Calpine reported Wednesday that it earned $225 million in the third quarter ($0.63/share), down 24% from $295 million ($0.83/share) a year earlier.
The decrease was primarily due to “an unfavorable variance in mark-to-market gain/loss, net, and increases in plant operating expense and depreciation and amortization expense,” Calpine said. The decline was partially offset by a higher commodity margin, which the company said was driven by hedge revenues from retail operations and higher regulated capacity revenue.
Calpine’s Sonoma Geothermal Plant north of San Francisco, Calif.
The company, which has agreed to go private in a $5.6 billion deal with Energy Capital Partners and an investors group, lost $47 million in the first nine months of this year, compared with a profit of $68 million in the same period a year ago. Company officials issued the earnings with no previous public notice and no conference call to take questions from analysts. (See Calpine Going Private in $5.6B Deal.)
In a news release announcing the results, CEO Thad Hill said the merger is on track to be completed in the first quarter of 2018. He focused on the company’s response to natural disasters in California and Texas.
“Since our last earnings call, we endured Hurricane Harvey in Texas and the wildfires in Northern California safely and without any material damage to our facilities,” Hill said. “I am particularly proud of team members on the front lines who kept our plants and operations going in the face of adversity.”
Calpine’s Hermiston Power Project natural gas plant in Oregon
Operating revenues were $2.6 billion for the quarter, compared with about $2.4 billion in the same quarter last year. Operating revenues in the first nine months of 2017 were nearly $7 billion, compared with about $5.1 billion in the same period last year.
The company said cash from operating activities rose 21% to $807 million over the first three quarters, “primarily due to a decrease in working capital employed resulting from the period-over-period change in net margining requirements associated with our commodity hedging activity, partially offset by a decrease in income from operations, adjusted for non-cash items.”
Edison International says its grid will help California meet its clean energy goals, but infrastructure and market improvements are still needed.
The company, parent of utility Southern California Edison (SCE), “must be a key enabler of California’s ambitious renewable policies,” CEO Pedro Pizarro said during an earnings call Monday. He mentioned renewable integration, customer technology choice, adoption of distributed energy, vehicle electrification and energy efficiency. Achieving those goals will require strengthening the existing electricity grid, he said.
Edison International Is the Parent Company of Utility Southern California Edison (who’s control room is shown) | SCE
Edison said it would soon issue a whitepaper on a framework for the state to meet its energy goals, building on existing policies and summary results of different scenarios. The paper will discuss carbon-free electricity with storage, increased electric vehicle integration and improved building efficiency.
The company earned $470 million ($1.44/share) during the third quarter, compared to $421 million ($1.29/share) a year earlier. Net income for the nine months ending Sept. 30 came in at $1.1 billion ($3.41/share), compared to $982 million ($3.01/share) during the same period last year.
SCE’s net income through Sept. 30 increased by $73 million, or 23 cents/share, from the same period in 2016, primarily because of an earlier rate case decision, the company said.
The utility is in the midst of its 2018 rate case with the California Public Utilities Commission, having recently filed reply briefs, with public hearings slated for November. It does not expect a decision from the commission this year. Another proceeding with the PUC regarding electric vehicles and energy storage could increase SCE’s investment forecast by $1 billion, Edison said during the earnings release.
Company executives said Monday they continue to support the existing settlement over the San Onofre Nuclear Generating Station. SCE has been unable to reach agreement with settling parties and recently urged the PUC to support the existing settlement. (See CPUC Orders Renegotiation of San Onofre Settlement.)
“Folks have different ideas as we walk down the pathway here,” Pizzaro said of the proceeding.
FERC last week denied NRG Energy’s request for rehearing of a January order concerning NYISO Tariff revisions intended to correct a pricing inefficiency in the ISO’s capacity market (ER17-446-003).
NYISO proposed the revisions last November to address situations in which a generator exports power out of an import-constrained locality, creating increased counter-flow on the transmission constraints between that locality and other zones in the New York Control Area (Rest of State).
NRG Headquarters in Princeton, NJ. | NRG
The ISO proposed to use a locality exchange factor, reflected as a percentage, to calculate the amount of Rest of State generation that can be imported into the locality to replace a portion of the exported capacity. The ISO would multiply this factor — 47.8% for the G-J locality — by the amount of exported capacity to determine the additional capacity that can be procured from outside the locality as a result of the export.
