useful exercise for policymaking in all sectors and would inform the potential for leakage across sectors in this effort,” Carron said.
Reeder said the DFCEM appeared similar to New York State Energy Research and Development Authority auction processes for obtaining renewable resources, in which one Tier 1 REC represents the energy production of 1 MWh.
“Ostensibly, that achieves a similar outcome if I think about the CES objective [of] around 50% renewables by date X,” Reeder said. “So how would this interplay with what NYSERDA does right now? Is it a complement? Is it a supplement? Would it essentially obviate the need for NYSERDA to do what they do now?”
“I think that it might obviate the need,” Carron said. “We should create a wholesale market solution that accomplishes as much of what we’re setting out to do with public policy as possible.”
Track 2 Issues and Scheduling
The task force also reviewed a plan for Track 2 of its work, which will deal with wholesale energy market mechanics — including “carbon leakage” and how to measure emissions — and interaction with other wholesale market processes.
The plan lays out Track 2 meetings from April to July before the suggested Aug. 1 deadline for draft recommendations. The joint staff will present frameworks for Track 2 issues of each meeting and also left some meeting dates open to resolve thorny issues — such as leakage — that may require additional discussion.
| IPPTF
Representing New York City, Couch White attorney Kevin Lang expressed concern about transmission being slated for discussion on July 30, just two days before the deadline for draft recommendations.
“Waiting until the end of July to talk about transmission is way too late,” Lang said.
IPPTF co-chair Nicole Bouchez, NYISO market design specialist, said the task force would consider earlier discussions on the subject but that it did not foresee the draft recommendations covering every issue.
In addition to transmission, Track 2 will also deal with leakage and resource shuffling; emission rates for generators; carbon shadow price; carbon charge implementation; emission rates for distributed energy resources and demand response; fuel blends; how much transparency is available; the mechanics of allocating carbon revenues; credit implications; capacity market implications; and bilateral arrangements.
The task force next meets Feb. 19 at NYISO headquarters.
Some energy resource developers in California say CAISO needs to change its interconnection rules to prevent financially unviable projects from lingering in the queue and affecting more sound projects.
CAISO’s annual Interconnection Process Enhancements (IPE) process is becoming increasingly complex as the state’s generation mix changes, with renewables and storage comprising the vast majority of projects currently in the queue. The ISO outlined its 2018 IPE in an issue paper last month. (See CAISO Launches Interconnection Initiative.)
The majority of generation projects in the CAISO interconnection queue are renewables.
As part of the initiative, CAISO asked for comment on whether it should alter its Transmission Plan Deliverability (TPD) allocation, which establishes the amount of additional transmission capacity needed for projects to achieve deliverability and determines generators’ cost responsibility for network upgrades costs. Projects allocated sufficient TPD receive reimbursement for their upgrades. CAISO uses a point system to allocate TPD based on project status, including the status of project financing, power purchase agreements, regulatory approvals, land acquisition, and other factors.
CAISO’s current process provides interconnection customers with two annual opportunities for earning TPD allocations following Phase II interconnection studies and after one year of parking in the queue. Under revisions filed with FERC, which the ISO says are likely to be approved, a third annual opportunity for a TPD allocation will be made available to interconnection customers following a second year of parking. Projects that don’t qualify for a TPD allocation following the three opportunities must convert to energy-only status — making them ineligible for resource adequacy payments — or withdraw from the queue.
In its comments to CAISO, Southern California Edison (SCE) said it opposes allowing projects to remain in the queue indefinitely and to have endless opportunities to apply for deliverability status.
“Such projects remaining in the queue open-endedly without making progress towards their commercial operation negatively affect other active projects,” the company said.
SCE said projects not allocated TPD by the end of the second parking period should be required to execute the agreement and proceed as energy-only or be suspended, allowing for a three-year period during which they retain priority for TPD allocation. Two parking periods and a three-year suspension should be adequate, the utility said.
Differing Opinions on TPD Allocation Changes
Utility-scale developer First Solar said that forcing projects into “energy-only” status and large forfeiture amounts that become due if a project withdraws might incite developers to choose energy-only status rather than depart the queue. The company said the issue is compounded by a lack of transparency of available deliverability at interconnection points on the CAISO grid.
“Deliverability is critical for marketing a project, as energy-only projects currently are less appealing due to their lack of resource adequacy attribute and are therefore less competitive in procurement,” First Solar said. “We ask the CAISO to address several issues that prevent interconnection customers from being allocated or retaining deliverability, as well as issues that have impacts on others in the queue.”
