MISO has named a Texas energy executive to head its North Region external affairs division.
Tulloh | MISO
A former public policy vice president at Dallas-based Energy Future Holdings, Brian Tulloh is now MISO’s “primary liaison with members, stakeholders and policymakers in the north footprint.” He will be based in the RTO’s Eagan, Minn., office.
Prior to his four years with EFH, Tulloh spent a decade at TXU Energy in executive positions. He was also a senior energy consultant for consulting firm McKinsey and Co. He has a bachelor’s degree in chemical engineering from Purdue University and an MBA from Southern Methodist University.
Tulloh said he is excited to join MISO, calling the RTO’s collaboration with members and stakeholders “critical.”
MISO spokesman Mark Adrian Brown said Tulloh fills a role previously held by Priti Patel, who became Great River Energy’s new vice president and chief transmission officer last month.
Western Energy Imbalance Market (EIM) participants are generally supportive of CAISO’s plan to account for greenhouse gas emissions of external resources but requested more information on market tools the grid operator plans to implement.
The EIM received about a dozen comments before the July 6 deadline in response to CAISO’s revised draft final proposal for the GHG accounting system.
CAISO must develop a GHG accounting system that enables the ISO market to track and price emissions from all participating resources (such as the Jim Bridger plant shown above) | Pacificorp
CAISO is working with the California Air Resources Board (CARB) to address concerns that the EIM market design is not capturing the climate effects from imports serving ISO load. EIM energy transfers that serve ISO load are subject to CARB regulations, and the air quality agency relies on the ISO’s market data to identify participating resources’ emissions.
CARB’s concern, according to CAISO, is that “the market optimization’s least cost dispatch can deem or attribute low emitting resources to the ISO, but not account for the resulting ‘secondary’ dispatch or backfill of other, possibly higher emitting resources to serve external demand.”
After consulting with market participants, CAISO proposed a “two-pass” market tool to determine which generation resources support EIM transfers serving ISO load. The first pass would determine the optimal schedule across the EIM footprint while not allowing net transfers into the ISO. The second pass would allow transfers into the ISO, limiting each EIM resource’s GHG bid quantity to the difference between the resource’s upper economic limit and the optimal schedule determined in the first pass, according to the ISO.
CAISO is initially planning to implement the two-pass solution only in the real-time market but said it could extend the approach to the day-ahead market.
A group of market participants — including Seattle City Light, Portland General Electric, Idaho Power, Arizona Public Service and PacifiCorp — requested more information on the impacts of the proposal.
The companies said they “believe it is critical to the success of the ISO’s proposal, and the EIM in general, that prices for electricity to serve load outside of California are not inappropriately impacted by this proposed change to the market optimization.”
The group added that it “is not able to assess, however, whether this principle will likely be met based on the current information provided.” The ISO did not provide much detail on price impacts inside or outside California from the two-pass approach, they said.
In separate comments, Seattle City Light said the two-pass proposal “will result in a more accurate accounting of GHG emissions attributable to California, while also preserving the resource-specific cost and GHG attribution components within the [market] optimization.”
The American Wind Energy Association’s California Caucus supported the two-pass solution, as did the “Six Cities” (Anaheim, Azusa, Banning, Colton, Pasadena and Riverside) in a joint filing. “The cities look forward to the outcome of the ISO’s simulations of the two-pass optimization methodology and may identify and comment on implementation concerns based on the simulation results,” they said.
EIM participant PacifiCorp, a non-California entity, was more cautious, saying it “needs additional information and analysis, and greater assurances from the ISO that least-cost dispatch will be preserved and that PacifiCorp’s customers outside of California will not be negatively impacted in an unwarranted way by this change driven by California’s environmental policies.”
The multistate utility said it is concerned that aspects of the proposal will disrupt the market. “Given the complexity of introducing a two-pass optimization, PacifiCorp is concerned that there will be additional unforeseen and unintended consequences associated with this approach,” it said.
CAISO said it will issue a report in the fourth quarter of this year based on simulations analyzing how effective the proposal would be in minimizing secondary dispatch.
The EIM Governing Body and CAISO Board of Governors are Due to Review New GHG Rules in Q1 2018 | CAISO
The EIM Governing Body is due to review the proposal at its meeting Thursday and make a decision in the first quarter of 2018. The CAISO Board of Governors is due to review it in the first quarter of 2018, with implementation expected around fall of next year.
Rhode Island is seeking ways to sustain a recent surge in jobs stemming from the growth of renewable and distributed energy resources.
Clean energy jobs in the Ocean State have increased by 66% since 2014, with more than 15,300 people now working in the sector, according to a recent report from the state’s Office of Energy Resources (OER). Solar employment alone has grown 16% during the past 12 months. Energy efficiency currently represents the largest portion of the clean energy sector, with almost 9,000 workers across the state.
| Rhode Island Office of Energy Resources
In 2014, the state’s legislature established the Renewable Energy Growth (REG) program to promote installation of grid-connected renewables and encourage growth of DERs (Act H 7727). Supervised by the Rhode Island Public Utilities Commission, the REG program is forecast to account for 160 MW of renewable energy development — valued at $390 million — by its 2019 end date.
30-MW Block Island offshore wind installation | Inhabitat
But OER’s 2017 Clean Energy Industry report revealed that the small firms that dominate the distributed generation market are having trouble hiring qualified workers, in part because of the state’s high cost of living, competition and the relatively small number of available college graduates.
State officials are working to improve the sector’s labor situation. The OER is developing a program to provide funding for clean industry interns and another initiative offering free college tuition for state residents. Gov. Gina Raimondo has proposed the Rhode Island Promise Scholarship, which would include two years of free college at the state community college, but funding is contingent on the fiscal year 2018 budget, which has not been enacted.
