ERCOT Technical Advisory Committee Briefs

AUSTIN, Texas — ERCOT’s Technical Advisory Committee last week endorsed a protocol change that incorporates futures prices to estimate forward risk, a change that the ISO says could reduce market-wide collateral requirements by $30 million to $70 million, depending on several parameters.

Under Nodal Protocol Revision Request 800, collateral requirements would be calculated using a ratio of the futures average price to the historic average price. It would be based on the Intercontinental Exchange’s 21-day North Hub price curves.

ERCOT said exchange-based electricity futures market prices are “assumed” to be a better indicator of forward risk than historic ERCOT market prices.

Reliant Energy Retail Services’ Bill Barnes, representing the independent retail electric providers, called the change a “novel approach,” saying ERCOT may be the first electricity market to use this methodology.

“There is no better way to assess forward-price risk than to use the forwards, and that’s what this does,” he said. “It pulls those in and uses them to adjust your historical credit exposure.”

Barnes said the revision request represents two years of work by the Credit Working Group to improve how forward collateral evaluations are working in the protocols. ERCOT’s current methodology uses historical prices in its evaluations.

“In vetting [the current] approach, the working group found there were some pretty severe flaws in how they worked,” he said. “The most accurate way to collateralize future credit risk … [is] what do we think your participant represents as far as a credit risk to the ERCOT market.”

“It’s consistent with how we mark our exposure to the markets,” said Shell Energy North America’s Greg Thurnher. “It seems to make common sense. It seems to be more effective than our previous practices, which essentially look in arrears to anticipate a forward exposure when the seasonality of our market paints a very different picture.”

Luminant cast the lone dissenting vote, saying its opposition to the NPRR was based solely on the implementation costs to ERCOT and individual market participants.

“We estimate costs of up to $300,000 to make changes in our systems, and we don’t see the requisite benefit,” said Luminant’s Amanda Frazier.

Barnes noted the revision request was granted urgency status so that it could be incorporated into an existing release bundle for ERCOT’s credit monitoring and management system.

“That will potentially help streamline the implementation and perhaps lower the cost,” he said.

The change is estimated to cost ERCOT as much as $250,000 to implement. It has the support of the ISO’s Finance and Audit Committee.

Small Municipalities’ Revision Request Tabled for 7th Time

Tom Anson, an attorney representing the Small Public Power Group of Texas (SPPG), was granted a request to table until August his appeal of a rejected revision to the Nodal Operating Guide regarding the definition of transmission owners. This marks the seventh time NOGRR 149’s appeal has been tabled since it was first brought to the TAC last March, shortly after it failed to pass the Reliability and Operations Subcommittee.

The revision would exempt distribution service providers without transmission or generation facilities from having to procure designated transmission operator services from a third-party provider if their annual peak is less than 25 MW. The NOGRR was developed in 2015 to settle the noncompliant status of seven municipally owned utilities, ranging in size from 9 to 21 MW.

Anson said the SPPG has been told it is “trying to make a market where there isn’t one,” and he said one transmission provider told the group it didn’t have “much of an appetite to provide service.” However, he also said the SPPG has four “conceptual” proposals in hand.

“These things take time,” Anson said. “We can’t promise we can turn any of these into a reality, but if the SPPG is willing to invest time and money into the effort with those who are helping them, we’ll see if we can’t turn one of these into not just a potential market solution, but a real market solution.”

Anson said the SPPG would withdraw its appeal should it reach a deal with one of the transmission service providers. He agreed to return to the TAC in May with an update.

ERCOT to Keep Admin Fee Flat Through 2019

Staff told stakeholders the ISO intends to maintain its system administration fee of 55.5 cents/MWh through 2019.

Market participants requested more advance notice of future fee increases during the 2016-17 budgeting process. The fee was raised from 46.5 cents/MWh during those discussions.

Committee Chairs, Vice Chairs Approved

The TAC confirmed its subcommittee leadership for 2017. The chairs and vice chairs are:

Commercial Operations Subcommittee: Chair Michelle Trenary, Tenaska Power Services; Vice Chair Heddie Lookadoo, Reliant Energy Retail Services.
Protocol Revision Subcommittee: Chair Martha Henson, Oncor Electric Delivery; Vice Chair Diana Coleman, Texas Office of Public Utility Counsel.
Reliability and Operations Subcommittee: Chair Alan Bern, Oncor; Vice Chair Boone Staples, Tenaska.
Retail Market Subcommittee: Chair Kathy Scott, CenterPoint Energy; Vice Chair Rebecca Reed Zerwas, Reliant Energy.
Wholesale Market Subcommittee: Chair Jeremy Carpenter, Tenaska; Vice Chair David Kee, CPS Energy.

Stakeholders Vote for More Inclusive Steady State Models

Stakeholders unanimously endorsed a revision to the Planning Guide that modifies the conditions proposed generating resources must meet to be included in steady state working group (SSWG) base cases (PGRR 053).

The change would require only the data provided for full interconnection studies (the standard generation interconnection agreement, applicable permits, notice to proceed and financial security) for including a proposed generation resource in the base case. ERCOT says the current rules, which also require completion of a resource asset registration form, has “created a need to unnecessarily use extraordinary dispatch conditions in the SSWG base cases.” The change will result in more representative generation dispatch scenarios in base cases, the ISO said.

