Page 1228 – RTO Insider

January 4, 2018

Dominion to Buy Distressed SCANA for $8B

By Amanda Durish Cook

Dominion Energy on Wednesday said it will buy SCANA for $7.9 billion in a stock-for-stock transaction, securing a utility troubled by a botched nuclear project.

SCANA, which owns South Carolina Electric & Gas, has been under financial pressure since it scrapped the two-reactor expansion of its V.C. Summer nuclear plant last July after spending about $9 billion on the effort. The nearly decade-long project fell victim to design flaws, cost overruns, construction delays and the bankruptcy of lead contractor Westinghouse Electric.

Dominion’s $7.9 billion acquisition will include an additional $6.7 billion in assumed debt, valuing the sale at about $14.6 billion. The Virginia-based utility is offering reduced rates to SCE&G customers and a partial refund of the incomplete expansion at the Summer plant.

SCANA shareholders will receive slightly more than two-thirds of a Dominion share for each share they own, valuing the stock at about $55.35. SCANA shares lost almost half their value over the past year, falling to under $40/share early this week. Hours after the deal was announced, SCANA shares rallied from $39 to $48, while Dominion fell from $80 to $77.

Dominion Goes South

The resulting company would operate in 18 states, serving about 6.5 million regulated customers. The companies said the sale would be a strategic union that would help Dominion solidify a presence in expanding Southeast markets.

“SCANA is a natural fit for Dominion Energy,” Dominion CEO Thomas Farrell II said. “Our current operations in the Carolinas — the Dominion Energy Carolina Gas Transmission, Dominion Energy North Carolina and the Atlantic Coast Pipeline — complement SCANA’s … operations. This combination can open new expansion opportunities as we seek to meet the energy needs of people and industry in the Southeast.”

SCANA has about 1.6 million electric and natural gas residential and business accounts in the Carolinas. Dominion currently operates two solar farms in South Carolina and a 1,500-mile network of gas pipelines purchased from SCANA two years ago for $497 million.

SCANA would become a Dominion subsidiary, with Dominion pledging to maintain the utility’s South Carolina headquarters and protect SCANA’s 5,000-plus existing jobs until 2020. Dominion has also promised to take up SCANA’s plans to complete the purchase of the $180 million, 540-MW Columbia Energy Center natural gas-fired plant in Gaston, S.C., to fill energy needs expected to be met by an expanded V.C. Summer.

V.C. Summer project | *South Carolina Electric & Gas Co.*

“Joining with Dominion Energy strengthens our company and provides resources that will enable us to once again focus on our core operations and best serve our customers,” said SCANA CEO Jimmy Addison, who until Monday was SCANA’s chief financial officer. He replaced former CEO Kevin Marsh, who retired in the face of federal and state scrutiny of the failed V.C. Summer project.

In response to concerns about the nuclear project, Dominion is offering $1.3 billion in refunds to SCANA customers, amounting to about $1,000 each. Dominion also claims the sale will cut the time that customers will be on the hook for paying for the unfinished reactors from 60 years to 20 years. The company has also promised to reduce rates for SCE&G customers by about 5%, or $7/month.

Customers are currently paying about $27/month — or 18% of their monthly bills — to finance the unfinished reactors.

Dominion is proposing to cut refund checks to customers based on 2017 electricity usage within 90 days of the finalized sale. Farrell said the move will “guarantee a rapidly declining impact from the V.C. Summer project” and called the proposed refunds as the “largest utility customer cash refund in history.”

However, consumer advocates are contending that at least some of the proposed 5% rate reduction is already guaranteed to customers to reflect company gains from the corporate tax cuts recently passed by the U.S. Congress. Last week, the South Carolina Office of Regulatory Staff requested that state utilities draw up plans to share their tax savings with customers.

Sale Requires Continuation of Base Load Review Act

Another possible sticking point: Some South Carolina lawmakers claim the proposed deal is meant to compel South Carolina lawmakers to preserve the controversial Base Load Review Act, the 2007 law that allows SCE&G to continue to pass onto customers the costs of nuclear reactors that will never produce a kilowatt of power. The deal presumes that SCANA customers will continue to pay the reduced rate under the law for 20 years.

Meanwhile, federal and state investigators are reviewing whether the law’s provision to charge customers for abandoned generation projects is reasonable, and South Carolina lawmakers next week will begin deliberating legislation that could halt customer collection altogether on the scuttled project (S 0754).

Last month, SCE&G formally asked the Nuclear Regulatory Commission for permission to withdraw its operating license for the reactors, a move intended to show the company has entirely given up on the project and is eligible for a $2 billion tax write-off.

The South Carolina Public Service Commission last week denied SCE&G’s request to dismiss two proceedings related to the failed attempt to expand V.C. Summer. One case sought to eliminate charges that the SCANA subsidiary’s customers are paying for the failed project, while the other sought refunds for what customers have already paid. The PSC has said it will hold a hearing this year to determine the merits of eliminating the charges and granting refunds.

Governor Reacts

South Carolina Gov. Henry McMaster, who has supported complete customer refunds of the nuclear project costs, said the proposed transaction represented “progress” but that there was “more work to be done,” namely selling off state-owned electric and water utility Santee Cooper, SCANA’s project partner in the unfinished reactors.

“Under the proposed agreement between SCANA and Dominion Energy, SCE&G ratepayers will get most of the money back they paid for the nuclear reactors and will no longer face paying billions for this nuclear collapse. But this doesn’t resolve the issue,” McMaster said in a statement. “Over 700,000 electric cooperative customers face the prospect of having their power bills sky rocket for decades to pay off Santee Cooper’s $4 billion in debt from this. The only way to resolve this travesty is to sell Santee Cooper.”

Dominion and SCANA expect the deal to close this year, although the companies still require approval from several agencies, including FERC, NRC, the Federal Trade Commission, the Department of Justice and South Carolina, North Carolina and Georgia regulators.

The companies have set up a special website explaining the acquisition to SCANA customers at dominionenergysouth.com.

