Page 1281 – RTO Insider

August 15, 2017

PJM Market Implementation Committee Briefs: Aug. 9, 2017

VALLEY FORGE, Pa. — Going into last week’s Market Implementation Committee meeting, it appeared that PJM and its Independent Market Monitor would not find common ground regarding several changes to Manual 11 in preparation for implementing intraday offers on Nov. 1. (See “Revision on Intraday Offers Postpones Vote,” PJM MIC Briefs: July 12, 2017.)

“I don’t believe we are going to come to agreement on [the differences], so even if we delay the vote until next month, there is still going to be a difference of opinion,” said PJM’s Lisa Morelli.

But stakeholders pressed the sides to coalesce around a proposal, which resulted in PJM and Monitor staff — along with Calpine’s David “Scarp” Scarpignato — huddling during a break to hash out their dispute. The outcome is expected to be available for the Markets and Reliability Committee meeting on Aug. 24.

The issues were twofold: first, whether or not generators’ ability to “opt in” to utilizing intraday offers must be enunciated in their fuel-cost policies; and second, how to apply offer caps when a unit decides to change its offer after it has already received a commitment and failed the three-pivotal-supplier test.

Later in the meeting, IMM staff member Joel Romero Luna detailed differences with PJM on the triggers for updating price- and cost-based offers. The Monitor argued that they need to be updated simultaneously, even if the generator only wishes to update one, and the fuel-cost policy must specify the events that will trigger an update. If both offers did not have to change at the same time, it would permit the exercise of market power, the Monitor said.

“The point of intraday offers is to ensure that the current market value of gas is reflected in power prices. If the cost of gas goes down during a day and the generation owner does not have to reduce the offer, then the result is the exercise of market power,” Monitor Joe Bowring said. “If the generation owner opts for flexibility, which we think is a good idea, flexibility must reflect both increases in gas costs and decreases in gas costs.”

The Monitor also argued that all market-power mitigation analysis and approval should keep up with offer updates, but PJM said those revisions would require additional Tariff changes that might not receive FERC approval by the necessary Nov. 1 implementation date. PJM’s revisions, staff argued, could be implemented immediately. The Monitor’s changes would also require additional software changes, Morelli said.

PJM hoped to have its revisions approved and then work with the Monitor on its revision requests, but stakeholders asked that the two staffs resolve their differences before taking a vote.

“You can get it together now, or let’s go straight for guns and lawyers,” said Ruth Ann Price of the Delaware Division of the Public Advocate office. She expressed worry that no process had been defined or agreed upon to address the Monitor’s concerns if the PJM revisions were endorsed, and about the costly and time-consuming process involved in filing an action at FERC that could impede the smooth implementation of intraday offers.

Scarp said it was important that any additional changes be discussed through the stakeholder process and not be a “grand bargain” between PJM and the Monitor. Morelli said any changes would be presented as an expedited problem statement and issue charge.

The Monitor’s position received some pushback from generation owners.

“I think that if [an offer is] not mitigated, I shouldn’t have to have people sitting around, making work for them, just to appease [the Monitor] just because we made a market decision,” American Electric Power’s Brock Ondayko said.

UGI’s Gil Crystle questioned why price- and cost-based offers should be linked in the fuel-cost policy for simultaneous updating, as price-based offers can be adjusted for little more reason than just trying to get dispatched. “My price-based offer, I can change that all day long for no apparent reason, right?” he asked. “There can be a scenario where I don’t even care. … I’ll take whatever the market bears.”

Following the conclave, the sides agreed to defer the MIC vote until September’s meeting but work together to have the single proposal prepared for the August MRC meeting. The MRC vote will be held at the September meeting. The proposal will include all revisions that both sides agree can be implemented by the Nov. 1 deadline. They will also present Tariff and manual changes that both sides agree on, but that PJM believes will require FERC approval for implementation. The Monitor will present a problem statement and issue charge in September or October for the “opt in/opt out” changes on which PJM does not agree.

In a related disagreement, PJM and the Monitor also outlined their differing Manual 11 revisions for energy market offer verification. PJM’s revisions would limit offers to a hard cap of $2,000/MWh for dispatch and setting LMPs. Only cost-based offers would be allowed to exceed $1,000, and all but those that set LMPs would require verification. The Monitor acknowledged verification is essential and raised a list of issues with PJM’s proposal focused on the inadequacies of PJM’s approach to verification.

PJM is also removing references to offer capping and market-power mitigation from Manual 28, as they are now in Manual 11.

Fuel-Cost Policy Update

As part of the preparation for implementing intraday offers on Nov. 1, PJM and IMM staff have been working with generators to get fuel-cost policies reapproved. Policies were submitted in May to conform with recently implemented analysis changes. (See PJM Monitor Rejects Fuel-Cost Policies for 11% of Units.)

Staff from PJM and its Independent Market Monitor huddle during a break during the meeting to agree on a plan for proposing revisions necessary to implement intraday offers by the FERC-imposed Nov. 1 deadline | © *RTO Insider*

Romero Luna said 56% of units passed Monitor evaluation for Nov. 1. Among the failed submissions, some only required minor changes such as formatting, while others required major changes to conform with the new rules regarding intraday offer updates. The policies requiring major changes are “all gas units, basically,” Romero Luna said.

PJM’s Jeff Schmitt also outlined changes that the RTO is requesting for fuel-cost policy submissions, such as indicating if the variable operations and maintenance, emissions or 10% adders are used in cost-based offers.

“You’ve got to think through how you’re going to create a $1,000 offer and above,” he said.

IMM Problem Statements Approved

Stakeholders endorsed by acclamation two problem statements and issue charges proposed by the Monitor. (See “IMM Presents Problem Statements on Transmission,” PJM MIC Briefs: July 12, 2017.)

The first set addresses what the Monitor believes is the need for clear rules governing the use of transmission penalty factors in setting prices in the PJM energy market when there is locational scarcity.

The second addresses market path/interface pricing point alignment, calling out situations that can arise when market participants submit transactions that are not consistent with actual physical power flow. Market manipulation results when scheduling is inconsistent with actual power flows, Bowring said. “There’s not an explicit rule” covering the issue, he said. “There needs to be a clear rule for the benefit of those entering transactions, for other market participants and to ensure that market power is not exercised.”

