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.”
No commenter delivered a more damning takedown of Energy Secretary Rick Perry’s call for out-of-market compensation for nuclear and coal generators last week than PJM.
PJM said the Department of Energy’s Notice of Proposed Rulemaking makes “a sweeping and unsupported conclusion that, solely in regions with capacity and energy markets, certain units, regardless of their location, performance history or competitiveness, deserve full cost recovery through out-of-market mechanisms” (RM18-1).
But the Independent Market Monitor and other critics say the alternative PJM proposed in its filing would also be expensive and also undermine the RTO’s markets. Where Murray Energy and its customer FirstEnergy appear to have influenced DOE’s call to aid coal, the Monitor suggests that PJM is acting in the interest of Exelon, which would be the biggest winner from a boost to nuclear plants.
In an interview Thursday at the Markets and Reliability Committee meeting, PJM CEO Andy Ott said the RTO’s proposal will ensure LMPs “reflect which units are actually operational” but is “not going to benefit specific fuel types.”
In his comments on the NOPR, however, Monitor Joe Bowring said that PJM’s proposal appears “to reflect a desire to administratively alter the markets to favor nuclear and coal-fired generation.” Those generation types would receive a “disproportionately large increase in revenues,” he wrote.
Price Formation Report
PJM’s proposal, which would allow less flexible, traditionally baseload units to set LMPs, was first outlined in its June report, “Energy Price Formation and Valuing Flexibility.” (See PJM Making Moves to Preserve Market Integrity.)
“The PJM report claims that baseload — nuclear and coal — generation is undervalued in the market, that negative energy market offers have a pernicious effect in hastening the retirement of baseload generation and that an increasing reliance on capacity market revenues, rather than energy market revenues, results in a bias in the markets,” the Monitor wrote. “The PJM report provides no evidence supporting these claims.”
The Monitor is not alone in his suspicions of PJM.
“The real issue is not necessarily the proposed DOE rule, but what the RTOs like PJM will propose in its place,” Tyson Slocum, director of Public Citizen’s Energy Program and a harsh critic of the RTO rulemaking process, said in an email. “FERC will be far more inclined to endorse whatever the RTOs put forward. What PJM is saying here is that they are NOT opposed to coal/nuclear bailouts AS LONG as the ‘bailouts’ are conducted through the RTO’s ‘market’ rules. While everyone is distracted by the shiny DOE cost-of-service proposal … we cannot simply focus only on the DOE proposal, but what is coming next.”
That is why, Slocum added, Dynegy and NRG Energy filed comments opposing the NOPR even though they acknowledged they would benefit from it: “They love their odds of getting a market-based bailout through MISO and PJM.” (See related story, Vistra Energy Swallowing Dynegy in $1.7B Deal.)
John P. Hughes, CEO of the Electricity Consumers Resource Council (ELCON), said PJM’s June proposal is “simply an unsubstantiated directive to subsidize coal and nuclear plants with no consideration of the impact of the out-of-market costs on load. The one-price-clears-all nature of the market design also means that this gimmick will create a windfall for all generators that are dispatched. PJM is behaving as if it were captured by Exelon. PJM should be moving in the direction of improving market operation and price formation — not against it!”
PJM included in its filing a letter from Harvard economist William Hogan endorsing what he called PJM’s plan to “ensure that the incremental cost of serving load is reflected in LMP.” Hogan said it was “an appropriate step forward in price formation.” He added, however, “I do not expect it likely to produce a dramatic change or have as significant an impact as improved scarcity pricing.”
Consultant James Wilson, who often represents state consumer advocates in PJM, said in an email that it was “notable [that] Prof. Hogan does not support PJM’s proposal as described in the June whitepaper. While he supports some things discussed with PJM verbally, he does not mention or cite to the whitepaper.”
The Electric Power Supply Association (EPSA) told RTO Insider it is encouraged by PJM’s proposal and is hopeful it will be considered on an “accelerated time schedule.” (See sidebar, Reaction to PJM Price Formation Proposal.)
Three-Month ‘Compliance’ Process
The RTO said the DOE NOPR “incorrectly identifies a perceived problem and its cause, and seeks to impose a remedy that is not supported by the reliability and resilience concerns [it] claims to address.”