January 4, 2018

NYISO Seeks FERC Denial on Indian Point Review Deadline

By Michael Kuser

NYISO on Tuesday asked FERC to deny Entergy’s request that the commission clarify the deadline for the ISO to complete a final market power review for the deactivation of the Indian Point nuclear plant (ER16-120, EL15-37).

At issue is the commission’s acceptance in November of NYISO’s revisions to its reliability-must-run program, adding a 365-day notice period for a generator to notify the ISO that it plans to retire. (See FERC Approves NYISO Reliability-Must-Run Plan.)

Indian Point Market Power Review Entergy — Indian Point Nuclear Plant | *Entergy*

In a Dec. 18 filing with FERC, Entergy noted that NYISO failed to include a 120-day market power review deadline that was in an earlier filing. The company contended that without a clear deadline for review, its 2,311-MW Indian Point plant lacked certainty about authorization to exit the market. (See Entergy Asks FERC to Clarify Indian Point Retirement Process.) The company is seeking a March 13 deadline for NYISO to complete a market power study for the closure. Units 2 and 3 at the plant are slated to close in 2020 and 2021, respectively.

In its Jan. 2 response, NYISO said that requiring it “to complete physical withholding analyses years in advance of generator deactivation would clearly be unreasonable and unjustified on equitable or policy grounds.” The ISO argued that market conditions could change “dramatically” over a two- or three-year period, “as could a generator owner’s business plans as well as the plans of other generators.”

NYISO also contended that its previous references to completing market power studies within 120 days only applied to generating units closing within one year of providing notice.

“This focus on generators deactivating in 365 days, and the NYISO’s rationale for proposing this time frame as the minimum notice period, is made abundantly clear in all of the NYISO’s stakeholder presentations and all of its filings in this proceeding,” the ISO said.

The Independent Power Producers of New York also on Tuesday filed in support of Entergy’s request for clarification. IPPNY argued that without a clear deadline for the final market power assessment, “a generator owner will have difficulty planning when its generator will be able to deactivate. … NYISO’s completion of the final market power assessment may effectively operate as a bar on a generator’s deactivation, which is entirely contrary to [FERC’s] goal that generator owners know with certainty when they can deactivate their resources.”

An ISO report in December found that new gas-fired and dual-fuel generation coming online in the next few years, led by the 1,020-MW Cricket Valley plant in Zone G, will be enough to maintain reliability after Indian Point shuts down completely. (See New Builds to Cover Indian Point Closure, NYISO Finds.)

January 3, 2018

Frigid Weather Tests Grid Operators

By Michael Kuser, Rory Sweeney, Amanda Durish Cook and Tom Kleckner

Power prices surged along with demand across much of the U.S. on Tuesday as a blast of Arctic air sent temperatures plunging to record lows in an area extending from the Great Plains to the Deep South.

cold weather peak demand — | *The Weather Channel*

ISO-NE Internal Hub real-time prices pushed past $170/MWh during the RTO’s evening peak load, occurring around 6 p.m. At about the same time, PJM’s RTO zone price hit $160/MWh, while the Eastern and New Jersey hubs broke $200/MWh. ERCOT said it might break its record for winter demand on Wednesday.

So far, the grid operators have managed to endure the cold weather and pinched fuel supplies, thanks in part to rule changes and winter preparations put in place after the cold snap of 2013/14.

Northeast Fuel Switch

The New England grid was operating normally Tuesday despite an unusually high level of oil-fired generation due to a spike in natural gas prices, according to ISO-NE spokesperson Marcia Blomberg. Gas-fired plants normally account for about half the region’s generation but on Tuesday comprised only 25% of the fuel mix.

With the cold weather forecast to stretch into next week, the RTO expects to continue relying heavily on oil-fired generators, some of which are operating around the clock and are already running short on fuel. In addition, some of the plants are reaching air emissions limitations, Blomberg said.

Each of the six states comprising New England sets its own emissions standards. Massachusetts, for example, set 2018 CO₂ emissions limits from power plants at 7.45 million metric tons for existing facilities and 1.5 million metric tons for new ones.

Nuclear power, coal, LNG and dual-fuel units running on oil are also helping the grid endure the squeeze on natural gas pipelines.

“ISO-NE will increase the frequency of generator fuel surveys and continue its close communication with oil-fired power plants, natural gas pipeline operators and neighboring power systems,” Blomberg said.

NYISO

The deep freeze in New York caused the ISO’s marginal cost of energy to spike to $229.62/MWh on Tuesday, up from $15.87/MWh on Dec. 24. NYISO’s real-time LMP zonal map showed power from Hydro-Québec priced at $226.87/MWh, compared with $15.41/MWh a week earlier, while ISO-NE shot up to $278.14/MWh from $36.56/MWh.

NYISO had sufficient generation capacity and reserves to meet Tuesday’s projected peak demand of 24.5 GW, said ISO spokesman David Flanagan. Rising demand pushed natural gas prices higher, resulting in increased wholesale electricity prices and leading some dual-fuel units in New York to switch to oil, he said.

PJM Prep Pays Off

PJM said it has been preparing for cold weather since the fall when the National Weather Service in the fall noted a dip in the polar vortex, which caused an unseasonably mild August, would likely return during the winter. Chris Pilong, who manages PJM’s dispatch, said the long-range forecast called for a mild winter overall with periods of extreme cold.

The RTO started issuing cold-weather alerts prior to the holiday break to ensure generators and transmission operators were prepared for frigid conditions. Communication is central to PJM’s response, Pilong said.

Tuesday’s expected peak demand of 134.31 GW remained outside of PJM’s top 10 winter daily peaks, he said, but was “getting close” to the 10th-place peak of 135.06 GW on Jan. 22, 2014. Wednesday’s peak is expected to be 130.53 GW.

“We’re seeing temperatures starting to moderate a little bit,” Pilong said.

Four of the 10 highest winter peaks — including the all-time record of 143.13 GW — occurred in 2015. The remaining six are from 2014, when a similar dip in the polar vortex caused even colder temperatures, resulting in supply issues when 22% of the RTO’s generation capacity failed to respond to dispatch signals.

Pilong said changes implemented since then, including Capacity Performance and fuel-switching procedures, have been effective.

“We’re seeing from a generator performance perspective outage rates are cut in half,” he said.

