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October 30, 2017

Vistra Energy Swallowing Dynegy in $1.7B Deal

By Michael Kuser and Rich Heidorn Jr.

Vistra Energy will acquire Dynegy in a $1.7 billion all-stock deal that will create a power generation and retail giant owning 40 GW of capacity and serving nearly 3 million customers, mainly in ERCOT, PJM and ISO-NE, the companies announced Monday.

PJM FERC Dynegy Vistra Energy acquisition — Morgan addressing attendees at GCPA’s 2017 Fall Conference. | © *RTO Insider*

In a conference call, Vistra CEO Curt Morgan said the companies planned to close the deal by April 30, 2018, allowing six months for regulatory approvals from FERC, the New York Public Service Commission and the Public Utility Commission of Texas.

Dynegy’s combined cycle gas turbine fleet and geographically diverse portfolio were a big attraction for Vistra.

Morgan said the deal “should create a more stable earnings profile and offers some downside earnings protection, especially when combined with our retail operations.”

The CEO had previously indicated Vistra would consider a large-scale acquisition outside ERCOT “if it was all stock, there were substantial value levers, quality assets in PJM and ISO-NE, and also a large natural gas fleet to move us to a gassier portfolio and preserve balance sheet flexibility. In short, this deal does that.”

It will be structured as a tax-free reorganization and will not trigger change-in-control provisions in either entity’s credit or bond agreements. The combined company will have a market cap around $10 billion.

Vistra’s executive team, including Morgan, Chief Operating Officer Jim Burke and Chief Financial Officer Bill Holden, will lead the combined company, based at Vistra’s headquarters in Irving, Texas. Morgan said he will announce his full team within a few weeks.

PJM FERC Dynegy Vistra Energy — Flexon at the 2017 EBA Mid-Year Conference | © *RTO Insider*

The new board is expected to have 11 directors: the current eight members of the Vistra board and three members from Dynegy’s board. Dynegy CEO Bob Flexon will continue to serve until April 30, 2019, or the date the transaction closes, whichever comes first.

Flexon said the deal was “an incredibly compelling opportunity” for Dynegy and its shareholders.

The combined company projects streamlining to achieve approximately $350 million in annual savings before interest, taxes, depreciation and amortization (EBITDA) within a year. Morgan said it will maintain Vistra’s “balance sheet strength and discipline. … Vistra would not be entering into this transaction if that were not the case.”

De-Levering

Morgan said the deal provides Dynegy “instant de-levering.” The combined company will have a net debt-to-EBITDA ratio of about 3.2 by the end of 2018, which is projected to decline to 2.6 by the end of 2019 and 2.4 by the end of 2020. It will have $3.9 billion in liquidity as of April 2018.

“Three times gross debt-to-EBITDA is the right long-term leverage target in this industry given the high degree of commodity price exposure and the necessity to maintain dry powder on the balance sheet in order to be able to transact at opportunistic times in market cycles,” Holden said.

Analyst Neel Mitra of Tudor, Pickering, Holt & Co., said it is a good deal for both companies, saying the $350 million in synergies, tax savings and the addition of PJM assets benefit Vistra. “At the same time, Dynegy’s EBITDA contribution should trade at a higher multiple given that its over-leverage issue is corrected by Vistra’s pristine balance sheet,” he said by email.

ERCOT Market Power

Morgan said the company will need to shed about 900 MW in ERCOT to remain under the 20% market share limit. “We’ve got two paths that we can go down. We will be kicking off a divestiture process that we’ve already started and will be going out in the market,” Morgan said. “But there’s also another avenue that I won’t get into in too much detail here … where we wouldn’t have to do any divestiture at all. You guys will see that in the marketplace. We can execute that in the six-month period that we’re talking about getting [regulatory] approval. And we will have a mitigation plan in place when we file with the [Texas] PUC for approval.”

PJM Outlook

Morgan said the company was assuming no improvements to capacity or energy prices in PJM, but it also did not expect prices to fall further.

“It takes a substantial amount of net megawatts — meaning net between new additions and retirements — to actually move the capacity curve. It’s such a flat curve. It takes on a net basis about 6,000 MW of additional [capacity]. I don’t think 6,000 MW on a net basis is going to come into this market. That’s why we are looking at capacity being relatively flat.”

He said the projections do assume some new generation in the RTO “because for some reason people are still investing. But I think this last [capacity auction] clear put a chilling effect. … And also, capital going into PJM projects is beginning to dry up. I’ve heard that from a number of people. So, I think the market there is beginning to discipline itself.”

Morgan said the company will be “opportunistic” in seeking additional generation, predicting “there’s going to be just a ton of assets that come into the market.”