“This lessens that data that’s required,” said ERCOT’s Jay Teixeira prior to including proposed All-Inclusive Generation Resources in the planning models. “Our intention was to pick up every resource that submits a resource form and are in the non-network model.”

The vote came after members struck references to “all-inclusive” generation resources, which had been added by the Reliability and Operations Subcommittee. Stakeholders said the term created confusion.

Katie Coleman, an attorney representing industrial customers, said she is working with ERCOT staff to update NPRR 190, which could help clear up the confusion. The NPRR was withdrawn in 2010 and was designed to add language acknowledging the existence of generation resources that qualify as distributed generation or are self-generators.

Revision Requests, Shadow-Price Cap Change Endorsed

The committee unanimously approved staff revisions to how ERCOT sets shadow-price caps and power-balance penalties under security constrained economic dispatch. The revisions update the shadow-price offer caps from $5,000/MWh to $9,000/MWh, reflecting the ISO’s current value for shadow-price caps.

The TAC also unanimously approved three additional NPRRs, another NOGRR and revisions to the Planning Guide. They will be brought to the Board of Directors on Feb. 14.

NPRR 794: Moves reporting requirements for unregistered distributed generation from the Commercial Operations Market Guide to the protocols. The NPRR was approved in conjunction with COPMGRR 044.
NPRR 805: Clarifies the criteria under which congestion revenue rights (CRRs) account holders can submit multi-month offers for long-term auctions. The months must be consecutive, within the period covered by the auction and during months when the account holder has ownership of the CRR.
NPRR 806: Clarifies that municipalities and cooperatives not participating in ERCOT’s competitive market (non-opt-in entities, or NOIEs) have the option of accepting a refund or capacity for their preassigned CRR-eligible resources. The NOIEs cannot select one option for some months of the year and the other option for the remaining months.
NOGRR 165: Aligns the operating guides with NERC reliability standards to ensure ERCOT and its transmission operators develop plans to mitigate operating emergencies. The plans should address NERC standard EOP-011 (Emergency Operations Planning) requirements and does not include black start or geomagnetic disturbance plans.
PGRR 052: Ensures appropriate operating limits are established when stability studies are performed after a full interconnection study (FIS) has been completed and model data or transmission system changes not available during the FIS become available before the new unit is brought online.

– Tom Kleckner

January 31, 2017

Backlog, Delays Feared as FERC Loses Quorum

By Ted Caddell

The resignation of former FERC Chairman Norman Bay means the agency will be unable to act on major orders and rulemakings for months, although it can continue to issue routine decisions under authority delegated to office directors.

cheryl lafleur ferc — Cheryl LaFleur is now Acting Chair of Federal Energy Regulatory Commission | *FERC*

Bay’s resignation, effective Friday, will leave the agency with just two members — one short of the three-member quorum. While the commission can continue to issue decisions on routine items such as uncontested market-based rate requests, extensions of time and compliance filings, many rulings will be held up until at least one more member is nominated and confirmed.

Bay announced his resignation within hours of the Trump administration’s naming of Commissioner Cheryl LaFleur as acting chair of the agency Thursday. (See related story, Bay Resigns after Trump Taps LaFleur as Acting FERC Chair.)

LaFleur said the commission would work to issue as many orders as possible while it still had a quorum. “I am confident that, with the strong team we have here at the commission, we can continue to do our important work,” LaFleur said in a statement Friday. “We are evaluating how best to do the business of the commission after Commissioner Bay’s departure.”

On Monday, the commission posted an 11-minute Q&A podcast with LaFleur in an attempt to reassure FERC employees and those who deal with the commission.

“We are very focused on the next week” during which the commission will still have a quorum, she said. “Beyond that, we have already confirmed that all of the existing staff delegations that are in place, including such actions as hydro inspections, LNG safety reviews, audits and all the other things that staff does, will continue during the period of non-quorum.”

She noted that staff issues five times as many orders as the commissioners do and said the commission is “thinking about potential expansion of staff’s delegated authority … basing that on past commission orders on the subject and the experience of other [federal] agencies.”

Procedural, Jurisdictional Issues

The commission’s website says “delegated” orders “may serve to determine a procedural matter in litigation. An order also may rule on a jurisdictional issue.”

Carolyn Elefant, a former FERC attorney advisor and lead partner at a D.C. law firm specializing in energy regulatory issues, agreed with LaFleur that much of the work coming out of FERC is done by staff and doesn’t need commission approval.

“Many of the commission’s day-to-day actions are handled through delegated authority to offices like Office of Energy Projects [and] Office of Enforcement,” she said. “The media picks up all of the contested actions, but the large majority of commission actions are routine approvals of uncontested market-based rate requests, extensions of time [and] compliance filings, which will continue as usual.”

But attorney Ken Irvin, co-leader of Sidley Austin’s global energy practice, said the loss of the quorum could mean that many rate filings become effective by default — decisions that he said cannot be appealed.

And law firm Baker Botts said it feared Bay’s departure could mean a growing backlog of cases. “Given the backlog of Trump administration nominees currently pending before the Senate, it could take several weeks or months for a new FERC commissioner to be nominated and confirmed,” said Jay Ryan, a partner in the firm’s D.C. office.