— Rory D. Sweeney

August 15, 2017

MISO Market Subcommittee Briefs: Aug. 10, 2017

MISO stakeholders last week laid out what they think are the top issues the RTO should tackle in the next year.

A “Top 10” project list emerged after stakeholders ranked 34 market modification proposals in the RTO’s annual Market Roadmap process, MISO Senior Manager of Market Strategy Mia Adams said during an Aug. 10 Market Subcommittee meeting.

Stakeholder scoring results still have to be tallied alongside staff weightings to arrange what market projects the RTO will eventually undertake first.

“This is not a prioritization yet. We’ll come back again this fall with an updated work plan,” Adams said. “However, it does look like [staff and stakeholders] are in pretty good alignment this year, more so than last year.”

This year, MISO limited stakeholders’ scoring to a maximum of four “high” and six “medium” priority designations, with an unlimited number of “low” and “do not pursue” designations. This year’s market project candidates included proposals outlined in the Independent Market Monitor’s annual State of the Market report. (See MISO, Stakeholders Embark on Market Roadmap Rankings.)

Rising to the top of stakeholder priorities: energy storage. Sixty-one market participants with voting rights determined that the most pressing issue for the market is defining a new resource type to accommodate the unique qualities of energy storage. During a special storage workshop last month, stakeholders asked MISO for a storage market definition. (See MISO Rules Must Bend for Storage, Stakeholders Say.)

Three other issues earned high priority from stakeholders:

Creating an automatic generation control software enhancement that deploys fast-ramping resources more quickly. MISO currently estimates that software can be operational in late 2019;
Introducing multiday financial commitments (See MISO Exploring Multiday Market.); and
Better modeling of MISO’s approximate 40 combined cycle generators worth 29 GW, which was first requested by market participants in 2011 and is currently in a benefit analysis and design option phase. The new modeling could save an annual $14 million to $34 million in production costs, according to MISO’s Yonghong Chen, but won’t be ready until 2020.

Market improvements recommended by Monitor David Patton took four of the six medium-priority designations in final stakeholder scoring:

Setting up short-term capacity pricing and reliability standards so energy can be provided within 30 minutes when needed to manage capacity needs;
Factoring seasonal needs and risks into the capacity auction;
Refining modeling and rules so demand response and storage resources “operating across multiple buses” can aggregate to meet a minimum megawatt participation limit;
Expanding conditions and temperature-adjusted transmission ratings into MISO’s Energy Management System;
Creating a virtual spread product; and
Incentivizing frequency response service.

MISO will release its final Market Roadmap by December.

Five-Minute Settlements Delayed?

Several stakeholders have asked MISO to consider pushing back the March 1, 2018, target for implementing the five-minute settlements calculation. (See “Five-Minute Settlements BPM due in Summer,” MISO Market Subcommittee Briefs.)

MISO’s Market Subcommittee meeting underway | © *RTO Insider*

Northern Indiana Public Service Co.’s Bill SeDoris said his company is still awaiting Business Practices Manual language while it works to implement five-minute settlements, and could miss the deadline while still making software and mechanical adjustments. DTE Energy’s Nick Griffin agreed.

“We are hearing from folks the same concern,” said MISO Executive Director of Market Design Jeff Bladen. “We are still subject to a FERC order. … We can ask for an extension, but we have a FERC order that we have to comply with. That said, we can only do what everyone is feasibly capable of.”

Bladen said MISO has already requested a later implementation date than other RTOs, but it will further discuss the possibility of an extension during the September Market Subcommittee meeting. He said MISO still has a team working to create five-minute settlements rules, but the work, originally due in early summer, has been delayed. It is also working on identifying units that habitually deviate from setpoint instructions, he said.

Mississippi Trading Hub

MISO has used geometric analysis to identify 159 electrical pricing node candidates to comprise Mississippi’s own commercial trading hub, said Michael Robinson, principal adviser of market design.

The nodes are located in both the MISO South and Southern Mississippi Electric Power Association territories, Robinson said. All other MISO trading hubs contain at least 100 electric pricing nodes, and the RTO’s analysis considered 622 possible nodes.

The proposed hub, the first MISO hub in the state, will be rigorously stress-tested over the next two months before final recommendation is made at the October MSC meeting, Robinson said. The RTO hopes the new hub will go live before the end of the year. (See MISO Examines Potential Mississippi Trading Hub.)

Market Reopen Incident

Stakeholders also asked why MISO had to briefly reopen its day-ahead market after market close on July 26.

MISO Executive Director of Strategy Shawn McFarlane called the reopening a “market participant issue.”

“To not correct this issue would have caused all other sorts of issues in the market,” McFarlane said, adding that the error fell into the “broad category” of data-entry errors. He declined to provide any other details.

Tariff changes made last year enable MISO to extend or reopen the day-ahead market to address technical problems. (See “Day-Ahead Market Extension to be Written into Tariff,” MISO Market Subcommittee Briefs.) Stakeholders asked MISO officials for a future presentation describing under what scenarios MISO may reopen the market. Bladen said MISO could put together a presentation for the September MSC meeting.

— Amanda Durish Cook

August 15, 2017

ERCOT, Regulators Discuss Need for Pricing Rule Changes

By Tom Kleckner

AUSTIN, Texas — Industry experts and ERCOT stakeholders and staff jammed the Texas Public Utility Commission’s hearing room Friday for the first of several discussions on scarcity pricing and other price-formation issues in the grid operator’s energy-only market.

The PUC workshop was called to discuss a report commissioned by independent power producers NRG Energy and Calpine, which asserted that subsidized renewable resources, socialized transmission planning and the lack of local scarcity pricing have “exposed areas where there is a need for adjustments” to the ISO’s pricing rules. (See PUCT Workshop to Address ERCOT Market Improvements.)

Some participants were not convinced of the need for the session.