But while it was dismissive of the NOPR, PJM acknowledged it is behind other RTOs in adopting rule changes to improve price formation. It asked FERC to set a deadline for each RTO/ISO to identify “whether changes in the resource mix [have] created issues in their respective regions that are currently not addressed in the market” and propose solutions “within a commission-specified deadline that is in the near term.”
Asked to define “near term,” Ott said, “we’re thinking three months … would be appropriate.”
If FERC agrees to PJM’s request, said Ott, “We’d still have time to talk about it but it wouldn’t be the traditional … issue charge type” stakeholder process. It would likely be filed by the PJM Board of Managers under Section 206, he said.
Exelon’s Role
Ott said PJM’s proposal “is very consistent” with FERC’s price formation docket (AD14-14) and fast-start NOPR (RM17-3), but that the problem is manifested differently in PJM, which has fewer fast-start units and more large gas combined cycle units. “All we’re saying is it’s a bigger problem than just a few units — it’s not just fast-start units. It’s these others,” he said.
In its written comments, the Monitor suggested PJM is following the talking points of Exelon, noting the company is the RTO’s “largest participant.”
Bowring said the proposal to extend the fast-start NOPR’s pricing concept to all resources “was not proposed by PJM in Docket RM17-3 but was included in Exelon’s comments in the docket.”
The Monitor said that while PJM “held no open stakeholder discussion of the proposals in the report,” Exelon discussed the RTO’s June report in its second-quarter earnings call. During the call, Joseph Dominguez, executive vice president of governmental and regulatory affairs, said the company would “push very hard” to make sure that PJM would propose its pricing reforms to the commission for implementation by summer 2018.
Bowring said this “aggressive timeline … would not likely be met for a significant market pricing proposal through the PJM stakeholder process.”
PJM did not respond to a request for comment regarding Exelon’s involvement.
An Exelon spokeperson responded: “Dozens of entities including the U.S. Department of Energy, [Edison Electric Institute) EPSA, PJM, Dr. Bill Hogan, and PJM states have similarly concluded that PJM’s energy market rules are flawed and reforms are needed to preserve critical resources for our customers. We will address in our reply comments a number of factual and analytical errors in the IMM’s filing.”
The Monitor said FERC should allow the regular stakeholder process and not rush to approve PJM’s proposal.
“The PJM report’s proposal, which would impose significant costs on customers to the benefit of the owners of nuclear and coal-fired generation, is not the result of the process designed to support independent, deliberate decision-making,” he wrote.
Extended LMP
PJM told FERC it is “actively exploring” the extended LMP method, which would bifurcate its security-constrained economic dispatch into separate dispatch and pricing runs, as is already done in MISO, ISO-NE and NYISO.
PJM says its flat supply curve has diminished generators’ incentives to follow dispatch instructions.| PJM
“Under our proposal, the flexibility would be called a separate product and then you would have the supply demand balance actually set the price,” Ott explained. “Under that scenario, the price of electricity would more reflect which units are actually operational. So it’s not going to benefit specific fuel types. But what it would say is the units that are actually running today, every day — and we have to have them — the pricing would reflect the fact that they are on.
“Today, for example, we may have a $30 unit running but the price is $27. … So the unit that’s $30 would get the $3 through uplift. If the price actually reflected that it was on, the forward prices would pick that up and it would be more economic.”
While coal plants cannot toggle on and off like modern gas-fired plants, Ott said they are flexible within their minimum and maximum outputs. “The challenge today is many of the gas units’ production costs are below all the coal,” he said. “So, the coal tends to sit at minimum.”
PJM said improved price formation “may help to ensure an appropriate mix of resources that can meet future grid demands and have clear incentives to follow dispatch instructions.”
Impact on Incentives
Ott said the only incentive for generators to offer load-following flexibility is the ability to set LMPs.
But PJM says the incentive has diminished because its supply curve has become too flat — particularly between 120,000 MW and 150,000 MW, where load typically peaks in summer and winter — because of “the competitive economics of combined cycle gas turbines, assisted by low-cost shale gas and increasing renewables with zero fuel costs.”
PJM’s winter capacity mix is less dependent on natural gas — and more reliant on coal and nuclear — than almost all other NERC regions in the continental U.S. | PJM
“When [resources are] all within the same 50-cent part of the curve, it’s like, ‘What do I care?’” Ott said. “So a gas resource is sitting here saying, ‘If I’m going to be flexible, I have to buy a flexible fuel contract that will cost me more money. I’ve got to spend more money on maintenance. And I’m not going to do that for 20 cents.’ That’s the reality we’re facing.”
