Page 1422 – RTO Insider

August 1, 2016

PJM Markets and Reliability and Members Committees Briefs

WILMINGTON, Del. — PJM needs to increase its fees to cover rising expenses and rebuild its diminishing operating reserve, officials told the Members Committee on Thursday.

Staff presented a first reading on five options for revising the administrative rate used to collect fees from members and market participants.

PJM is looking for member approval to increase the rates to $0.41/MWh of load served, up from the current $0.34/MWh. The options presented include a single change to a $0.41 rate, a 2.5% annual increase starting in 2018 through 2023 or an annual $0.01 increase through 2022. The 2017 rate in all options is $0.36/MWh.

A new method is necessary because PJM has been below its authorized operating reserve of $15 million since 2013. Staff had expected to rebuild the reserve to $17 million in 2015. Instead, it saw the reserve fall to $7 million because of lower-than-expected revenues. Although it trimmed expenses by $10 million below budget, to $273 million, it generated revenues of only $269 million.

PJM has changed the way it charges members and market participants several times over the past 20 years.

Before 1999, the RTO charged members a single formula rate based on load served. From then until May 2006, the RTO moved to multiple formula rates based on both load and market activity.

In 2006, PJM added a rider to cover the cost of the Advanced Control Center (AC2), and in 2011 it decreased service category rates by 3%, citing economies of scale. All proposals assume an early retirement of this rider because the debt attached to it will be paid off in September

The Finance Committee is expected to make a recommendation to the Members Committee and Board of Managers at its meeting Aug. 24.

CFO Suzanne Daugherty said she expected the committee to choose an option calling for a 2.5% annual increase from 2018 through 2023, which would restore the reserve to full funding by the end of 2017 and maintain it through 2026.

PJM will return to the Members Committee in September for an endorsement vote. It will then make a filing with FERC with a target effective date of Jan. 1.

(Editor’s Note: An earlier version of this story incorrectly stated that PJM’s expected administrative rate for 2017 will be $0.37/MWh.)

Grid Remains Strong During Recent Heat Wave

PJM canceled maintenance outages for the first time under Capacity Performance rules as the system experienced seven days of hot weather beginning July 21, Mike Bryson, vice president of operations, told the Markets and Reliability Committee on Thursday.

The peak load for the period — 151,882 MW — occurred July 25. That was the RTO’s 13th-highest ever and the highest since July 2011, when PJM set an all-time record of 165,492 MW.

The daily average LMP for July 25 was almost $36/MWh, Bryson said. Forced outages for the period were less than 13,000 MW.

“The transmission system has been very strong on the voltage side,” he said. During the period, however, two 765/345-kV transformers tripped in different parts of the system, causing local congestion.

The Dumont T2 line in Indiana tripped July 21, and the Cloverdale-Joshua Falls line in Virginia tripped July 26 because of storms, Bryson said.

PJM Moves Toward Order 825 Compliance Filing

The MRC approved a problem statement to begin work on compliance with FERC Order 825, which set new rules for RTO settlement intervals and shortage pricing triggers. Staff will begin work at the Aug. 10 Market Implementation Committee meeting to identify and address potential impacts. (See “Members Prepped for Problem Statement on Settlement Intervals, Shortage Pricing,” PJM Markets and Reliability and Members Committees Briefs.)

The order requires settling transactions in the same time intervals they are scheduled, priced or dispatched, along with aligning shortage pricing to work in the same intervals. While PJM already incorporates shortage pricing, staff realized the current system requires changes to ensure pricing signals aren’t unnecessarily erratic. The RTO’s problem statement goes beyond the requirements of the order to address these issues as well.

The original language of the final key work activity didn’t sit well with some participants, who were concerned it might open the door for revising the demand curves rather than simply adjusting the pricing intervals within them. The language was updated prior to approval to read: “Develop a new set of steps within the demand curves to be implemented in the final rule, if necessary.”

The debate went on for nearly an hour, leading PJM CEO Andy Ott to weigh in and assure members that the point was to avoid wild price fluctuations, not to adjust the overall rate structure.

PJM’s plan is to smooth out the pricing signals over time so they only trigger shortage pricing when it’s a trend.

“The look-ahead engine looks out over time, and it has to see the shortage for a persistent period of time before it will pass the indicator over to the [real-time schedule] engine,” PJM’s Rebecca Carroll said.

PJM has only had one incident of shortage pricing in recent memory, on Jan. 6-7, 2014.

Susan Bruce, who represents the PJM Industrial Customer Coalition, supported the focus on shortage pricing. Under the current demand curves, she said, consumers can be charged higher prices for a whole hour for a shortage that might last only five minutes.

Work on Fuel-Cost Policy Updates Moves Ahead

PJM market analysis manager Jeff Schmitt presented a timeline for the days remaining before the RTO’s Aug. 16 deadline for making a FERC compliance filing on its fuel-cost policy protocols.

The Market Implementation Committee held a special meeting on July 27 and has another scheduled for Aug. 4. Schmitt said he hopes to have the language updated prior to the committee’s regular meeting on Aug. 10. He asked that any additional feedback be sent to him.

In June, FERC ruled that PJM “lacks provisions for sufficient review of cost-based offers and could permit a resource to submit inaccurate cost-based offers.” It ordered PJM to add to its Tariff and Operating Agreement a requirement that generators submit fuel-cost policies that are approved by the RTO prior to submitting cost-based offers, including a penalty structure for those that file inaccurate information (ER16-372).

Feedback from the MIC meetings will be used to update PJM’s Manual 15. Schmitt said PJM has asked for a Dec. 1 effective date but that implementation of the new language will be based on when FERC responds.

MRC Endorses Manual Changes

Members unanimously approved the following manual changes:

Manual 11: Energy & Ancillary Services Market Operations for the Day-Ahead Scheduling Reserve. Adds language excluding resources from the day-ahead scheduling reserve process that cannot reliably fulfill obligations in real time.
Manual 14C: Generation and Transmission Interconnection Facility Construction. Changes support the inclusion of Order 1000 processes. Since the first reading, the new tie line section has been removed. Discussion on that issue will begin in August.
Manual 20: PJM Resource Adequacy Analysis. Updates are the result of a periodic review.
Manual 29: Billing. Clarifications and updates are the result of a regular review.