ERCOT scarcity pricing PUCT — Luminant’s Amanda Frazier questions William Hogan | © *RTO Insider*

Amanda Frazier spoke for Luminant, the state’s largest generator, when she wondered aloud what ERCOT market problem needed to be solved. “We don’t believe the question was answered,” said Frazier, vice president of regulatory policy for Luminant parent Vistra Energy.

The report, “Priorities for the Evolution of an Energy-Only Electricity Market Design in ERCOT,” recommends several market improvements, including adjusting the operating reserve demand curve (ORDC) and adding local scarcity pricing, to address intermittent renewables and improve incentives for generators.

“Fundamentally, we don’t see the system as broken,” said Harvard University’s William Hogan, who cowrote the report with FTI Consulting’s Susan Pope. “We tried to look at those issues … scarcity pricing and related subjects, that might be considered further. They’ve been discussed in the past and postponed, but now might be a good time to look at them.”

Commissioner Ken Anderson agreed with the report’s conclusion that the ERCOT system isn’t broken.

“It’s been six years since we went to the nodal system,” Anderson said. “I think it’s a good time to see whether we need any material improvements to the system, and what the costs and benefits to the system are.”

Unlike RTOs in the East, ERCOT does not run a capacity market, which pays generators to keep their plants ready to run. The Texas grid relies on price spikes during scarcity events — currently capped at $9,000/MWh — to incent the construction of new plants and maintenance of aging facilities.

However, ERCOT’s nearly 20 GW of wind generation and an expected wave of solar generation threaten to push the grid’s coal- and nuclear-fired generation out of the market. Investment firm Tudor, Pickering, Holt & Co. has said all but two of Texas’ 15 coal plants are losing money.

Still, scarcity pricing is “working just as designed,” Hogan told the commissioners as he and Pope reviewed their report with the PUC.

“You’ve been fortunate in that you have a lot of capacity and short-term load growth,” Hogan said. “Scarcity pricing has been pretty small, which should happen. It’s working … but the other side of story is it’s not been severely tested.”

“If someone asked me today what’s the biggest problem with our market, it would be that we have too much power,” Commissioner Brandy Marty Marquez said. “We do have so much surplus.”

David Patton, president of Potomac Economics, ERCOT’s Independent Market Monitor, cautioned against relying on the generation surplus. The ISO has said it has 81.6 GW of capacity available this summer, more than enough to meet a projected demand peak of 72.9 GW.

“It can be easy to have a false sense of security and think you have this big surplus. Then, all of a sudden, a couple of units retire and there’s no surplus any more, in the span of a year,” Patton said. “It’s pretty clear to me there are resources in Texas under extreme economic pressure. If operators decide it’s not worth it to continue losing money, you’ll see the surplus disappear.”

Patton reminded the commission of the Monitor’s recent State of the Market report, which listed co-optimizing energy and ancillary services among seven proposed market improvements. The report suggests using a local reserve product, such as the 30-minute reserves used by other RTOs, and considering including marginal losses in LMPs. (See ERCOT Monitor: Optimizing Energy, A/S Top Priority.)

“Implement software to better commit peaking resources more economically,” Patton said. “Whatever you do to try and solve the RUC [reliability unit commitment] problem with regard to pricing, it’s probably much less if you economically commit those units and assist participants with committing those units in a short time frame.”

Patton has a supporter in Golden Spread Electric Cooperative’s Mike Wise. The co-op’s s senior vice president of regulatory and market strategy, who has railed against the use of RUCs in both ERCOT and SPP, said it has supported a local reserve product since 2013.

“Additionally, Golden Spread has had positive experiences with real-time co-optimization in [SPP] and is optimistic ERCOT can realize significant benefits from implementation of that feature as well,” Wise said. “An effective marginal-loss methodology helps achieve the best price signals in an organized wholesale electric market.”

Vistra’s Frazier disagreed.

“We’re concerned with Dr. Patton’s suggestions that we should make major changes to the wholesale market just because economists generally think they are good ideas, without assessing the costs and benefits of those changes,” Frazier said. “This is particularly the case since all three experts admitted that they had not performed any studies to evaluate the impacts of implementing marginal losses in ERCOT,” she said, referring to Patton and the study’s authors.

Assessing the costs and benefits of implementing real-time co-optimization and scarcity pricing has been left to the ISO. Staff has already estimated it will take at least $40 million and up to five years to deploy co-optimization, citing the project’s complexity and scope: It would affect 13 ERCOT systems. Staff have yet to define requirements or develop a design, and face months of testing and market trials.

“It’s a large-scale, high-impact project. It impacts multiple core systems of ERCOT,” said Chad Seely, ERCOT’s general counsel and corporate secretary. “A large assumption here is if the commission decides to move forward with real-time co-optimization, we would still work on other projects while also working on real-time co-optimization.”

“I had hoped this was a simpler process, given that other RTOs have done it,” Anderson said.

Seely told the commissioners ERCOT would likely have to rely on outside consulting to quantify the benefits of the proposed market improvements.

“I’m not sure how I think about that,” Anderson said. “I’m a little hesitant to launch off on a project of this magnitude and complexity, particularly based on ERCOT’s view that this is a four- or five-year project and a $40 million cost.”

“On the other hand, if you have too many more $50 million [reliability-must-run contracts], that load could have already bought [the project],” Marquez pointed out, referring to a costly RMR contract in Houston that recently ended. (See ERCOT Ending Greens Bayou RMR May 29.)

Implementing scarcity pricing would be a project similar in cost and scope as the co-optimization initiative, staff said. Kenan Ögelman, ERCOT’s vice president of commercial operations, said staff have discussed marginal losses and locational reserves with NYISO and ISO-NE. ERCOT has promised further information on co-optimization and scarcity pricing before the PUC’s Oct. 12 open meeting.

Anderson also asked Patton to file with the PUC a document that would put “meat on the bones” of his proposal to address RMR issues with a local reserve product.

The workshop was the first of at least two, although the next session has yet to be scheduled. Several stakeholders took advantage of the opportunity to question Hogan, Pope and Patton. Stakeholders also have been promised a chance to present their cases for and against the market recommendations.