Ryan said the lack of a quorum will be problematic for the commission’s oversight and enforcement operations because it will be unable to issue orders approving audit findings, settlements of investigations and orders to show cause.

The Natural Gas Act and Federal Power Act require regulated companies to file rate and tariff changes 30 and 60 days, respectively, prior to their effective date, he noted. “If the FERC fails to act within the time that those rates go into effect, the changes become effective automatically, and if the FERC wishes to order further changes, it would have to do so under statutory provisions that place a heavier burden on the agency,” Ryan said. “Further, any requests for rehearing of the FERC’s orders under those statutes that are not acted upon by the FERC within a prescribed period are automatically denied.”

Another Baker Botts partner, Brooksany Barrowes, said the shorthanded commission also will be unable to approve any natural gas pipeline projects currently pending, though FERC staff can continue to prepare environmental documents and do other permitting work. “Given the need for expanded gas infrastructure and the narrow construction window many projects face, this could be a major issue,” she said.

January 31, 2017January 3, 2024

MISO Behind-the-Meter Generation Definitions Create Confusion

By Amanda Durish Cook

CARMEL, Ind. — MISO’s effort to simplify treatment of behind-the-meter generation has created more questions than it has answered, stakeholders said last week at an educational meeting that turned into a contentious debate.

The RTO plans to split BTM resources into two categories for the purposes of market operations. The first would consist of “uppercase” generation described in the Tariff and dispatched in the market, usually as a load-modifying resource.

A second “lowercase” category would represent BTM resources not registered with or dispatchable by the RTO and not subject to market mitigation.

But some stakeholders expressed confusion over how the two definitions would address capacity deliverability or calculate network load for transmission billing.

The Jan. 26 debate is prompting MISO to re-examine its Tariff language and Business Practices Manuals with a promise for a more thorough discussion with stakeholders.

‘More Conversation’ Needed

“We’ve had some areas where more conversation needs to happen,” said Kim Sperry, MISO director of market engineering.

Stakeholders from multiple sectors said MISO does not have clear enough rules in place to require BTM generation to supply gross network load data before transmission rates are determined.

MISO staff said a legal precedent to provide gross load for transmission service for BTM generation was created 18 years ago in FERC Order 888, when the commission wrote that it “plainly require[d] inclusion in the rate denominator of ‘behind-the-meter’ loads” and said “load served by ‘behind-the-meter’ generation should be included in the load ratio share calculation for determining the transmission cost allocated to network customers.”

However, stakeholders wondered if that load calculation would apply to MISO’s lowercase BTM generation definition.

Sperry said she expected network load reporting to represent transmission losses for all BTM generation.

WEC Energy Group’s Chris Plante pointed out that there’s nothing in the Tariff that requires BTM asset owners to create gross loads to help determine transmission rates. Sperry said MISO would work with its attorneys to possibly create clearer Tariff language.

Stakeholders also said similar generators would be treated differently in terms of capacity deliverability, depending on their uppercase or lowercase status. In a previous meeting, stakeholders asked how BTM generation could be counted as deliverable capacity and how it can deliver when it exceeds local load. (See MISO Ponders Changes to Behind-the-Meter Generation Rules.)

MISO said that, as with other resources, market participants could either obtain firm transmission service from the BTM generator to the load or the generator could acquire network resource interconnection service (NRIS) through the interconnection queue and serve load to a network customer.

Those deliverability requirements amounted to a rule change three months ahead of the Planning Resource Auction, stakeholders said, contending that excess BTM generation has historically been sold into the market as capacity without requiring NRIS or firm transmission.

Not New Rules?

MISO staff maintained that the requirements were a “clarification” of what already exists in the Tariff.

“These are not new rules; these have existed in the Tariff,” said Neil Shah, system support resource planning manager. “These resources need to go through the same process as other resources.”

“As of now, that’s your opinion,” replied David Sapper of Customized Energy Solutions. “You’d better not try to enforce this without FERC approval. That’s my admonition.”

DeWayne Todd of Alcoa said MISO’s clarification could upend decades of practice in which BTM generators have delivered excess load for reliability purposes. Stakeholders asked how many megawatts of BTM generation would now be considered undeliverable.

“We need to go back and fill in the gaps on some definitions. That’s what I’m hearing,” Sperry said.

WPPI’s Steve Leovy said MISO should create a more detailed uppercase BTM generation definition, while others said the lowercase definition is too vague to fulfill transmission use pricing or capacity procedures.

Todd said the BTM deliverability requirement is infeasible because lowercase BTM generation would be ineligible for firm or point-to-point transmission service; those resources would not be captured in MISO’s Open Access Same Time Information System (OASIS), which provides data on available transmission capability.

“Why wouldn’t people just take all of their generation behind the meter and forego operating procedure?” American Electric Power’s Kent Feliks asked, referring to non-dispatchable BTM generation.

That was a question for MISO’s Resource Adequacy Subcommittee, the RTO’s Manager of Resource Adequacy John Harmon said.

“There are operation questions,” We Energies’ Tony Jankowski said. “Who gets to deploy that [BTM] resource? … We end up with a laundry list of questions and maybe stakeholders [should] work on these topics in other forums and come back.”

January 31, 2017

MISO Directors to Decide Yearly Executive Bonuses

By Amanda Durish Cook

The Human Resources Committee of MISO’s Board of Directors is considering a 2016 executive incentive plan that would slash potential bonuses by more than 30%.

