Page 1549 – RTO Insider

September 23, 2014

Gas Trading Platform Finds Few Takers at Moeller Meeting

By Michael Brooks

WASHINGTON — Natural gas industry representatives reacted coolly last week to the idea of a centralized gas trading platform, suggesting the industry could improve its service to electric generators through smaller, incremental changes.

The issue was the subject of a nearly three-hour meeting called by Federal Energy Regulatory Commissioner Phillip Moeller.

The idea of a trading platform for natural gas was proposed at an April 1 FERC technical conference by Donald Sipe, an attorney representing the American Forest and Paper Association. (See PJM May Offer Firm-Fuel Premium.)

Sipe said a trading platform would address a lack of price transparency and liquidity in the gas market by applying lessons from RTOs on matching supply and demand in real time.

Last week’s discussion was not an official FERC meeting, although Moeller did obtain a docket number (AD14-19) for receiving written comments. He was the only commissioner to attend.

PJM: Dual-Fuel Solution?

Among those who spoke was PJM Executive Vice President of Operations Mike Kormos, who recalled PJM generators’ complaints last winter about the difficulty in getting gas and the uncertainty in when they will receive it. “From a reliability perspective, that’s unacceptable to us,” Kormos said. “We can’t just roll the dice and hope somebody gets gas.” Kormos said that the answer for the electric side may be to “just forget [gas-only units] and go dual fuel.”

“Maybe it’s not the most economic solution, but if the gas side can’t be flexible enough to meet our needs, then our answer’s got to be, from a reliability perspective, that we need to go to dual fuel and something else,” he said.

Christine Tezak, managing director of ClearView Energy Partners, said no solution will be perfect. “If you’re trying to do everything at least-cost dispatch, in five-minute increments, at some point you do have to reconcile the fact that you are using a fuel that’s only moving at 23 mph. And electricity is moving at the speed of light, and there’s going to be a disconnect.”

Gas industry representatives questioned the need for a trading platform, instead calling for spending on additional pipeline capacity.

Who Pays?

“The problem we’ve got here is, who pays for what is desired?” said Don Santa, CEO of the Interstate Natural Gas Association of America. “Where is the wherewithal for those who want these capabilities, in terms of the infrastructure to support the services, to be able to pay for it?”

Bob Reilley, vice president of regulatory affairs for Shell Energy, said any trading platform should be voluntary. “I can’t object to a user putting out his needs on a public forum,” Reilley said. “On the other hand … if he doesn’t want to do so, I would still like to be able to serve him.”

Some electric industry representatives also questioned the need for a centralized trading clearinghouse.

“We don’t see the type of weekend issues or off-peak hours issues that I’ve seen discussed here,” said Jerry Yupp of Florida Power & Light. “We’re able to find the gas we need dealing directly with suppliers, not through an electric platform on the weekends.”

Moeller tried to assuage the concerns of those on the gas side who were worried that FERC would make a broad, sweeping order to change the gas market. Rather, Moeller said, he wanted both sides to reach an agreement so that FERC would not have to react to a crisis, such as the January polar vortex.

“The fact that we have a convergence of the electric industry and the natural gas industry, which is only increasing — in one sense it’s a celebration of the fact that we have plentiful domestic gas that we didn’t know we had a few years ago,” Moeller said. “It is a really good set of problems to have. It’s a chance for everyone to win.”

September 23, 2014June 15, 2023

Brattle: Missing Energy Efficiency Costing PJM Load $433M Annually

PJM electric consumers are spending $433 million a year in excess capacity because the RTO’s load forecasts fail to capture the full impact of energy efficiency, according to a report by The Brattle Group for a coalition of environmental organizations.

Unlike ISO-NE and NYISO, PJM’s energy forecasts do not account for all energy efficiency projected to come online during the forecast period, according to the report, which was commissioned by the Sustainable FERC Project, an initiative of the Natural Resources Defense Council and others.

Improved forecasts could reduce both environmental impacts and customer costs, the report said.

Including the missing energy efficiency would reduce PJM’s cumulative average growth rate for energy and peak demand to 0.8% from 1.1% through 2022, with a reduction in total customer costs of $433 million annually through 2017/18 and by $127 million annually beyond.

Short-run capacity reductions of $527 million annually are partially offset by $93 million in increased energy costs due to reduced reserve margins.

The projected cumulative GWh savings from new energy efficiency relative to 2013 will reach 11,213 GWh (1.3% of load) in 2017 and 27,245 GWh (3% of load) in 2022.