Because most of clean energy employment is in installation, some initiatives will be aimed at vocational schools and high schools.
‘Real Jobs’
The Real Jobs RI program, for example, brings employers and educators together to design training courses that focus on the skills needed by the industry.
Carol Grant, head of OER, told RTO Insider about several grants her office is seeking under the program. One focuses on fuel delivery and the other works with the University of Rhode Island to enhance its existing fellowship program.
In partnership with the solar PV industry, OER also applied to the Department of Labor and Training for a grant to increase the pipeline of electricians skilled in PV technology and increasing the number of certified salespeople.
Other policy initiatives will facilitate ties between the marine research and development centers at URI and the Newport Naval Base. The OER is already working with the U.S. Navy on clean energy issues.
Other Administrative Efforts
The OER also is supporting legislation that would:
Simplify electrical and building permits by establishing one statewide solar permit application process beginning in 2018.
Extend and expand the REG program, which helps homeowners, businesses, farmers and municipalities pursue renewable energy projects.
Continue the state’s electric vehicle rebate program, which helps reduce costs for residents purchasing EVs.
A separate Brattle Group report commissioned by the OER said the REG program will add close to 500 new jobs to the economy annually from 2016 to 2019 because of construction but provide nearly no net gains between 2020 and 2040. The report notes that “while operations and maintenance jobs grow, they are offset by losses in service jobs resulting from modestly higher electricity prices until late in the period.”
Former FERC Commissioner Colette Honorable has joined Reed Smith as a partner in the law firm’s D.C. office, along with Regina Y. Speed-Bost, former chair of Schiff Hardin’s Energy Group.
The two will join Reed Smith’s energy and natural resources (ENR) practice, “spearheading the firm’s FERC offering,” Reed Smith said in a press release. Debra Ann Palmer, a colleague of Speed-Bost’s at Schiff Hardin, also is moving to the firm’s ENR practice as counsel.
“This addition underscores our commitment to building out our stateside energy offering in order to meet our energy and commodities clients’ needs, which include responding rapidly and proactively to fluid policies, regulations and enforcement initiatives,” said ENR Chair Prajakt Samant. Founded in 1877, Reed Smith has more than 1,700 lawyers in 27 offices in the U.S., Europe, Asia and the Middle East.
Honorable, a former Arkansas Public Service Commissioner and past president of the National Association of Regulatory Utility Commissioners, joined FERC in December 2014 and left June 30 at the expiration of her term. President Trump has nominated Richard Glick, general counsel for the Democrats on the Senate Energy and Natural Resources Committee, to replace her. (See Trump Taps Senate Aide, Former Lobbyist for FERC.)
Former FERC Commissioner Colette Honorable (L) and former Schiff Hardin attorneys Regina Speed-Bost and Debra Ann Palmer (R) have joined law firm Reed Smith to bolster its FERC practice.
Before joining the Arkansas PSC, Honorable served as chief of staff to then Arkansas Attorney General Mike Beebe, and as an assistant attorney general handling consumer protection, civil litigation and Medicaid fraud. She is a graduate of the University of Memphis and the University of Arkansas at Little Rock School of Law.
Speed-Bost, a former FERC trial attorney and adviser to former Commissioner William Massey, is a graduate of Dartmouth College and Georgetown University Law Center.
Palmer, a graduate of Case Western Reserve School of Law, has expertise in natural gas pipeline regulation and Commodity Futures Trading Commission rules, and has represented clients before FERC’s Office of Enforcement.
Dominion Energy announced Monday it will build the second offshore wind project in the U.S.: two 6-MW turbines about 27 miles off the coast of Virginia Beach.
The Coastal Virginia Offshore Wind project, which would be the first offshore project connecting to PJM, follows the 30-MW, five-turbine Block Island Wind Farm off Rhode Island, which went into operation in December.
Dominion Energy Coastal Virginia Offshore Wind Project | Dominion Energy
Dominion said DONG Energy of Denmark will begin engineering and development work immediately on the project. The turbines should be installed by the end of 2020, assuming no delays from weather or protected species migration.
The project will build on preparatory work performed under the Virginia Offshore Wind Technology Assessment Project and be located on a 2,135-acre site leased by the state Department of Mines, Minerals and Energy. Power will be delivered via a buried 34-kV distribution line to a connection point near the Virginia National Guard’s Camp Pendleton.
The state’s site is adjacent to the 112,800-acre site leased by Dominion from the U.S. Bureau of Ocean Energy Management (BOEM), an area with the capacity for 2,000 MW.
“Today marks the first step in what I expect to be the deployment of hundreds of wind turbines off Virginia’s coast that will further diversify our energy production portfolio, create thousands of jobs and reduce carbon emissions in the commonwealth,” said Gov. Terry McAuliffe, who attended the announcement at the Portsmouth Marine Terminal in the Hampton Roads area of Virginia. “Hampton Roads has the ideal port assets and talented workforce to attract and house the offshore wind business supply chain to support not only Virginia’s commercial wind area but also wind farms under development in Massachusetts, New York and Maryland.”
“While we have faced many technological challenges and even more doubters as we advanced this project, we have been steadfast in our commitment to our customers and the communities we serve,” Dominion CEO Thomas Farrell II said.
Left to right: Virginia Governor Terry McAuliffe; Thomas F. Farrell, II, Dominion Energy’s chairman, president and chief executive officer, Francis Slingsby, Dong Energy’s head of strategic partnerships in North America; Paul Koontz, executive vice president and president and CEO – Power Generation Group | Dominion Energy
Dominion lost $40 million in federal grants for the project last year when the U.S. Department of Energy said it wasn’t moving fast enough. In addition, bids on construction came in at about $400 million, almost double Dominion’s $230 million projection. The project was revived after DONG agreed to build it under a fixed-price contract of about $300 million.