Manual Changes Clarify ‘Physicality’ of Transactions

MRC members endorsed changes to Manual 18 clarifying the rights and responsibilities involved in auction-specific bilateral transactions. (See “Members OK Clarifications to Preserve ‘Physicality’ of Auction-Specific Bilateral Transactions,” PJM Market Implementation Committee Briefs.)

New PLS Exception Process Offers Flexibility

The Members Committee approved Operating Agreement and Tariff language giving more flexibility to the parameter-limited schedule exception process. (See “More Flexible PLS Process Approved,” PJM Markets and Reliability and Members Committees Briefs.)

— Suzanne Herel and Rory D. Sweeney

August 1, 2016

PJM Members Spar over CP Penalty Rate

By Suzanne Herel

WILMINGTON, Del. — PJM stakeholders rejected a pair of dueling measures Thursday, leaving a new senior task force to decide whether to reconsider a formula key to calculating nonperformance penalties under the new Capacity Performance rules.

The sector-weighted votes capped more than an hour of heated discussion at the Markets and Reliability Committee that included allegations of political maneuvering and a call for one member to be sanctioned for “ad hominem attacks.”

The debate was sparked by the proposed charter of the Underperformance Risk Management Senior Task Force (URMSTF), an item that had been approved by lower committees with little to no discussion, despite months of controversy over the problem statement that created the group. (See PJM Generator Risk Proposal Faces Resistance.)

In recent task force meetings, however, some members had raised the question of whether the RTO was using an unrealistic number in figuring its performance assessment hour (PAH) charge rate. They worried it would artificially lower penalties in the new regime, under which generators are eligible for bonus payments and exposed to financial penalties depending on their performance. Lowering the penalties, some members argued, would weaken generators’ incentive to perform under the new market model.

Thus ensued speculation over whether such a discussion fell within the task force’s scope.

Calpine Offers Problem Statement

Fearing that the issue might be determined to be beyond the group’s mandate, David “Scarp” Scarpignato of Calpine brought a problem statement to the MRC to ensure the formula would be discussed somewhere.

David Scarpignato (Scarp), Calpine - PJM Members Spar over Capacity Performance — Scarpignato © *RTO Insider*

“PJM had suggested that maybe it could be covered under the” task force, Scarp said. “I had indicated that I wasn’t sure that was the group to cover it because they seem intent on reducing the incentives for performance.”

According to the problem statement, informed by data from the Independent Market Monitor, “The current PAH number used in the denominator of the nonperformance charge rate does not reflect the expected number of PAHs as intended. The use of 30 hours is not adequately supported. The average of the RTO-wide PAH in the last three years was 14 hours, including the 30 hours in delivery year 2013-2014 that resulted primarily from January 2014, an outlier year.

“Too low of an expected PAH value avoids confronting capacity resources with the intended nonperformance disincentives under CP philosophy.”

The penalty nonperformance charge rate is the net cost of new entry ($/MW-day) multiplied by 365 days and divided by the 30-hour PAH value. Thus, if the value were reduced from 30 hours to 14, the penalties would more than double.

Scarp said that he had raised this issue at the last task force meeting.

“People talked at least five minutes about what’s in the scope and out of scope with this charter. There were varying opinions. People for the most part wanted to go past managing the risk and talk about the penalties you’d be exposed to. … If the group is looking at risk, it can’t be only one side, to make CP weaker.”

If the task force is limited to hedging risk, he said, its charter might as well be called the “reduce the CP effectiveness proposal.”

Incentives Key to CP

Dan Griffiths, executive director of the Consumer Advocates of PJM States, said it was important to guard performance incentives.

“If the incentives are, in fact, less, we feel like we are losing ground here,” he said. “That’s the only thing [consumers] got out of this — it’s in the interest of consumers to have strong incentives.

“You can’t quintuple the actual rate, but there is a discussion to be had here.”

Mitigating Risk for Generators

On the other side of the debate was Bob O’Connell on behalf of PPGI Fund A/B Development, who authored the problem statement that begat the task force. PPGI is the parent company of Mattawoman Energy, which is building a combined cycle plant near Brandywine, Md., in Prince George’s County.

O’Connell introduced the initiative in October, saying CP allows companies with multiple generators to offset poor performance with over-performing units but does not allow after-the-fact offsets, such as bilateral trades, that could help smaller generators. (See Generators Seek to Reopen PJM Capacity Performance Rules.)

At Thursday’s meeting, he proposed a motion to put off reassessing the PAH charge rate formula until after PJM has submitted an annual informational filing mandated by FERC in approving the charge rate. It was seconded by Jason Cox of Dynegy.

Countered Scarp: “Putting this off into limbo is a terrible thing to do to a fellow stakeholder, and something I have never done.” He accused O’Connell of using “procedural moves to prevent voting on this order” and being “disingenuous,” which elicited a call from O’Connell to have him sanctioned for “ad hominem attacks.” Committee Chair Suzanne Daugherty did not formally act on his request.

Breaking a Rule of Thumb

Indeed, most members prefaced their comments by saying as a rule of thumb, they do not oppose problem statements. It’s highly unusual for them to be rejected.

But after O’Connell’s measure failed with slightly less than 49% approval, members also voted down the Calpine problem statement, which was endorsed by slightly more than 44% of the votes.

Members subsequently approved the task force charter by acclimation.

The votes cut across sector lines, with generators split on the issue but more favoring O’Connell’s motion. The only sector to unanimously support Calpine’s initiative was the End-Use Customers (albeit with one abstention).

Jason Barker of Exelon had provided the “second” needed for a vote on the problem statement.

“The data shows quite strongly that 30 hours … is vastly overstated,” Barker said.

He joined Scarp in criticizing his colleagues for “procedural shenanigans and weak arguments” and encouraged them to put aside politics, saying that no one got everything they wanted out of the CP construct. “Let’s be honest around the table,” he said.

FERC Has Spoken

Some members said they were hesitant to revisit the issue because FERC had approved the charge rate using the 30 PAH hours.

Although the commission approved the 30-hour proposal as a “reasonable approximation of the upper bound” of hours during which PJM is likely to experience emergency actions, it also required the RTO to submit informational filings for five years evaluating the impact of the 30-hour assumption on resource performance. “We also encourage PJM, as it gains more experience under its new capacity construct, to reassess the assumed number of performance assessment hours and file with the commission if it believes a revision is warranted,” the commission said.

Scarp noted that FERC’s order hasn’t stopped stakeholders from questioning other aspects of the ruling, including operating parameters and seasonal capacity. The 30 hours, he said, is an error.