Gas-fired generation made up about 25% of PJM’s fuel mix Tuesday, down from about one-third during normal operations. Pilong attributed the decline to fuel switching. At one point, more than 8,000 MW of oil-fired generation was online, almost all of which represented gas units that had been switched.

The RTO’s LMP hovered around $175/MWh near its peak. Pilong attributed the jump to “competition for natural gas.”

“It really just has to do with fuel prices,” he said.

MISO Exceeds Winter Peak Outlook

The extended cold snap prompted MISO on Tuesday to issue a conservative operations order until Jan. 5. A cold-weather alert will remain in place until Sunday “due to very cold temperatures, high system load and uncertainties in gas pipeline fuel supplies.” An unofficial Tuesday peak load of 104.6 GW exceeded the RTO’s winter forecast by 1.2 GW.

“As we have throughout the past several days, MISO continues to work closely with members and neighboring system operators to prepare and take appropriate steps to protect the bulk electric system,” spokesperson Mark Brown said.

MISO’s all-time winter peak demand was 109.3 GW on Jan. 6, 2014.

During a winter readiness workshop in November, MISO predicted a 103.4-GW winter peak would be handled easily by 142 GW of projected capacity. The forecast relied on National Oceanic and Atmospheric Administration projections, which predicted a warmer-than-normal winter in the Central and South regions and normal to below-normal temperatures in the North region. (See MISO in ‘Good Shape’ for Winter Operations.)

MISO has placed more weight on winter preparations since the 2013/14 winter, issuing winterization guidelines for generators and introducing heightened communication with gas pipeline operators. (See FERC Approves MISO Plan to Share Generator Gas Data.)

“As part of lessons learned from the polar vortex, MISO increased communications and coordination with gas pipeline operators. MISO has a complete database of pipeline connections and dual-fuel capability for all gas generators,” Brown said.

On Tuesday, coal generation comprised a 48% share of MISO’s fuel mix, with natural gas supplying 22% and nuclear and wind generation contributing about 14% each. The RTO’s mix is typically 34% coal, 41% gas, 8% nuclear and 14% renewables.

SPP, ERCOT Manage Response

SPP, whose 14-state footprint reaches from East Texas to the Dakotas, issued a cold-weather alert for Dec. 29 to Jan. 4. RTO spokesman Dustin Smith said member companies are experiencing “slower-than-normal” start times and other temperature-related start-up issues at some units.

While the cold temperatures have had some impact, SPP has not “encountered anything unmanageable,” Smith said.

Some SPP gas units have been unable to procure fuel, resulting in outages and switches to more costly oil, Smith said.

The cold weather has reached as far south as the Texas Gulf Coast. Houston is expecting a freeze Wednesday morning and has seen temperatures in the 20s since New Year’s Eve.

ERCOT, the grid operator for 90% of Texas, said it has managed the winter weather so far and has sufficient generation and transmission resources available to keep up with the frigid forecasts. Demand Tuesday peaked at slightly more than 59 GW between 11 a.m. and 12 p.m. and is expected to approach 62 GW Wednesday morning, which would break the winter record of 59.65 GW set in January 2017.

The ISO issued a notice before the cold snap asking generators to take necessary steps to prepare their facilities for the expected cold weather by reviewing fuel supplies and planned outages, said ERCOT spokesperson Leslie Sopko.

“We also worked with transmission operators to minimize outages that impact generation,” Sopko said.

TVA Asks Customers to Conserve

Early Tuesday morning, the Tennessee Valley Authority reported an average temperature of 10 F across its footprint, about 20 degrees lower than average. The government agency reported that the frigid temperatures pushed power demand to 32 GW on Jan. 2, TVA’s highest level since 2015.

“Power demands are high. Help us maintain a reliable supply of energy ― and help yourself save money on your next power bill ― by lowering your thermostat 1-2 degrees during the peak hours of 6 am to 9 am,” TVA tweeted.

Testing the Limits of Fuel Switching

While fuel switching has helped grid operators in the short run, the possibility of exceeding oil supplies and air emissions limits is a particular concern in New England.

“They’re burning a lot of oil out there,” Northeast Gas Association CEO Thomas M. Kiley told RTO Insider.

The gas association’s market outlook for this winter predicted such a scenario.

“The rising demand for natural gas within the region’s electric market has not been sufficiently matched by a commitment to securing adequate reliable natural gas supplies and firm pipeline capacity contractual obligations,” the report said. “The electric power sector has not participated sufficiently in terms of investments in securing natural gas supplies for their generating units.”

Kiley said nothing has changed since the group issued that report in October, but the grid operator’s winter reliability program is helping to keep generators operating. The reliability program provides incentives for oil-fired units to buy adequate oil supplies before winter begins and to restock their fuel regularly throughout the season.

“Our organization has been monitoring this with ISO New England since the middle of last week and they’ve done a good job with the fuels program,” Kiley said.

A Thaw?

Some relief should come in the second half of January when NOAA is calling for above-average temperatures across much of the continental U.S.

January 3, 2018

CAISO to Depart Peak Reliability, Become RC

By Jason Fordney

CAISO officials said Tuesday they “reluctantly” plan for the ISO to become a reliability coordinator (RC) by spring 2019 and will depart from the ISO’s current RC, Peak Reliability, which recently emerged as a potential market competitor.

The ISO cited as the reasons for the move Peak’s decision to partner with PJM to provide market services and Mountain West Transmission Group’s likely departure from Peak after it joins SPP. (See PJM Unit to Help Develop Western Markets.) CAISO said in a press release it could provide reliability services “at significantly reduced costs.”

“The ISO reluctantly takes these steps and will collaborate with the rest of the funding parties to ensure continuity of reliability services and to avoid any party being adversely affected financially,” CAISO CEO Steve Berberich said. Services would include outage coordination, day-ahead planning, and real-time reliability monitoring.

The ISO said it will hold a call on the proposal Jan. 4 and conduct public meetings later this month in Folsom, Calif.; Phoenix, Ariz.; and Portland, Ore.

CAISO last month proposed to extend its day-ahead market into the territory of its regional Western Energy Imbalance Market (EIM), setting up a possible competition with Peak to provide an organized market to other areas of the West. (See CAISO Bid for Western RTO to Face Competition in 2018.)