The Monitor contends, however, that separating the real-time five-minute energy price from the five-minute energy dispatch instructions would eliminate the incentive for marginal units to follow the dispatch instruction. “The result would undermine PJM’s control of the system and further increase the cost of serving load,” he said.
Higher LMPs, More Uplift
Ott said the changes PJM has proposed will increase energy prices while reducing uplift and capacity prices. But he said he couldn’t say how it would affect the total cost to ratepayers or whether it would increase overall coal and nuclear revenues because the RTO hasn’t yet run any simulations.
“Obviously, under our proposal, electricity prices would go up. [We’re] pretty sure of that. As far as the magnitude, I think I’d rather wait until we see the proposal.”
The Monitor said, however, the PJM proposal to allow less flexible units to set price would result in higher LMPs and new uplift payments, raising “the cost to consumers of serving the same load in each market interval with no counteracting decrease to production costs.”
“The proposed pricing solution would raise the price to that of any inflexible unit that would provide the marginal megawatt-hour as if it were willing and able to change its output level, which it is not. The pricing solution is a fictitious solution that produces higher prices that are not consistent with the efficient dispatch of the market,” he said.
Jennifer Chen, an attorney for the Natural Resources Defense Council’s Sustainable FERC Project, cited an estimate that including no-load and start-up costs of inflexible units in LMPs would boost energy market prices by 10 to15%.
Bowring said Monday that would put the cost of PJM’s proposal at $3 billion annually, equivalent to paying 25% of the plants’ current replacement value. (See related story, Cost Estimates on DOE NOPR: $300 million to $32 billion+)
Better Options
The Monitor said it has discussed with RTO officials energy market price formation improvements that would not interfere with competitive outcomes. “Improvements to better reflect local scarcity due to transmission constraints, system scarcity and necessary reserves in prices would direct greater market value to the specific resources that support reliability. Some of these changes are already underway in the PJM stakeholder process, while others have made less progress,” the Monitor said.
PJM says the replacement of old coal units with new gas generation is improving — not harming — reliability, as illustrated by its declining EFORd.| PJM
The Monitor said it agrees with PJM on a need to consider changes to the operating reserve demand curves (ORDCs). The RTO said it is conducting the first broad review of its ORDCs since it implemented shortage pricing in 2012.
The ORDCs are based on the largest unit operating on the system. “As such, they do not accurately reflect the value of excess reserves on the system in a manner consistent with the reliability value of those reserves,” PJM said.
“When we developed the N-1 criteria, we were looking at storm-related outages and equipment failures,” Ott said. With the added concern of terrorist attacks on infrastructure, he said, the RTO is evaluating what areas of the grid are vulnerable. For example, Ott noted, NERC’s Critical Infrastructure Protection standard requires expenditures to protect substations designated as critical.
“Is there some criteria you can put around that to say we should be protecting against those types of risk?” Ott said, adding, “realizing that, of course, you can’t protect every piece of equipment.”
Could that mean contingencies based on large gas pipelines that supply multiple generators? “There’s a lot of discussion that has to occur before we get to that point,” Ott said.
Shortage Pricing
PJM said it also will propose new shortage pricing rules that would “incentivize appropriate behavior [and] could mitigate operational reliability concerns.”
The RTO currently institutes shortage pricing if its system is short of 10-minute reserves, “which from a reliability perspective would constitute a grave operating condition,” it wrote in its NOPR response. “Modeling and invoking shortage pricing for longer-term reserve products such as 30-minute reserves would provide better incentives and information to the market regarding potentially severe operating conditions by escalating energy and reserve prices earlier and incentivizing behavior that would ameliorate the condition,” PJM said.
ERS Problems?
Ott said PJM does not have a lack of “essential reliability services” as defined by NERC.
“The issue is not that we don’t have enough of resources that can provide these services. The concern that we have is that we’re not paying for them,” he said.
While PJM has a compensation scheme for some ERS such as black start, “We don’t pay for inertia. We don’t pay for voltage control, things like this,” Ott said. “We don’t have a problem with them today, but we aren’t paying for them. So we need to look at — if we continue to not pay for them — [whether] they’re going to go away.”