Carl Johnson, of the PJM Public Power Coalition, said, “We do not like to oppose a problem statement — that’s how we got to move forward with the URMSTF and seasonal capacity. But in this particular case, we’re talking about something so specific that FERC gave us a directive on.”

He referenced PJM’s recent experience spending months hammering out consensus on a ramp rate for the CP product, only to have FERC reject it.

“I’m not inclined to use our time on this,” he said. “I don’t want to spend time taking things to them that aren’t going to go anywhere.”

Susan Bruce, of the Industrial Customer Coalition, agreed that the charge rate was a core issue of CP, but she said it was just one and hesitated to approve re-evaluating it without looking at others.

“If you say we can’t talk about those other components, I think it’s a conversation to be had in a vacuum,” she said.

Scarp responded, “If you think that there are other numbers that are incorrect, I’m happy to look at them. I am not redesigning CP in any way. I’m probably one of the few people in the room who has never tried to redesign CP.”

August 1, 2016

NARUC Panel Considers Smart Grid’s Accomplishments, Regulatory Responses

By Rich Heidorn Jr.

NASHVILLE, Tenn. — There are more than 50 million smart meters and more than 1,000 phasor measurement units (PMUs) deployed in the U.S., the product of a rollout funded in part by federal Recovery Act spending following the 2008 financial crisis.

What have we gotten for our money?

High bill alerts, proactive service calls, peak shaving abilities and self-healing transmission, among other things, a panel of technology executives told the National Association of Regulatory Utility Commissioners summer conference last week.

naruc smart grid — Dresselhuys © *RTO Insider*

Now, with smart grid technologies more widely deployed, it is slower-moving regulators and utility procurement practices that are hindering innovation, Silver Spring Networks’ Eric Dresselhuys said.

“If you’ve got energy technology cycles that are happening in 12-, 18- and 24-month cycles and utility adoption cycles and regulatory proceedings that are happening in the three- to five-year range, ultimately what you do … is by the time you make a decision, that decision is outdated, because [technologies] have moved on,” said Dresselhuys, executive vice president of global development for the company, which provides smart grid networking platforms.

High Bill Alerts

Alex Laskey, president and founder of Opower, said utilities have reported a 20% drop in customer calls regarding high bills following a smart meter-enabled program that alerts ratepayers of spikes in energy use. Opower provides “customer engagement” platforms for utilities, a niche growing so fast that technology giant Oracle agreed in May to buy the company.

“Not unlike those fraud detection alerts [used by credit card companies], we alert customers on behalf of their utility via text or email or a phone call. … ‘You’re on track for a high bill. It’s only eight days into the month, but you’re on track for a bill that’s 30% higher than your typical bill this time of year and here are some things you ought to do to try and reduce your usage,’” Laskey explained.

“Customers like it because instead of getting [a large] bill at the end of the month when it’s too late, you’re being alerted in advance that something is amuck and you can make a change,” he continued. “Particularly for low-income customers — for whom electricity represents 8 to 10% of their income — the ability to give them predictability and transparency on what their costs are going to be is critical.”

Shaving the Peak

Laskey also cited Baltimore Gas and Electric’s peak time rebate tariff, which rewards customers for saving energy on the hottest days.

“PJM has measured more than a 15% reduction now at peak for BGE,” Laskey said. “This is just by giving customers better information and a financial incentive.

“You can do that across the country. [Rocky Mountain Institute] estimates $60 billion a year in customer benefits and none of it is possible without regulatory incentives and reform … but on the same hand it can’t be enabled without reliable software.”

The Value of Power Quality

Commonwealth Edison is using big data analysis to identify areas on its grid where customers are receiving voltages below the nominal 240 V, allowing it to “drop in better voltage regulation,” Dresselhuys said.

“When you combine this with things like conservation voltage reduction and other advanced analytics that are being done, the amount of optimization that can be built into the grid on a daily basis is pretty dramatic.”

But Dresselhuys said “the ratemaking and procurement processes within utilities really struggle with the idea of futures or what is the option value that comes from technology.”

“What’s the value of good consistent power quality? The utility doesn’t make more money on that and they didn’t show savings by doing that. And so it doesn’t get put into the rate case and if you don’t put it into the rate case, it doesn’t make the technical requirements because you can say, ‘Well you’re gold-plating the system,’” Dresselhuys said. “So one of the things we have to figure out is, if we’re implementing techs that we expect to last for five, 10, 15 or 20 years, how can we make sure that we’re building platforms … that will continue to add value to consumers over time?”

Proactive Service Calls

Dresselhuys recalled the beginning of smart meter deployment. “Ten years ago people said, ‘Why would we ever need hourly data?’ Now people are cranking that up to five-minute data and one-minute data in some cases.”

He said one Silver Spring customer has been able to use the increasingly granular data to change its maintenance procedures from the “break-fix mentality of ‘let’s just wait until there’s an outage and we’ll go there and fix it.’”

The utility, which serves a seaside location, can identify momentary outages at customer locations, an indication that their service drop — the wires running from the utility pole to the house — has suffered corrosion.

“Worst-case scenario, it starts a fire. The best-case scenario, they just lose power,” Dresselhuys explained. “The customer wouldn’t even notice this because it’s just maybe a flicker if anything.”

The diagnostics allow the utility to schedule proactive service calls to replace the defective wiring.

Financial Reporting

Healy © RTO Insider — Healy © *RTO Insider*

Tim Healy, CEO and co-founder of demand response provider EnerNOC, said the increase in data is crucial to large customers, such as the 700 commercial real estate firms that are now reporting their Global Real Estate Sustainability Benchmark (GRESB) scores on more than a trillion dollars’ worth of assets.

“It is one of the key metrics that investors are using in order to make investments in the real estate sector,” Healy said. “What we’re seeing with our customers is they have an acute need that goes not just right to the bottom line but it goes to their access to capital to run their businesses. The information technology and the needs of the financial reporting organization need to intersect more than ever before.”

Dave Kolata, executive director of the Citizens Utility Board in Illinois, said consumer advocates are having to become more tech savvy to determine the costs and benefits of new technologies and avoid stranded costs resulting from the replacement of systems that have not been fully depreciated.

“Traditionally, IT investment has been something of a black box,” he said. “It’s not something that … we have much expertise in.”