NRG protested the Tariff changes, expressing concerns about NYISO’s “apparent” assumption that an exporting resource would indefinitely continue to provide capacity benefits to its locality through counter-flows produced by its exports. The company noted that, under the Tariff, any resource that ceases to participate in the capacity market — by continuously exporting for three years — loses its capacity resource interconnection service (CRIS) rights and therefore can no longer provide a capacity discount to the locality in which it resides.
NRG Capacity by Fuel Type and Region (12/31/16) | NRG
In its January order, FERC rejected NRG’s protest, but the company’s request for rehearing alleged that the commission erred in approving NYISO’s filing without fully addressing its concerns on how a generator that loses its CRIS rights should be considered for purposes of the locality exchange factor methodology.
NRG also asked FERC to clarify that a resource cannot claim resource adequacy benefits once it loses its injection rights in New York. In the alternative, the company sought clarification that a continuously exporting unit that loses its CRIS rights cannot be counted in the ISO’s installed reserve margin modeling.
Clarifying Order Language
FERC’s Oct. 25 order denied NRG’s rehearing request, but granted — in part — what NRG was seeking.
“The express relief [NRG] seeks is for the commission to clarify a statement in the Jan. 27 order rather than to change the commission’s determination,” the commission said.
FERC acknowledged that its Jan. 27 order “may cause confusion” in how it addresses the relationship between the locality exchange factor and CRIS rights. That order meant to convey that, under the existing NYISO Tariff, the locality exchange factor does not apply to the exported capacity of a generator that has failed to maintain its CRIS rights, the commission said. The factor should be applied only to locational export capacity, and by definition would not apply to exports from a resource that has lost its CRIS rights.
But the commission demurred on NRG’s alternative request for clarification.
“It is our understanding that a unit that exports and loses its CRIS rights after three years would not be counted in installed reserve margin modeling,” the commission said. “However, installed reserve margin modeling is performed by the New York State Reliability Council, not NYISO, and we find questions regarding the establishment of the installed reserve margin to be beyond the scope of this proceeding regarding NYISO’s proposed revisions to its [capacity] market design.”
The U.S. International Trade Commission on Tuesday recommended that President Trump impose import duties as high as 35% on solar cells and modules.
USITC Building in Washington, DC | USITC
The independent panel announced the recommendations following its unanimous ruling in September that increased imports of solar cells and components are harming domestic manufacturers, which supported the claims of solar manufacturers Suniva and SolarWorld under Section 201 of the 1974 Trade Act.
The commission will forward its injury determination, remedy recommendations, any additional findings and the basis for them to Trump by Nov. 13. The president will then have 60 days to decide on what, if any, measures he will take. (See Trade Panel Rules PV Imports Hurting Domestic Manufacturers.)
Three of the four commissioners recommended imposition of tariff-rate quotas. The fourth, Meredith Broadbent, recommended that the president impose a hard annual quantitative restriction on imports of crystalline silicon photovoltaic (CSPV) products into the U.S. for a four-year period. That restriction would be set at 8.9 GW in the first year, increasing by 1.4 GW each subsequent year.
Tariffs and Quotas
Chair Rhonda Schmidtlein sought tariffs as high as 30% on imports of cells that exceed annual quotas of 0.5 GW, recommending that in-quota levels be incrementally raised and the tariff rate incrementally reduced during a four-year remedy period.
For CSPV modules, Schmidtlein recommended a 35% duty to be incrementally reduced during a four-year remedy period.
| USITC
Vice Chair David Johanson and Commissioner Irving Williamson joined in recommending measures similar to Schmidtlein’s: “For imports of CSPV products in cell form, we recommend an additional 30% ad valorem tariff on imports in excess of 1 GW. In each subsequent year, we recommend that this tariff rate decrease by 5 percentage points and that the in-quota amount increase by 0.2 GW. The rate of duty on in-quota CSPV products in cell form will remain unchanged. For imports of CSPV products in module form, we recommend an additional 30% ad valorem tariff, to be phased down by 5 percentage points per year in each of the subsequent years.”