“But that’s not going to be a primary [focus]. … What we would like to do, we think we have this tremendous platform to grow our retail business.” The company will begin with 240,000 commercial and industrial customers and 2.7 million residential customers.

Generation Mix

Morgan said the move to a “gassier portfolio” would give the combined company the lowest-cost structure in the industry, with wholesale costs as low as $9/MWh and retail costs as low as $45 per residential customer equivalent.

The combined company will have more coal — 32% — than Vistra’s current 28% share. But the deal will boost its natural gas share to 61% from 54% while reducing nuclear from 17% to 6%. It will also provide more geographic diversification, reducing Dynegy’s PJM exposure (45%) to 29% in the new company. Of the combined company’s 40 GW of installed capacity, 84% is in Texas, PJM and New England.

Terms

Under the terms of the agreement, Dynegy shareholders will receive 0.652 shares of Vistra common stock for each share of Dynegy common stock they own, resulting in Vistra and Dynegy shareholders owning approximately 79% and 21%, respectively, of the combined company. Based on Vistra’s closing share price of $20.30 on Friday and the agreed exchange ratio, Dynegy shareholders would receive $13.24 per Dynegy share.

Price Formation

Morgan said he is hopeful that the Department of Energy’s Notice of Proposed Rulemaking will result in FERC actions boosting the company’s generation and noted that Vistra has introduced a price formation proposal in ERCOT as an alternative to the Calpine-NRG Energy whitepaper. (See ERCOT, Regulators Discuss Need for Pricing Rule Changes.)

“With the DOE action taken I do think there is some pressure for PJM and ISO-NE and others to come forward with something around price formation because that was very prominent in the DOE [proposal],” he said. “I don’t think DOE will get implemented, obviously, the way that it was put in.

“But more importantly I think that FERC will be inclined to act on whatever the ISOs bring forward. You hate to handicap things, but it sure seems like there’s a good chance — a better chance than not — that if there is something brought forward, which I expect there will be around price formation, that it will ultimately be approved by FERC.”

— Tom Kleckner contributed to this article

October 27, 2017

NYISO Management Committee Briefs: Oct. 25, 2017

RENSSELAER, N.Y. — The NYISO Management Committee was briefed Wednesday on the ISO’s strategic planning process, which broadly examines issues the grid operator expects to face over the next five years.

“A lot of the issues concern public policy,” Rich Dewey, NYISO executive vice president, said in reviewing the ISO’s draft plan. They include carbon pricing, locational capacity requirements, better integration between the distributed system platform and wholesale markets, and planning for transmission to support offshore wind.

NYISO FERC energy storage Synchronized Reserves — | *NYISO*

On integrating public policy with the market, the report asked, “How will the wholesale markets adapt to provide the necessary services (i.e., ramping, transmission security, inertia, frequency regulation) to balance the intermittent renewable generation?”

Howard Fromer of PSEG Power New York asked, “What sense of urgency did the board have, looking ahead five years, about a sense of fear in the market — whether we will even have this market in five years? The market design did not contemplate today’s reality of zero and negative prices.”

Dewey said there was no fear at the board, but members did feel a sense of urgency and “have been spending a lot of time on figuring out how to use a very powerful tool, the markets, to achieve our goal of a sustainable energy market and grid.”

2018 Budget Recommended to Board

The committee voted to recommend that the board approve the ISO’s proposed Rate Schedule 1 revenue requirement of $155.7 million for the 2018 budget year, which translates into spending of $0.987/MWh.

Alan Ackerman, chair of the Budget and Priorities Working Group, presented the budget, the key priorities of which include physical and cybersecurity enhancements to secure operations and meet audit and compliance needs. (See “2018 Budget Up 5% on Security Enhancements,” NYISO Management Committee Briefs: Sept. 27, 2017.)

Tariff Changes for Inverter-Based Storage Approved

The committee approved proposed Tariff and Ancillary Services Manual changes to define the role of inverter-based energy storage in providing synchronized reserves.

Daniel F. Noriega, NYISO associate market design specialist, presented the changes — already approved by the Business Issues Committee on Oct. 11 — that would allow generators and demand-side resources that use inverter-based storage technology to provide spinning reserves. (See “Proposed Tariff Changes for Energy Storage,” NYISO Business Issues Committee Briefs: Oct. 11, 2017.)

Fuel Cost Adjustment, Penalty Calculations Approved

The committee also approved a proposal, approved earlier this month by the BIC, to more closely align the real-time and day-ahead impact tests and penalty calculations used to identify generator misuse of fuel cost adjustments (FCA). The current day-ahead process is considered more precise than the real-time because it also tests the impact on real-time prices based on market reruns.