August 1, 2016

EIM Report Shows Continued Growth in CAISO Exports

By Robert Mullin

The western Energy Imbalance Market continued to boost demand for California’s surplus renewable generation last quarter, extending a trend observed during the first three months of 2016, according to CAISO’s quarterly economic benefits report.

The eight-state EIM — comprising the CAISO, NV Energy and PacifiCorp balancing authority areas (BAAs) — absorbed 158,880 MWh of renewable supply that would have otherwise been curtailed, reducing carbon emissions by 67,970 metric tons through the displacement of thermal generation, the ISO estimates. Avoided curtailments increased by more than 40% compared with the first quarter.

The report showed that CAISO monthly exports into NV Energy increased by an average of 56% over the previous quarter. Much of that energy was wheeled into the PacifiCorp East (PACE) BAA, which has limited direct links with the ISO. Transfer capacity between the ISO and PACE increased from about 200 MW to 570 MW when NV Energy joined the EIM late last year.

While the report did not describe the specific reason for the uptick in transfers, PacifiCorp shut down four coal plants in April and May because of the EIM, according to Jonathan Weisgall, a vice president with Berkshire Hathaway Energy, PacifiCorp’s parent company.

“It is also worth noting that a significant level of energy exported by the ISO consisted of renewables,” CAISO said, although the report did not break down exports by resource type. ISO exports peaked in May, when increased solar output typically coincides with mild weather and modest loads in California.

The EIM provided participants with $23.6 million in gross financial benefits during the second quarter, compared with $18.9 million the previous quarter, the report said. PacifiCorp realized the largest share of benefits at $10.5 million, followed by CAISO at $7.9 million. NV Energy’s take increased threefold over the first quarter to $5.2 million.

Benefits can take the form of either cost savings — such as from reduced need for reserves or greenhouse gas credits — or increased profits from merchant operations. The benefits calculation nets out inter-BAA transfers that were scheduled ahead of the EIM’s 15- and five-minute market runs to avoid attributing contracted flows to the market.

CAISO also estimated the EIM’s effect on the procurement of flexible ramping capacity — resources equipped to respond to system variability stemming from the intermittency of renewable resources.

“Because variability across different BAAs may happen in opposite directions, the flexible ramping requirement for the entire EIM footprint can be less than the sum of individual BAA requirements,” the ISO said, resulting in “flexible ramping diversity savings” stemming from a reduced procurement of flexible resources. It said the EIM produced a 26% reduction in the need for those resources during the quarter.

The EIM has accrued $88.2 million in benefits for its participants since it commenced operation in 2014, according to CAISO. Arizona Public Service and Puget Sound Energy are preparing to enter the market in October 2016, followed by Portland General Electric in October 2017 and Idaho Power in April 2018.

August 1, 2016

Massachusetts Bill Boosts Offshore Wind, Canadian Hydro

By William Opalka and Rich Heidorn Jr.

With only hours to go at the end of its session, the Massachusetts legislature Sunday night passed a major energy bill that boosts Canadian hydropower and offshore wind as sources to meet the state’s clean energy goals.

Legislative negotiators worked through the weekend to reconcile House and Senate bills that differed over the volume of offshore wind, the inclusion of the Cape Wind project and support for new gas pipelines.

The final bill (H.4568) requires utilities to annually obtain 9,450 GWh of energy that qualifies for the state renewable portfolio standard, including onshore wind and Canadian hydropower.

It also orders procurement of 1,600 MW of offshore wind by 2027 — a compromise between the House’s 1,200 MW and the Senate’s 2,000 MW. It excludes Cape Wind, which the Senate would have included, because it has not won a competitive lease auction from the federal government.

First Mover

In January 2015, the U.S. Bureau of Ocean Energy Management awarded offshore leases to RES America Developments (lease area OCS-A 0500 for 187,523 acres) and Offshore MW (lease area OCS-A 0501 for 166,886 acres) in the Massachusetts Wind Energy Area, which starts about 12 nautical miles offshore. Last June, BOEM approved the assignment of RES America’s lease to DONG Energy Massachusetts.

DONG Energy platform (Dong Energy) - canadian hydro hydropower — *Source: Dong Energy*

BOEM said the area leased could support approximately 2 GW of wind generation.

Thomas Brostrøm, general manager of North America for DONG Energy Wind Power, said the legislation “will allow the creation of a viable offshore wind energy industry here in Massachusetts.”

The company said it plans to install capacity of up to 1 GW in the form of what it is calling Bay State Wind, a project it said will create 1,000 new jobs in Massachusetts during construction and approximately 100 new jobs to support the wind farm during its life.

“With world-class wind speeds and ideal water depths of between 130-165 feet, Massachusetts will be able to garner the economic benefits and supply chain development of being the first mover to site utility-scale offshore wind energy on the East Coast of the United States,” the company said.

DONG Energy, based in Denmark, operates 19 offshore wind projects totaling more than 3 GW with another 3 GW under construction.

Offshore MW, which is partnering with the nonprofit Vineyard Power Cooperative on its project, could not be reached for comment.

Other Provisions

In addition to jumpstarting offshore wind, the Massachusetts bill:

Promotes energy storage, authorizing the Department of Energy Resources to develop procurement targets and incentives for utilities, households and businesses;
Requires utilities to fix their most serious gas leaks; and
Expands energy efficiency and clean energy financing options for commercial customers under the Property Assessed Clean Energy program.

Lawmakers rejected the Senate’s proposed increase in the RPS, incentives for electric vehicle adoption and a prohibition of the so-called “pipeline tax,” which would allow electric distribution companies to assess ratepayers for construction of the extra capacity needed by natural gas pipeline owners to supply power plants.

Power plant owners and marketers oppose the policy, but state officials say the capacity is needed to mitigate price spikes caused by tight supplies.

The state Department of Public Utilities has already determined that such supply contracts are allowed under existing state law. An LNG supplier and an environmental group, supported by the Massachusetts attorney general, have challenged that interpretation. A ruling is expected soon from the state’s Supreme Judicial Court. (See More Pipelines for New England: ‘Gold-plating’ or Necessity?)

The energy legislation was one of several bills that required last-minute action at the Capitol before the July 31 deadline, after the legislative calendar was cleared for the Republican and Democratic national conventions.

Both houses had agreed that Massachusetts needed to significantly increase the amount of clean energy used to comply with its Global Warming Solutions Act, passed in 2008. Nuclear and coal-fired generation have been closing in recent years, and ISO-NE says the region is facing tight energy supplies. (See Massachusetts Clean Power Bill Hit from All Sides.)