Ott rejected the notion that its proposals are designed to benefit the same uneconomic resources as the DOE NOPR. “What we’re saying is the price of electricity has to reflect the units that are actually running to serve load. It should be no more; it should be no less. We’re not saying anything about what fuel types,” Ott said. “There are a significant number of times when we have resources operating and the market price doesn’t reflect the fact that the resource is operating. Whether the resource is coal, nuclear or gas, that’s wrong in my opinion.”
Reaction to PJM Price Formation Proposal
RTO Insider invited numerous interest groups to comment on PJM’s proposed price formation proposal. Below is a summary of their responses.
John Shelk, CEO, Electric Power Supply Association
EPSA welcomes and supports PJM’s leadership and active pursuit of further market reforms that are needed in light of continued major changes in the region’s resource mix. The specific issues outlined in PJM’s recent DOE NOPR comments at FERC should be further developed and filed at FERC as soon as possible so that implementation of approved reforms occurs in 2018.
Pat Jagtiani, executive vice president, Natural Gas Supply Association
NGSA is supportive of proposals that provide clear, competitive market signals in a fuel-neutral manner, and we agree that it should be RTOs working with their stakeholder to achieve the best path forward. With that said, we haven’t seen enough detail around PJM’s proposal to provide a detailed comment on their proposal. We do wholeheartedly agree with PJM’s statements that put natural gas’ excellent record of reliability on the record.
Todd Foley, senior vice president of policy & government affairs, American Council on Renewable Energy (ACORE)
ACORE agrees with PJM’s comments on the importance of relying on competitive markets and regional flexibility to ensure system reliability, resilience and lowest possible electricity costs for consumers. We believe that FERC, working with PJM, other organized markets and stakeholders, should establish objective, market-based criteria in price formation to reward system flexibility. We need to see how PJM’s proposals reward system flexibility, since that is what is needed for grid modernization and managing higher penetrations of renewable resources.
Amy Farrell, senior vice president of government and public affairs, American Wind Energy Association
Grid reliability and performance have gone up, all while wholesale electricity prices have gone down, because PJM markets allow uneconomic inflexible units to retire and be replaced by new, efficient and flexible units capable of responding to market signals. Let’s not try to solve a “problem” of low-cost electricity.
The PJM proposal is still being developed, so we don’t have a final position on it yet. However, if PJM divorces payment from performance, ultimately keeping less efficient units online, that could distort the market in the long run. More market-friendly approaches exist. For example, MISO and other market grid operators have improved efficiency and minimized out-of-market payments by incorporating start-up and no-load costs into market prices.
Jennifer Chen, attorney, Natural Resources Defense Council’s Sustainable FERC Project
While we may be able to support shortage pricing and ORDC revisions, PJM’s proposal to allow inflexible resources (largely coal and nuclear) to set LMP raises both process and substantive concerns. From a process perspective, PJM has been working on its inflexible unit pricing proposal without input from the stakeholder body for some time now, and we still do not know the details of it. Yet PJM, in its RM18-1 comments, asked FERC for immediate action and appears to be seeking a near-term deadline to implement its proposal. … Reliability isn’t a justification and PJM didn’t invoke it. In fact, PJM has more than enough resources available with reserve margins hovering around 29% this past summer and the last [Base Residual Auction] clearing a reserve margin of 23.9%. FERC directive on any of these potential reforms would be inappropriate at this point.
We also have concerns about the substance of the PJM proposal based on what’s known about it. … Artificially inflating prices will attract new supply, which would in turn lower energy market prices, defeating an apparent purpose of the proposal to put more money into the energy market. If anything, PJM should act to reduce its oversupply, which would better achieve what PJM set out to do with its price formation proposal.
Tyson Slocum, director of Public Citizen’s Energy Program
RTOs’ constant rejiggering of their capacity markets to accommodate the needs of their powerful members to earn more money for their aging power plants isn’t any better just because they dress up their bailouts in difficult-to-understand pseudo-economic jargon. … So, it will be no celebration for consumers if the DOE cost-of-service remedy is simply substituted by an RTO capacity auction redesign that falsely calls itself as a more palatable “market” solution.
(No responses were received from the Organization of PJM States Inc. (OPSI); Consumer Advocates of the PJM States (CAPS); the PJM Industrial Customer Coalition; the PJM Public Power Coalition; the Solar Energy Industries Association; the Nuclear Energy Institute; the American Petroleum Institute; the National Mining Association; or the American Coalition for Clean Coal Electricity.)