The two commissioners — a third is not expected to be appointed until Texas’ current special legislative session ends — will take up the issue again at their next open meeting Thursday. PUC staff said they would resubmit their May 31 request for comment, which includes a list of questions for stakeholders, as a starting point in the docket (No. 47199).

“I want to chew on this cost and benefit analysis,” Anderson said. “I’m inclined to believe there are proposals, or changes or modifications, that make a lot of sense. The question is, what foundation do we need to build or support a decision like that?”

August 15, 2017

Q2 Good Collectively for Top 30, but Only Half Post Gains

By Peter Key

The RTO Insider Top 30 collectively had a good second quarter, but nearly half the companies turned in worse bottom-line performances than a year ago.

The Top 30’s total income rose 18.1% to $5.9 billion on an 8.2% increase in revenue to $75.4 billion. In all, 26 companies were profitable in the quarter, but only 16 saw their income rise from a year earlier. Eleven posted income declines, one — Great Plains Energy — swung to a loss, and two saw their losses increase.

Sempra Energy posted the largest percentage increase in net income, earning $248 million in the quarter, up from only $27 million the year prior.

On an adjusted basis, Sempra’s earnings increased to $276 million from $200 million the year before. Excluded from the calculations for the last quarter were a $47 million impairment of Sempra Mexico’s Termoeléctrica de Mexicali assets and $28 million in recoveries related to a permanent release of pipeline capacity. Also excluded were $123 million in losses from the release of pipeline capacity at Sempra LNG & Midstream and about $60 million in deductions related to a 2016 rate case at its California utilities.

earnings RTO Insider Q2 2017 — | *Company Filings*

Pacific Gas and Electric posted the second largest percentage increase in net income, nearly doubling profits to $406 million. In its earnings press release, the company attributed the gain to two rate cases.

NextEra Energy had the third largest percentage increase at 47%, as its net income rose to $793 million. CEO Jim Robo attributed the gain primarily to new investments at the company’s Florida Power & Light and NextEra Energy Resources subsidiaries.

Company	Market Cap ($ billions)	Revenue Q2 2017 ($ billions)	% change vs. 2016	Net income Q2 2017 ($ millions)	% change vs. 2016
Alliant Energy Corp	$9.6	$0.77	13.23%	$94.30	12.40%
Ameren Corp	$14.1	$1.54	7.78%	$193.00	31.29%
American Electric Power Co Inc	$34.7	$3.58	-8.13%	$375.00	-25.31%
Avangrid	$14.4	$1.33	-7.51%	$120.00	17.65%
Berkshire Hathaway Energy Co	NA	$4.55	10.51%	$574.00	7.09%
Calpine Corp	$5.0	$2.08	79.04%	$(216.00)	NA
Centerpoint Energy Inc	$12.4	$2.14	36.15%	$135.00	NA
CMS Energy Corp	$13.3	$1.45	5.69%	$92.00	-25.81%
Consolidated Edison Inc	$25.3	$2.63	-5.76%	$175.00	-24.57%
Dominion Resources Inc	$49.7	$2.81	8.28%	$390.00	-13.72%
DTE Energy Co	$19.4	$2.86	26.22%	$177.00	16.45%
Duke Energy Corp	$60.0	$5.56	6.56%	$686.00	34.77%
Edison International	$25.9	$2.97	6.77%	$278.00	-0.71%
Entergy Corp	$13.7	$2.62	6.33%	$409.92	-27.74%
Eversource Energy	$19.6	$1.76	-0.25%	$230.75	13.31%
Exelon Corp	$36.0	$7.62	10.32%	$80.00	-70.04%
FirstEnergy Corp	$14.3	$3.31	-2.71%	$174.00	NA
Great Plains Energy Inc	$6.7	$0.68	1.76%	$(22.10)	NA
NextEra Energy Inc	$69.1	$4.40	13.77%	$793.00	46.85%
NiSource Inc	$8.6	$0.99	10.37%	$(44.40)	NA
NRG Energy Inc.	$7.8	$2.70	20.15%	$(626.00)	NA
OGE Energy Corp.	$7.1	$0.59	6.35%	$104.80	46.57%
PG&E Corp.	$35.4	$4.25	1.94%	$406.00	97.09%
Pinnacle West Capital Corp	$9.9	$0.94	3.19%	$167.44	38.03%
PPL Corp	$26.4	$1.73	-3.36%	$292.00	-39.54%
Public Service Enterprise Group Inc	$23.0	$2.13	11.97%	$109.00	-41.71%
Sempra Energy	$29.0	$2.53	17.49%	$248.00	818.52%
Wec Energy Group	$20.1	$1.63	1.84%	$199.10	9.76%
Westar Energy Inc	$7.2	$0.61	-1.95%	$72.07	-0.38%
Xcel Energy Inc	$24.5	$2.66	8.78%	$227.26	15.48%

Totals		$75.4	8.24%	$5,894	18.56%

NOTE: No % change is listed for net income if either the current quarter or previous year was a loss.

All wasn’t tangerines and cream for NextEra during the quarter, however, as the company had its attempt to acquire Oncor rebuffed a third and final time by Texas regulators. (See NextEra Seeks $275M Fee for Failed Oncor Bid.)

FirstEnergy posted the largest earnings gain in dollars during the quarter, rebounding from a loss of $1.1 billion in the second quarter of 2016 to post a net income of $174 million. Despite the improvement, CEO Chuck Jones declared during the company’s earnings call that he thinks the “country is heading for a disaster” because of its heavy reliance on natural gas for power generation. (See FirstEnergy CEO Says Country Heading for Natural Gas ‘Disaster.’) FirstEnergy’s large loss last year was because of the closure of five uneconomic coal plants; it says it is getting out of the competitive generation business.

NRG Energy lost the most money ($626 million) in the quarter and saw its loss increase the most ($433 million). It actually earned $93 million from continuing operations, however, and in its earnings conference call, CEO Mauricio Gutierrez expressed optimism about the lawsuits against the zero-emission credit programs in New York and Illinois in which the company is a plaintiff, even though both were dismissed last month. Appeals are pending. (See NRG CEO Hopeful About ZEC Suits, Company Future.)