Gov. Charlie Baker, a Republican, had opposed the Senate’s inclusion of Cape Wind and the “pipeline tax” prohibition. The governor issued a statement Monday thanking lawmakers for completing the energy bill and other legislation before the deadline.

“As our administration carefully reviews all of the legislation that lawmakers worked diligently to reach consensus on, I will continue to work across the aisle with our partners in the legislature to make Massachusetts a better place,” Baker said.

Enviros Supportive; Generators Dismayed

The New England Power Generators Association criticized the bill, saying it would “dramatically increase costs for consumers and undermine billions of dollars in energy investments” in the state.

“This energy bill represents the single biggest step away from a competitive electricity market ever taken in New England,” NEPGA President Dan Dolan said. “Power plant owners in Massachusetts will now be barred from competing for nearly 60% of the commonwealth’s electricity market. Instead, consumers will be forced to pay for huge amounts of power at above-market prices, eliminating opportunities for innovation and cost containment.”

Members of the Alliance for Clean Energy Solutions, a coalition of clean energy companies, environmentalists and consumer representatives, had a different perspective.

“This bill is a huge step on the path to a clean energy future,” said Peter Shattuck, Massachusetts director of the Acadia Center. “The legislation solidifies the commonwealth’s leadership in reducing carbon pollution and will help reduce our growing over-reliance on natural gas.”

Ocean-Turbines-(Dong-Energy) — *Source: Dong Energy*

Janet Gail Besser, executive vice president of the Northeast Clean Energy Council, said the bill “will not only accelerate the deployment of clean energy, but will also serve to accelerate our economy by providing a stable policy framework for investors and developers of clean energy.”

Emily Norton, director of the Sierra Club’s Massachusetts chapter, praised the legislature for its boost to offshore wind and “for forcing utilities to fix methane leaks that are warming our planet, killing trees, jeopardizing safety and wasting consumer dollars.”

“However the bill does not go far enough in terms of transitioning us to a clean energy economy and a transportation sector powered by clean electricity rather than petroleum,” she continued. “It is also very disappointing … in spite of a unanimous Senate vote to prohibit a pipeline tax, to see that language missing from the final version. We look forward to making further gains toward climate justice in the next legislative session.”

July 29, 2016

FirstEnergy Posts $1.1B Loss, Eyes Exit from Merchant Generation

By Ted Caddell

FirstEnergy on Friday posted a $1.1 billion second-quarter loss, much of it related to the pending closure of five coal-fired units, and CEO Chuck Jones said the company will not make any large investments to prop up its merchant generation business credit rating.

“We do not see baseload generation as a good fit for our company,” Jones said during a call with analysts on Friday. The company will not rule out “the possible sale or deactivation” of additional units as wholesale energy prices continue to languish, he said.

The losses make the outcome of the company’s two-year struggle with the Public Utilities Commission of Ohio to garner guaranteed income for its generators that much more critical.

FirstEnergy has 1,360 employees at its Akron, Ohio headquarters. The company says its total economic impact is $568 million annually in the state. *Photo Source: Wikipedia*

On July 25, it filed testimony with PUCO saying that a staff-recommended plan for a Distribution Modernization Rider of $131 million a year for three years wouldn’t be enough to provide credit support to the company so it can maintain its investment-grade credit rating and begin grid modernization initiatives (14-1297-EL-SSO). (See PUCO Staff Recommends $131M Annual Rider for FirstEnergy.)

It also balked at staff’s recommendation that the company be required to refund the subsidy if it moves from its Akron headquarters.

FirstEnergy has proposed a Retail Rate Stability rider that would provide it $558 million a year for eight years for credit support. Eileen Mikkelsen, vice president of rates and regulatory affairs, said the rider should be increased by an amount reflecting the economic development value of maintaining its headquarters in Akron.

In testimony filed July 22, Sarah Murley, an economic consultant hired by the company, said the headquarters has an annual economic impact of $568 million on Ohio’s economy, based on the 1,360 employees there (an annual payroll of $151.3 million) and its support of an additional 2,047 jobs ($93.3 million in annual payroll) by other businesses throughout Ohio.

Critics said the RRS rider and the economics benefits adder FirstEnergy is seeking could result in more than $8 billion in ratepayer-funded subsidies if they lasted the full eight years.

Shannon Fisk, an attorney with Earthjustice, said the annual price tag could be as high as $1.126 billion, if PUCO grants the $558 million RRS rider and the $568 million the company claims as the economic development value of its operations.

“FirstEnergy is proposing that the DMR would last through May 31, 2024, almost eight years, so the total amount of captive customer money provided under FirstEnergy’s proposal would be somewhere between $4 billion and more than $8 billion,” Fisk said.

Generation Business Driving Losses

FirstEnergy’s $1.1 billion loss represents $2.56/share on revenue of $3.4 billion. That compares with net income of $187 million, or 44 cents/share, during the same period last year.

In a news release, the company attributed the loss primarily to “asset impairment and plant exit costs in the company’s competitive business,” a reference to its recently announced plan to sell or close its Bay Shore plant near Toledo and retire four coal-fired units at its W.H. Sammis plant on the Ohio River. (See FirstEnergy Closing Largest Coal Plant in Ohio; Bay Shore also in Peril.)

It is with its eye on the corporation’s credit rating that Jones said the company will be looking to concentrate on its regulated businesses and begin to look for ways to exit the merchant generation business in the coming years.

“Our long-term goal is to operate as a fully regulated company,” he said. To illustrate its concentration on driving down generation costs, the company announced it was postponing by three years the expensive steam generator and reactor pressure head replacement at its Beaver Valley nuclear station in Pennsylvania, “and we’ve already identified $80 million in fossil fleet savings” annually going forward, he said.

Success Hinges on PUCO

Earlier in its negotiations with PUCO, the company proposed a 15-year period of guaranteed income for its struggling merchant plants. When that was denied, it came back with an eight-year plan, which was approved by PUCO but eventually jettisoned when FERC ruled that it would need to undergo federal review under the Edgar affiliate abuse test.

FirstEnergy withdrew its request and filed a modified request with PUCO that was not tied to any specific generation assets, with the understanding that it would not need FERC review. Critics have charged that it could cost customers between $3.6 billion and $4 billion.

The latest rider request would be an alternative to that plan.