Who to Blame?
Schmidtlein also recommended that Trump initiate international negotiations to address the underlying cause of the increase in imports of CSPV products.
Broadbent said that surging imports and a global oversupply of CSPV products resulted “from the subsidization of manufacturers in China in the context of targeted industrial policy programs. I believe the president intends to address China’s non-market economic policies that have contributed to global oversupply as part of broader bilateral negotiations with the government of China, and I support those efforts.”
She said her recommended quotas “are consistent with the market share held by imports in 2016, adjusted to reflect projected changes in demand for photovoltaic products over the next four years. Therefore, they are set at levels that will not disrupt expected growth in CSPV demand but will help address the serious injury to the domestic industry by preventing further surges in imports.”
Where the Buck Stops
Timothy Fox of ClearView Energy Partners said in a statement that the commission’s recommendations for trade remedies represent another step toward final action, not final action itself.
“We regard today’s vote as another significant step towards trade action likely to raise the cost of solar domestically, potentially blunting solar power deployment over the next four years,” Fox said, adding that Trump’s decision could be driven more by politics than by economics.
“President Trump measures economic success in terms of bilateral trade balances and manufacturing jobs,” Fox said. “This solar trade proceeding could give President Trump a way to ‘win’ on both fronts. Economic nationalism appears alive and well within the White House, including in renegotiations of the North American Free Trade Agreement and Korea-U.S. Free Trade Agreement. As such, we think this solar proceeding could serve as a prototype for future protectionist efforts, including those concerning aluminum and steel (especially steel).”
Sempra Energy’s third-quarter financial results were hobbled by an administrative law judge’s preliminary decision to deny subsidiary San Diego Gas & Electric’s request to recoup losses stemming from wildfires a decade ago.
A California Public Utilities Commission ALJ in August recommended the commission deny SDG&E’s request to recover $208 million in costs related to the 2007 Witch, Guejito and Rice wildfires, ruling that prior to the fires, the utility “did not reasonably manage and operate its facilities.” The ALJ decision is not binding, and the PUC is due to vote Nov. 9 on SDG&E’s request to recover the costs.
During an earnings call Monday, Sempra executives said they are prepared to take the matter to court if they are not allowed to recover the money.
Traditional accounting measures require the company to reflect the preliminary decision in its financial results, but Sempra said that on an adjusted basis, earnings increased to $265 million ($1.04/share), from $259 million ($1.02/share) a year ago. Unadjusted earnings came in at $57 million, compared with $622 million last year.
Sempra Energy Is The Parent Company of San Diego Gas & Electric, Southern California Gas And Others | SDG&E
For the first nine months of the year, Sempra’s earnings were $757 million, compared with $991 million over the same period last year.
Sempra is also attempting to acquire Texas-based utility Oncor in a deal worth nearly $10 billion. The Public Utility Commission of Texas last week issued a preliminary order that calls for Sempra to prove it is financially fit to own the state’s largest utility. (See Texas Regulators Seek More Details on Sempra Oncor Bid.)
SDG&E recorded a net loss of $28 million in the third quarter, compared with earnings of $183 million a year earlier, “due primarily to the $208 million after-tax impairment related to cost recovery for the 2007 San Diego wildfires.”
The utility’s earnings were $276 million for the first nine months of 2017, compared with $419 million in the same period last year. Earnings for the first nine months of 2017 included the third-quarter 2017 wildfire-related impairment. In last year’s second quarter, SDG&E recorded an after-tax charge of $31 million, refunding to ratepayers the benefits from tax deductions related to the final 2016 rate case decision.
It was 2007, and the collapse of the overheated housing market set off the financial crisis that would cut the value of the S&P 500 by half.
His retirement funds pummeled, Farber began looking anew for work. He found a job in October 2008 at the Delaware Public Service Commission as a public utility analyst.
Last week, after nine years at the PSC and regular attendance at PJM stakeholder meetings, he retired again. He hopes it’s for good this time, although he warns friends: You might want to shift your stock holdings to something more secure, just in case.
Before taking the PSC job, he had a question for his future boss, Bruce Burcat, then the commission’s executive director. Having lived his entire life in South Florida, he had never experienced the seasons. How harsh, he asked Burcat, are the winters in Delaware?