CAISO peak reliability — CAISO CEO Steve Berberich said the ISO is “reluctantly” exploring becoming a reliability coordinator | © *RTO Insider*

RCs monitor compliance with NERC and regional standards, including monitoring risks, taking actions to preserve reliability and leading power restoration efforts.

Vancouver, Wash.-based Peak said it will have a business plan for its market offering in place by the end of March. The organization said last year it held more than 130 meetings, including some with public utility commissioners in Washington, Montana and Nevada; FERC; and the office of California Gov. Jerry Brown.

Peak in 2014 split off from the Western Electricity Coordinating Council, a NERC Regional Entity based in Salt Lake City, Utah. WECC recently began its own realignment toward core reliability functions. (See WECC Finding New Direction in Old Mission.)

January 2, 2018January 3, 2024

FERC Briefs: DR Down in RTOs; Con Ed DER Recovery OK’d

Advanced meters have reached a 43% penetration rate but demand resources’ contribution to meeting RTO/ISO peak demand has decreased, FERC reported in its 12th annual report on demand response and advanced metering.

DR in the organized wholesale markets dropped to 5.7% in 2016 from 6.6% in 2015 according to RTO/ISO reports, as demand resource participation fell 10% while peak demand grew by 3%.

The decreased participation was largely because of a 24% (3,030 MW) drop in DR enrollment in PJM, which lost 2,900 MW in its reliability program (limited, extended summer and annual DR) and 900 MW in its economic program. The drops were partially offset by 600 MW of DR entering the market as Capacity Performance resources.

CAISO saw DR participation fall by 8% because of decreased enrollment in price-responsive demand programs administered by California’s three investor-owned utilities. ISO-NE and NYISO saw 4% drops while MISO saw a 1% increase.

Retail DR, by contrast, showed growth. Potential peak demand savings from retail DR programs nationwide increased by 5.4% between 2014 and 2015, according to the Energy Information Administration. Industrial customers were responsible for 52% of potential savings, while residential customers contributed 26% and commercial customers 21%, a breakdown that FERC said has “remained fairly stable over time.”

FERC also cited EIA data showing that 64.7 million advanced meters were deployed nationwide in 2015 out of a total of 150.8 million meters.

The report also took note of states’ grid modernization efforts, including deployment of time-of-use rates. The annual report, released Dec. 28, was mandated by Congress in the Energy Policy Act of 2005.

Con Ed ‘Value Stack’ Approved

Consolidated Edison last week won FERC approval to recover its payments to distributed energy resources customers under the New York Public Service Commission’s Reforming the Energy Vision initiative (ER18-214).

The PSC created a “value stack” describing the services provided by DERs: capacity; environmental value; demand reduction value; and locational system relief. (See NYPSC Limits ESCO Service, Sets New DER Compensation.) Con Ed agreed to New York City’s request that its annual accounting to FERC include an itemization of the four DER cost components.

Other Rulings

In other rulings last week, the commission:

- - Ordered a Section 206 proceeding to determine reactive service rates for Allegheny Energy Supply’s 80-MW coal bed methane-fueled facility located in Buchanan, Va. (ER17-2575, EL18-46).
  - Approved transmission rate incentives for Dairyland Power Cooperative’s share of the Cardinal-Hickory Creek 345-kV transmission project (ER18-193). The commission approved a hypothetical capital structure of 45% equity/55% debt and recovery of 100% of prudently incurred costs if the project is canceled for reasons beyond Dairyland’s control. The 125-mile project will run from the Cardinal substation in Middleton, Wis., to the Hickory Creek substation in Dubuque County, Iowa. Dairyland will own 9% of the project with American Transmission Co. and ITC Midwest each owning 45.5%. Pending regulatory approval, the companies expect to begin construction in January 2022 with an in-service date of June 2023.
  - Ordered hearing and settlement procedures on proposed revisions to the transmission formula rate templates of Public Service Company of Oklahoma, Southwestern Electric Power Co., AEP Oklahoma Transmission and AEP Southwestern Transmission (ER18-194, ER18-195). Oklahoma Municipal Power Authority, East Texas Electric Cooperative and Northeast Texas Electric Cooperative protested that the AEP filings failed to justify the proposed changes, which AEP said were needed to transition from a historic basis to a forward-looking accounting method. The commission said the resolution of the dockets is subject to the outcome of East Texas’ complaint over the AEP companies’ 10.7% base return on equity (EL17-76).
  - Set hearing and settlement proceedings on Southwestern Public Service’s proposed revisions to the formula rate implementation protocols in its power supply agreements with Central Valley Electric Cooperative, Lea County Electric Cooperative, Farmers Electric Cooperative of New Mexico, Roosevelt County Electric Cooperative, Tri-County Electric Cooperative and West Texas Municipal Power Agency (ER18-228). The revisions update the depreciation rates for the two units at SPS’ Tolk generating station based on a 2032 retirement date and the retirement of its Carlsbad generator at the end of 2017. The commission cited protests by several co-ops that SPS had not presented proof it had made a legally binding decision to retire Tolk or Carlsbad earlier than previously indicated. They said that could allow SPS to change its decision after having benefited from recovering accelerated depreciation. Chairman Kevin McIntyre did not participate in the ruling.
  - Approved an uncontested settlement on Alliant Energy’s revenue requirement for providing reactive supply and voltage control at its Interstate Power and Light and Wisconsin Power and Light generating facilities (EL17-60, ER17-980-001). The settlement will pay IPL $3.58 million and WPL $3.77 million. Alliant had requested an annual revenue requirement of $4.23 million for IPL, a decrease from the $4.89 million it received in 2015, and $4.45 million for WPL, an increase from $2.41 million in 2015.

— Rich Heidorn Jr.

January 2, 2018

FERC Sets Hearing on SCE Tx Rates; Glick Dissents

By Rich Heidorn Jr.

FERC last week ordered hearing and settlement proceedings on Southern California Edison’s proposal to revise its transmission formula rate, while approving an incentive for RTO participation over the objections of new Commissioner Richard Glick (ER18-169, EL18-44.)