In testimony, the company warned that it could receive a credit downgrade without the increase in revenue. Their latest rider plans, Mikkelsen said, would provide a “more reliable hedge against increasing market prices by using proxy costs and generation capacity and output for diverse generation in the marketplace without reference to any particular generating facilities.”

“By ‘priming the pump,’ the companies will be able to obtain lower financing costs when grid modernization spending begins, resulting in lower rates for customers,” she said.

Although the rider would be, in part, to fund grid modernization projects, she said the company should be able to collect it before that work commences.

Jones said during the analyst call that the company expects a ruling from PUCO by September. He declined to say what they would do if PUCO rules against the company.

“When we know that outcome, we will let you know what the impact is on our credit ratings,” he said. “We have a number of other strategic options we can execute, but it is premature to speculate.

“We are focused on keeping our investment-grade rating of our holding company and the rest of our regulated entities,” he said. He said there would be no large infusions of capital in the merchant business in any attempt to shore up its sagging credit rating.

Another company facing the same economic pressures relating to low wholesale prices, American Electric Power, has said it will devote its energies to “reregulating” the energy market in Ohio. Jones said he is “pulling for” AEP’s efforts, but “at this point in time, we are not actively joining in with them.”

Critics Blast Rider Plans

To FirstEnergy critics, the new testimony is hard to swallow.

“FirstEnergy’s recent testimony asks the PUCO to reject the staff’s criticism of — and embrace — its proposal for a ‘virtual PPA,’ in which the utility’s distribution subsidiary would receive what the Ohio Consumers’ Counsel estimates would be some $4 billion over eight years,” said Dick Munson of the Environmental Defense Fund.

“FirstEnergy’s level of greed is laughable, if it were not so seriously expensive for Ohio consumers … and should be completely rejected,” he said.

“The customers should not be providing credit support, and without serious restrictions, there is nothing to ensure it will not be just the same type of bailout” it already failed to get, Earthjustice’s Fisk said.

July 29, 2016

NextEra Reaches Deal for Oncor

By Rory D. Sweeney

NextEra Energy announced Friday morning that it had reached an agreement to buy cash-strapped Energy Future Holdings’ profitable Oncor assets in a deal that values the Texas transmission and delivery subsidiary at $18.4 billion.

The sale, along with a favorable tax decision also announced Friday, would move EFH closer to an exit from its Chapter 11 bankruptcy, which it declared in April 2014.

The deal for Oncor — Texas’ largest utility, with 119,000 miles of distribution and transmission lines and more than 3 million meters — also bolsters NextEra’s position as a player in the Texas energy market. It has been involved in Texas since 1999 through transmission provider Lone Star Transmission.

nextera, oncor — Location of NextEra generation *Source: NextEra*

NextEra CEO Jim Robo said he plans to continue business as usual at Oncor, which he called “one of the most efficient, reliable and low-cost utilities in the nation.”

“We are incredibly impressed by Oncor’s management team and its employees, and we are committed to retaining the Oncor name, its Dallas headquarters and local management,” Robo said. “NextEra Energy shares Oncor’s strategy of making smart, long-term investments in transmission and distribution.”

Approvals Needed

The sale must be approved by both the Public Utility Commission of Texas and a federal bankruptcy court. If approved, it would divest EFH of its 80% stake in Oncor for about $14.9 billion, NextEra said. The deal would be primarily cash, along with some NextEra stock, according to an 8-K EFH filed Friday with the U.S. Securities and Exchange Commission.

The deal can be canceled if the PUCT’s approval includes any of several conditions that the agreement outlines as overly “burdensome” or if it hasn’t closed by March 26, 2017, though there is the potential for a 90-day extension.

Although EFH is allowed to seek other offers, it would be on the hook for a $275 million termination fee if the NextEra deal receives PUCT and court approval and EFH eventually sells to someone else.

Other Suitors

That creates a hurdle for other rumored Oncor suitors, including Berkshire Hathaway Energy, Fidelity Management, Edison International and Hunt Consolidated. Also interested was the investor group led by Borealis Infrastructure Management and Singapore’s GIC Special Investments that together own the other 19.75% of Oncor. (See With Oncor Back on the Market, Multiple Suitors Line Up.)

Hunt remains optimistic, releasing a statement that called the announcement “not a surprise and, as we know, is just another step in a very long process.”

“Hunt will remain involved as the process unfolds, as the advantages of maintaining ownership of Oncor by Texans for Texans are clear,” Hunt spokeswoman Jeanne Phillips said.

Hunt previously appeared to be a frontrunner for Oncor, but its bid foundered in May when the PUCT imposed conditions it said were unacceptable. Hunt has since sued to reopen the case. (See Hunt Reopens Oncor Bid in Lawsuit Against PUCT.)

Tax Liability Eliminated

EFH’s 8-K also announced a favorable ruling from the Internal Revenue Service that eliminates a potential $4 billion tax liability for its remaining assets.

EFH has proposed a separate path for its Luminant generation arm and TXU Energy retailer, selling them to senior creditors who are owed $24.4 billion. Bankruptcy court hearings on the proposed sales are scheduled to begin Aug. 17 in Delaware.

NextEra’s Other Moves

NextEra also announced on Friday that its competitive energy subsidiary, NextEra Energy Resources, is selling its interests in two Pennsylvania gas-fired generation plants to a Connecticut-based investment firm for $760 million.

Starwood Energy Group Global, which focuses on gas-fired and renewable generation, transmission and storage facilities, agreed to buy the 790-MW combined cycle Marcus Hook Energy Center and the 50-MW simple cycle Marcus Hook 50 Energy Center in Marcus Hook, Pa.

NextEra says the sale, which is expected to close in the fourth quarter of 2016, will result in net proceeds of approximately $255 million after repayment of the existing project-related financing.

July 28, 2016

Exelon’s Constellation to Buy Con Ed’s Retail Operation

By Ted Caddell and Rich Heidorn Jr.

NASHVILLE, Tenn. — Exelon’s Constellation Energy Resources unit is buying Consolidated Edison’s retail energy business as it continues its efforts to hedge against falling wholesale power prices.

Constellation’s purchase of the retail division of ConEdison Solutions will give it another 560,000 residential, commercial and business electricity and natural gas customers in Texas, D.C. and 12 states in the Northeast, Mid-Atlantic and Midwest. If completed, it will make Constellation the largest competitive energy supplier in the U.S., with 2.5 million customers. Terms of the deal were not disclosed.