Don’t worry about it, Burcat, now executive director of the Mid-Atlantic Renewable Energy Coalition (MAREC), told him. “Maybe an inch or two [of snow] once or twice” a year.
Delaware PSC Staff analyst John Farber receives recognition from Governor Jack Markell for his work as President of the OPSI Staff subcommittee in 2011 | Delaware PSC
With that assurance, Farber moved north to take the job. “That was a year when they had two 18-inch snowfalls,” Farber recalled. “I remember getting out there and just cursing Bruce Burcat up and down: ‘He lied to me! He absolutely lied to me.’”
But most winters weren’t that bad, Farber said, and he found himself surprised at being able to appreciate the seasons.
He also said he “appreciated the stakeholder community enduring me” despite his limited technical knowledge.
“I wish I was an engineer, an economist and a lawyer, but I’m none of those,” said Farber, who has an undergraduate business degree.
At his final Markets and Reliability Committee meeting Thursday, members celebrated his retirement with a standing ovation and a PJM coffee mug. Despite the gifts, he couldn’t let one last chance go by to press PJM officials on behalf of his Delaware ratepayers, attempting to pin down Vice President of Planning Steve Herling on potential costs for upgrading the Ohio Valley Electric Corp.’s transmission system. (See related story, Unanswered Questions Force Special Session on OVEC Integration.)
In an interview after the meeting, Farber was asked about the most important issue that had come up during his tenure representing Delaware before PJM.
“I’d guess I’d have to say it was Artificial Island,” he said, without hesitation. “That was a true Sisyphus moment. We’re still pushing that boulder up the mountain. Hopefully we can push it across the top.”
In 2016, FERC approved a cost allocation that would assign Delmarva Power & Light ratepayers 93% of the cost of the $280 million project, with all other transmission zones paying less than 1% each. The commission later agreed to consider rehearing requests over whether PJM’s use of the solution-based distribution factor (DFAX) cost allocation method is appropriate (EL15-95, ER15-2563). In April, PJM asked transmission owners to develop a more equitable allocation. (See Board Restarts Artificial Island Tx Project; Seeks Cost Allocation Fix.)
Having turned 70 in August, Farber said “it just seemed like this was the time” to retire. “I think we’ve done as much on Artificial Island as we can. Now we’re waiting to see what FERC does,” he said.
“A lot of what goes on at PJM is not as singularly significant as was Artificial Island,” he continued, cautioning that he was speaking for himself and not the PSC. “I don’t know that the ‘death of a thousand cuts’ is appropriate, but it’s a thousand different things that are going to be happening that are flowing through PJM, through FERC and down ultimately to the rates that Delaware customers have to pay.”
And as he leaves, a new worry: The U.S. Department of Energy’s proposal to give cost-of-service treatment to coal and nuclear plants in PJM. “It’s not like putting a thumb on the scale,” he said of the proposal by Energy Secretary Rick Perry. “It’s like jumping on the scale with both feet.”
As the MRC members filtered out of the conference room, Mike Borgatti of Gabel Associates stopped by to wish Farber well.
“It’s been a pleasure working with you all these years,” said Borgatti, a former legal analyst for the New Jersey Board of Public Utilities who now represents mostly generators before PJM.
“It’s been great working with you,” Farber responded, deadpan, “even though you did go to the dark side.”
“I’ve got some DR [demand response] clients too, John,” Borgatti protested, with mock defensiveness.
“Where are you headed?” Borgatti asked next.
“I haven’t had time to plan,” Farber responded. “All I know is if it’s snowing up here, I’m going to head south.”
By Saturday, his first day of retirement, he had already updated his LinkedIn page. His new “office”: Sunset Grill, Cocoa Beach, Fla.
For more than a year, Con Edison, NYISO and its stakeholders, including generation and transmission owners, customers and environmental groups, have been hard at work developing reforms that will streamline the interconnection process for new energy resources in New York.
Given the state’s Clean Energy Standard, which requires 50% of the state’s energy to be sourced from renewables by 2030, the proposed interconnection process improvements are expected to have an immediate, positive impact. The process will better facilitate the entry of thousands of renewable megawatts for the benefit of all New Yorkers by bringing renewables to the market more efficiently.