“In ISO New England (ISO-NE) and the New York ISO (NYISO), targeted efforts have been undertaken to capture the effects of existing and planned energy-efficiency programs that may be unaccounted for in the forecasting process,” the report said. “Such targeted efforts do not exist for the PJM Interconnection.”

PJM Capturing only Some Energy Efficiency

PJM’s current load forecast includes historical energy efficiency embedded in econometric forecasts and supply-side energy efficiency that clears in capacity auctions.

“However, this approach does not capture the existing EE that did not bid into/clear in the [auctions] or any new/incremental EE programs predicted beyond the three-year forward capacity market window,” Brattle said. “Both ISO-NE and NYISO have addressed these issues in their load-forecasting processes to account for the full effects of the EE investments and produce a more accurate load forecast.”

PJM Responds

PJM spokesman Ray Dotter said the RTO has “a solid record for including energy efficiency” in its markets and load forecasts, noting that the last Base Residual Action cleared 1,339 MW of energy efficiency.

“The reduction in the load forecast that Brattle predicts for 2017, 1.1%, is well within the margin of error expected over a three-year forecast,” Dotter said. “The annual capacity market also procures 2.5% less capacity than the load forecast indicates to allow for corrections to the expected demand closer to the actual delivery year. The ‘hold back’ provides opportunities for energy efficiency in the shorter-term auctions.”

Still, Dotter said PJM is considering improvements in the way it incorporates efficiency into its forecasts. Dotter said the RTO will begin discussing potential changes and the impact of the D.C. Circuit Court decision on demand response with stakeholders soon. (See related story, Appeals Court Snuffs Hope for FERC DR Jurisdiction.)

Study Methodology

Brattle based the study on publicly available filings for each of the 20 utility zones in PJM: utility and state integrated resource plans and demand side management filings, and Energy Information Administration Form 861.

The consultants applied their methodology to publicly available data for New England and found that it identified about half the missing energy efficiency identified by ISO-NE. “This implies that our projection approach is likely to underestimate the level of new EE that will be implemented in the forecast period. Therefore, our results are most likely on the conservative side.”

Stakeholder Criticism

The Sustainable FERC Project is a coalition of clean energy advocates and other public interest organizations “focused on breaking down federal regulatory barriers to the grid integration of renewable energy demand-side resources.”

The Brattle report provides support for stakeholders representing PJM load, who complain that the RTO’s load forecasts have been too high since at least the recession.

One of the authors of the Brattle report, Kathleen Spees, Ph.D., also helped lead the consulting firm’s review of PJM’s Variable Resource Requirement curve parameters, which Brattle performed for the RTO as part of the recent Triennial Review.

Brattle’s work on the 2014 Triennial Review did not include an analysis of PJM’s load forecasting. In its 2011 review, Brattle recommended PJM “increase the transparency and stakeholder understanding of the load forecasting process,” noting that it had been the subject of stakeholder complaints.

September 23, 2014

PJM Revising Policy on Prohibited Investments

PJM will revise its conflict of interest policy to reflect the increasing number of consumer product companies, manufacturers and technology companies becoming involved in the electric industry.

The Federal Energy Regulatory Commission prohibits PJM staff and board members from owning stock in any “market participant,” which FERC defines as including PJM members and their affiliates. Exempt are companies that do “not have economic or commercial interests that would be significantly affected by the [RTO’s] actions or decisions.”

PJM’s proposed revisions to its Operating Agreement are based on those approved by FERC for NYISO and MISO.

PJM plans to add a new Section 10.2.1 to the OA (“Financial Interests”) similar to its current Code of Conduct. The section will include a new definition of “prohibited securities,” applicable to the stocks of PJM members, non-incumbent transmission developers, “eligible customers” — transmission owners, power marketers or others generating electricity for resale — and their affiliates.

PJM would allow employees and directors to invest in companies with a de minimis relationship to the RTO, as determined by a “no” answer to each of the following questions:

Is the company’s primary business purpose to transact in the electricity industry or is it a non-incumbent transmission developer pre-qualified to be a designated entity under PJM’s transmission planning?
Are the member’s annual PJM total financial settlements more than 0.5% of the member’s annual gross revenues?
Are the member’s annual financial settlements in PJM more than 3% of the total transactions for which PJM Settlement is a counterparty?

General Counsel Vince Duane said the changes were needed to simplify compliance and ensure the policy doesn’t create employee recruiting or retention problems.