Calpine posted the second largest loss, $216 million, after losing $29 million in the second quarter of last year. The Houston-based merchant generator had an adjusted profit of $419 million in the quarter, and Bloomberg reported that it was in talks to be acquired. (See Q2 2017 Earnings Briefs.)

Exelon, which stands to benefit from the ZEC programs if they are upheld, posted the largest decrease in net income, dropping 70% to $80 million, because of a $250 million loss from its generation division. (See Exelon Confident on ZECs; Will Seek PJM Changes.)

August 14, 2017

ERCOT Board of Directors Briefs: Aug. 8, 2017

Rising natural gas prices will likely mean an end to ERCOT’s all-time low energy prices, according to the Independent Market Monitor’s midyear review of the Texas grid operator’s market.

ERCOT board of directors natural gas prices — IMM Director Beth Garza | © *RTO Insider*

IMM Director Beth Garza told the ERCOT Board of Directors last week that real-time prices are up almost 40% over the first half of 2016, averaging $28.50/MWh, compared to $20.41/MWh during the same time last year.

The load-weighted average for all of 2016 was $24.62/MWh — the lowest ever since the nodal market’s implementation in late 2010. (See “IMM Year in Review: Low Prices, Windy, Lots of RUC,” ERCOT Board of Directors Briefs.)

Garza said the rise in prices is linked to a corresponding increase in gas prices, which have gone from less than $1.70/MMBtu in early 2016 — “The lowest gas prices I’ve certainly seen in my career,” Garza said — to pennies shy of $3/MMBtu this month. Gas prices averaged $2.45/MMBtu in ERCOT last year.

The Energy Information Administration has attributed the rising prices to an increase in exports to Canada and Mexico. The Mexican energy market in recent years has been replacing coal- and oil-fueled generation with natural gas.

The increasing cost of gas has also resulted in a decrease of its use for generation. Gas accounted for 35% of ERCOT’s fuel generation during the first half of the year, down from 44% for all 2016. Coal and wind sources have picked up the slack, increasing to 32% and 21%, respectively, through June, up from 29% and 15% last year.

Garza also noted that price spreads between ERCOT’s cheapest (West) and most expensive (Houston) zones have been increasing as well, from a $4 spread in the first half of last year ($18 to $22/MWh) to $11 through June 2017 ($23 to $34/MWh), because of increased congestion. ERCOT’s top 10 constraints have accumulated approximately $375 million in congestion costs, more than halfway to last year’s total of about $500 million.

“So, [there is] more frequent, more costly congestion going along with those higher prices,” Garza said in summation.

Much of that congestion occurs in the Houston zone. A constraint on a path that imports energy from the north has incurred more than $90 million in costs through the first six months, almost double its $49 million in congestion costs for all of 2016.

The Houston Import Project, a $590 million project scheduled to be completed by summer 2018, is expected to resolve much of the congestion. In the meantime, however, lines being taken out of service to enable construction of new facilities has exacerbated the problem, Garza said.

“I think that’s what we’re seeing this year,” she said.

ERCOT CEO Bill Magness said higher-than-expected congestion in the day-ahead market also resulted in a surplus in the congestion revenue rights (CRR) balancing account. The unexpected balance resulted in a $24.2 million credit to load in June.

Gas Production Affects Texas Grid

Todd Staples, president of the Texas Oil & Gas Association, said fracking and improved technologies that have reduced the cost of natural gas have also made the U.S. the largest producer of natural gas in the world.

Natural gas production has grown almost 30% since 2010, Staples said, with Texas leading all states by accounting for more than 27% of U.S. marketed natural gas production in 2015. The Lone Star State also has 90 Tcf of proven natural gas reserves, 26% of the nation’s total.

“Low-cost natural gas is the reason you’re seeing billions of dollars of capital investment in Texas for today and the long haul,” Staples said. “This capacity is the reason you see the strength of continued planned investment and development in Texas. This infrastructure, what we have in place today and what is planned for the future, is the reason we think we’ll have this continued growth.”

Much of the production takes place in the Permian Basin of West Texas. Staples said he expects “the Permian will be active no matter the highs and lows of the investment market.”

Warren Lasher, ERCOT’s senior director of system planning, said natural gas production, consumption and exports are causing localized growth in electric demand. He pointed to the natural gas extraction in the Permian Basin but also noted industrial demand near Houston and the several LNG facilities being built on the Gulf of Mexico.

“We’re working with providers in the area to ensure we’re meeting their demand,” Lasher said.

He said ERCOT is beginning a study to ensure the existing pipeline capacity can meet demand, given recent changes to both the natural gas system and the ISO’s grid. A 2012 assessment of the Texas region’s natural gas infrastructure found the existing pipeline capacity was sufficient to meet demand, even with the expected growth of natural gas generation capacity.

Recent staff planning studies have not identified any single points of disruption on the natural gas system that would have a significant impact on ERCOT generation capacity, Lasher said.

“It’s not an issue now,” he said, “because there’s so much pipeline capacity in Texas.”

ERCOT on Track to Finish 2017 $5M Under Budget

Magness said the ISO is projecting a $4.5 million favorable variance in net revenues at year’s end, based on current balances and the load forecast for the remainder of 2017. A $3.1 million savings in interest expenses for project funding is $3.1 million under budget because of minimal use of revolving lines of credit.

July’s record-breaking demand helped ERCOT erase $1.3 million of a $2.1 million unfavorable variance in system administration fees. The Texas grid has yet to break 70 GW this summer, “but there’s a lot of August yet,” Magness said.

Staff has forecasted a peak demand of 72.9 GW this summer, which would break last August’s record peak of 71.1 GW. (See Texas Heat Leads to more ERCOT Demand Records.)

While Texas has sufficient capacity to meet demand, more is on the way. Magness said ERCOT had received 306 active generation interconnection requests totaling 67.6 GW — including 30.2 GW of wind generation — at the end of June. The ISO had 19.3 GW of wind capacity in commercial operation as of July 1.

Magness also said the Aug. 21 solar eclipse will have a “likely minimal” impact on the ERCOT region, with much of it in North Texas. Ancillary services and the solar forecast will address the expected effects, he said.