While the American Wind Energy Association petition[1] and FERC’s proposed rulemaking[2] seem to target reforms for queue-based interconnection processes, we took advantage of the opportunity to improve NYISO’s batch-based “Class Year” process through several refinements, reforms and clarifications.
Headlining Con Edison’s proposed reforms is a suggestion to split the Class Year structure into two phases so that most New York projects can complete their interconnection processes faster.
New generators are studied for their impacts on the transmission system and are required to fund system upgrades if they are found to trigger reliability upgrades.
NYISO’s control room | NYISO
Currently, all projects must wait to complete the Class Year study process together. In many cases, projects end up waiting for months as NYISO performs additional studies, generally for the largest Class Year project(s).
Under a split Class Year, projects that do not require additional deliverability studies after phase one will be allowed to complete the process on an expedited basis.
At the conclusion of a phase one study, NYISO will notify developers of its preliminary deliverability study results. The developers then will have several options: They can accept their allocated costs for shared upgrades and complete the Class Year; continue on to the phase two study, with an option to modify their requested energy and capacity deliverability levels; or withdraw from the Class Year.
Developer feedback has been overwhelmingly positive; many are hopeful that the new Class Year process can be implemented expeditiously.
In addition, NYISO proposes to streamline its study agreements.
Recognizing the administrative challenge of having multiple parties (NYISO, the developer and the interconnection TO) execute multiple study agreements, stakeholders agreed to reflect the terms and conditions in the pro forma interconnection request form and NYISO Tariff.
The proposal provides adequate opportunity for the interconnecting TOs[3] to obtain necessary information and provide input on the study scope, while reducing the number of study agreements needed to administer the process.
For the most critical study, a facilities study, a three-party study agreement will continue to be required.
The Class Year process already provides substantial flexibility and cost certainty for developers.[4] Nevertheless, like all interconnection processes, it can be one of the most complex and time-consuming aspects for developers wanting to enter the market.
NYISO’s recent filing[5] represents a package of reforms that improve process efficiency while maintaining necessary evaluations to meet reliability requirements. With FERC’s approval, potentially by the end of the year, stakeholders will begin reaping the benefits.
Joel Yu is a senior energy policy advisor at Con Edison. Subsidiaries Con Edison Company of New York and Orange and Rockland Utilities are transmission owners within NYISO. A subsidiary of Orange and Rockland Utilities, Rockland Electric, is a transmission owner within PJM.
AWEA’s Petition for Rulemaking, RM15-21 (June 19, 2015) ↑
ALBANY, N.Y. — Stakeholders told New York and NYISO officials Friday they are concerned about the transparency and aim of the process being laid out to integrate carbon pricing into the wholesale electric market.
The ISO and the New York Department of Public Service this month jointly formed an Integrating Public Policy Task Force. At the group’s first public meeting Oct. 27, Scott Weiner, DPS deputy for markets and innovation, asked stakeholders to “kick the tires” on the concept from every angle.
New York Public Service Commission Chair John Rhodes and NYISO CEO Brad Jones cosigned an introduction to The Brattle Group report on pricing the social cost of carbon into generation offers and reflecting the cost in energy clearing prices. The two opened the first public hearing on the issue in Albany on Sept. 6, before the chartering of the task force. (See NYISO Stakeholders Talk Details of Carbon Charge.)
In announcing the formation of the task force, a PSC notice Oct. 19 outlined the process, solicited comments and set a schedule of meetings this year, including a technical conference Dec. 11.
DPS or NYISO Procedures?
James Brew, an attorney speaking for Nucor Steel, asked if anyone could “explain how the PSC’s process is supposed to work with the NYISO process, and will we be looking at orders or rulings from the PSC?”
| NYISO
Marco Padula, DPS deputy director for market structure, said the commission will not be issuing rulings. “This was a notice from the [DPS]; it has not instituted a commission proceeding,” he said. “It’s a joint process that enables stakeholders to develop a proposal that eventually would go through the whole ISO stakeholder process and any other regulatory approval mechanism, if necessary.”