”It’s no longer intuitive that a Google or a Microsoft is not a member,” Duane said. Google is an investor in the Atlantic Wind Connection, a proposed transmission project to serve off-shore wind generators.

PJM will seek Members Committee approval Oct. 30.

September 23, 2014June 15, 2023

LaFleur Puts Stamp on FERC with Appointments

A senior-level retirement has given Cheryl LaFleur an opportunity to put her stamp on the Federal Energy Regulatory Commission during her brief chairmanship.

LaFleur announced last week that Michael C. McLaughlin, director of the Office of Energy Market Regulation (OEMR), is retiring Dec. 1 after 30 years at the agency. LaFleur appointed Jamie Simler, currently director of the Office of Energy Policy and Innovation (OEPI), as his successor.

Replacing Simler as head of OEPI will be Arnie Quinn, currently director of OEPI’s Division of Economic and Technical Analysis.

Last month, LaFleur promoted David Morenoff to General Counsel, where he had been serving in an acting capacity for nearly two years.

First Meeting for Bay

Last week’s meeting was the first since the Aug. 20 resignation of Commissioner John Norris and the first for Norman Bay, former director of the Office of Enforcement, as commissioner. (Bay’s deputy, Larry Gasteiger, succeeded him as acting director.)

Bay announced that two of Norris’ former aides, Laura Vendetta and Benjamin Williams, have joined Bay’s staff as confidential assistant and program analyst, respectively. Bay also introduced his three other advisors: Bob Kennedy, formerly of the Solicitor’s Office; Janel Burdick, formerly in Enforcement’s Division of Analytics and Surveillance; and Tatyana Kramskaya, a former manager in OEMR’s East Branch.

LaFleur announced that former Norris aide Andy Weinstein had joined her office as legal advisor.

Honorable’s Schedule Unclear

Meanwhile, hopes for a pre-election confirmation hearing for Colette Honorable are in doubt following the Sept. 7 death of Honorable’s husband, Rickey Earl Honorable, 46. President Obama nominated Honorable, chairman of the Arkansas Public Service Commission, to replace Norris on Aug. 28.

September 23, 2014

Members Deadlock on Change to $1,000 Offer Cap

PJM stakeholders deadlocked Thursday over changes to the $1,000 energy offer cap, leaving the RTO’s board considering yet another unilateral filing with the Federal Energy Regulatory Commission.

None of three proposals considered by the Markets and Reliability Committee won a two-thirds majority.

The primary proposal from the Cap Review Senior Task Force (proposal B), which would have eliminated the cap for cost-based offers and let them set LMPs, won only 42% support in a sector-weighted vote of the MRC, with unanimous opposition from the Electric Distributor and End Use Customer sectors.

The proposal would have limited cost-based offers to production cost plus a 10% adder for unquantifiable costs. Market-based offers would be limited to the cost-based offer or the cap on 30-minute demand response ($1,849/MWh for delivery year 2015-16), whichever is more.

A revised version of that proposal that would maintain the cap on market-based offers also failed with 42%.

An alternative by the Delaware Public Service Commission (proposal A), which would have allowed cost-based offers above $1,000/MWh but would not have allowed them to set LMPs, also fell short at 61%. The proposal won unanimous support from the ED and EUC sectors and almost 60% of Other Suppliers, but it received less than 30% of Transmission Owners and Generation Owners. (See voting report.)

In January, FERC granted the RTO’s request for a waiver allowing make-whole payments for generators with operating costs more than $1,000. PJM said the waiver was necessary to allow some gas-fired generators to cover marginal costs that hit $1,200/MWh in late January, as spot gas prices spiked as high as $140/mmBtu. The January order allowed PJM to fund the make-whole payments through uplift charges. In February, FERC granted a second waiver eliminating the cap through March 31, allowing high-cost generators to set LMPs.

One-Sided Debate

While generators’ representatives were curiously silent before the votes, load representatives were vocal in their opposition to eliminating the offer cap, which they said was necessary to counter market power and ensure generators operate efficiently.

“Our members have a strong desire to retain the cap as it is,” said Dan Griffiths, executive director of the Consumer Advocates of PJM States.

Walter Hall of the Maryland Public Service Commission said there were only a few generators — reliant on gas supplies from constrained pipelines — that claimed costs exceeding $1,000/MWh in January. “You’re really just importing market power from the natural gas industry into the electric industry,” Hall said. “We think that’s inappropriate.”

John Farber of the Delaware PSC said there was little evidence of the need to lift the offer cap. “It’s yet to be proven that there is a boogey man in the closet,” he said.