“This agreement provides an opportunity to grow our retail electricity and natural gas business in strategically attractive markets where we’re best suited to match load served with Exelon generation assets,” Constellation CEO Joseph Nigro said. “ConEdison Solutions has a reputation for delivering value to customers, and our combined companies will continue that tradition with a broad array of energy products and services at competitive prices.”

“With their industry-leading position, we are confident that the retail electricity and natural gas business will continue to thrive as part of Constellation,” ConEdison Solutions CEO Mark Noyes said. “This move will enable our company to focus our attention and our resources on making energy services and renewable energy offerings even more competitive and well-positioned for rapid growth.”

Having guaranteed customers for its wholesale generation fleet protects the company from volatility in wholesale prices.

It was the company’s efforts to minimize price risk that also led Exelon to its $6.8 billion purchase of Pepco Holdings Inc. this spring. The addition of PEPCO, Delmarva Power and Atlantic City Electric brought Exelon’s customer base to 10 million.

No More Debt

Exelon CEO Chris Crane gave no hint of the Con Ed deal in an appearance Monday at the National Association of Regulatory Utility Commissioners’ summer meeting.

In an interview with NARUC President Travis Kavulla, Crane said the company would not seek debt-financed acquisitions despite the current low interest rates.

exelon, coned, constellation — Exelon CEO Christopher Crane (L) and NARUC President (and Montana PSC Vice Chair) Travis Kavulla © *RTO Insider*

Independent power producers who seek greater leverage when interest rates are low can find themselves squeezed when rates rise, he said.

“We operate in probably a little bit more conservative way,” he said. “Our focus is actually reducing debt and maintaining a strong capital structure and understanding we’re at a low point in the [interest rate] cycle. It would not be prudent to think that this is a sustainable environment going forward.”

Meanwhile, Exelon is seeking help from state officials to eliminate the losses at its nuclear plants in Illinois and New York.

The company said in June it will close its Clinton and Quad Cities nuclear plants after the Illinois General Assembly adjourned without acting on a bill that would have subsidized the money-losing stations. (See Exelon to Close Quad Cities, Clinton Nuclear Plants.)

Crane said the company wants to preserve the plants’ 4,200 jobs — “The tax base for DeWitt County dries up and goes away if the Clinton plant shuts down,” he said — but can’t continue to absorb the losses.

In New York, where the company has three nuclear plants, it has offered to buy Entergy’s struggling FitzPatrick plant if state regulators complete a plan to subsidize them.

Crane said the company has had a “very productive dialog” in New York, adding that the state’s proposed zero emission credits would create a “level playing field for carbon-free generation.”

“If other states that our … nuclear assets [operate in] want to approach the market like that we would like to do that,” he said. (See Commenters Laud, Blast New York’s Nuclear Subsidy Plan.)

July 28, 2016January 23, 2024

Governance Plan Critics Urge Slowdown of Western RTO Development

By Robert Mullin

Critics of CAISO’s most recent draft proposal of principles for governing a Western RTO contend the ISO is moving too quickly to get a plan to California lawmakers before the close of the current legislative session in September.

Speaking at a joint state agency workshop in Sacramento on Tuesday, multiple industry participants expressed concern that the ISO’s expedited effort to complete a proposal will result in a governance framework that defers too many issues to be resolved in the future.

The workshop — hosted by CAISO, the California Public Utilities Commission and the California Energy Commission — marked the last public forum in which stakeholders could discuss the proposal before it gets forwarded to Gov. Jerry Brown, who is expected to transmit a final version to lawmakers in August. California law requires the legislature to approve the ISO’s transformation into an RTO, a process that would result in the state losing direct authority over the grid operator.

‘One of the Largest Issues’ in CAISO History

“Regionalization is one of the largest issues facing the ISO in its history,” said Carolyn Kehrein, principal consultant for the Energy Users Forum, which represents large energy customers in California. “Unfortunately, the changes [to the original proposal] were made to meet a quick turnaround.”

Among those changes were provisions that clarify the composition and responsibilities of a transitional committee tasked with creating a final governance plan; reaffirm that any such plan must respect individual states’ sovereignty over electricity matters they currently regulate; and set a specific timeframe for the appointment of a final RTO board (See Revised Western Governance Plan Highlights State Authority.)

The revised proposal defined the makeup of a Western States Committee (WSC), which would consist of state-appointed representatives and two nonvoting members representing publicly-owned utilities and federal power marketing administrations (PMAs). A provision requiring load-weighted voting on the WSC was altered to enable the transitional committee to develop a process that factors in “some form of weighted voting based on load,” such as a supermajority requirement.

An expanded CAISO would first take in PacifiCorp’s service territories, but the ISO is preparing for other transmission owners to join in the near future.

CAISO also added a provision for the RTO to adopt a capacity market at the request of member states, while eliminating a provision for tracking greenhouse gas emissions — a measure the ISO contended was more suited for inclusion in market operations than as a principle in an overarching governance plan. The GHG mechanism would have monitored carbon emissions from all thermal plants participating in the RTO, not just those located in California.

Western States Committee Powers

“Our biggest concern is — how many more revisions will there be before this is final?” said Matt Freedman, an attorney with The Utility Reform Network (TURN), which represents small customers. “This feels like a working draft.”

Freedman said his organization was concerned that the WSC’s powers were reduced in the revised proposal, which now stipulates that the RTO’s board can — in certain circumstances — override the requirement for the committee’s approval for Section 205 filings with FERC.

TURN was also worried about the “watering down” of an earlier prohibition on capacity markets, as well as the removal of the reference to GHG tracking.

Sierra Club staff attorney Travis Ritchie wondered how California would manage its GHG program without making emissions tracking a core principle, saying that the absence of tracking in the Energy Imbalance Market has allowed carbon leakage into the state’s power market.

“We need to agree what our fundamental principles are before opening up this market,” Ritchie said. “We have to set out our clear requirements first.”

Tony Braun, an attorney representing the California Municipal Utilities Association (CMUA), criticized the proposal for deferring the decision to create an RTO market advisory committee to the transitional committee.

“We think the transitional committee scope is too broad,” Braun said. “I don’t think the states are going to go for it.”

He cautioned the ISO not to move too quickly to advance a proposal to lawmakers given the number of “outstanding issues” related to governance.