Attorney Kevin Lang of Couch White, representing New York City, said it would be helpful to understand DPS staff’s position on the Brattle report, “because right now [it is] the only thing we have before us.”
“While what may come out of the process may not be the same as the Brattle report, that is the starting point,” Lang said. “NYISO has been telling us for months and months that’s where we’re going to start the conversation.”
Although the task force is not a commission process, Lang said, “the DPS issued a series of questions that they’re looking for answers to, which certainly is not consistent with the way we do things at NYISO.
“It struck me and others that much of what you’re requesting in that notice is horribly premature,” he continued. “To ask parties about what their input assumptions are, what the costs and benefits [are]… We haven’t even got that level of detail from Brattle, and we just started the discussion.”
No Embrace
Paul Gioia, representing transmission owners New York Power Authority and Long Island Power Authority, said “the DPS has made it clear that it has not embraced the Brattle report as a solution. I’m not aware of whether the DPS has ever identified the aspects of the Brattle report that it has concerns about or disagrees with. I think it would be helpful to us as we go forward if we could know that.”
Padula responded that the department was working closely with the ISO to examine the details of the report and look for things that could be revised. “Absolutely we’ll get into more of that as we move forward in the process,” he said. “Have we put out a paper on staff’s position? No. Are we going to? Not until we continue through this process and hear input from all parties.”
Weiner emphasized that the task force is a joint process, neither wholly conforming to the department’s normal operating procedures nor to those of NYISO. He said that since the Brattle report came out in August, several stakeholders have suggested other approaches, but they’re “still around the fundamental design element … that we’re looking at wholesale markets and incorporating a value of carbon that would become part of the [NYISO] settlement.”
“I know that there are individuals and organizations in this room and on the phone that have been working and are continuing to work to provide at least a first offering, if you will, of other approaches that either build off the Brattle foundation or may take it in another direction,” he added.
Starting Point
Weiner said the process is not about the strengths and weaknesses of the Brattle report but about how to take elements of the report and other suggestions that may come in through filings to build a consensus solution. “The Brattle report, by its own definition, called out areas that were not addressed, but I don’t think we’ll advance the discussion by calling out what did any party like or dislike about” the report, he said.
Attorney James King, speaking for multiple speakers, said “everybody keeps talking about the market, so I’d like to get clarification that what we’re looking at here is the potential of carbon pricing that would be integrated into the wholesale markets as part of NYISO’s settlement process. Is that the starting point that we’re looking at here?”
Nicole Bouchez, a NYISO market design economist who co-chaired the session with Padula, said “the starting point is even a little bit higher than that. It’s how do we integrate public policy and wholesale markets with respect to carbon policy. Now, one of the options is definitely integrating within the NYISO market and the settlement, but there are a lot of open questions on the settlement. … We’re in the listening mode and the proposal hasn’t yet been fleshed out.”
Technical Details
Weiner said that the department’s engagement with the Brattle report began with a briefing by NYISO and Brattle after DPS staff sought to review the report’s methodology.
At Brattle’s request, staff also corrected factual errors regarding DPS and PSC proceedings or positions, Weiner said.
The department also suggested removal of what Weiner called “charged” words. “The example I’ll give you revolved around the use of the word ‘markets.’ When I read the report, [I got] the impression that one organization was more market-oriented than the other, that one point of view was more supportive of markets than another. So we tried to suggest neutral language. That was the extent of it.”
The Dec. 11 technical conference will cover at least two topics: border adjustment mechanisms to prevent leakage, and the criteria and principles that should be applied in developing a plan for allocating carbon revenues.
Erin Hogan, of DPS’ Utility Intervention Unit, asked if stakeholders will have an opportunity to modify the topics for the technical conference. “I understand that the leakage issue was a concern, but … it could be premature if we’re not setting up other alternatives first,” she said.
“We expect many technical conferences over the course of this proceeding — or this activity,” Weiner said.
“If there are other ideas, by all means [tell us]. Your question reminds me why we decided to do leakage. [Some people] believe leakage becomes an issue in certain contexts, in certain designs. In other designs it manifests itself differently.”
HERSHEY, Pa. — The prevalence of gas-fired generation has skyrocketed in recent years, upending power market structures and leading to nationwide debate over the future of the electricity industry.