The proposed changes will be submitted to the board in November prior to filing with FERC. (See “Fuel Cost Adjustment Calculation to be Refined,” NYISO Business Issues Committee Briefs: Oct. 11, 2017.)

New Vice Chair Chosen

The Management Committee elected Chris LaRoe of Brookfield Renewable as vice chair for 2018. Scott Butler of Consolidated Edison also stood for the position.

— Michael Kuser

October 27, 2017

Boston U ‘Fireside’ Chat Takes up New Energy Investment

By Michael Kuser

As homes become smarter and electric vehicles increasingly become the norm, there will be money to be made in managing how and when people use power. But investors are still in the early stages of figuring out how to make returns on the rapid changes overtaking the power sector, according to energy finance professionals.

boston university technology energy investment — Nalin Kulatilaka, BU; Michael Lapides, Goldman Sachs; Sheldon Simon, Adage Capital Management; and Stephen Byrd, Morgan Stanley.

Investment experts discussed new energy technologies, regulatory trends and the evolving business model for utilities at an Oct. 19 “fireside” chat hosted by Boston University’s Institute for Sustainable Energy.

Panel moderator Nalin Kulatilaka, of the university’s Questrom School of Business, asked how capital will be drawn to new energy technologies, whether for generation or energy storage — or the software that can manage energy better.

“Historically, energy investment has been with big instruments and now it’s going to be much more a mix of large and small, centralized and distributed,” said Michael Lapides of Goldman Sachs. “It’s going to have much more of a technology overlay to it. From a software perspective, we’re barely at the surface of what’s likely to happen in the broader electricity industry. What is the real customer usage level? What’s the normal?”

Utility or Tech Firm?

Stephen Byrd, who heads Morgan Stanley’s North American power research group, said that while traditional utilities appreciate new opportunities conceptually and are making efforts to adapt, he questioned whether they’ll become the agents or interfaces that enable customers to benefit from the advances in technology.

Such a company — he said he could think of several already operating in California — analyzes “the data within your house or business and says ‘here are all the ways we can change the pattern of your usage,’ and then links that up with the utility bill structure,” Byrd said. “I can see the day when one of those companies goes to a utility and says, ‘I’ve got a million of your customers and they’re all on an app on their phones, and we can press a button and shift your peak usage by around X%.’ What is that worth? We don’t know, but it’s worth a lot. That’s not the death of the utility, but there’s a lot of value there that I think the utility may not capture. Maybe a technology company captures that.”

Sheldon Simon, an equity analyst with Adage Capital Management, said a system built to move megawatts from central stations was not designed to accommodate the changing case of distributed — and variable — power generation.

“If you think about significant lumpiness in the U.S. electricity industry’s [capital expenditure] cycles, it’s almost always been very generation-friendly,” Simon said. “The grid is not built to have every house be a power plant, or to have so much intermittent generation as we’re going to have. We’re going to see some markets, far more than planned, where the intermittency creates problems for the grid operator.”

Barbarians at the Wall

It’s currently harder to create true value in power generation than in distribution and energy management, Byrd said.

“Truly new generation technologies are pretty rare to actually have an impact, though we’re watching some areas. There are a lot of very smart people focused on that,” he said. “It’s just very hard to beat the low-cost nature of larger, more centralized power plants. But I wouldn’t rule that out.”

On the disruptive power of wind, Byrd likened wind to a barbarian horde: “They’re going to spread everywhere. I can think of some nuclear plants that are castles along the wall that are being attacked by the barbarian horde. That’s an opportunity for some, and it’s a serious threat to others.”

Simon said “that in a very different way, utility-scale and distributed solar will have a very similar impact. It will be more localized, it will be closer to the customer, if not owned by the customer.”

Utilities now face the question of how to grow, which will partly be through fleet transformation, according to Lapides.

“A few years ago there were some very large utilities that owned almost no renewables, and now they’re major top-10 players in the industry because they have huge economies of scale and balance sheets,” Lapides said. “And they serve a lot of customers. Is that what happens with storage? Maybe. Is that what happens with software that deals with grid management? Maybe.”

Regulatory Trends

As technologies evolve and customers use less electricity or go elsewhere for power, utilities have to reallocate their fixed costs to a smaller base, which means that rates could go up for remaining customers. Kulatilaka asked how regulators would likely deal with that new situation facing utilities.

“If we’re entering a period where interest rates go up — they’ve been going down for 30 years — the regulatory models’ gist is that utilities will seek higher returns, forcing rates higher,” Simon said. “So there are limits to how high customer rates can go up when you have less utilization and fewer customers. That could be the real conflict that causes real stress on the industry, because at the end of the day, it is about the money, about what people can pay and what’s politically palatable.”