The commission accepted the company’s filing effective Jan. 1 subject to refund. Although SCE proposed a reduction in its transmission revenue requirement, the commission said “a further decrease may be warranted.”

SCE proposed a base return on equity of 10.3%, saying the range resulting from FERC’s two-step discounted cash flow model — 6.97 to 9.15% — was too low.

The commission approved a 50-basis-point ROE adder for SCE’s participation in CAISO over the objections of the California Public Utilities Commission, which said the incentive is “an unjust and unreasonable windfall to SoCal Edison shareholders because SoCal Edison’s participation in CAISO is required by state law and the state of California determines whether SoCal Edison remains a member of CAISO.”

“The CPUC’s arguments … have been considered and rejected by the commission in earlier orders, and we reject them for the same reasons here,” the commission said. “We also note that companies continue to confront decisions about whether to form and join ISO/RTOs, and we believe the stability of the incentive adder for ISO/RTO participation (albeit capped by the top of the zone of reasonableness) is important to the congressional and commission policy of promoting ISO/RTO membership,” it added.

FERC CAISO SCE Richard Glick — | *Southern California Edison*

Glick sided with the CPUC, saying, “I do not believe that this summary approval is the product of reasoned decision-making.”

“SoCal Edison’s membership in CAISO is not voluntary and, therefore, awarding a 50-basis-point RTO participation adder does nothing to harness for consumers the benefits of RTO membership,” Glick wrote in a dissent.

Glick said the ruling belied the commission’s “repeated statements that the RTO participation adder is not a ‘generic’ adder awarded to all public utility members of an RTO.

“Although I do not question the benefits of membership in an RTO — and I support using an RTO participation adder where it incentivizes RTO membership — I believe that the commission’s approach in this proceeding essentially transforms the ‘case-by-case’ evaluation of a request for an RTO participation adder that the commission described in Order No. 679 into exactly the type of generic determination that the commission forswore in Order No. 679 and subsequent orders.”

January 2, 2018

FERC Orders Hearing, Settlement Talks for Calpine RMRs

FERC ordered hearing and settlement procedures in a dispute over reliability-must-run agreements filed by Calpine for its Yuba City, Feather River and Metcalf generators in CAISO.

reliability-must-run RMR calpine — Yuba City power plant | *Calpine*

The commission’s Dec. 29 orders approved the Yuba City and Feather River (ER18-230) and the Metcalf RMRs (ER18-240) effective Jan. 1, 2018, subject to refund.

The ISO and Pacific Gas and Electric filed protests over the RMRs filed by Calpine’s Gilroy Energy Center subsidiary for the Yuba City and Feather River plants. CAISO designated the units as RMR in March, but the ISO told FERC that Gilroy had not supported provisions related to scheduling coordinator charges, greenhouse gas emissions and gas prices. (See PG&E, CAISO Protest Calpine RMR Terms.)

CAISO also protested Metcalf’s proposed changes to its cost-of-service schedules, arguing that they are unsupported or reflect errors in implementation of applicable formulas.

The ISO is increasing its use of out-of-market RMR payments to keep units online, raising concerns that its market is not producing the price signals sufficient to support units needed to provide reliable electric service.

— Rich Heidorn Jr.

January 2, 2018

FERC OKs Change to MISO, PJM Pseudo-Tie Rules

By Rich Heidorn Jr.

FERC last week approved changes to MISO and PJM’s Joint Operating Agreement to improve their coordination of pseudo-tied generators, rejecting calls for a technical conference (ER17-2218).

The RTOs said the changes were needed to address the market and reliability challenges resulting from the increased number of pseudo-tied resources. Pseudo-tied volumes from MISO into PJM increased from about 155 MW in June 2015 to 2,160 MW in June 2017.

In November, the commission had accepted PJM’s proposed revisions to the requirements for pseudo-tied resources seeking to participate in the RTO’s capacity auctions (ER17-1138).

PJM MISO pseudo-tie JOA joint operating agreement — | *MISO, PJM*

The JOA changes specifically affect generation commitment and dispatch “with a focus on reliability assurance,” FERC said. (See MISO, PJM Respond to FERC’s Pseudo-Tie Questions.)

Among the changes:

The RTOs will coordinate modeling and technical details of pseudo-tied resources;
To capture the impacts of pseudo-tied resources on flowgates, neither PJM nor MISO nor the entity seeking to pseudo-tie a resource will tag the scheduled energy flows from pseudo-tied resources. Information about the pseudo-tied resources is included in the market-to-market management procedure;
The RTOs will not recall a pseudo-tied resource that is committed to the attaining balancing authority as a capacity resource to serve load in the native balancing authority;
The native reliability coordinator can commit, decommit or redispatch the pseudo-tied resource under certain circumstances;
Entities seeking to pseudo-tie must pay for transmission losses; and
The RTOs can suspend or terminate a pseudo-tied resource if it no longer satisfies the requirements for a pseudo-tie.

FERC approved the changes over the concerns of intervenors who said it should evaluate them along with issues raised in other pseudo-tie proceedings. MISO’s Independent Market Monitor — which has challenged PJM’s requirement that external capacity resources must be pseudo-tied — said the commission should schedule a technical conference on the issues.

FERC, however, said it agrees with the RTOs that the JOA revisions “are separate and distinct from issues pending in other pseudo-tie related proceedings: These proceedings specifically address administration and coordination of pseudo-tied resources between the RTOs. In contrast, some of the other proceedings pertain more to the agreement that a pseudo-tied resource enters into with the relevant balancing authorities and the requirements for becoming pseudo-tied.”

The commission also rejected as beyond the scope of the proceeding American Municipal Power’s complaint that the JOA revisions won’t help imports from pseudo-tied resources out of MISO into PJM because they don’t resolve the issue of double-charging for congestion. “The parties have made no showing that the provisions filed by the RTOs are unjust and unreasonable because congestion is not addressed,” it said, noting that the RTOs made separate filings on Oct. 23 to address the congestion overlap issue (ER18-136, ER18-137).