During a Jan. 24 conference call, the committee suggested MISO executives receive 68.5% of a possible discretionary bonus for last year because of incomplete queue reform, a failure to implement seasonal and locational aspects into the Planning Resource Auction, capital budget overspending and a market funding efficiency rating that showed room for improvement.

miso board executive bonuses — MISO’s Human Resource Committee of the Board of Directors in Dec. 2016 | © *RTO Insider*

According to MISO’s 2015 Form 990 filing, incentives outpace base salary for the RTO’s three highest paid executives.

CEO John Bear was the most highly compensated, taking in a $709,872 base salary and $1.1 million in incentives. Executive Vice President of Transmission and Technology Clair Moeller came in second with a salary of $363,189 and incentives worth $401,131.

Stephen Kozey, senior vice president of compliance services and one of MISO’s original employees, earned $362,681 in salary and $372,888 in bonuses. Other vice presidents earned an average of $503,000 and $157,000 in incentives.

MISO spent $143 million on salaries, compensation and benefits in 2015, compared with $130 million a year earlier.

The RTO currently charges a $0.34/MWh administrative rate, which covers salaries and benefits in addition to fees for third-party consultants and computer services.

Greg Powell, MISO vice president of human resources, said that despite a shortfall that cut into bonuses, MISO’s market funding efficiency score of 95.8% demonstrated the best performance to date. The RTO defines market funding efficiency as the alignment between financial transmission rights, the day-ahead market and the real-time market.

Bear said MISO could have done a better job forecasting capital spending last year, with the RTO overspending its $31 million budget by $2 million. In comparison, MISO overran its $225 million operating budget by $2.2 million.

MISO was also unable to implement interconnection queue reform and seasonal and locational constructs for the 2017/18 PRA during 2016.

Bear thought the stakeholder process was sufficient, but he acknowledged that MISO could work more with its Independent Market Monitor’s recommendations.

However, the RTO gave itself an “excellent” rating for meeting all NERC reliability standards in 2016. Bear said that directors must typically discuss NERC reliability compliance performance in a closed session, but there was no need to do so because MISO had not committed a single violation in the year.

“I think it’s a really good accomplishment for us, and now the challenge is to maintain that excellence,” Bear said.

The 2016 MISO customer survey earned the RTO a threshold performance rating, with 82% of member respondents providing an average rating of five or better on a seven-point scale. MISO needed a minimum 80% to allow for the bonus payments.

Director Paul Bonavia said MISO’s new incentive design, approved last year, is demanding but doable. (See MISO Adds 3 New Board Members, Posts Staff Incentive Plan.)

“We have struggled mightily with metrics that are challenging,” Bonavia said. “We wanted it to be so that mid-level performance is a strong target, and we’ve seem to come out pretty well this year.”

Kozey said committee suggestions to increase or decrease the incentive package are historically made after closed session discussions.

January 31, 2017June 17, 2024

FERC OKs NYISO Capacity Revision; Rejects Transition Plan

By William Opalka

FERC on Friday approved a NYISO plan to protect consumers from rising capacity prices in southeastern New York but rejected a one-year transition to the new rules, saying it “lacks analytical basis” (ER17-446).

NYISO proposed the plan in the fall to address anticipated price spikes in the capacity market in the Lower Hudson Valley and New York City zones, expected after the commission in October allowed the export of electricity from a New York plant in a constrained zone into ISO-NE. (See FERC Sides with ISO-NE in Capacity Dispute with NYISO.)

The ISO’s current capacity market rules fail to recognize the impact of counterflows: They assume that 100% of a generator’s exports from an import-constrained area must be replaced with generation in that locality. NYISO Market Monitor Potomac Economics warned the anomaly means capacity clearing prices in the Lower Hudson Valley “could rise far above competitive levels.”

In response, the ISO proposed a “locality exchange factor,” based on power flow analyses, which found that 47.8% of the capacity exported to ISO-NE from New York’s G-J zones could be expected to be replaced by capacity in the rest of the state. That meant only the remaining 52.2% would need to be replaced by capacity within the zones. NYISO’s proposal was vehemently opposed by generators, who said it would suppress prices. (See NYISO Board Denies Generators’ Appeal on Capacity Cap.)

FERC’s order approved NYISO’s methodology but rejected its proposal for a one-year transition to the new rules (June 2017 through May 2018), during which the ISO planned to use an 80% locality exchange factor rather than the 47.8% figure.

NYISO said the transition was proposed by stakeholders and received votes in support from four out of the five voting sectors. But the commission said there was no “analytical basis” for the 80% factor.

“In its proposal for the locality exchange factor methodology, NYISO states that ‘the price signal should reflect only the portion of the export that must be replaced by resources located within the locality.’ The one-year transition mechanism, however, is not based off of the same power flow analysis that NYISO argues is the best way of accounting for counterflows,” the commission said.

FERC dismissed supporters’ argument that the ISO needed more time to refine and evaluate the methodology. “If NYISO or, in turn, the commission, had some basis to doubt the efficacy of the locality exchange factor methodology, then rather than implementing a transition, the commission would be required to reject the methodology in its entirety as unjust and unreasonable,” it said.

FERC ordered a new plan submitted within 30 days.