Farrell’s comment also seemed an apparent response to critics who had worried that the utility would not develop its wind energy area, which it won in a BOEM lease auction in September 2013. (See Will an Old Utility Learn New Tricks?)
The company’s 2017 integrated resource plan, filed May 1, estimates the cost of offshore wind at $339/MWh, more than triple that for onshore wind ($99/MWh) and almost five times the cost of a 3×1 combined cycle plant ($70/MWh).
The high cost of offshore wind is particularly challenging in Virginia: The state does not have a mandatory renewable portfolio standard nor retail choice, which could create a niche for a green alternative. Despite that, Dominion has set a voluntary goal to obtain 15% of its power from renewables by 2025.
Excluding pump storage (9%), renewables represent 3% of its current capacity.
“We welcome the news that Dominion is making steps to bring offshore wind to Virginia. But this should have happened years ago,” said Mike Tidwell, executive director of the Chesapeake Climate Action Network. “Dominion already lost a federal grant for $40 million for dragging its feet on the project. Will ratepayers have to foot that bill?
“Meanwhile, Dominion continues to push for dangerous climate-warming fossil fuel projects like the Atlantic Coast pipeline, along with the support of Gov. Terry McAuliffe,” he continued. “The offshore wind pilot project is nowhere near what’s needed to bring us to a clean energy economy. If McAuliffe and Dominion were truly serious about helping Virginia become a leader in clean energy, they would stop pushing for fracked-gas pipelines and start focusing on expanding clean energy.”
Eileen Levandoski, assistant director of the Sierra Club’s Virginia Chapter, also criticized the pace of Dominion’s progress. “While the commitment to 12 MW by 2020 is helpful, the crisis we face with climate change demands that Dominion also engage aggressively on the commercial lease area and immediately commit to 400 [MW] by 2022 and 2,000 by 2030,” she said.
Dominion officials say the initial project will test whether the turbines can withstand hurricanes, and that it will not interfere with marine life and whale migrations. If turbine prices continue to decline, a larger project will begin operating by the mid-2020s, they said.
[Editor’s Note: An earlier version of this article incorrectly stated that the Dominion’s offshore distribution line would connect with the utility’s grid near “Marine Corps Base Camp Pendleton,” which is in California.]
Maine Gov. Paul LePage followed through Monday on his promise to veto a solar net metering bill, calling it bad policy that would “result in irrational outcomes.”
LePage | Jim Bowdoin, Maine.gov
The state Legislature passed the bill (LD 1504) with a bipartisan, veto-proof majority June 28. The governor waited to act until the last moment of the 10 business days that Maine provides for a veto.
“This bill is poor policy, and as I have noted many times, net energy billing subsidizes the cost of solar panels at the expense of the elderly and poor who can least afford it,” the governor said in a veto letter to the Legislature. “Even the Natural Resources Council of Maine has acknowledged that net energy billing ‘is not a preferred long-term policy.’ However, rather than moving away from this practice to a more sustainable approach, LD 1504 instead sets net energy billing into statute in perpetuity.”
“[LePage’s] characterizations of the bill are inaccurate,” responded Emily Green, an attorney for the Conservation Law Foundation. “He basically says the bill is going to make net metering long-term policy and that’s clearly not the goal or the intent of the legislation.”
Increased Participation
The bill would continue allowing residents who generate more power than they consume to earn credits for the retail price of that electricity, minus transmission and distribution costs. But it would require the Public Utilities Commission to recommend ways to transition away from net metering before the Legislature convenes in 2019, with solar power generators to be paid less starting in 2018.
Thomas College solar roof in Waterville, Maine | Coastal Enterprises
The bill also raises the cap from 10 to 100 on the number of participants allowed in a community solar venture. It would prohibit utilities from setting new requirements for installing a second meter at homes that already receive credit for energy they produce and put back onto the grid.
Green said the override vote is expected sometime in the last week of July.
“We had the votes the first time through — enough votes to override the veto — assuming we hold on to all the lawmakers who voted in favor the first time around,” Green said. “So I feel optimistic.” But there certainly remains work to be done in contacting our Maine lawmakers to make sure they remain strong in the face of very strong opposition from the governor.”
The legislation passed 105-41 in the House of Representatives and 29-6 in the Senate, giving supporters a cushion of two votes in the House and six in the Senate to maintain a two-thirds vote required for an override.
On the final day of the 2016 legislative session, however, defections by House Republicans allowed LePage to survive an override vote on his veto of a bill to increase the amount of solar-generated electricity in the state’s renewable energy portfolio.
PJM financial traders, who have been complaining for years that RTO rule changes and FERC enforcement have threatened their livelihood, now say they fear that Pennsylvania lawmakers may target them in efforts to close the state’s budget gap.
They say the situation might be different if PJM officials — who knew about a potential tax on virtual trades for nearly a month before bringing it to traders’ attention — had given them enough notice to develop a comprehensive response. Instead, they contend, PJM secretly supported the idea, then withheld that information when alerting stakeholders just weeks before the state’s budget deadline.
PJM has denied supporting the tax and says it followed its normal procedure in the matter.
Traders are hoping to head off the proposed tax this week, as state lawmakers attempt to close a $2.2 billion budget hole that has Standard and Poor’s threatening to downgrade the state’s already low credit rating.
No Rules
The incident has raised questions about when PJM should alert its membership about interactions with other organizations. The RTO currently has no rules on the subject and says that, up until now, stakeholders have always trusted its judgment in such matters.