Farber said his proposal ensured that no generator would be forced to operate at a loss while preserving the “circuit breaker” of the current cap by ensuring generators with lower costs don’t receive a windfall from higher LMPs.

Susan Bruce, representing the PJM Industrial Customer Coalition, said her group was supporting the Delaware proposal “in the spirit of compromise and in the interest of having one less [disputed] issue before FERC.”

David “Scarp” Scarpignato of Direct Energy said offers exceeding $1,000 should set LMPs. “We don’t believe actual costs should go into uplift,” he said. “It’s unhedgeable. That’s a really bad deal for a load-serving entity.”

One More Try

When the last of the three votes failed, PJM’s Adrien Ford declared the task force’s work done. Andy Ott, executive vice president for markets, indicated that PJM’s Board of Managers would consider a unilateral Section 206 filing with FERC. “We do have to move forward if the group can’t reach consensus,” he said.

But Ed Tatum of Old Dominion Electric Cooperative said stakeholders should make a last-ditch effort to reach compromise before the next Members Committee meeting Oct. 30. “We need to have a Section 205 [consensus] filing,” he pleaded.

PJM CEO Terry Boston also urged members to reach consensus. “There is a limit on how many issues we can dump on FERC between now and Dec. 1,” he said. “I don’t think FERC is going to respond kindly if we keep bringing 206 disagreements.”

The task force, which had been slated for sunsetting, will instead meet at 1 p.m. Oct. 10 to consider its options.

September 23, 2014June 15, 2023

Federal Briefs

The Government Accountability Office expects 13% of the nation’s coal-fired generating capacity to retire between 2012 and 2025, an increase from the 2% to 12% range the GAO predicted two years ago.

At the same time, the GAO is reducing its forecasts for coal capacity receiving retrofits to meet Environmental Protection Agency emission regulations to 70 GW, down from its previous forecast of 102 GW.

About 38% of the total 42.2 GW expected to retire are in four PJM states: Ohio (14%), Pennsylvania (11%), Kentucky (7%) and West Virginia (6%), according to the GAO report released last week.

In a 2012 report, the GAO called for the EPA, the Department of Energy and the Federal Energy Regulatory Commission to develop a formal, joint process for monitoring the electric industry’s response to EPA regulations.

The new report said the agencies have taken steps to implement the recommendation, including regular joint meetings with RTO officials and other stakeholders.

The new report, requested by Alaska Sen. Lisa Murkowski, the ranking Republican on the Senate Energy and Natural Resources Committee, makes no additional recommendations.

Senate Confirms 2 for US NRC Posts

The Senate last week confirmed two nominees to the Nuclear Regulatory Commission, bringing the commission to full strength. Jeffrey Baran, aide to Rep. Henry Waxman (D-Calif.), and Stephen Burns, a former NRC general counsel, were confirmed with votes that generally fell along party lines.

Baran replaces Bill Magwood, who has accepted a position with the Paris-based Nuclear Energy Agency. He will finish Magwood’s term, which expires June 30, 2015. Burns will replace George Apostolakis, who left June 30 after the White House did not re-nominate him. Burns’ term will run through June 30, 2019.

More: The Wall Street Journal (subscription required)

EPA to Accept Comments on Carbon Rule Until Dec. 1

The Environmental Protection Agency has extended the comment period on its proposed carbon emission rule for 45 days to Dec. 1.

“We’ve got a number of requests from a variety of stakeholders that they would like more time,” Janet McCabe, acting assistant administrator for the Office of Air and Radiation, said in a press conference Tuesday.

The rule, which would affect existing power plants, is intended to cut carbon emissions from the power sector 30% below 2005 levels when it is fully implemented in 2030. The agency has received about 750,000 comments so far. McCabe said the expanded comment period would not affect plans to finalize the rule by June 1, 2015.

More: EPA

White House Threatens Veto on Energy Bill Package

The Obama Administration last week threatened to veto a package of Republican-sponsored House bills that include expanding offshore drilling, approval of the Keystone XL pipeline and expedited approval of liquefied natural gas exports.

Republicans passed the proposals in a move to emphasize their stance against President Obama’s energy policies. But the White House said the bills “would roll back policies that support the continued growth of safe and responsible energy production in the United States” and run contrary “to the administration’s commitment to promoting safe and responsible domestic oil and gas development.”

More: The Hill

Consumers Energy Reaches Accord with EPA and Justice Department

Michigan’s Consumers Energy will spend more than $2 billion on emissions-control upgrades at Michigan power plants as part of an agreement with the Environmental Protection Agency and the Department of Justice. The settlement comes at the end of five years of negotiations between the parties.