Roseton | Google

The methodology was prompted by the commission’s October order allowing Castleton Commodities International’s 1,242-MW Roseton 1 generator, located 43 miles north of New York City, to export 511 MW of its capacity to ISO-NE beginning next June for the 2017/18 delivery year. If Roseton decides to participate in ISO-NE’s 2017/18 commitment period, NYISO would procure unnecessary replacement capacity, as Roseton would still be providing reliability services for the G-J zone, the ISO argued.

January 31, 2017

MISO Informational Forum Briefs

December was marked by all-time high wind output in MISO, along with higher gas prices and erratic weather patterns that challenged the RTO’s forecasters, officials said at a Jan. 24 Informational Forum.

Jeff Bladen, MISO’s executive director of market design, said that while average temperatures in December were “near normal,” the month saw “rapid transitions in temperatures and winds,” leading to inaccurate forecasting and poor unit commitment.

“Ultimately, unit commitment decisions are heavily influenced by weather forecast accuracy,” Bladen said.

There are ongoing efforts to improve load forecasting capabilities, he added. “The challenge is more volatile weather … it’s something we continue to work on to improve our ability to manage and predict,” Bladen said.

Load averaged around 77 GW during December, a 9-GW increase over November. The month’s peak of 100 GW occurred Dec. 19.

MISO’s systemwide energy prices averaged just above $30/MWh, up 22% compared with the previous month. Bladen said the increase could be attributed to an $3.59/MMBtu average natural gas price that was $1.15 higher than in November.

A month-to-month upending of wind output records has become almost standard for MISO, and a new high of 13.7 GW was set Dec.7, surpassing the previous record of 13.3 GW set in late November. Wind production for the month totaled 5,687 GWh, the highest value recorded for the RTO.

MISO Creates Focus Group for IT Refresh

MISO will create a Market System User Experience Focus Group to learn about information technology shortcomings, ‎said Curtis Reister, the RTO’s director of software delivery.

The group will meet Feb. 23 and is open to all users of MISO market systems who would like to comment on their market experiences and make suggestions.

The group, part of MISO’s wider effort to make software improvements in 2017, will gauge customer satisfaction with usability, performance and security and seek to understand customer experiences. (See MISO to Study Aging Software; Market Improvements Planned for 2017.)

The RTO noted that its electronic market systems are more than 10 years old. While some applications have been improved for functionality, there have been “minimal” changes to front-end design.

“There is some dissatisfaction out there, and we want to understand it,” Reister said.

The focus group will also decide which IT investments will have the biggest payback, he added.

MISO CEO John Bear said software investments are needed to manage a larger, more diverse fleet. “We’re dealing with a lot more intermittency and a lot more generators,” he said.

Some of the improvements might require members to make system changes implemented over the long-term in order to give those members adequate time to update, Bear said.

MISO will also switch platforms for its external website, according to Executive Director of External Affairs Kari Bennett.

Stakeholder Input Needed on Cost Allocation

Patrick Brown, manager of transmission planning for MISO South, said the RTO expects stakeholders to submit comments on transmission cost allocation by Feb. 27, in time for a Hot Topic discussion at the March 22 Advisory Committee meeting.

The RTO released a market efficiency project (MEP) cost allocation strawman in December, proposing to lower the current 345-kV voltage threshold and remove a footprint-wide postage stamp allocation of costs in favor of one in which costs are borne solely by participants in benefiting transmission pricing zones. (See MISO Stakeholders Propose Changes to Market Efficiency Cost Allocation Process.)

MISO expects cost allocation refinement to continue into the third quarter before Tariff changes are drafted in the fourth quarter and filed sometime in mid-2018.

— Amanda Durish Cook

January 31, 2017

FERC Denies Multiple Energy Crisis Rehearing Requests

By Robert Mullin

In a sprawling decision, FERC last week rejected requests for rehearing by multiple energy sellers implicated in market manipulation during the Western Energy Crisis of 2000/01 (EL00-95-289).

The sellers — which include Hafslund Energy Trading, Illinova Energy Partners, MPS Merchant Services, Shell Energy North America and APX — had asked the commission to reconsider previous findings related to the disgorgement of overcharges the companies raked in from May to October 2000, the so-called “Summer Period” of the crisis, which ultimately cost California ratepayers billions of dollars.

FERC’s Jan. 27 order centered on issues stemming from Opinion 536, issued in 2014. (See related story, FERC Reopens Western Energy Crisis Refund Proceeding.)

‘Appropriate Remedy’

In that decision, the commission set out what it deemed the “appropriate remedy” for the anomalous bidding, false export and false load scheduling tariff violations engaged in by the companies in an effort to drive up market clearing prices during the crisis: the disgorgement of any payments received in excess of a marginal cost-based proxy price.

The commission decision dealt with companies implicated in manipulating prices during the initial “Summer Period” of the Western Energy Crisis.

A subsequent opinion required that companies found to have engaged in those practices would be forced to disgorge overcharges for all sales made during trading intervals in which market prices were affected by any of the companies’ tariff violations.

FERC dismissed as moot rehearing requests by MPS, Illinova, Hafslund and Shell that called into question the commission’s previous findings of tariff violations by the companies. The commission pointed out that the 9th U.S. Circuit Court of Appeals had already determined that FERC’s orders on those matters were final and that the commission “reasonably concluded that the sellers engaged during the Summer Period in the practices deemed tariff violations.”