Speaking about the impact on the regulatory paradigm, Lapides said: “The answer’s out there staring us in the face. … The states that were early movers in decoupling, basically, whether they realized it or not, got their utilities out of the business of caring a lot about demand growth. Think about the implications. From an earnings power perspective, from an environmental perspective, from a planning perspective, it hits all of those three. It’s not rocket science.”

Simon expressed little confidence in the responsiveness of utility commissions.

“Regulators, with few exceptions, will not be forward-thinking,” he said. “They’ll swing the bat when the ball’s in the catcher’s mitt. They’re risk-averse, so they’ll step in when things get to be dire, and what they’ll do is unclear. … [Regulators] are not necessarily friends of the utilities; they just want to make sure that when people turn the switch on, the lights come on.”

October 27, 2017

CAISO Proposes EIM Governance Changes

By Jason Fordney

CAISO has proposed to change the selection process for members of the Western Energy Imbalance Market (EIM) Governing Body to rely less on outside search firms and more on the contacts of its Nominating Committee.

CAISO EIM governing body selection process — CAISO Proposed Less Usage of Outside Search Firms To Find EIM Governing Body Members | © *RTO Insider*

The ISO is taking comment on the proposal, which would give the EIM Nominating Committee discretion regarding use of an outside search firm. The proposal would also alter the process that occurs when a Governing Body member asks to be considered for another term.

According to the proposal, “It has become clear that members of the Nominating Committee have contacts with many qualified candidates who could be a good fit for the EIM Governing Body, both directly and through the other companies and organizations in their sectors.”

The changes are being made in preparation for the June 30, 2018, expiration of Chair Doug Howe’s and member Carl Linvill’s terms, which requires months of work before then, CAISO Lead Counsel Dan Shonkwiler said in a Wednesday presentation. The terms for Vice Chair Valarie Fong and John Prescott expire June 30, 2019, and Kristine Schmidt’s expires on June 30, 2020.

CAISO is taking comment on the proposal through Nov. 8, with an advisory vote from the Governing Body slated for Nov. 29 and a final vote from the ISO’s Board of Governors during its Dec. 13-14 meeting.

The eight-member Nominating Committee includes representatives from eight different sectors and currently uses an executive search firm to identify possible candidates. If a body member seeks to be re-nominated, the committee may decide to do so without considering other candidates.

Under the proposed changes, the Nominating Committee must interview the current member seeking re-nomination and must consider other candidates, but it is not required to utilize a search firm as is the case now.

“It is not strictly necessary to use an executive search firm to come up with qualified candidates,” Shonkwiler said, adding that the cost of the search firm to CAISO is “not insignificant.”

The ISO says the goal of the selection process is to create diversity in expertise, and to ensure that one state or sub-region is not overrepresented. The body requires at least one member with expertise in Western energy markets, and candidates with regional experience get preference.

The body has authority over market rules for the EIM but holds just an advisory vote on other EIM-related CAISO decisions. CAISO is also proposing to change the decisional classifications” that determine whether the body, the ISO board or both have the authority to make decisional votes. The document clarifies that CAISO management can work with the chairpersons of its board or the EIM’s body to resolve disputes over decisional authority.

The Governing Body’s next meeting is scheduled for Nov. 29 in Boise, Idaho.

October 27, 2017

Board Committee Approves MISO Budget Boost

By Amanda Durish Cook

A key MISO committee is recommending that RTO leaders sign off on a $370.2 million preliminary budget for 2018 — the largest spending package ever.

The Audit and Finance Committee of the Board of Directors on Tuesday unanimously approved the draft budget, which includes a $264.9 million base operating budget and $29.6 million in capital spending. The final budget will be presented to the full board in early December.

MISO’s total expense budget represents a 9.5% increase from 2017, while the operating budget is up 9.6%.

The RTO next year expects to collect 750 TWh of rates at an average 40 cents/MWh, earning $303.7 million, compared with this year’s projected accumulation of $279.3 million.

CFO Melissa Brown said MISO was able to partly reduce the 2018 budget estimate by $5.5 million by deferring certain technology improvements, which will allow the RTO’s information technology division to better manage a heavy workload, which will include a NERC audit, IT security improvements and a multiyear market platform replacement, in addition to dealing with day-to-day operations. The platform replacement will cost almost $22 million spread across the operating and capital budgets.

Other savings come from deferring some pseudo-tie change solutions with PJM for a year because FERC has not yet ruled on related filings, Brown said.