However, the April 8, 2024, eclipse’s line will pass over the middle of Texas. “So that’s something to look forward to,” Magness said.

Board OKS 2 Revision Requests, SCR

The board’s unanimously approved consent agenda included two nodal protocol revision requests (NPRRs) and a system change request (SCR):

NPRR822: Designates the procedure for identifying resource nodes as an “other binding document” instead of a “business practice manual.” It also adjusts the process for handling a retired resource’s nodes by allowing ERCOT to convert CRRs at that node to a different, nearby settlement point.
NPRR833: Adjusts NPRR827’s language to account for the base-case model when ERCOT implements the long-term, automated change affecting point-to-point (PTP) obligation bid clearing. The NPRR updates the day-ahead market optimization engine to address situations where a contingency disconnects a resource node. The engine will pick up the PTP megawatts and distribute them to other nodes, instead of ignoring them in contingency analyses if that PTP sources or sinks at the disconnected point.
SCR792: Allows ERCOT to send consecutive clock-minute average exceedances of balancing authority area control error limits to appropriate entities, and creates a situational awareness display in the information system’s public area showing the exceedances.

— Tom Kleckner

August 14, 2017

SPP Briefs: Week of Aug. 15, 2017

NERC will host a webinar Aug. 25 to help the current members of SPP’s Regional Entity (RE) transition to new compliance authorities.

SPP said last month it would dissolve its RE, addressing NERC and FERC concerns about the RTO’s dual roles as a grid operator and reliability coordinator. Pending approval by the two regulatory bodies, the SPP RE will cease to exist by the end of 2018. (See SPP to Dissolve Regional Entity.)

The SPP RE’s trustees sent a letter to its members Friday, advising them that NERC will issue a formal announcement about the webinar “shortly.”

The trustees said NERC will “improve the quality of the information you are receiving” by managing the transition process going forward. The letter alludes to “confusion and perhaps inconsistent information flowing between you and the other regional entities involved in this transition.”

NERC is working with the 120 registered entities within the SPP footprint to transfer to other REs. It has asked the entities to select a new RE by Sept. 29. All changes must be approved by NERC’s independent Board of Trustees, then filed with FERC for its approval.

Committee Recommends Interregional Project Approval

The Seams Steering Committee last week recommended that SPP’s Economic Studies Working Group (ESWG) approve an interregional project with MISO in South Dakota, following a regional review.

The project, which loops a Split Rock-Lawrence 115-kV circuit into Sioux Falls to relieve congestion on the Lawrence-Sioux Falls 115-kV line, has been endorsed by the RTOs’ Interregional Planning Stakeholder Advisory Committee. The project is shared by the Western Area Power Administration in SPP and Xcel Energy in MISO. (See “Interregional Project Begins Regional Review,” SPP SSC Briefs: June 14, 2017.)

MISO would pay 81.48% of the project’s estimated $6.15 million in engineering and construction costs, with SPP covering the remainder.

Staff said the scope of the ESWG regional review was amended to evaluate opening the 115-kV line between Sioux Falls and Lawrence. However, staff’s analysis found that option did not provide SPP with positive benefits across all sensitivities and could potentially create congestion on different constraints in the area.

The SSC refrained from voting on the project during its Aug. 9 meeting and will wait until the ESWG conducts its vote when it meets this week in Denver.

The SSC and ESWG are directing the regional review. They plan to make a final recommendation to the Markets and Operations Policy Committee in October.

Staff Addressing Historical Congestion on MISO Seam

The SSC also discussed staff’s early draft of a business practice to address historical market-to-market (M2M) congestion on the SPP-MISO seam.

flowgates SPP Regional Entity NERC — | *SPP*

Staff’s proposal, based on SPP’s business practice for non-FERC Order 1000 seams projects, would create a new project type for small, low-cost interregional upgrades with short lead times. These targeted market efficiency projects (TMEPs) would address locations with consistent congestion limiting the ability of lower-cost generation to reach load.

The TMEPs’ benefit determination method would avoid complicated production cost models and simulations, significantly reducing the analysis period and potentially allowing faster project implementation.

Stakeholders noted transmission owners could simply undertake the projects themselves as sponsored projects and suggested aligning the study timeline with the integrated transmission planning process or joint coordinated system plan, as MISO has done.

Staff said it would develop a list of the top 10 flowgates that could potentially qualify for TMEP treatment.

M2M Payments Reverse in MISO’s Favor

Continuing a summer trend seen since SPP and MISO began their M2M process in March 2015, payments between the two RTOs reversed themselves in June, with SPP paying its neighbor almost $644,774 for congestion on flowgates between the two.

Temporary flowgates accounted for most of the congestion, binding for 315 hours. That resulted in almost $1.1 million in M2M settlement charges to SPP, balanced somewhat by $453,321.84 in its favor for 190 hours in binding on permanent flowgates.

SPP has collected $21.7 million in M2M settlements from MISO, with much of that coming during the winter and shoulder months. MISO has collected payments during summer months, although in minimal amounts.

— Tom Kleckner

August 14, 2017

CAISO Launches Generator Interconnection Effort

By Jason Fordney

CAISO said it will kick off an initiative to refine its generation interconnection process later this year as part of an ongoing effort to accommodate renewables and keep its rules updated.

The grid operator is in the beginning stages of its Interconnection Process Enhancements 2018 program but wants to hear from stakeholders about what its scope should be. CAISO spokesman Steven Greenlee told RTO Insider that the enhancements are part of an open interconnection initiative that began in 2013. The initiative in the past has led to minor but useful modifications in the generator interconnection process, and is meant to ensure the process reflects current grid conditions and that rules are updated appropriately.

“It’s not that we have found anything major and are looking to broaden the scope; it’s just an opportunity for stakeholders to bring up things that may need tweaking or exploring more,” Greenlee said.

CAISO interconnection process — CAISO is in Beginning Phases of Interconnection Changes | *First Solar Desert Sunlight Plant Source: Wikimedia*

CAISO said that a future market notice will outline a schedule for the new enhancements, leading up to filing at FERC. In a January 2016 update filed with the commission, the ISO said its “overriding goal has been to tailor its procedures to promote California’s energy goals while ensuring that they continue to be grounded in principles of cost-causation, fairness and non-discrimination.”