FERC dismissed challenges to the RTOs’ proposed non-recallability provision, saying they had “sufficiently delineated the limited circumstances under which a pseudo-tied resource can be committed, decommitted or redispatched by the native reliability coordinator. While we agree that the ability of a pseudo-tied resource to meet its capacity requirement is essential to system reliability, we find that the instant JOA revisions do not inappropriately reduce PJM’s or MISO’s control over a pseudo-tied capacity resource.”

January 2, 2018

Lights Still on After Nearly 12 Months of Typhoon Trump

By Rich Heidorn Jr.

WASHINGTON — No industry has been more affected by Typhoon Trump in the last year than energy.

FERC NERC Donald Trump clean power plan — Trump | © *RTO Insider*

In less than 12 months in office, President Trump has abrogated the Paris Agreement on climate change and sought to disembowel the Obama administration’s Clean Power Plan. His Interior Department ended the Obama-era ban on coal mining on federal lands and is removing 2 million acres of national monuments from federal protection.

Trump and congressional Republicans also have taken steps to expand oil and gas development in the Arctic National Wildlife Refuge and off the Atlantic Coast. FERC, restored to full strength for the first time in two years, is under Republican control and facing a Jan. 10 deadline for responding to Energy Secretary Rick Perry’s demand for price supports for coal and nuclear generators.

Yet there’s also evidence that the energy economy has ballast that can withstand even this political wind storm. The economics of cheap shale gas and subsidized solar and wind continue to win market share. Dozens of cities and states responded to Trump’s Paris snub by pledging to meet the U.S. emissions targets. Despite Trump’s claim last week to have “saved” the coal industry, employment has risen by only 1,200 (2.4%) since January and remains near historic lows; although domestic coal production was up 8% in 2017 over 2016, the Energy Information Administration expects a decline in 2018.

While California’s wildfires and the hurricanes that brought biblical rain and ruinous winds have some fearing it’s already too late to prevent severe damage from global warming, RTO Insider will continue covering the nitty gritty of energy policy in 2018 — Armageddon be damned.

Here’s some of the top national stories we’ll be chronicling in the coming year.

FERC’s New Makeup

FERC limped through half of 2017 without a quorum. For all of July, after the departure of Colette Honorable, Cheryl LaFleur was the only commissioner on the 11th floor of FERC headquarters.

New Chairman Kevin McIntyre, a Republican, joined FERC after 22 years at Jones Day. Although he was coleader of the law firm’s global energy practice, he acknowledged in a FERC podcast that he has kept a low profile during his career. “I think that flying below the radar … has been a function of what my role has been in private practice where, typically, I and my law firm colleagues were retained not to land our client in the headlines, but in most instances just to serve as a forceful advocate.” (His former Jones Day colleague Don McGahn is Trump’s White House counsel.)

In his first open meeting Dec. 21, McIntyre surprised FERC watchers by announcing the commission would review its 1999 policy statement on natural gas pipeline licensing — a seeming olive branch to LaFleur, a Democrat, who later gushed, “I was already looking forward to 2018 with all you fine folks, and I now am even more.” (See FERC to Review Gas Pipeline Approval Process.)

It was an encouraging development for those who believe FERC’s nonpartisanship has been a strength. But there’s no assurance that the review, which will likely take months, will materially impact pipelines’ 99.5% success rate in winning FERC approval.

DOE NOPR

An earlier indication of where FERC is headed will come by Jan. 10, when McIntyre has promised the commission will rule on the Department of Energy’s Notice of Proposed Rulemaking.

McIntyre won a 30-day delay on the original deadline, telling Perry he and fellow newcomer Richard Glick needed more time to review the more than 1,500 comments filed in the docket (RM18-1). (See McIntyre Takes FERC Chair; Wins Delay on NOPR.)

Perry called for compensating coal and nuclear plants in regions with competitive capacity markets that maintain 90 days of fuel on site, saying they were needed for grid resiliency.

FERC NERC Donald Trump — Chatterjee | © *RTO Insider*

McIntyre has given little indication of his preferred response. (See McIntyre to Senate: ‘FERC does not Pick Fuels’.)

Commissioner Neil Chatterjee has lobbied for interim subsidies for coal and nuclear plants to provide them a “lifeline” pending a lengthier FERC review.

Although there has been speculation that LaFleur and Commissioner Robert Powelson want to issue a Notice of Inquiry to RTOs and ISOs, they have not expressed definitive positions publicly.

Changes on PURPA?

The new FERC commissioners also may consider making rule changes to address longstanding complaints about the Public Utility Regulatory Policies Act, the subject of a July 2016 technical conference and numerous congressional hearings. The National Association of Regulatory Utility Commissioners asked FERC on Dec. 18 to change its interpretation of PURPA to “align” the 1978 law “with modern realities.” (See NARUC Calls for PURPA Reforms, Outlines Proposed Changes.)

Chatterjee has said he wants FERC to address gaming of the commission’s “1-mile rule,” while Powelson promised in his confirmation hearing to look at “what’s working with PURPA and what’s not.” But both said major changes could require congressional action. (See Chatterjee Outlines Goals for FERC Tenure and No Fireworks for FERC Nominees at Senate Hearing.)

Other Rulemakings

In his podcast interview, McIntyre declared as priorities the commission’s storage NOPR (RM16-23, AD16-20) and revising its policy for determining just and reasonable returns on equity. He also called for more transparency regarding the timing of FERC’s rulings. “As a practitioner, I know firsthand what it’s like to wonder when on earth the commission is going to make a decision on a given matter,” he said. “And I think we owe it to stakeholders and the public itself to be as transparent as we can possibly be about what to expect.”

The ROE discussion got a new variable with the Republicans’ reduction of the corporate federal income tax from 35% to 21%. Montana regulators voted last week to require its utilities to pass the tax savings through to consumers, and Michigan, South Dakota, Kansas and other states reportedly also have opened dockets on this issue. (See Steve Huntoon’s latest Counterflow column, Brother, Can You Spare 70 Billion Dimes?)

NERC Seeks New CEO, Security Chief

Another issue facing FERC is its oversight of NERC, which the commission in 2006 empowered with responsibility for ensuring the reliability of North America’s electric grid.