Alliant Energy’s Mitchell Myhre, chair of the Finance Subcommittee, said his group reviewed the budget and recommends that MISO focus on reducing noncritical work and create “efficiencies to limit cost increases going forward.”

Myhre said that MISO’s expenses usually increase 1% year-over-year, but the 2017 and 2018 budgets combined have increased by about 5% on average. He noted that MISO has promised to limit expense increases to a 1.9% compound annual growth rate from 2017 to 2021.

Next year’s spending increase will be driven primarily by employee pay increases and medical costs, new hires in MISO’s interconnection queue planning and security staffs, IT improvements, cyber and physical security improvements and the market platform replacement, Myhre said. He asked for MISO to monitor budget items stemming from the platform replacement and present them individually during budget discussions for the sake of transparency.

“I think it’s critical for our stakeholders who bear the cost that we be very vigilant about this,” Director Phyllis Currie said of spending money prudently.

October 26, 2017

Former VP Gore Lauds Texas Town’s Environmental Efforts

By Tom Kleckner

GEORGETOWN, Texas — He came armed with his traveling slideshow, a sequel to his Oscar-winning documentary, homespun wisdom, and warnings of what human activity is doing to our planet.

And what better place than in Georgetown, Texas, a community north of Austin that last year became the first U.S. city to draw all its power from renewable resources, and where a local brewery proudly markets its beer as being produced with 100% wind power?

Al Gore GridNext Climate Change — Wind-energy brewed beer | © *RTO Insider*

Al Gore, former vice president and current environmental activist, has drawn praise and scorn for his efforts to raise awareness of the threats posed by climate change. On Monday afternoon, speaking before the Texas Renewable Energy Industries Alliance’s GridNEXT conference, he pointed to Georgetown’s diminutive mayor, Republican Dale Ross, and thanked him for “spreading the gospel of renewable energy.”

Earlier this year, Ross had teased Gore about inventing the internet, saying he himself had invented green energy.

“You better be careful about that,” Gore kidded Ross at the conference. “What you said could be interpreted as being somewhat friendly to the environment.”

It was all in good fun. Both realize environmental concerns cross political lines.

“Congratulations, Georgetown,” Gore said. “You are really an amazing city, and others are joining you.”

The Need to Change

In delivering the first of two slideshow presentations Monday — he would repeat his performance that night in Houston at Rice University — Gore asked three questions:

Do we really have to change?
Can we change?
Will we change?

Gore, who won the 2007 Nobel Peace Prize for his efforts, is unequivocal about the need to change. He reeled off record temperatures that have scorched parts of Europe, Asia and the Middle East in recent years. He showed videos of California wildfires, melting asphalt streets in India and raging floodwaters, all the result of climate change, he said.

“We can’t treat the world like an open sewer,” Gore said. “Every day we’re dumping 110 million tons of CO₂ in the sky, and it traps heat.”

In fact, he said, humans are trapping as much heat as would be produced by 400 Hiroshima-class atomic bombs, leading to ocean warming that has produced global catastrophic rain events. He used Hurricane Harvey as an example, noting it crossed Gulf of Mexico waters that were 7 F warmer than normal as it blew up almost overnight into a major storm.

Most scientists agree there is a link between climate change and extreme weather, droughts, wildfire, famine and other socioeconomic upheavals. A 2006-2010 drought in Syria destroyed 60% of the country’s farmland, wiped out 80% of its livestock and forced 1.5 million refugees to move into the already crowded cities — events that many, including Gore, say led directly to civil war.

“There was a social explosion,” Gore said. “Some of these countries have trouble governing themselves just in the best of times. You overlay these extra burdens, and some of them just crack under the burden.

“The Defense Department has been warning about this,” he said. “It hasn’t mattered to the department whether the president in power is a Democrat or a Republican. For the last four administrations, the generals have been saying, ‘Hey, wake up folks! This is going to be an international crisis, because we’re going to have refugees, we’re going to have food shortages, we’re going to have water shortages, pandemic disease, so get ready for this.’”

Signs of Progress

The good news, Gore said, is that global carbon dioxide emissions have stayed flat three years in a row, and are likely to remain so again in 2017. He pointed to the closing of coal plants in the U.S., drawing applause from the friendly crowd when he updated a map to include Vistra Energy’s recent announced closures. (See Vistra Energy to Close 2 More Coal Plants.)

“We are shifting away from coal very, very rapidly,” Gore said.

“You want to get our economy growing? You want to make America great?” he asked. “Let’s build solar and wind plants, batteries and the renewable energy economy. According to the Bureau of Labor Statistics, the single fastest-growing job in the country is wind turbine technician. There are 565 solar employers in Texas.”