Much of that might be attributable to what Christina Simeone, director of policy and external affairs for the University of Pennsylvania’s Kleinman Center for Energy Policy, calls the “Pennsylvania Gas Discount.”
At a conference to analyze Pennsylvania’s electricity markets last week, Simeone unveiled her study on price impacts from the recent expansion in shale gas development.
“The electric power sector is now the natural gas industry’s No. 1 customer both in Pennsylvania and nationally,” she said.
That has come, she said, because production from the state’s Marcellus shale has been prodigious, while “takeaway capacity has not kept up with production growth.” In 2007, Pennsylvania accounted for less than 1% of the nation’s natural gas production and consumed four times more gas than it produced. By 2016, the state had increased its output 2,800%, accounting for 16% of national production — four times more than it consumed.
In-state pipeline construction has not maintained that pace. Simeone said FERC has approved 59 interstate pipeline projects since 2007 that would impact Pennsylvania, but many of them have been delayed. Williams’ Constitution pipeline, for example, was approved in 2014, but construction has been blocked by a permitting battle with New York.
The pipeline constraints have led to an oversupply that has dramatically depressed in-state prices.
“The electric power sector is really where prices dropped the most,” she said.
Average annual delivered power prices in Pennsylvania in 1997 were $3.02/Mcf, 24 cents more than the national average of $2.78. The differential widened to 70 cents in 2007, with Pennsylvania prices rising to $8.01/Mcf.
By 2016, the Pennsylvania average had fallen $1.05 below the national average to $1.95/Mcf.
Correspondingly, in-state consumption since 2007 increased by half, with usage up almost 250% by Pennsylvania gas-fired generators, whose number increased 15% in that time. Gas deliveries for power production nationwide have risen 46% in the past decade, as gas-fired units increased nearly 4%.
The price drop has had a profound impact on power markets, shaking the fundamentals of market design and sparking a national debate about subsidies for financially struggling coal and nuclear generation. (See RTOs Reject NOPR; Say Fuel Risks Exaggerated.)
Simeone said it’s unclear how long the discount will continue because there are “huge reserves, but we also have this record interest in pipeline takeaway capacity.” If built, the nearly 60 FERC-approved projects could transport more than 20 Bcfd, but producers could also increase supply, prolonging the Pennsylvania discount. Pennsylvania produced about 5,264 Bcf in 2016, according to Simeone’s research, and has a cumulative outflow of 6 Bcfd.
HERSHEY, Pa. — FERC Commissioner Robert Powelson had to hit the ground running after being appointed to the commission in August. He and his colleagues are working to clear the backlog of decisions that accrued during the six months the commission lacked a quorum.
But part of the job also includes dealing with issues he doesn’t want to touch.
“The FERC is trying to stay out of the fuel wars, and that’s what’s going on right now. Coal against gas; nuclear trying to stay above the fray. It’s becoming unnecessarily all about ‘my fuel’s more resilient that your fuel,’” Powelson said last week during an industry conference. “If the [2014] polar vortex is the example of that, there’s a lot of people with sins they need to confess, and I think we know that.”
He pointed to the 24% forced outage rate stemming from that epic cold snap, and noted that he once “called out” the companies that failed to meet their capacity obligations.
“We know who they are. Some of them are in the room today. We have a 12-step program in the back,” he said.
Powelson was speaking at “Decade of Disruption: Marcellus Shale and Regional Energy Markets,” the second annual electricity conference organized by John Hanger, a former Pennsylvania state utility regulator and environmental secretary. Before Powelson spoke, Hanger presented him with a 2017 Energy Leadership Award.
Vortex Fatigue
Powelson’s comments were part of a discussion touching on many industry topics, but that repeatedly returned to the U.S. Department of Energy’s recently proposed grid resiliency pricing rule. The department’s Notice of Proposed Rulemaking used the 2014 extreme weather event as a pretext to endorse — and financially compensate — the reliability of units with 90-day onsite fuel supplies.
“I’m a little fatigued by the use of the polar vortex as this screaming cry for why we have to do something. … I think we did a lot in PJM with Capacity Performance. I’d like to honestly see CP kick in at 100%, make a metric call there and then get into this question,” he said.