The commission also denied a request for rehearing by MPS and Illinova in which the two companies contended that FERC’s requirement that an individual seller disgorge profits not directly connected to any violation they committed represents an award of retroactive refunds to buyers rather than disgorgement. The two companies had complained that FERC’s disgorgement remedy is limited to the return of profits obtained illegally. The commission countered that the 9th Circuit has recognized that the Federal Power Act “gives FERC authority to order refunds if it finds violations of the filed tariff and imposes no temporal limitations.”

FERC rejected an argument by all five companies challenging the validity of the marginal cost-based proxy price methodology being used in the proceeding. “The commission has affirmed the presiding judge’s finding that the marginal cost-based proxy methodology … provides for a credible proxy of prices in a normal competitive environment,” the commission wrote.

The commission also rebuffed the companies’ argument that they should not be responsible for disgorgement of profits from all sales affected by the tariff violations by any of the market’s participants. Commissioners said they found persuasive the arguments of a California expert witness that the tariff violations had “intertemporal” effects on the state’s market during the crisis.

The commission also rejected a contention by MPS and Illinova that the prices established by the CAISO and now-defunct California Power Exchange markets were contract rates subject to the public interest standard of review embedded in FERC’s landmark Mobile-Sierra decision.

“The prices set by the CAISO and CalPX auction markets do not constitute contract rates because they result from a generally applicable auction mechanism set forth via tariff,” rather than from an arms-length transaction between two parties, the commission said.

The CAISO and CalPX tariffs did not contain the terms of a public interest standard of review, the commission noted.

The commission also denied a request by Exelon, the successor-in-interest to AES NewEnergy, for a rehearing on the issue of the fuel costs the company submitted to offset its refund amounts.

“The commission considered the full array of evidence, noting certain CAISO records submitted by Exelon related to the transaction, but ultimately finding that Exelon had not ‘clearly linked any evidence of its actual incurred costs to the resource and sale at hand,’” the commission said, citing language in a previous ruling. The commission reiterated a requirement that fuel cost information be “clearly linked” with a resource and an energy sale and “easily verifiable by supporting evidence.”

Settlement Agreements

In two other orders stemming from the energy crisis, FERC rejected two of California’s motions to preserve remedies or refunds against other non-settling parties as a condition for concluding settlement agreements with Illinova and MPS (EL00-95-299, EL00-95-300).

California had asked for the commission to affirm that a settlement with either company would not release non-settling parties from facing the possibility of having to disgorge profits from energy sales inflated by tariff violations committed by Illinova and MPS. The state argued that FERC’s failure to grant the motion would make future settlements impossible by reducing the liability of the remaining sellers and incent them to wait for others to settle first, thereby deterring California from settling with any of them.

In denying California’s motion, the commission stated that it “has dismissed from the proceeding parties that settled … before and during the instant proceeding, excluded the conduct of non-parties from the scope of the proceeding and emphasized that the trading hours impacted by the settled parties’ tariff violations will not be included in disgorgement amounts due from the remaining respondents.” The state failed to provide a compelling reason for the commission to reverse that long-standing practice, the commission added.

The commission noted that it was not ruling on either settlement agreement and directed California to notify FERC within 30 days whether it wished to revise or withdraw from the agreements.

January 31, 2017

MISO Steering Committee Advances 3 Issues

By Amanda Durish Cook

CARMEL, Ind. — MISO’s Steering Committee last week advanced three topics for discussion: the RTO’s settlement with SPP, a potential cost recovery defect and potential cost-sharing for customer-funded upgrades.

miso steering committee — Moser | © *RTO Insider*

The committee decided that the Market Subcommittee will discuss a possible cost recovery gap, an issue raised by Entergy. The gap arises when MISO decommits or manually redispatches a resource to offline status, the utility contends.

“If the resource is later brought back online to fulfill the remainder of an existing commitment period or to meet a subsequent commitment period, the resource is not guaranteed start-up cost recovery,” Entergy said.

The company wants the RTO’s Tariff revised “to provide incentive for resources to follow MISO instructions and to ensure that a resource owner is not forced to choose between following MISO instructions and incurring an uncompensated cost, and disregarding MISO instructions.”

A discussion on generator-funded upgrades that benefit other interconnection customers was assigned to MISO’s Regional Expansion Criteria and Benefits Working Group (RECBWG), despite a request by EDF Renewables that the topic be directed to the Interconnection Process Task Force (IPTF). The company wants such projects to receive some reimbursement through MISO, EDF said.

Jeff Webb, MISO director of planning, said the IPTF would be appropriate if project costs were only to be shared among interconnection customers, but he doubted that cost-sharing would be that limited. He suggested that the RECBWG first discuss the potential scope for cost allocation.

A stakeholder discussion on metrics used for the SPP-MISO transmission cost allocation settlement will initially be assigned to the Resource Adequacy Subcommittee for an examination of possible capacity benefits.

Jesse Moser, MISO director of seams relations and strategy, said internal decisions on the metrics belong in the RECBWG, which is already considering broader cost allocation changes. Still, some stakeholders contended that the issue should first move into the RASC for exploration of potential capacity benefits from the settlement.