The controversy also marks another chapter in an ongoing feud between PJM and Shawn Sheehan, president of XO Energy, who has accused RTO staff of bias against financial-sector stakeholders. (See PJM Board Disputes UTC Trader’s Accusations.) Sheehan also is fighting in federal court over FERC’s attempt to collect $42 million in fines and profits for allegedly risk-free up-to-congestion (UTC) trades. (See Traders Deny FERC Charges; Seek Independent Review.)
Pennsylvania State Capitol Building
On June 26, Sheehan sent a letter to PJM questioning its “independence and neutrality” and complaining that RTO officials only belatedly informed traders of the proposed tax. “Virtual transactions have been under attack — throughout the PJM stakeholder process as well as by physical asset owners, load-serving entities, the Independent Market Monitor and now PJM,” he wrote.
Sheehan’s letter cited PJM’s proposals to impose deviation charges on UTCs and reduce the number of biddable locations for them before turning to what he said “appears to be a coordinated effort between PJM senior staff and members of the Pennsylvania state legislature that would result in a gross tax on virtual transactions in PJM.” (See PJM MRC OKs Uplift Solution over Financial Marketers’ Opposition.)
PJM, which said it has consistently opposed the tax proposal, said it was first contacted in January by Pennsylvania legislative staffers seeking general education on its markets.
CFO Suzanne Daugherty told RTO Insider that she receives “dozens” of similar inquiries each month. Alerting stakeholders to all those inquiries would create an “unmanageable” volume of information, she said, so stakeholders have always trusted the RTO’s judgment on what needs to be disclosed to them.
“It is actually very common for PJM to get requests at the state level,” Daugherty said. “We don’t always know that when we’re providing that education, why we’ve been asked for it or what the information might be used for.”
PJM was asked to provide the same information in May but with state Department of Revenue representatives in the room. It then became clear that the state was looking at PJM’s markets as a potential source of tax revenue, Daugherty said.
According to Daugherty, PJM officials told the staffers the RTO opposed any new taxes on its membership and presented them with information — such as potential jurisdictional issues — to support their position. “We thought there might have been some possibility that PJM’s points, along with any other discussions that might have occurred in Harrisburg, had dissuaded them from pursuing any additional tax,” she said.
Daugherty said the issue was then discussed at PJM’s Finance Committee meeting on May 15, although the agenda for the meeting doesn’t list the topic and the RTO has not posted any minutes. Three stakeholders who attended the Finance Committee meeting — GT Power Group’s Dave Pratzon, Gary Greiner of Public Service Enterprise Group and Pennsylvania Assistant Consumer Advocate David Evrard — confirmed the issue was discussed there.
Pratzon said the issue came up when he asked PJM to provide an update. He said he was not certain when or how he first learned of the proposal.
Evrard said PJM reported that it gave “Pennsylvania officials reason to believe that a tax on physical transactions was not feasible, but that whatever the rationale for that position was, it did not apply equally to virtual transactions.” He also confirmed that PJM indicated it was not advocating for the tax.
Narrowed Focus
However, legislative staffers returned in mid-June, announcing they had narrowed their interest to a potential tax on virtual financial transactions, such as UTCs. That’s when Daugherty began alerting financial stakeholders, including attorney Ruta Skucas, who represents the Financial Marketers Coalition.
Skucas said she received a call from Daugherty on June 13 and immediately alerted members of the coalition, including Wesley Allen of Red Wolf Energy Trading and XO General Counsel Carey Drangula. XO arranged a call the following day with Daugherty, who urged the company to contact state legislators “to try to put a stop to this,” Sheehan said in an interview. XO set up meetings with state legislators for the following week to oppose the idea.
Tracy Lawless, a government affairs adviser for XO’s lobbying firm, K&L Gates, said the idea began in the office of Senate Majority Leader Jake Corman (R), whose general counsel is Rik Hull, former counsel to state Public Utility Commissioner and FERC nominee Robert Powelson.
Lawless said the idea was delegated to Sen. Ryan Aument (R), a member of the Senate Finance Committee, whose chief of staff, Jake Smeltz, served as president of the Electric Power Generation Association between 2010 and 2014. Smeltz “was tapped to investigate various revenue ideas based on his industry experience,” Lawless said.
Through Aument’s receptionist, Smeltz declined to comment.
In his letter, Sheehan said that he was told that state officials had determined that although physical transactions could not be taxed — presumably because of federal jurisdiction over wholesale power sales — “virtual transactions could be subject to a levy because they are allegedly only transacted in Norristown, Pa., and allegedly do not have a direct connection to the physical grid.”
Sheehan said members of his company met with members of the legislature the prior week and “were surprised to learn from professional staff that the proposed tax was supported by PJM. There was also some suggestion that a tax on virtual transactions could help fund potential nuclear subsidies.”
Significant Opposition
If some senators remain interested, they seem to be on their own, according to tax opponents. “The House [of Representatives] wants nothing to do with supporting a virtual transaction tax,” Drangula said, relaying information she said she received from XO’s lobbyists.
“Any policy that makes it more expensive to buy or move energy in this state is a bad idea,” said Kevin Sunday, director of government affairs at the Pennsylvania Chamber of Business and Industry. “There’s no doubt higher electricity taxes will have a consumer impact, felt hardest by large industrials who go out and shop for their own power.”
However, financial traders aren’t assuming the idea is a dead letter.
The Republican-controlled General Assembly is struggling to find ways to pay for a $32 billion spending bill it approved last month. On Thursday, Standard and Poor’s said Pennsylvania’s credit rating — already one of the worst among the states — could be reduced further unless it shores up its finances.