EPA ERCOT climate change President Trump — Georgetown, Texas Mayor Dale Ross | © *RTO Insider*

Gore’s slides highlighted data showing the growth of wind and solar energy in Texas, currently the largest producer of wind power in the U.S. They also took note of China’s reduced of coal use, the growth of electric vehicles worldwide, and other initiatives that have slowed the release of CO₂ and other greenhouse gases.

“We’re starting to see a decline [in global emissions], but we have to have a steep decline,” Gore said. “If we had started this 20 years ago, we could have skied down a bunny slope. Now, we gotta go down the double black diamond. It’s not going to be the easiest thing, but we have got to do it. We have to do it. We now know we can do it, but will we do it?”

Calling the Paris Agreement a “historic breakthrough,” Gore said the U.S. is still technically in the agreement, although it has joined with Syria as the only two countries not committed to the agreement. He pointed out that India and China, two of the world’s leading polluters, are on track to reach the commitments they have made in Paris.

So, too, he said, is the U.S., “regardless of what President Trump has announced.”

“With the commitment of cities like Georgetown and all the other cities that have made plans to do the same and follow Georgetown’s lead,” and with commitments made by “thousands” of business leaders, Gore said, “The U.S. is on track to exceed the commitments it made under the Paris agreement.”

Gore closed with a quote from Wallace Stevens’ poem “The Well Dressed Man With A Beard”:

“After the final no there comes a yes
And on that yes the future world depends.”

“Every great social and technological advance that has bettered humanity has met with a lot of opposition and a lot of noes, but ultimately, we get to a yes,” Gore said. “Will we change? I believe we will. Will we change in time? I believe we will. And for those who believe we don’t have the political will, [remember] political will is a renewable resource.”

October 26, 2017

Stakeholders Give MISO High Marks, Call for Improvements

By Amanda Durish Cook

Stakeholders gave MISO strong marks in this year’s annual customer opinion survey, but they still see room for improvement, especially with the interconnection queue, outage planning and transmission cost allocation.

MISO customer survey interconnection queue — Bennett | © *RTO Insider*

MISO sent surveys to more than 457 companies and reported 24% participation, better than its historic 16 to 17% response rate.

“This is the best response rate we’ve ever gotten,” MISO Executive Director of External Affairs Kari Bennett said during an Oct. 24 call hosted by the Human Resource Committee of the Board of Directors.

Nearly 90% of respondents reported an overall satisfaction with MISO, the highest percentage in five years, while 83% said the RTO’s market rules and processes are transparent, the highest rating in four years. MISO has commissioned a survey since 2005 and scored an average 80% or better since 2012.

Bennett said stakeholders identified four areas of concern: MISO’s generation and transmission outage coordination process, transmission cost allocation, the lengthy interconnection process and quality of the search function on the website.

Bennett said the areas singled out for improvement were “not surprising,” as all the stakeholder-flagged issues have been discussed before in MISO public meetings.

Last month, outage-related congestion, combined with hot temperatures, drove real-time revenue sufficiency guarantee payments above $13 million, nearly doubling last year’s monthly total. Stakeholders and MISO officials in September agreed with the Independent Market Monitor that outages need to be more carefully scheduled. (See MISO in Harmony with IMM State of the Market Report.)

MISO is beta testing a new website design that will launch in December, Bennett said. “People right now say it’s easier to search Google [to find MISO information] than use our search function.”

Bennett also expressed in interest in how MISO’s new interconnection queue process will fare in next year’s survey, after being in place longer than a year. This year, stakeholders viewed the interconnection process as too long to be effective.

Survey respondents also asked for added benefit metrics aside from the adjusted production costs that MISO uses to mete out costs for the RTO’s market efficiency and multi-value projects, an issue the RTO and stakeholders will tackle in 2018.

MISO is developing responses and action plans based on survey responses, Bennett said.

October 26, 2017

MISO Committee Rejects Debate on Customer-funded Upgrades

By Amanda Durish Cook

MISO Advisory Committee members decided there was nothing amiss in the stakeholder debate that ultimately shut down the possibility of creating a cost recovery mechanism for customer-funded transmission upgrades.

miso cost recovery transmission upgrades — MISO Advisory Committee meeting in September | © *RTO Insider*

But supporters of the proposal contend the idea didn’t receive fair consideration.

During an Oct. 25 Advisory Committee call, Bruce Grabow, an attorney representing EDF Renewables, argued that MISO’s Regional Expansion Criteria and Benefits Working Group (RECBWG) did not understand the proposal, nor allow full debate before rejecting it this summer after deciding that after-the-fact cost allocation would be too complex to introduce.