The settlement requires MISO to “conduct a stakeholder discussion regarding the use of capacity benefits as an alternative way to allocate costs” of the joint operating agreement (ER14-1736). (See “Cost Allocation Set in MISO-SPP Settlement,” MISO Market Subcommittee Briefs.)

Madison Gas and Electric’s Megan Wisersky said she was surprised to learn MISO would delve into a cost allocation discussion before assessing the resource adequacy impacts of the settlement.

Indiana Utility Regulatory Commission staffer Dave Johnston said the topic should be discussed in the RASC.

“To me, RECBWG is for transmission projects,” Johnston said. “This is not what this is. This is a settlement between parties with a bucket of money.”

January 31, 2017

PJM Markets and Reliability and Members Committees Briefs

PJM Uncomfortable with Separate Pseudo-Tie Rules

WILMINGTON, Del. — PJM must determine how to handle different rules for new and existing pseudo-ties after stakeholders vetoed a package of reforms for external resources at Thursday’s Markets and Reliability Committee meeting but then agreed on applying the updated rules only to new pseudo-tie requests.

The package appeared headed back to the drawing board after failing to reach the 3.33 out of 5 necessary in a sector-weighted vote. But Exelon’s Jason Barker immediately motioned for a vote on an “alternative” package that excluded existing pseudo-ties from the new requirements, saying it would “move toward something that we think is an improvement over the status quo.”

The original proposal, developed through the Underperformance Risk Management Senior Task Force, called for making deliverability requirements uniform for resources within and outside of PJM’s footprint and requiring confirmatory feasibility studies for all pseudo-ties. Existing pseudo-ties would have had until delivery year 2022/23 to conform to the deliverability standards for internal resources. (See No End in Sight for PJM Capacity Market Changes.)

By Oct. 1, 2018, PJM would notify external resource owners whether their pseudo-tie is operationally feasible. Owners of resources that fail would be required to perform the required upgrades or would be declared ineligible to offer capacity.

Stakeholders balked at the implication that their units might become nonviable if the transmission owner — over which neither they nor PJM has authority — declined to meet the new standards.

“It’s their system; they can do things their way,” said Mike Borgatti of Gabel Associates.

PJM’s Adam Keech acknowledged, “We’re not in a place where we can require someone to upgrade to our standards.” He estimated there is roughly 3,500 MW of external generation pseudo-tied to PJM.

Joe Bowring, PJM’s Independent Market Monitor, called the original proposal “a significant step forward” but still inadequate because imported capacity remains an inferior substitute for internal capacity resources and suppresses market prices.

“If units don’t meet the rules and requirements, they don’t meet the rules and requirements. That should be the end of the story,” he said.

When the measure failed and Barker proposed applying the updated standards to new pseudo-ties, Bowring questioned whether Barker intended for existing pseudo-tied units to then be grandfathered in perpetuity. Stakeholders agreed that the alternative proposal would be silent on existing pseudo-ties and that portion would be sent back to the task force for further consideration. The measure was endorsed, receiving 3.97 in favor on a sector-weighted vote. The same proposal was later approved during the Members Committee meeting with 3.88 in favor.

PJM Senior Vice President of Operations and Markets Stu Bresler said there will need to be a discussion with the Board of Managers on having separate rules for similar groups. “We certainly can’t live that way for very long,” he said.

Work on Uplift Moves Forward Despite NOPR

In three decisive votes, stakeholders swiftly moved forward on efforts to address uplift.

The action was a far cry from last month, when PJM’s Dave Anders explained that the Energy Market Uplift Senior Task Force had only been successful in half of its goals. The task force endorsed two proposals to reduce uplift and volatility. However, it considered more than a dozen proposals to address cost allocation issues and couldn’t find majority agreement on any of them. The MRC instructed the task force to revote on the top five.

Earlier this month, the task force endorsed a package for the MRC to consider on Thursday. The proposal would maintain much of the status quo but include up-to-congestion transactions in the allocation of day-ahead and balancing operating reserves in the same way incremental offers and decremental bids are included. It would also remove the ability for internal bilateral transactions to offset deviation charges.

However, with FERC having issued a Notice of Proposed Rulemaking on uplift and UTCs on Jan. 19, PJM staff assumed stakeholders might want to postpone action on the issue until receiving clear direction from the commission. (See FERC Proposes More Transparency, Cost Causation on Uplift.)

Not so. “I think that PJM has shown in a lot of studies that UTCs do impact commitment and decommitment … and that’s a cause of uplift,” FirstEnergy’s Jim Benchek said. “If down the road that NOPR results in rulemaking actually happening … then we’ll deal with that rulemaking at that time. My final comment is let’s vote today.”

So they did: The Phase 1 proposal was approved with a sector-weighted vote of 4.1 out of 5. It largely maintains the status quo, except that it includes in the determination of balancing operating reserve credits only the day-ahead revenues from the hours the resource operated in real-time, not all day-ahead revenues.

The proposal to postpone voting on Phase 2 for one year was opposed by 3.8 out of 5 in a sector-weighted vote, and a vote on the package succeeded with 4.01 out of 5. The proposals will go for a vote before the Members Committee at its Feb. 23 meeting to approve the Operating Agreement revisions and endorse revisions to the addendum to Attachment K of the Tariff. The Tariff revisions will then need to be approved by the Board.