On Monday, Gov. Tom Wolf (D) announced he would allow the bill to become law without his signature even though lawmakers haven’t resolved how to pay for it. Republicans previously rejected Wolf’s proposals to raise revenue, which included a tax on Marcellus Shale natural gas production.
“In the coming days, it is my hope that the General Assembly will come together to pass a responsible solution to balance our books,” Wolf said in a statement. “There are many options available to balance the budget in the long term like those I presented earlier this year. Our creditors and the people of Pennsylvania understand a responsible resolution must take real and necessary steps to improve Pennsylvania’s fiscal future.”
“That’s when this potential tax will be considered,” Skucas said. “It’s still very much live, and it will be under consideration.”
“A tax such as this could be dropped into a package of Pennsylvania tax code changes,” Drangula said. “If they were to go that route … we might see this in proposed legislation. … Even if this proposed tax slips through the cracks this time around, that doesn’t prevent it from resurfacing at some point in the future.”
Traders say they want to know why PJM took so long to tell anyone about the tax proposal.
CEO Andy Ott responded to Sheehan’s June 26 letter three days later, calling it “unfortunate” that XO came away with “misconceptions” about the RTO’s position. Sheehan doubled down, forwarding the board an email in which Drangula recounted her interactions with legislative staffers who she said told her they received “support” from PJM for the tax proposal and warned XO that “PJM speaks out of both sides of its mouth.”
In an interview, Drangula declined to name the staffers.
Sheehan also said that he has witnessed PJM staff take one position in private conversations and another one in public discussion.
“We can absolutely attest to that” occurring at least five times in the last four years, Sheehan said. He and Red Wolf’s Allen cited several negotiations involving the Energy Market Uplift Senior Task Force, including one in which they said PJM failed to tell the traders it was going to propose a package opposed to the traders’ interests the following day. On another occasion they said PJM abruptly pivoted from its recommendations in a whitepaper on virtual transactions, supporting an opposite plan at the last minute.
Daugherty echoed Ott’s comment that the traders’ accusation is “unfortunate” but couldn’t provide any explanation for where it might have originated. She and Denise Foster, PJM’s vice president of state and member services, have been involved in every correspondence or interaction on the issue and the RTO’s opposition has always been the message, she said.
According to Daugherty, PJM didn’t alert stakeholders earlier because, prior to mid-June, it wasn’t clear what the tax might look like or who might be affected. PJM has no rules in its Tariff, operating agreement or manuals regarding what or when it must disclose external interactions to stakeholders, she said. She added that PJM doesn’t plan to address this issue with stakeholders at any committee meetings.
“In the 20-plus years that PJM has been an ISO/RTO, we’ve used our judgment essentially without any member questioning of when we engage them on information that we’re sharing with states,” Daugherty said.
‘Core Values’
Sheehan and Allen aren’t satisfied with PJM’s judgment in this case.
“It’s only by word of mouth coming from other market participants that I heard about this when I did,” Allen said. “Otherwise, I wouldn’t have found out about it until XO’s letters to the board.”
Sheehan said part of his motivation for sending the June 26 letter was to raise awareness. Beyond posting the letters, PJM has made no other announcement about the issue either on its website or through communication channels.
“Whatever [PJM’s] five core values are, it seems that they have broken each one of those core values with this matter,” Sheehan said, referring to the RTO’s employee Code of Conduct, which lists as core values integrity, communication, accountability, respect and excellence.
Under communication, PJM staff pledge to “distribute information promptly to all who are affected” and to “proactively share information, expertise, processes and ideas openly and accurately.”
“I don’t remember ever authorizing PJM to negotiate or transact on the behalf of XO Energy,” Sheehan said. “I don’t know what is really true or what is not true, but had there been transparency during the process, we would all know what is true.”
FERC Litigation
In addition to his dustups with PJM, Sheehan has been involved in an expensive fight with FERC over the commission’s demand for $42 million in fines and disgorged profits from a company he previously led, Coaltrain Energy.
Coaltrain is one of at least three firms accused by FERC of market manipulation for profiting on line-loss rebates from what the commission called risk-free UTC trades in PJM (IN16-4). (See Traders Deny FERC Charges; Seek Independent Review.)
Coaltrain maintains that it didn’t manipulate the market, that its trading strategy wasn’t deceptive and that it didn’t engage in wash trades or try to affect market prices. The case is pending in the U.S. District Court for Southern Ohio (2:16-cv-00732).
PJM financial traders, who have been complaining for years that RTO rule changes and FERC enforcement have threatened their livelihood, now say they fear that Pennsylvania lawmakers may target them in efforts to close the state’s budget gap.
Pennsylvania State Capitol Building
They say the situation might be different if PJM officials — who knew about a potential tax on virtual trades for nearly a month before bringing it to traders’ attention — had given them enough notice to develop a comprehensive response. Instead, they contend, PJM secretly supported the idea, then withheld that information when alerting stakeholders just weeks before the state’s budget deadline.
PJM has denied supporting the tax and says it followed its normal procedure in the matter.
Traders are hoping to head off the proposed tax this week, as state lawmakers attempt to close a $2.2 billion budget hole that has Standard and Poor’s threatening to downgrade the state’s already low credit rating.
No Rules
The incident has raised questions about when PJM should alert its membership about interactions with other organizations. The RTO currently has no rules on the subject and says that, up until now, stakeholders have always trusted its judgment in such matters.
Sheehan
The controversy also marks another chapter in an ongoing feud between PJM and Shawn Sheehan, president of XO Energy, who has accused RTO staff of bias against financial-sector stakeholders. (See PJM Board Disputes UTC Trader’s Accusations.) Sheehan also is fighting in federal court over FERC’s attempt to collect $42 million in fines and profits for allegedly risk-free up-to-congestion (UTC) trades. (See Traders Deny FERC Charges; Seek Independent Review.)