The state’s renewable portfolio standard and rapid changes in generation development make it increasingly important to have an efficient interconnection queue process. As a single-state ISO, CAISO must adhere to a more unified set of policy goals compared with other ISOs and RTOs across the country — specifically, the State Legislature setting aggressive renewable generation goals to combat climate change.

Generators Must Comply With CAISO Rules to Interconnect to the Electric Grid | *PG&E Moss Island Plant Source: Wikimedia*

Generation developers that want to connect to the CAISO grid must submit an interconnection request that triggers an ISO interconnection study. One of the most significant problems with the process is that many projects sit in the queue for up to a decade after slowing or stopping their progress. While some of the delays are outside the developer’s control, they can result in the holding of capacity, transmission, deliverability and bus positions that hinder other projects.

In March 2016, FERC approved 10 changes to the interconnection process, including new timelines for projects in the queue. Last year CAISO had 44 projects in its queue — representing 17% of the total — with commercial operation dates more than seven years from their interconnection requests.

The ISO is seeking comments on the scope of the new initiative by Aug. 30.

August 14, 2017

NYISO Study Sees Little Cost Impact from Carbon Charge

By Michael Kuser

A $40/ton carbon charge in New York state would have “a relatively small impact” on customer costs, ranging from a −1% to +2% change in total customer electric bills, according to an analysis released by NYISO and the state Department of Public Service on Friday.

The much-anticipated report by the Brattle Group on pricing carbon into generation offers and reflecting it in energy clearing prices was prompted by the Public Service Commission’s decision to subsidize upstate nuclear plants through zero-emission credits (ZECs). Fossil fuel generators would incur a penalty based on their level of carbon emissions.

The study is meant to develop an approach to value carbon in the wholesale energy market as an instrument of state policy while “providing appropriate price signals to incentivize investment and maintain grid reliability,” NYISO CEO Brad Jones and PSC Chairman John B. Rhodes said in the preface.

Costs and Benefits

Although average wholesale energy prices would increase under a $40/ton carbon adder, about 50% of the cost could be offset by returning carbon revenues to customers; another 18% by reduced prices for renewable energy credits and ZECs; and an additional 23% by “dynamic effects on investment signals,” the report said.

While more economic gains from the program would go to producers than to consumers, customer costs would not rise significantly, the report said. A supplemental carbon charge would increase wholesale electric energy prices beyond the rises prompted by New York’s Clean Energy Standard and the Regional Greenhouse Gas Initiative. However, “returning carbon revenues to customers and other factors would offset most of the customer cost impact. The exact magnitudes are uncertain, but the net impact on customer costs remains relatively small under all assumptions considered.”

The $40/ton adder would reduce CO₂ emissions by 2.6 million tons per year, or 8% of today’s emissions, by incentivizing cost-effective market responses not available through the CES and RGGI alone — and the analysts said the estimate of CO₂ emission reduction “is probably conservatively low.”

Gavin Donohue, CEO of the Independent Power Producers of New York, lauded the report in a statement: “Incorporating the value of carbon into the marketplace ultimately benefits ratepayers and demonstrates that private investment is best for the continued success of New York’s energy markets. Though this process is only in the early stages, what we accomplish here could be a model on the national stage.”

In a blog post, Jackson Morris of the National Resources Defense Council said, “The concept of a carbon adder is laudable and worth exploring. And it has clear potential to cut carbon pollution — but only if the state and NYISO get the design right and, in the process, avoid some important legal and policy pitfalls.”

The report concludes by suggesting topics of further study. For example, market design affects carbon charges, and different designs create new models of revenue allocation and border adjustment. Also implied are potential refinements “to REC and ZEC procurement for allocating the risk of future changes in carbon prices between customers and suppliers,” the report said.

NYISO and the DPS will hold a conference on Sept. 6 to solicit stakeholder feedback on the reasonableness of modeling assumptions, especially their dynamic effects. The report said that although New York has no specific emissions reduction target for the electricity sector, the state’s commitment to reducing carbon emissions from power generation “is expressed monetarily in its ZEC payments to upstate nuclear plants … starting at $43/ton CO₂ today and rising to $65/ton by 2029.”

The ZECs are part of the CES, which mandates reducing greenhouse gas emissions by 40% by 2030, from a 1990 baseline, and by 80% by 2050. It also calls for renewables to meet 50% of the state’s energy needs by 2030.

ZEC Challenges

The Electric Power Supply Association and several of its members had filed suit against New York’s ZEC program, claiming that it intruded on FERC’s authority over interstate electricity sales. A federal judge in New York on July 25 dismissed all claims in the suit, finding the state’s ZEC program constitutional. Earlier in July another federal judge had dismissed similar challenges to Illinois’ program. (See New York ZEC Suit Dismissed.) EPSA has appealed the Illinois ruling and plans to challenge the New York dismissal as well.

Jones previewed the Brattle report in May at a FERC technical conference devoted to the issue of reconciling public policy and wholesale electricity markets in New England, New York and PJM, and also at a congressional energy hearing in July. He said New York hoped to implement the plan in the markets within three years. (See RTOs to Congress: Don’t Lose Faith in Markets.)

PJM also is considering a similar mechanism, while New England has rejected carbon pricing as impractical and overly expensive. (See ISO-NE Two-Tier Auction Proposal Gets FERC Airing.)

Some stakeholders who oppose NYISO’s carbon pricing plan have already questioned the current market design, particularly regarding capacity markets. Before and after the technical conference in May, FERC asked for comment on five potential paths toward harmonizing public policies and wholesale electricity markets, including the path chosen by New York. (See We Read 79 FERC Comments so You Don’t Have to.)

Economist James F. Wilson said the commission should eventually phase out the capacity constructs or convert them to voluntary mechanisms. Cliff Hamal, managing director of Navigant Economics, said “the most fundamental assumption” underlying capacity markets — setting capacity prices based on the cost of building new gas-fired generation — may no longer be valid.