NERC CEO Gerry Cauley (center) and General Counsel Charles Berardesco (to Cauley’s left) attend a NERC board meeting in New Orleans Nov. 9, hours before Cauley’s arrest for domestic abuse. Also pictured are Board Chair Roy Thilly (to Cauley’s right), and board members Jan Schori (left) and Frederick W. Gorbet (foreground). | *NERC*

In November, the Electric Reliability Organization was rocked by the arrest of CEO Gerry Cauley on domestic abuse charges. Cauley, the face of NERC at congressional hearings and FERC technical conferences for nearly eight years, allegedly attacked his estranged wife in an argument over what his wife said was an affair with a female subordinate. (See Cauley Arrest Tied to Relationship with NERC Subordinate.)

General Counsel Charles Berardesco was named interim CEO while NERC searches for a replacement for Cauley, who resigned effective Nov. 20 after reaching a severance agreement, according to sources. (See Cauley Resigns; NERC Launches Search for Replacement.) A week later, NERC also parted ways with its chief security officer in what sources told RTO Insider was a forced resignation. (See NERC Parts Ways with Chief Security Officer.)

While FERC has generally approved NERC’s reliability standards as proposed, the commission has on occasion overruled the ERO or pushed its own initiatives. On Dec. 21, for example, it ordered NERC to lower the threshold for mandatory reporting of cyber incidents. (See FERC Orders Tightened Cyber Reporting Rules.)

Thus far, however, the commission has not shown an interest in addressing what current and former NERC officials say was an authoritarian corporate culture under Cauley, a West Point graduate. Might FERC take a larger role in overseeing NERC management? Given increasing concerns over the grid’s vulnerability to cyberattacks and terrorism, the stakes could scarcely be higher.

EPA Foe Pruitt Upends Agency

EPA Administrator Scott Pruitt has brought dramatic change to the agency, angering and demoralizing many career staffers.

According to The Washington Post, EPA has, or is attempting, to reverse 19 rules, including a request that oil and gas companies report their methane emissions. EPA’s staffing has dropped to its lowest level since the Reagan administration following the departure of more than 700 employees, many through agency buyouts. Pruitt also has remade the agency’s scientific advisory boards, replacing many academics with representatives from states and regulated industries.

In December, as the Supreme Court was considering whether to hear DTE Energy’s appeal of EPA sanctions for modifying Michigan’s largest coal-fired power plant without getting federal permits for a projected rise in emissions, Pruitt reversed the agency’s stance. He said EPA would no longer bring New Source Review cases against generators in disputes over emission projections, a departure from the agency’s prior use of NSR as a preventative. (See Penalty Review Denied, DTE Faces Friendlier EPA.)

In November, almost 60 former EPA attorneys wrote an open letter criticizing Pruitt’s announcement that the agency would stop negotiating settlements in response to lawsuits by environmental groups. Pruitt has long criticized the “sue and settle” practice, which he said lacks transparency and “circumvent[s] the regulatory process set forth by Congress.”

The attorneys said Pruitt misrepresented the impact of such settlements and that his new policy gives regulated parties “a special and powerful seat at the table with no corresponding role for other members of the public.”

Clean Power Plan

It was a foregone conclusion that Pruitt would seek to undo the Clean Power Plan. As Oklahoma’s attorney general, he led states challenging the rule as an overreach of the Clean Air Act. What wasn’t known was how he planned to reverse the rule. On Dec. 18, EPA issued an Advance Notice of Proposed Rulemaking, saying it would solicit public input for 60 days on how to limit greenhouse gas emissions from existing electric generators. Pruitt had told Congress earlier that the agency would issue a replacement rule, rather than seek to overturn its 2009 endangerment finding on greenhouse gases. (See Pruitt Confirms EPA Working on CPP Replacement.)

Pruitt’s “inside the fence line” replacement is certain to prompt new challenges from environmental groups as being an inadequate response.

Solar Import Duties

The solar industry is holding its breath for Trump’s decision on the U.S. International Trade Commission’s October recommendation for import duties as high as 35% on solar cells and modules. The ITC’s recommendation followed its unanimous ruling in September that increased imports of solar cells and components are harming domestic manufacturers.

A flood of cheap imports has helped create a boom in U.S. solar installations, as total installation costs have fallen almost 70%. The Solar Energy Industries Association says increased prices resulting from the case could threaten the 9,000 U.S. solar companies and their 260,000 employees. (See Federal Trade Panel Recommends Solar PV Quotas.)

Trump is expected to rule by Jan. 26.

Congress in Play in 2018 Elections

It won’t be until 2020 when the presidency — and thus FERC — will be up for grabs. But the 2018 midterm elections could also influence electric policy. Democrats need to win a net 24 seats to take control of the House of Representatives. The GOP’s margin in the Senate dropped to 51-49 with Democrat Doug Jones’ upset victory in the Alabama special election. But 25 of the 33 seats up for re-election next year are held by Democrats or independents. (The seat of resigning Sen. Al Franken (D-Minn.) also will be filled in a special election.)

The website FiveThirtyEight reported last month that generic congressional surveys by both it and CNN show “Republicans in worse shape right now than any other majority party at this point in the midterm cycle since at least the 1938 election.” Democrats lead Republicans by 49.6-37.4% according to FiveThirtyEight and 56-38% per CNN. “No other survey taken in November or December in the year before a midterm has found the majority party in the House down by that much since at least the 1938 cycle,” according to FiveThirtyEight.

Trump, meanwhile, has been losing support fastest in the states that gave him the most support in 2016, FiveThirtyEight also reported. In states where Trump won by at least 10 percentage points, his net approval rating is down an average of 18 points.

January 2, 2018

Counterflow: Brother, Can You Spare 70 Billion Dimes?

Counterflow

By Steve Huntoon

I’m sorry to disappoint folks by kicking off the new year without another column on the Trump-Perry carbon tax (aka the DOE NOPR).

This column is about another tax matter: that very beautiful tax legislation that became the law of the land on Dec. 22. OK, maybe not very beautiful, or even beautiful, or even not that attractive. But whatever.

The centerpiece of the tax legislation is a reduction in the corporate tax rate from 35% to 21%. The raison d’etre is making the U.S. corporate tax rate more competitive with the rest of the world.