‘Shouldn’t be Rushing’

“We shouldn’t be rushing forward now. The train is not going to come off the tracks,” Braun said. “Let’s not get embedded in a discussion in the legislature this year.”

“It seems to me that you’re placing a heavy burden on the people in the building just north of this,” said Imperial Irrigation District (IID) General Manager Kevin Kelley, referring to legislators in the nearby state capitol.

Kelley said that his utility, which operates its own balancing authority area in Southern California’s Inland Empire region, is opposed to CAISO’s regionalization because it will require the state to relinquish its oversight over an organization that suffered costly market manipulation during the 2000-2001 Western Energy Crisis. IID last month sued CAISO to force public disclosure of protected information related to the ISO-commissioned studies supporting regionalization.

Kelley suspected the “driver” of regionalization was a “for-profit corporation” — namely, PacifiCorp.

“I would encourage you not to hurry it up because that’s what PacifiCorp wants you to do,” he added.

Supporters Weigh In

The revised proposal also had its supporters.

“We do feel like this process [for creating the proposal] has been very transparent,” said Jennifer Gardner, staff attorney for Western Resource Advocates, an environmental group. “We’ve been pleasantly surprised that recommendations were taken to change the second proposal.”

Gardner called the regional market “the best opportunity to improve business as usual” in the West and said that any proposal taken to the legislature “should be as broad as possible to not tie the hands of the transitional committee.” She said that GHG tracking on a regionwide basis would be important for assessing the environmental benefits of the market.

Jonathan Weisgall, vice president of legislative and regulatory affairs at PacifiCorp parent Berkshire Hathaway Energy, said CAISO’s regionalization studies made it “very clear” that the region’s 2030 GHG reduction goals “won’t happen without a market.”

In the “unlikely event” that regionalization did increase emissions from PacifiCorp’s coal plants, the company would work to mitigate them, Weisgall said.

“In our Midwest utility [MidAmerican Energy], where we’re moving to 80% renewables, we could not do that without a regional ISO,” Weisgall said.

Preserving State Authority

Jan Strack, a transmission planning manager with San Diego Gas & Electric, said his utility has been in favor of expanding the market for a long time. He said the infrastructure for the market is already in place and that it wouldn’t cost much money to expand it. Strack also contended that an expanded market would enable California to achieve its GHG goals at a lower cost.

“We need to avoid some roadblocks [in the governance plan],” Strack said. “The first one is preserving state authority.

“At the same time, we have to recognize that FERC has authority over interstate commerce,” he added. “That’s one area we would be uncomfortable handing over to the Western States Committee.”

“We support regionalization of the ISO and the associated market because, frankly, they work,” said Robin Smutny-Jones, director of California policy and regulations for Avangrid. “That’s why there’s been a proliferation of RTO-like structures across the country and around the world.”

Smutny-Jones acknowledged the RTO would need to work through contentious issues such as transmission access charges and regional resource adequacy, both of which would be left to a newly constituted RTO.

“But other states have done it, and the West can too,” she said.

July 26, 2016

New York ESCO Order Vacated by Court

By William Opalka

A New York judge has vacated the Public Service Commission’s February “reset order” that sought to overhaul the business practices of retail energy suppliers.

The July 22 order by acting state Supreme Court Justice Henry Zwack said energy service companies (ESCOs) were denied due process by the commission, especially by the strict time frame for compliance (870-16, et al.).

The order bars the PSC from enforcing a requirement that ESCOs guarantee retail and small commercial customers will pay no more than they would for default service (excluding contracts offering at least 30% renewable power) (15-M-0127, et al.).

It also throws out a requirement that ESCOs receive “affirmative consent” from such customers before renewing them from a fixed rate or guaranteed savings contract into one that provides renewable energy but does not guarantee savings.

Zwack left standing language the commission added to its business practices imposing tougher enforcement measures against those who prey on vulnerable or uninformed customers.

While regulators insisted they acted to protect customers from deceptive business practices, ESCOs said the order effectively killed customer choice in New York.

The order “is arbitrary and irrational in that it imposes the unexplained and harsh 10-day implementation period for the order, which amounts to a major restructuring of the retail energy market — or even its collapse,” Zwack wrote in his 26-page opinion. “The court is perplexed that implementation would be so immediate, when by the PSC’s own admission so many questions remain.”

PSC officials said they will address the judge’s procedural concerns promptly.

The commission acted in response to what it said was unscrupulous business practices by some retailers. ESCOs immediately challenged the order in court and also sought a rehearing by the PSC. (See Retailers Ask for Rehearing of NY Guaranteed Savings Order.) A stay was granted in March as the court challenge was pending.

Retail Energy Supply Association spokesman Bryan Lee said the group was “gratified that the court vacated the … order, finding the PSC action to be ‘irrational, arbitrary and capricious’ and failed to offer ESCOs ‘an opportunity to be heard in a meaningful manner and at a meaningful time.’ The court found that ESCOs were ‘stripped of any meaningful opportunity to participate in the promulgation of the reset order.’”

Zwack reaffirmed that the PSC maintains jurisdiction over retail rates, turning aside a challenge from the ESCOs.

“The court’s affirmation that the PSC has legal jurisdiction over ESCOs is an important win for the PSC and millions of consumers in New York,” PSC spokesman James Denn said in a statement. “The procedural flaws highlighted by the court have been addressed, or will be, as we continue to move forward with Gov. [Andrew] Cuomo’s far-reaching plan to protect customers from unscrupulous ESCOs. Make no mistake, we are putting an end to deceptive ESCO practices that harm electric and gas customers.”

Zwack’s ruling does not affect a PSC order earlier this month imposing a moratorium on ESCOs signing up additional low-income customers. Regulators issued the order after a collaborative effort failed to develop a formula under which customers could be guaranteed savings. (See NYPSC Declares Moratorium on Low-Income Sign-ups.)

In a statement released Tuesday, PSC Chair Audrey Zibelman defended the commission’s actions.

“When ESCOs were charging multiple times the prices that utilities charge for energy, and consumer complaints of deceptive marketing practices poured in by the hundreds, the commission took bold action in February to protect consumers,” she said. “Unfortunately, as a result of the litigation, ESCO customers are still paying millions of dollars more every month than they should be paying for electric and gas services. But this injustice will be short-lived. … The commission will easily address the procedural concerns raised by the court and will continue our work to ensure that all electric and gas consumers in New York have the protections they need and deserve.”