August 11, 2017

Ameren Illinois Criticized for Lowered Energy Efficiency Goals

By Amanda Durish Cook

Environmental and consumer activists Wednesday accused Ameren Illinois of attempting to bypass energy efficiency targets set by the state’s new clean energy law.

The Illinois Clean Jobs Coalition, with Illinois Rep. Elaine Nekritz and representatives from the Citizens Utility Board (CUB) and Natural Resources Defense Council (NRDC), held an Aug. 9 teleconference to criticize Ameren for setting low energy efficiency goals and urge state regulators to reject the utility’s plan. CUB, NRDC and the Environmental Defense Fund filed joint testimony opposing Ameren’s plan, which also attracted criticism from many others (17-0311).

According to a July report from the NRDC, both Commonwealth Edison and Ameren filed their initial four-year energy efficiency plans with the Illinois Commerce Commission, but Ameren’s plan contained lower energy efficiency goals than required by the Future Energy Jobs Act, which includes performance-based incentives that reward utilities for surpassing efficiency targets and penalize them if they fall short. (See Illinois Lawmakers Clear Nuke Subsidy.)

“It’s important to understand that everyone benefits from energy efficiency,” said CUB Executive Director Dave Kolata, who asserted that Ameren provided no evidence, as required, for not being able to meet the goals.

“In essence, they filed a bloated and inefficient plan” by claiming energy efficiency is more expensive, Kolata said. While the NRDC says ComEd’s portfolio meets the new law’s four-year target of 11.8% savings, Ameren Illinois’ plan “does not meet any of its statutory cumulative annual persisting savings targets — all of which were lower than ComEd’s — over the four-year period.”

Under the law, ComEd and Ameren are required to achieve 21.5% and 16%, respectively, in cumulative annual savings through 2030 ― figures that both utilities had to sign-off on, according to Nekritz, chief sponsor of the law.

By 2021, Ameren should meet a 9.8% cumulative persistent annual savings, but the utility is planning for 8.24% savings. If Ameren’s plan is allowed, the utility could gain $36 million in incentives while failing to abide by the law’s requirements, the groups said.

Ameren Illinois President Richard J. Mark vehemently rejected the allegation. “They state that Ameren is seeking a $36 million bonus if we achieve lower goals. This is a false statement. In the unlikely event that Ameren earned the ‘maximum bonus,’ it would amount to approximately $1.3 million in the first year of the plan and $10.1 million in total during the four-year plan.”

Mark noted that the filed plan only covers the next four years and is not an indication that the company won’t reach the 16% target by 2030.

Nekritz said Ameren should not be allowed to “exploit a loophole” and pointed out that Ameren was already given a lower standard in the law than ComEd.

“Just a short seven months later, Ameren is already backing away from their weak commitment. … Ameren broke their word,” Nekritz said. She said while Chicago and Northern Illinois will benefit from electricity savings, Central and Southern Illinois will lose out from Ameren “lowering the goalposts.”

Josh Mogerman, NRDC media director, said the law could add 7,000 jobs annually, boosting the state’s economy by $700 million per year. “Every time I go home to my parent’s in Springfield and see that old refrigerator running in the garage, I’m reminded that there are opportunities all over the state. … Come on, Ameren, don’t let down your customers,” Mogerman said.

Ameren said its plan is tailored to serve its more sparsely populated customer base. “ComEd serves 3.8 million customers within a territory spanning only 11,400 square miles, or 333 customers per square mile. Ameren Illinois serves 1.2 million electric customers in a service territory that covers 43,700 square miles, or 27.5 customers per square mile,” Mark said in a statement to RTO Insider. “There is significantly less energy saving potential in the Ameren Illinois service territory.”

Ameren energy efficiency — Ameren Illinois Service Territory | *Ameren Illinois*

Mark said that Ameren’s plan calls for $112 million in spending annually on low-income programs for the next four years — the maximum allowed under the law. “We’re focusing on assisting moderate- to low-income customers who pay for energy efficiency programs every month and deserve the opportunity to receive the benefits,” Mark said.

The ICC could decide on Ameren’s proposal as soon as early fall.

August 11, 2017

Court Blocks NYPSC Order Barring ESCO Contracts

By Michael Kuser

A New York appellate judge on Wednesday blocked the Public Service Commission from limiting energy service companies’ (ESCOs) ability to contract with low-income people in the state.

The temporary restraining order from Justice Christine Clark, of the Appellate Division’s Third Judicial Department, continues the legal see-sawing on the commission’s efforts to protect poor New Yorkers from paying excessive rates for electricity.

The restraining order will remain in effect pending the court’s ruling on a motion to stay a July 5 state Supreme Court order. Clark ordered the PSC to appear at a show cause hearing on Aug. 23. (New York’s Supreme Court is the trial-level court in the state, with the Appellate Division hearing appeals of its decisions. The state’s highest court is the Court of Appeals.)

Robert Abrams Building for Law and Justice, home of the New York Appellate Division Third Judicial Department | *New York Supreme Court*

Craig Goodman, president of the National Energy Marketers Association, said that Wednesday’s ruling paved “the way for appellate review of the PSC’s efforts before they are implemented. We look forward to participating in the process to gather real data and analysis that can drive policy to achieve New York’s energy goals as opposed to restricting consumer choice based on unsupported claims and faulty numbers.”

“We look forward to the opportunity to be heard by the Appellate Division justices as New York continues to protect consumers and ratepayers from paying too much for their electric and gas service,” PSC spokesman James Denn responded in a statement.

NYPSC energy service companies ESCOs — PSC Chair John B. Rhodes | © *RTO Insider*

On June 30, Supreme Court Justice Henry Zwack ruled that the PSC has “the very broadest of powers” to regulate ESCOs and utility rates, especially when seeking to prevent the overcharging of low-income customers, dismissing a case filed against the commission by NEMA and three ESCOs, as well as a similar suit by the Retail Energy Supply Association. (See Court Backs NYPSC on Regulating Retail Sales.)

The PSC on Aug. 2 had rebuffed a trade group seeking to head off upcoming evidentiary hearings related to the commission’s ongoing investigation of ESCOs. (See NYPSC Pushes Ahead with ESCO Investigation.)