Public utilities are direct beneficiaries of this reduction, even though they are one industry that can’t move outside the U.S. You can’t get your utility service from China (at least not yet). Utility customers ought to be the indirect beneficiaries, but as I discuss here, it ain’t clear how that’s going to happen and when.

I know we all hate death and taxes, but please bear with me.

How Income Taxes Work in Rate Regulation

Traditional rate regulation allows utilities a return on their invested capital (aka rate base^[1]) based on a composite of their shareholder equity (stock) and their debt (bonds). The equity portion is determined net of income taxes, so utilities are given an income tax allowance to cover income taxes.

So let’s take an example of a utility with a rate base of $10 billion that is financed 50% by debt and 50% by equity. Let’s say the equity portion of $5 billion is being allowed an annual return of 10%, or $500 million. That 10% is a rough average of allowed returns on equity (ROE).

By the way, this 10% allowed level of ROE is wildly excessive for reasons I’ve explained before,^[2] but no one seems particularly concerned about that. The excessive ROE is not only unfair to consumers in and of itself, but it has spurred a spending frenzy by utilities to increase rate base notwithstanding little to no growth in demand.^[3] Utilities do not need any more encouragement to “invest” consumers’ money in gold-plating.

Anyway, getting back to the point of this column (and I do have one), to get to a “net of tax” return of 10%, that percentage is “grossed up” for taxes, which can be calculated by dividing by 1 minus the tax rate, or 65%.^[4] So for $5 billion of equity, the utility is awarded $769 million that consumers actually pay.

You can confirm this admittedly convoluted approach by multiplying $769 million by 35% (the tax rate) to get an income tax allowance of $269 million and then subtracting that $269 million from $769 million to get the $500 million “net of tax” allowed return.

Cut in Tax Rate Amounts to $7+ Billion Owed to Electric Consumers. Per Year.

So what’s the difference as a result of the tax rate reduction from 35% to 21%? We get the tax “gross up” by dividing by 1 minus the new tax rate, or 79%. So for $5 billion of equity, and $500 million of “net of tax” return, the utility would receive $633 million.

To recap, the overall return on $5 billion at an income tax rate of 35% is $769 million. The overall return on $5 billion at an income tax rate of 21% is $633 million. See the difference? The former is 21.5% more than the latter.

This means that if a utility’s overall equity return was just and reasonable on New Year’s Eve, on New Year’s Day it was 21.5% more than just and reasonable.

What does that amount to? There is roughly $41 billion in relevant electric utility earnings.^[5] So on New Year’s Day, electric utility rates became excessive by $7 billion ($41 billion, minus $41 billion divided by 1.215). That’s 70 billion dimes.

And the tax cut creates another benefit for utilities: excess accumulated deferred income taxes. I will spare you an explanation of this. But believe me, it is another huge pile of money that consumers ought to start getting back as of … yesterday.

Who Is Getting Electricity Consumers Their $7+ Billion?

What are our nation’s regulators doing about this?

So far it seems to be a trickle instead of a wave.^[6] And it’s not as if the utilities even think they’re entitled to windfalls. The Edison Electric Institute issued a press release headlined: “Passage of Tax Reform Bill a Win for Electricity Consumers.”^[7] S&P Global simply assumes that regulators will require pass through to consumers.^[8]

We need more action from our nation’s regulators to, as Captain Picard might say, make it so.

[Editor’s Note: Since this column’s publication, more states have begun actions to claw back the tax savings for consumers. See Utilities Likely to Pass Tax Bill Gains to Customers.]

Although rate base has a number of complicating factors, in most regulatory jurisdictions, it is basically the booked cost of utility capital investment less the accumulated depreciation for that investment. ↑
http://www.energy-counsel.com/docs/Nice-Work-If-You-Can-Get-It-Fortnightly-August-2016.pdf. ↑
LED lighting is killing electric demand, as I’ve written about, http://www.energy-counsel.com/docs/LED-Kills-the-Edison-Star-2017-01-24%20RTO-Insider-Individual-Column.pdf, as have others more recently, https://energyathaas.wordpress.com/2017/05/08/evidence-of-a-decline-in-electricity-use-by-u-s-households/. ↑
I’m ignoring state income taxes for simplicity. There is negligible effect on the point being made. ↑
EEI reports members’ energy operating income of $73 billion for 2016 here, http://www.eei.org/resourcesandmedia/industrydataanalysis/industryfinancialanalysis/QtrlyFinancialUpdates/Documents/QFU_Income_Statement/2016_Y_Income_Statement.xlsx. Subtracting $22 billion of interest expense yields $51 billion of normalized equity return. I reduced that $51 billion by a guesstimate of 20% to reflect merchant generation owned by EEI utilities (principally in PJM), utility formula rates that track prevailing tax rates, and tax adjustment provisions in individual utility tariffs (such as per a rate case settlement). That leaves $41 billion upon which to apply the income tax reduction effect. ↑
One exception is Kansas, where on Dec. 14, the Kansas Corporation Commission staff requested rate investigations with interim accounting measures, http://estar.kcc.ks.gov/estar/ViewFile.aspx/S20171214155815.pdf?Id=660e208e-b7b9-4263-9168-688f4dc50759, and a Kansas industrial consumers group filed a complaint against all investor-owned electric and gas utilities, http://estar.kcc.ks.gov/estar/ViewFile.aspx?Id=6d5a5f12-f228-483a-b416-1f7b488f0bbf. And Montana regulators voted last week to require its utilities to immediately defer the tax benefit and to submit proposals for passing it through to consumers. Michigan and South Dakota are among other states reportedly opening dockets on this issue. ↑
http://eei.org/resourcesandmedia/newsroom/Pages/Press%20Releases/EEI%20Passage%20of%20Tax%20Reform%20Bill%20a%20Win%20for%20Electricity%20Customers.aspx. ↑
“On the regulated side of the fence, utilities will almost certainly be required to pass along savings from new tax guidelines through state regulatory proceedings.” https://marketintelligence.spglobal.com/documents/our-thinking/research-reports/Corporate-Tax-Reform-and-Utilities.PDF. ↑