On June 26, Sheehan sent a letter to PJM questioning its “independence and neutrality” and complaining that RTO officials only belatedly informed traders of the proposed tax. “Virtual transactions have been under attack — throughout the PJM stakeholder process as well as by physical asset owners, load-serving entities, the Independent Market Monitor and now PJM,” he wrote.
Sheehan’s letter cited PJM’s proposals to impose deviation charges on UTCs and reduce the number of biddable locations for them before turning to what he said “appears to be a coordinated effort between PJM senior staff and members of the Pennsylvania state legislature that would result in a gross tax on virtual transactions in PJM.” (See PJM MRC OKs Uplift Solution over Financial Marketers’ Opposition.)
PJM, which said it has consistently opposed the tax proposal, said it was first contacted in January by Pennsylvania legislative staffers seeking general education on its markets.
CFO Suzanne Daugherty told RTO Insider that she receives “dozens” of similar inquiries each month. Alerting stakeholders to all those inquiries would create an “unmanageable” volume of information, she said, so stakeholders have always trusted the RTO’s judgment on what needs to be disclosed to them.
“It is actually very common for PJM to get requests at the state level,” Daugherty said. “We don’t always know that when we’re providing that education, why we’ve been asked for it or what the information might be used for.”
PJM was asked to provide the same information in May but with state Department of Revenue representatives in the room. It then became clear that the state was looking at PJM’s markets as a potential source of tax revenue, Daugherty said.
According to Daugherty, PJM officials told the staffers the RTO opposed any new taxes on its membership and presented them with information — such as potential jurisdictional issues — to support their position. “We thought there might have been some possibility that PJM’s points, along with any other discussions that might have occurred in Harrisburg, had dissuaded them from pursuing any additional tax,” she said.
Daugherty said the issue was then discussed at PJM’s Finance Committee meeting on May 15, although the agenda for the meeting doesn’t list the topic and the RTO has not posted any minutes. Three stakeholders who attended the Finance Committee meeting — GT Power Group’s Dave Pratzon, Gary Greiner of Public Service Enterprise Group and Pennsylvania Assistant Consumer Advocate David Evrard — confirmed the issue was discussed there.
Pratzon said the issue came up when he asked PJM to provide an update. He said he was not certain when or how he first learned of the proposal.
Evrard said PJM reported that it gave “Pennsylvania officials reason to believe that a tax on physical transactions was not feasible, but that whatever the rationale for that position was, it did not apply equally to virtual transactions.” He also confirmed that PJM indicated it was not advocating for the tax.
Narrowed Focus
However, legislative staffers returned in mid-June, announcing they had narrowed their interest to a potential tax on virtual financial transactions, such as UTCs. That’s when Daugherty began alerting financial stakeholders, including attorney Ruta Skucas, who represents the Financial Marketers Coalition.
Allen
Skucas said she received a call from Daugherty on June 13 and immediately alerted members of the coalition, including Wesley Allen of Red Wolf Energy Trading and XO General Counsel Carey Drangula. XO arranged a call the following day with Daugherty, who urged the company to contact state legislators “to try to put a stop to this,” Sheehan said in an interview. XO set up meetings with state legislators for the following week to oppose the idea.
Tracy Lawless, a government affairs adviser for XO’s lobbying firm, K&L Gates, said the idea began in the office of Senate Majority Leader Jake Corman (R), whose general counsel is Rik Hull, former counsel to state Public Utility Commissioner and FERC nominee Robert Powelson.
Smeltz
Lawless said the idea was delegated to Sen. Ryan Aument (R), a member of the Senate Finance Committee, whose chief of staff, Jake Smeltz, served as president of the Electric Power Generation Association between 2010 and 2014. Smeltz “was tapped to investigate various revenue ideas based on his industry experience,” Lawless said.
Through Aument’s receptionist, Smeltz declined to comment.
In his letter, Sheehan said that he was told that state officials had determined that although physical transactions could not be taxed — presumably because of federal jurisdiction over wholesale power sales — “virtual transactions could be subject to a levy because they are allegedly only transacted in Norristown, Pa., and allegedly do not have a direct connection to the physical grid.”
Sheehan said members of his company met with members of the legislature the prior week and “were surprised to learn from professional staff that the proposed tax was supported by PJM. There was also some suggestion that a tax on virtual transactions could help fund potential nuclear subsidies.”
Significant Opposition
If some senators remain interested, they seem to be on their own, according to tax opponents. “The House [of Representatives] wants nothing to do with supporting a virtual transaction tax,” Drangula said, relaying information she said she received from XO’s lobbyists.
“Any policy that makes it more expensive to buy or move energy in this state is a bad idea,” said Kevin Sunday, director of government affairs at the Pennsylvania Chamber of Business and Industry. “There’s no doubt higher electricity taxes will have a consumer impact, felt hardest by large industrials who go out and shop for their own power.”
However, financial traders aren’t assuming the idea is a dead letter.
The Republican-controlled General Assembly is struggling to find ways to pay for a $32 billion spending bill it approved last month. On Thursday, Standard and Poor’s said Pennsylvania’s credit rating — already one of the worst among the states — could be reduced further unless it shores up its finances.
On Monday, Gov. Tom Wolf (D) announced he would allow the bill to become law without his signature even though lawmakers haven’t resolved how to pay for it. Republicans previously rejected Wolf’s proposals to raise revenue, which included a tax on Marcellus Shale natural gas production.