CAISO resource developers have competing views of how interconnection policies should be overhauled.
But the state’s Office of Ratepayer Advocates (ORA) said it did not support changes to the current TPD allocation process that allows three opportunities for TPD allocation, rather than allowing projects to remain in the queue indefinitely.
“Changes in the queue procedures should only be considered for resources that meet project area needs, support state resource targets or CAISO-controlled grid needs, such as resources that can respond to grid demands throughout the day and/or provide additional services in addition to energy,” ORA said.
The California Wind Energy Association said that with the third allocation option on file at FERC, “there is no need to tinker with the TPD allocation process. We suggest that this IPE element be tabled.”
Independent transmission company ITC said it supports inclusion of the possible TPD changes in the scope of the 2018 IPE stakeholder initiative as part of its “broader support” for studying the impacts of allowing projects with potentially limited commercial viability to remain in the queue and seek TPD allocation.
ITC also recommended the initiative further examine “how identified impacts of an interconnection request on neighboring systems are coordinated and mitigated” to “consider additional clarifications to Affected System practices.”
The company pointed to FERC’s recent order on a complaint by the Environmental Defense Fund regarding MISO, PJM, and SPP Affected System studies. Earlier this month, the commission ordered a technical conference after finding the RTOs’ tariffs and joint operating agreement do not fully explain the guidelines and timelines that the RTOs use to coordinate with other affected systems during the interconnection process. (See FERC Orders Review of PJM, MISO, SPP Generator Studies.)
As of Jan. 1, the ISO’s interconnection queue contained about 43,000 MW of proposed generation, including about 28,000 MW of renewables, 12,000 MW of storage, and 2,800 MW of other resources, documents show.
Constitution Pipeline on Monday asked FERC to reconsider a January order upholding a denial of the company’s water permit application by New York environmental regulators, saying the commission “erred” in its interpretation of the federal Clean Water Act.
At issue is a proposed 124-mile natural gas pipeline originating in Pennsylvania that would deliver 650,000 dekatherms of gas per day into upstate New York.
First sections of Constitution Pipeline arrive in New York | Constitution Pipeline
Constitution last October petitioned the commission to rule that the New York State Department of Environmental Conservation (NYSDEC) had waived its authority under Section 401 of the Clean Water Act by failing to issue or deny a water quality certification within the one-year “reasonable period of time” stipulated by the act, despite the company’s cycle of withdrawing and resubmitting the application.
But the commission disagreed, ruling last month “that once an application is withdrawn, no matter how formulaic or perfunctory the process of withdrawal and resubmission is, the refiling of an application restarts the one-year waiver period under section 401(a)(1).”
Nonetheless, the commission said it continued to be concerned “that states and project sponsors that engage in repeated withdrawal and refiling of applications for water quality certifications are acting, in many cases, contrary to the public interest and to the spirit of the Clean Water Act by failing to provide reasonably expeditious state decisions.” (See FERC Upholds New York Denial of Constitution Pipeline.)
Constitution’s Feb. 12 petition calls on the commission “to curb this abuse of [the] legal process” in which DEC “has succeeded in delaying and frustrating the certification review process by claiming that Constitution’s serial submissions entitle the agency to successive year-long review periods.”
“The Commission erred in its interpretation of the “reasonable period of time” in this case because the mechanical application of the final submission date of April 27, 2015, wrongfully allowed NYSDEC to exceed the maximum allowable period of time under the Clean Water Act,” Constitution said.
The pipeline developer contends that the commission is fostering a regulatory scheme detrimental to the public interest and that its Jan. 11 order enables NYSDEC “to abdicate its responsibilities.” The company noted that, except for the Clean Water Act approvals, the project is federally approved and its right-of-way has been optioned or acquired.
“The piping and equipment for this project have now been held in storage for over three years, and the pipeline remains fully contracted with long-term commitments from established natural gas producers currently operating in Pennsylvania,” said the petition, which also requested expedited action by the commission to prevent further delay.
Constitution said its pipeline is a “critical natural gas infrastructure needed to meet the natural gas demands of the Northeast United States – the current winter supply and pricing environment in New England making this point most clear and obvious.” (See FERC, RTOs: Grid Performed Better in Jan. Cold Snap vs. 2014.)
In a proceeding related to the Millennium Pipeline, FERC last September ruled against the NYSDEC on a similar issue of timeliness, finding the agency had waived its authority to issue or deny a water quality certification for the project by failing to act within the one-year time frame required by the Clean Water Act (CP16-17). (See Environmentalists Denounce FERC Millennium Pipeline Ruling.)