“There wasn’t any discussion on whether this is really needed,” he added.

Grabow said the joint proposal — which would allow simple cost recovery of customer-funded upgrades from other transmission users directly benefiting from them — from EDF and Wind on the Wires (WOW) could be a “win-win” because it would initiate construction of needed sub-345-kV projects that would be otherwise overlooked in MISO’s annual Transmission Expansion Plan. (See Participant-funded Projects Get 2nd Shot at MISO Cost Recovery.)

But Advisory Committee members held that the RECBWG performed its due diligence before voting 15-4 to deny EDF and WOW another round of presentations on the topic. Voting in favor were Adam Sokolski and Mark Volpe of MISO’s Independent Power Producers sector, as well as WOW’s Beth Soholt, of the Environmental sector, and Adam McKinnie of the State Regulatory Authorities sector. Two state regulatory representatives ― Ted Thomas and Hwikwon Ham ― abstained from the vote.

“It’s not clear at all to me what … the shortcoming of process at the RECBWG was,” Entergy’s Matt Brown said. He pointed out that EDF and WOW were granted presentation time, a feedback gathering phase and follow-up at a later RECBWG meeting.

“[They’re saying] if only we understood the points, we’d agree. I’d argue that we understand and don’t agree. I don’t think what we have here is a misunderstanding of the proposal, but a disagreement of the merits of the proposal,” Brown said.

Steering Committee Chair Tia Elliott said she didn’t want similar Advisory Committee petitions cropping up whenever stakeholders were disappointed with the reception of their proposals. She maintained that the issue received proper consideration according to MISO’s stakeholder process, even if EDF and WOW didn’t like the outcome.

The discussion was a follow-up of one that took place at the last Advisory Committee meeting Sept. 20. “Although I think the proposal has some merits, the question is whether the stakeholder process was followed,” Kevin Murray, executive director of Industrial Energy Users-Ohio, had said then.

Soholt said EDF does not believe it was given sufficient time for stakeholders to explore the cost recovery proposal. “Going to the heart of the issue, it really goes to heavily congested areas and bringing in transmission,” said Soholt, who added that MISO has a problem in some cases luring transmission developers to build lines where they are most needed. She said the “narrow focus” of the proposal provides a solution.

“It looks like there’s just some dissatisfaction with the outcome of the process rather than any failure of the process,” Brown said. He also added that he disagreed with EDF’s assertion that MISO lacks a process for in identifying sub-345-kV projects.

Xcel Energy’s Carolyn Wetterlin, chair of the RECBWG, said the issue was given a fair hearing in the working group.

“I know there are times I have to work the agenda and cut discussion short, but I don’t recall that that was the case with this presentation,” Wetterlin said.

Murray said EDF and WOW are still free to lobby their case in front of MISO officials or file a complaint at FERC.

October 26, 2017

Weak Wind Drives down Avangrid Q3 Earnings

By Michael Kuser

Avangrid third-quarter earnings fell 9% to $99 million on weaker-than-expected wind production, which the company said was partially offset with improved operations elsewhere. Year-to-date profits were still up 8%.

Avangrid q3 earnings — Avangrid CEO James P. Torgerson

“The third quarter historically sees the least amount of production from wind resources, and this third quarter was even below that,” CEO James P. Torgerson said during an Oct. 24 earnings call. “We have been implementing best practices and cost management across all of our business, so the new rate plans in Networks and the cost management we’ve implemented helped to offset the low wind resource, which was really 5% below our normal.”

The company’s two primary lines of business are Avangrid Networks, comprising eight electric and natural gas utilities in New York and New England, and Avangrid Renewables, which operates nearly 7 GW of mostly wind power in 23 states.

State Regulatory Update

During the call, Torgerson addressed a recent move by Connecticut regulators to investigate Avangrid and Eversource Energy for potentially manipulating natural gas prices in the state between 2013 and 2016 (17-10-31). The state’s Public Utilities Regulatory Authority (PURA) is working off allegations set out in a report issued earlier this month by university researchers and the Environmental Defense Fund, who contended the companies unjustly reaped gains of about $3.6 billion over the period.

In Connecticut, “we have an obligation to supply gas, and we also have a very strict code of conduct for our employees,” Torgerson said. “We will be looking to make sure we’re following all the rules, which I believe we are, and we’ll cooperate with PURA in their review.”

In New York, Avangrid subsidiaries New York State Electric and Gas and Rochester Gas & Electric next year expect to implement a collaborative earnings adjustment mechanism designed to facilitate interconnection of distributed energy resources, which Torgerson said “provides incentives that would actually increase the [return on equity] if targets are achieved.” Regulatory discussions on the two utilities’ joint proposals for advanced metering infrastructure and a distributed system implementation plan have been deferred to late this year, with decisions expected by June 2018.