Separately, stakeholders also approved a problem statement and issue charge to reconsider historical practices and provisions in the Operating Agreement and Manual 33 restricting the sharing of data that is considered confidential or market sensitive. Changes could result in more transparency on transmission constraints, the reliability assessment commitment process and conservative operations in day-ahead and real-time operations.

Stakeholders OK Manual Changes

Stakeholders endorsed by acclamation several manual revisions and other operational changes:

Revisions to Manuals 11 and 12 to account for the updated regulation requirement developed by the Regulation Market Senior Issues Task Force. (See “Regulation Requirement Changing from ‘Peak’ to ‘Ramp,’” PJM Operating Committee Briefs.)
Revisions to Manual 27 developed as part of an annual review.
Revisions to Manual 38 developed as part of a periodic review to provide more clarity on outage coordination.
Revisions to Manual 40 that, among other things, reduce the grace period for completing operator training. (See “Manual 40 Revisions Approved with Exelon’s Addendum,” PJM Operating Committee Briefs.)
Revisions to the PJM Tariff and Manuals 11, 12 and 28 regarding operating parameters. (See “Operating Parameters, ARR Enhancements Endorsed,” PJM Market Implementation Committee Briefs.)
Revisions proposed by the Governing Document Enhancement & Clarification Subcommittee to clean up definitions in the Tariff, Operating Agreement and Reliability Assurance Agreement.

Members Committee

Members Approve Charter for Security Committee

Despite stakeholder inquiries about its non-decisional status, the Members Committee endorsed by acclamation the charter for a new Security & Resiliency Committee.

American Municipal Power’s Ed Tatum asked what purpose the group would serve if it didn’t make any decisions. PJM staff said it would operate in an advisory capacity like the Transmission Expansion Advisory Committee. Exelon’s Gloria Godson clarified that the group was not formed at the behest of transmission owners.

“This was not a [Transmission Owners Agreement-Administrative Committee] idea,” she said. “In fact, a lot of TOA-AC folks have an issue with this idea.” (See “Preview of Security Committee Receives Tepid Response,” PJM Markets and Reliability and Members Committees Briefs.)

According to PJM, the new committee will serve as a forum to discuss threats and hazards and offer case studies, solutions or other best practices. To avoid compromising company security, the committee won’t include any Critical Energy Infrastructure Information in meetings and the news media will be barred. It will password-protect its minutes and only allow external partners by invitation. Corporate nondisclosure agreements will be used as needed.

Consent Agenda Endorsed

The committee also endorsed:

Operating Agreement revisions associated with residual auction revenue rights enhancements.
Revisions to the Tariff resulting from discussions at special Planning Committee sessions regarding new service request cost allocation and study methods. (See PJM Considering Injection Rights for Demand Response.)
Tariff and Operating Agreement revisions developed by the Governing Document Enhancement & Clarification Subcommittee related to pumped hydro storage.

– Rory D. Sweeney

January 31, 2017

NextEra Misses Expectations, but Boosts Profits

By Tom Kleckner

NextEra Energy boosted its adjusted earnings by 5% in the fourth quarter and 11% for all of 2016, despite falling short of investor expectations on both measures.

The Florida-based company Friday reported fourth-quarter adjusted earnings of $566 million ($1.21/share) and full-year adjusted earnings of $2.88 billion ($6.19/share), missing the Zacks consensus estimates of $1.29/share and $6.22/share, respectively.

Investors rewarded the company with a $2.07 increase in its stock price, from $119.30/share to $121.37/share.

Adjusted earnings exclude the mark-to-market effects of some hedging, non-temporary impairments, operating results from a solar project in Spain and expenses related to its proposed acquisition of Texas-based Oncor. Also excluded from the 2016 results were gains from the sale of natural gas generation facilities.

Subsidiary NextEra Energy Resources’ investments provided much of the growth. It commissioned about 2,500 MW of new wind and solar projects — the most wind and solar megawatts ever added by a single company in North America, NextEra said. It has signed contracts for another 540 MW of wind and 100 MW of solar energy since its third-quarter call.

“I remain as enthusiastic as ever about our future,” NextEra CEO Jim Robo told financial analysists during a conference call. He said the company’s performance reinforces “the overall strength and diversity of our growth prospects.”

Central to NextEra’s future is completing its $21 billion acquisition of Oncor, the largest transmission and distribution provider in Texas. The deal has FERC’s approval, but it next faces a Public Utility Commission of Texas review scheduled for Feb. 21-24. (See FERC OK in Hand, NextEra Faces More Questions on Oncor Deal.)

The PUC has until April 29 to act on the acquisition or it will be automatically approved.

“We see an opportunity to make two already great companies even stronger,” Robo said. “We believe we have the ability to bring real value to Oncor stakeholders, and in turn find attractive investment opportunities to create long-term shareholder value.”

Robo reminded analysts that NextEra will use its A– credit rating and balance sheet — “One of the strongest in the sector,” Robo said — to save Oncor customers “hundreds of millions of dollars by removing the debt that hangs over Oncor right now.”

He said intervenors have raised questions that could result in NextEra being immediately downgraded once Oncor’s debt is moved by either prohibiting the company from appointing a majority of the Oncor board or placing restrictions on dividends and approval of budgets.

“We are unwilling to compromise our A- corporate credit rating as a result of any transaction,” Robo said. “We need to address these issues in order to avoid being downgraded, so we can close the transaction.”