“In the coming days, it is my hope that the General Assembly will come together to pass a responsible solution to balance our books,” Wolf said in a statement. “There are many options available to balance the budget in the long term like those I presented earlier this year. Our creditors and the people of Pennsylvania understand a responsible resolution must take real and necessary steps to improve Pennsylvania’s fiscal future.”
“That’s when this potential tax will be considered,” Skucas said. “It’s still very much live, and it will be under consideration.”
“A tax such as this could be dropped into a package of Pennsylvania tax code changes,” Drangula said. “If they were to go that route … we might see this in proposed legislation. … Even if this proposed tax slips through the cracks this time around, that doesn’t prevent it from resurfacing at some point in the future.”
‘Both Sides of its Mouth’
Traders say they want to know why PJM took so long to tell anyone about the tax proposal.
CEO Andy Ott responded to Sheehan’s June 26 letter three days later, calling it “unfortunate” that XO came away with “misconceptions” about the RTO’s position. Sheehan doubled down, forwarding the board an email in which Drangula recounted her interactions with legislative staffers who she said told her they received “support” from PJM for the tax proposal and warned XO that “PJM speaks out of both sides of its mouth.”
In an interview, Drangula declined to name the staffers.
Sheehan also said that he has witnessed PJM staff take one position in private conversations and another one in public discussion.
“We can absolutely attest to that” occurring at least five times in the last four years, Sheehan said. He and Red Wolf’s Allen cited several negotiations involving the Energy Market Uplift Senior Task Force, including one in which they said PJM failed to tell the traders it was going to propose a package opposed to the traders’ interests the following day. On another occasion they said PJM abruptly pivoted from its recommendations in a whitepaper on virtual transactions, supporting an opposite plan at the last minute.
Daugherty echoed Ott’s comment that the traders’ accusation is “unfortunate” but couldn’t provide any explanation for where it might have originated. She and Denise Foster, PJM’s vice president of state and member services, have been involved in every correspondence or interaction on the issue and the RTO’s opposition has always been the message, she said.
According to Daugherty, PJM didn’t alert stakeholders earlier because, prior to mid-June, it wasn’t clear what the tax might look like or who might be affected. PJM has no rules in its Tariff, operating agreement or manuals regarding what or when it must disclose external interactions to stakeholders, she said. She added that PJM doesn’t plan to address this issue with stakeholders at any committee meetings.
“In the 20-plus years that PJM has been an ISO/RTO, we’ve used our judgment essentially without any member questioning of when we engage them on information that we’re sharing with states,” Daugherty said.
‘Core Values’
Sheehan and Allen aren’t satisfied with PJM’s judgment in this case.
“It’s only by word of mouth coming from other market participants that I heard about this when I did,” Allen said. “Otherwise, I wouldn’t have found out about it until XO’s letters to the board.”
Sheehan said part of his motivation for sending the June 26 letter was to raise awareness. Beyond posting the letters, PJM has made no other announcement about the issue either on its website or through communication channels.
“Whatever [PJM’s] five core values are, it seems that they have broken each one of those core values with this matter,” Sheehan said, referring to the RTO’s employee Code of Conduct, which lists as core values integrity, communication, accountability, respect and excellence.
Under communication, PJM staff pledge to “distribute information promptly to all who are affected” and to “proactively share information, expertise, processes and ideas openly and accurately.”
“I don’t remember ever authorizing PJM to negotiate or transact on the behalf of XO Energy,” Sheehan said. “I don’t know what is really true or what is not true, but had there been transparency during the process, we would all know what is true.”
FERC Litigation
In addition to his dustups with PJM, Sheehan has been involved in an expensive fight with FERC over the commission’s demand for $42 million in fines and disgorged profits from a company he previously led, Coaltrain Energy.
Coaltrain is one of at least three firms accused by FERC of market manipulation for profiting on line-loss rebates from what the commission called risk-free UTC trades in PJM (IN16-4). (See Traders Deny FERC Charges; Seek Independent Review.)
Coaltrain maintains that it didn’t manipulate the market, that its trading strategy wasn’t deceptive and that it didn’t engage in wash trades or try to affect market prices. The case is pending in the U.S. District Court for Southern Ohio (2:16-cv-00732).
VALLEY FORGE, Pa. — Progress in PJM’s special session of the Market Implementation Committee on distributed energy resources has reached a point where details matter.
Stakeholders spent much of the group’s meeting on Friday clarifying definitions, debating whether certain terms should be used and delineating what is in and out of the group’s scope.
“Just because something’s not in the Tariff doesn’t mean it’s not a defined term used in the business and a good utility practice,” Calpine’s David “Scarp” Scarpignato said. “Some of these are recognized terms from an engineer’s standpoint.”
Among the questions is whether the aggregation rules will focus on grouping small projects to reach the 100-kW minimum for participating in PJM markets or expand to cover grouping multiple larger projects that are at the same site.
“In my mind, we were talking about aggregation mostly to meet that market threshold,” said Drew Adams of A.F. Mensah. “It sounds like the aggregation discussion has expanded a little bit beyond that.”
During the discussion, stakeholders largely agreed that electric distribution companies should retain a substantial amount of control over project approval, such as defining the size, location and type of aggregation projects they will accept.
John Farber of the Delaware Public Service Commission said the group should also decide rules on whether projects can cross distribution service territories. He said it will be important to consider how electric vehicles are handled because definitions that are too restrictive could inhibit their development.
“I’m not sure how these resources are going to develop, but I’m hesitant to develop rules that are too restrictive,” Farber said.
PJM staff also presented an informal poll to determine stakeholder interests in how DER is incorporated into ancillary services markets. PJM’s Andrew Levitt said one consideration will be how much visibility the RTO should have into resources that operate behind a load. When it sells into the wholesale markets, PJM will be able to monitor its performance. However, when it is simply reducing the owner’s load, the current rules don’t provide the same information.