Powelson also explained his views on state subsidies in the form of renewable energy credits (RECs) to build preferred wind and solar resources or new zero-emissions credits (ZECs) to support existing nuclear plants. Critics say RTOs must limit the ability of those units to bid into competitive auctions to prevent them suppressing markets by offering at prices below their true operating costs.
“If a state has a [renewable portfolio standard] and wants to value carbon goals, they should be allowed to do that. The problem is when you create a market bastardization of the thing known as the minimum price offer rule … we’ve got to address that issue,” Powelson said. “Those state mechanisms have to be able to pass the minimum offer price rule smell test, so that’s where it gets a little prickly for us as an agency that just allowing a state to go amend its RPS without, in my view, having a strong MOPR screen gives me a little bit of heartburn, because you do know we’re causing a lot of havoc now in the markets to gas units that are dispatching and not being able to cover their marginal costs.”
He provided the example of CAISO, where some gas-fired generators are declining to engage in the market and, in some cases, seeking early retirement. He pointed to PJM as a market doing a good job significantly reducing emissions in the past decade.
“In lieu of a carbon tax, that is market-based decarbonization at its best,” he said.
To incentivize transmission development, he said the industry must focus on tweaking financial mechanisms.
“The big conversation at the FERC is [return on equity] policy and how under FERC Order 1000 we get these projects cited and we get them commercialized,” he said.
Getting Gas to Market
The issue of gas-electric coordination “cries out for a broader conversation,” Powelson said.
“I personally don’t think we’re out of the woods there yet,” he said. “The conversation about gas and electric folks not being able to coordinate efforts, being able to sit them in a room together to have a conversation… Market synchronization would be helpful.”
Powelson said the “tectonic shifts taking place in our bulk power system” and the days of large plant construction appear to have been superseded by interest in unique and localized solutions, like combined heat and power facilities, islanding, microgrids and oxidized fuel cells.
“If you look at the grid right now, 1,000-MW cathedrals, we’re just not there anymore,” he said. “The consumers are demanding these changes.”
As a former Pennsylvania regulator during a period of explosive growth in shale gas production, it wasn’t surprising that Powelson also defended natural gas and promoted its expanded use.
“There will be some in Washington who come into my office and say, ‘Gas is not a baseload resource.’ Well, if you’re in Pennsylvania and Texas and Louisiana and West Virginia and Ohio, you take exception to that,” he said.
However, the gas can’t stay in those areas, he said.
“We need to get it to load centers,” he said, and indirectly criticized New York state’s reluctance to approve pipeline construction permits.
“If anybody here can help, there’s a state capitol — I think it’s called Albany — we would greatly appreciate your advocacy work in there,” he said. “We’re inching our way ahead.”
New York’s reticence has been a major hurdle for getting Pennsylvania gas to New England markets, where there are often supply constraints. Earlier in the conference, ISO-NE CEO Gordon van Welie said he didn’t expect to see another pipeline ever connected into his RTO. Powelson appears to have other plans.
“I would take a little bit of exception to Gordon’s assessment that we’re never going to see a pipeline built,” he said. “I think there’s a steadfast commitment to getting pipeline infrastructure built.”
Or perhaps it will be a case of moving gas into the region by whatever means necessary. Powelson said he shares a half-joking agreement with fellow Commissioner Cheryl LaFleur that “if we can get one thing done in our careers, it’s repeal the Jones Act.”
The Merchant Marine Act of 1920 — commonly known as the Jones Act for its sponsor, Sen. Wesley Jones — forbids foreign-flagged ships from carrying cargo between the U.S. mainland and certain noncontiguous parts of the country, including Hawaii, Puerto Rico, Alaska and Guam. Enacted in the aftermath of World War I — and in case of World War II — it was intended to ensure the country had a large enough supply of merchant ships to survive attacks by German subs.
Powelson called the law an “antiquated document that doesn’t reflect where we are in our energy landscape.” He said it limits the ability to ship LNG around the country from the growing number of export terminals to demand areas, such as New England.
“It’s alarming to me the storage crisis that they face,” he said. “When they hit that constraint, it’s ‘OK, let’s see what we need to do to get something into one of the storage facilities.’ That’s not the way I want to run an RTO.”