PHILADELPHIA, Pa. — “We don’t know the right answer,” PJM Senior Market Strategist Andrew Levitt said last week. “We think the right answer is going to emerge.”
Levitt was speaking on a panel about distributed energy resource integration in PJM, but the comment could have applied to any of the topics discussed at last week’s Mid-Atlantic Power Market Summit hosted by Infocast.
With all the technological innovation and game changing occurring in the power industry, market rules are having to move quickly to keep pace. While some PJM stakeholders are reluctant to jump to decisions, others have urged that decisions — right or not — have to be made.
“Recently, the market has been thrown upside down,” said Scott Taylor, vice president at generation developer Moxie Energy. “I think the political risk is a big issue that even if it gets sorted out, there’s an overhang with what’s the next attempt?”
Taylor, whose company focuses on gas-fired generation, was referring to the Department of Energy’s recent proposal to provide price supports for coal and nuclear resources. He said that the Notice of Proposed Rulemaking and state subsidies for nuclear units known as zero-emissions credits (ZECs) have shut down investment. Three states — Illinois, New York and Connecticut — have instituted ZEC programs.
Michael Ferguson, director of U.S energy infrastructure for Standard & Poor’s, said the financial woes for such large-scale units hasn’t been a surprise.
“You can almost see it in slow motion where you know there’s a problem out there,” he said. “It’s been playing out in slow motion for a long time.”
Scalpels and Sledgehammers
Surprising or not, the issue has created enough market fervor that the conference featured a debate between Joe Bowring, PJM’s Independent Market Monitor, and Kathleen Barron, Exelon’s senior vice president of competitive market policy. Exelon’s nuclear facilities are the beneficiary of the ZEC programs in both Illinois and New York.
The debate focused on the minimum offer price rule (MOPR), which screens capacity auctions for subsidized bids and exchanges them for class-specific standardized offers. In current market conditions, the restated bids effectively ensure that such bids don’t receive capacity obligations and inappropriately suppress the clearing price.
Responding to criticism of the rule, Bowring said he has “yet to hear one iota of evidence” of it hurting market participants. “It’s very much not a sledgehammer; it’s very much a scalpel,” he said.
Barron questioned the timing of concerns. “We didn’t have a minimum offer price rule for renewables. … Why do we suddenly care about it when it’s nuclear?”
She noted that the ZEC payments can adjust downward to reflect changing market conditions, but Bowring countered that they never adjust negatively to pay consumers back.
“Clearly, there’s an efficient way to deal with carbon,” he said. “This is an inefficient way to handle it.”
Barron said the programs allowed states to prevent backsliding on emissions levels until they can develop long-term policies.
“Versus the replacement cost of bringing on new generation that’s clean, [the ZEC payment] is a bargain,” she said. “It’s cheaper to keep them than to let them go. … You need to have an objective way to value what you care about, and once you do that, you let the chips fall where they may.”
Plants that still can’t cover their costs after receiving carbon valuations should then retire, she said.
Taylor said his company is not interested in developing renewable resources because the field has “too many players in it right now” and remains “real estate heavy.”
Andrew Rosenbaum, a managing director at RBC Capital Markets, agreed that renewables can’t support themselves.
“No one’s really building merchant renewables,” he said. “How many of the various support mechanisms do you get your arms around is an interesting question.”
Jim Guidera, who heads Credit Agricole CIB’s energy and infrastructure group, noted that potential for corporate taxes reductions under President Trump has made it harder to make deals because there could be less benefit for writing off failed projects.
“Elections matter,” he said. And with gas remaining at low prices, “it’s a tough model.”
That low gas is stifling innovation, according to Abe Silverman, deputy general counsel at NRG Energy.
“When prices are high, we incent creativity and we incent innovation. With the shale gas revolution, the price to beat is too low right now,” he said. “I think we need to raise the price to drive decarbonization.”
Silverman debated with Scott Vogt, vice president of energy acquisition at Commonwealth Edison, over who should control engagement with end-use customers. With incumbent utilities solely allowed to consolidate charges into a single bill, “we’re basically competing for one line on the bill,” Silverman said.
Vogt countered that retail suppliers are able to send separate bills if they prefer and in fact asked utilities to bill for them.