Levitt presented a proposed rule to require submetering of DERs at the resource before it’s tied to the load.
“This is the most substantial change in the whole proposal,” Levitt said. “Your performance of ancillary services would be measured at the DER rather than measured at the point of interconnection, as it would be under the status quo.”
The group has no meetings planned until August, when it will meet three times.
The most significant innovation in FERC Order 1000? Transmission competition.
Where and when transmission competition is properly implemented, it is a staggering success. Consider a recent PJM “window” seeking solutions to reliability and congestion needs.
One such need was relief of high congestion on a transmission corridor between Pennsylvania and Maryland where low-cost natural gas generation from Pennsylvania hits a bottleneck. PJM received 44 proposals from nine separate entities, proposing solutions ranging in cost from $6 million to $192 million.[1]
Before transmission competition, it was like the color of a Model T. You could have any solution you wanted as long as it was the transmission owner’s solution.[2]
And TOs never have had an incentive to find the most cost-effective solution, for reasons brilliantly explained by Montana Public Service Commissioner Travis Kavulla in his recent American Affairs article:[3]
This so-called cost-of-service regulation suggests to the utility that it should spend as much as possible, even when less might do. The barometer for whether an investment is wise for a utility is not capital productivity, but whether expenditures will be disallowed by the regulator. This seldom occurs. Indeed, the legal presumption that governs the arcane, trial-like proceedings of utility commissions is that all utility spending is prudent. A utility earns a return even on the cost of decorating the C-suite.
Investment funds understand this dynamic perfectly. Their analysis often simply celebrates more and more capital investment (“ratebase” or “capex” in industry lingo), with little attention to the underlying value it delivers to customers. One recent investor note by UBS on the New Jersey utility PSEG was titled “More Ratebase Please.”
The other good news about the advent of transmission competition is how little it costs to implement. Last year it cost PJM $451,610 to administer its Order 1000 proposal windows; project sponsors paid proposal fees of $490,000.[4] So PJM stakeholders made money implementing competition.[5]
The bad news is that there is very little of this good thing. The scope of transmission competition has become severely restricted. If you look at the pie chart below, only the palest blue slice — less than 10% of the cost of transmission projects in PJM in 2016 — had competition.[6]
The exceptions to transmission competition have swallowed more than 90% of the rule.[7] The biggest exception — $899 million in PJM last year — is “Supplemental” projects, which by definition are projects that PJM itself does not consider needed. The TOs have the unilateral right to build whatever they’d like, as long as they tell PJM what they are doing.
Under this exception, billions of dollars are being spent based on TO claims of “aging infrastructure,” but no one knows if those billions materially improve reliability. Indeed, a Lawrence Berkeley National Laboratory study found no statistical correlation between transmission (and distribution) spending and reliability.[8]
Obviously, at some age transmission lines would fall down and affect reliability, but there are few instances of that happening. There are many causes of outages (severe weather, lightning, human error, misoperations, and even metallic balloons and squirrels).[9]
This enormous transmission spending beyond PJM’s purview reverses the situation from 10 years ago when the vast bulk of transmission spending in the RTO was what it determined was needed.[10]
The TO exclusives seem to be falling into a regulatory gap, as states seem to assume that PJM is reviewing all this. But PJM only has oversight over Order 1000 projects and “Immediate Need” projects, and only uses competitive windows for the former.
And, unbelievable as it may seem, PJM seems to be the best of the RTOs.
In ISO-NE, “Immediate Need” and other exceptions appear to have swallowed the rule entirely.[11] The section of the ISO-NE webpage listing competitive transmission RFPs is … empty.[12]
In MISO, the allocation of transmission costs was changed so that virtually all transmission projects qualify for the “local” exception. How many projects have been subject to competition? That loneliest number: One.
States (and others) are increasingly concerned about the explosion in transmission costs,[13] but one simple step states could take on their own is to require, as a condition of the state certificate and/or rate recovery process, that all projects costing more than some threshold be subject to an Order 1000 window. FERC could do the same as a condition of cost flow through in FERC-jurisdictional transmission rates. This would not solve the problem of unwarranted projects, but it would help mitigate the carte blanche in spending on such projects.[14]
Bottom line: Transmission competition works great when properly implemented. But it’s been severely limited. We need more of the good thing.
Steve Huntoon is a former president of the Energy Bar Association, with 30 years of experience advising and representing energy companies and institutions. He received a B.A. in economics and a J.D. from the University of Virginia. He is the principal in Energy Counsel, LLP, www.energy-counsel.com.
By the way, there is a right way and a wrong way to implement transmission competition. PJM identifies transmission “needs” and requests proposals to address these needs (the “sponsorship model”). As a result, PJM gets wide-ranging, solution-based proposals (in the example I gave, projects ranging from $6 million to $192 million). In contrast, CAISO identifies specific projects and requests proposals to build those specific projects (the “procurement model”). Thus, CAISO totally misses the opportunity for competitors to offer solutions that may cost a fraction of what the ISO thinks best. ↑
This renders inexplicable an RTO claim that transmission competition is not worthwhile because of “staff headaches.” (See PJM, SPP Chiefs Share Frustration with Order 1000.) When potential savings are in the billions, and the cost of implementation is in the hundreds of thousands, the benefit-to-cost value proposition — at least for customers — is self-evident. ↑
It should be noted that going forward, the exceptions are expanding with the exclusion of facilities below 200 kV and of upgrades to substation equipment (except transformers). So the less than 10% of transmission spend subject to competition will get even smaller. ↑