Federal Scene

Torgerson noted that FERC earlier this month rejected a bid by New England transmission owners — including Avangrid’s Central Maine Power — to increase their ROEs to the previous level of 11.14% after a federal appeals court earlier this year temporarily vacated a 2014 commission order that reduced the ROE to 10.57%. The commission said it would address the actual rate in a later remand order (ER15-414, EL11-66). (See FERC Rejects New England Tx Owners on ROE.)

“[FERC] really didn’t, in my mind, get to the merits of the ROE,” Torgerson said, contending the commission seemed more concerned about the “whiplash” of moving the rates back and forth.

Transmission Projects, Wind and PPAs

Three-year rate plans in Connecticut and New York, along with the FERC formula rate, are giving Avangrid better than 80% certainty, Torgerson said.

Avangrid looks to continue developing onshore renewables and transmission projects for long-term growth, “some of it through the Massachusetts Clean Energy [request for proposals] and the New York transmission renewables solicitations, but also with the offshore wind RFP that will be in Massachusetts,” he said.

FERC REV Avangrid earnings — | *Avangrid*

For the Massachusetts solicitation, CMP in July partnered with Hydro-Québec to bid the New England Clean Energy Connect, a 145-mile, 320-kV HVDC line that would carry 1,200 MW of hydro and wind energy from Canada to Maine. The company also teamed with NextEra Energy on the Maine Clean Power Connection, a new 345-kV connection from western Maine to the New England grid with capacity options of 460 to 1,110 MW, allowing varying combinations of wind, solar and storage facilities in eastern Canada and western Maine. (See Tx Developers Pitch Mass. Clean Energy Bids.)

Avangrid continued to sign on new wholesale customers during the third quarter, executing a power purchase agreement for 86 MW, “adding to the 401 MW of PPAs previously secured and announced in 2017 — all with 100% production tax credits,” added Torgerson. “Construction on approximately 800 MW of wind and solar projects is well underway, of which 590 MW will be operational by year-end 2017.”

He added that the market for PPAs has become more competitive this year as customers look not only for renewable energy, but renewables at a low cost.

October 25, 2017

ICC Rolls out Stricter Rules for Retail Suppliers

By Amanda Durish Cook

Wrapping up a three-year effort, the Illinois Commerce Commission last week issued strengthened consumer protections against the marketing practices of alternative retail electric suppliers.

The commission’s Oct. 19 order (15-0512) requires retail suppliers to provide customers with a disclosure statement that details whether electricity rates are fixed or variable; the price per kilowatt-hour and the number of months that price is guaranteed; all monthly fees and any early termination fees; and whether the contract renews automatically.

CC MMU retail choice Illinois Commerce Commission — | *Illinois Commerce Commission*

The ICC also ordered suppliers to send customers identical disclosure statements about automatic renewals via mail and one other form of communication. Termination fees cannot exceed $50 for residential customers and $150 for small commercial retail customers under the new provisions.

The new rules also require retail suppliers to retain for two years any copies of customer contracts and a recording of telemarketing solicitations that result in enrollment. Suppliers must also make more detailed disclosures about renewable energy offers and cannot describe plans as “green” unless they go beyond Illinois’ renewable portfolio standard.

Retail suppliers are also prohibited from using the name and logo of any Illinois public utilities in their electric power and energy service offers. Any supplier that is an affiliate of a public utility and starting doing business as of Jan. 1, 2016, can continue to use that utility’s name and identifying information in marketing offers outside the utility’s service territory.

Under the rules, all customers now have the right to cancel a contract with a retail supplier within 10 business days of their first bill.

The ICC said it was prompted to tighten the rules following the spike in electricity prices during the 2013-2014 “polar vortex” winter, when its consumer services division received “a sharp increase in public complaints about the marketing practices of certain retail electric suppliers.”

“The rules will ensure that consumers have information about electricity supplier options that enable them to compare offers and utility plans, and make better-informed decisions. The new marketing guidelines also provide regulators with improved enforcement mechanisms, and require suppliers to take improved verification and quality control measures,” the ICC said.

Chairman Brien Sheahan said the changes are “a major victory for the public interest and all stakeholders by ensuring consumers have clear information to make good choices regarding their energy needs.”

Executive Director Cholly Smith said the new rules will protect customers from “bad actors” while “fostering a robust competitive market.” He added that the ICC will now work with stakeholders and industry officials to implement the rules uniformly.