The EPA in 2007 and 2008 alleged that the company violated opacity regulations and operated some plants without necessary permits or that required emissions-control equipment. The company also agreed to pay a $2.75 million civil penalty.

The company also agreed to retire seven of its oldest coal-fired power plants: three units at the J.R. Whiting Generating Complex near Luna Pier; two at the B.C. Cobb Generating Plant in Muskegon; and two at the Karn/Weadock Generating Complex near Bay City, with a combined capacity of 950 MW.

More: PennEnergy

NRC Approves Use of New Reactor for North Anna

The Nuclear Regulatory Commission has approved GE-Hitachi Nuclear Energy’s Economic Simplified Boiling Water Reactor design for a proposed third unit at Dominion Virginia Power’s North Anna nuclear power station. The NRC approval means that the reactor design meets safety requirements for use in the U.S.

The NRC’s OK was part of the design approval and construction permitting process for the Virginia utility. Dominion says it expects to receive necessary approvals in 2016 for North Anna 3, although it has not yet decided whether to build the unit.

The NRC’s approval brought some criticism. “No reactor is earthquake-proof, and Dominion has no business building another reactor on an active fault line,” said Glen Besa, director of the Sierra Club’s Virginia chapter. North Anna’s two 980-MW reactors were out of service for three months after a 5.8-magnitude earthquake in 2011. A comprehensive inspection concluded the plant suffered no damage.

More: The News & Advance

US Gas Production Keeps on Rising

Natural gas production in the U.S., bolstered by shale-gas drilling, continues to increase steadily. A report by Bentek Energy estimated that production increased 0.4 billion cubic feet per day from July to August. Bentek says production set a record of 69.04 billion cubic feet per day on Aug. 29, eclipsing a record set the previous month.

“The U.S. continues to break natural gas production records almost on a daily basis,” said Jack Weixel, Bentek’s director of energy analysis. August was the eighth consecutive month of production increases. Compared to August last year, natural gas production was up 6%.

More: PennEnergy

Sherwood-Randall Confirmed as DOE Deputy Secretary

The Senate confirmed the appointment of Elizabeth Sherwood-Randall to the No. 2 post at the Department of Energy last week.

Sherwood-Randall was President Obama’s adviser on nuclear weapons and arms control since 2013. Before that, she was his European affairs adviser. She will replace Daniel Poneman, who stepped down as deputy secretary in June after five years.

“Liz’s confirmation comes at a historic time in our nation’s energy evolution,” Energy Secretary Ernest Moniz said. “She joins us with deep expertise in the department’s nuclear security mission, including both nuclear weapons and countering proliferation.”

More: The Hill

DOE Report Finds No Water Woes from Fracking

A Department of Energy report that tested water wells near a natural gas drilling site that was hydraulically fractured found no evidence that fracking had contaminated groundwater. The study, released last week, found that no chemicals used in the fracking process had migrated to six test water wells at a Pennsylvania site.

Critics said the study was too small to prove that fracking is safe. They called for tighter regulation of drilling until a final determination is made.

More: ABC News

September 23, 2014

PJM to Generators: Provide Operating Parameters in Writing

PJM will revise its eMKT application to capture more detailed information and require generation owners to use it to verify their operating parameters under a proposal outlined to members last week.

Generation owners will be required to ensure all data in eMKT is accurate, particularly notification times, minimum run times, unit status and unit limits (emergency and economic min & max).

PJM will also require owners to make all updates in eMKT, and operators will use only that data for unit commitment decisions. Verbal notifications will be permitted only if previous unit commitments cannot be met or a unit trips or encounters other problems in real time.

“We want to get away from all the phone calls and changing information in real time,” said PJM’s Chantal Hendrzak, who presented the proposal to the Markets and Reliability Committee Thursday. “We want to be able to pull that information out of eMKT.”

Among the additional information that PJM will be requiring are details on units’ dual-fuel capabilities (e.g., time to transition, megawatt output during transition) and operational restrictions (e.g., emissions limits).

Generators would also be able to update their energy offers and cost-based start-up and no-load costs during the operating day to reflect gas-price volatility.

The proposed changes are expected to be brought to an Operating Committee vote next month.

September 23, 2014

Market Monitor on Talen Plan: Not So Fast

By Ted Caddell

PPL’s plan to spin off its generation needs additional mitigation to address local market power concerns, PJM’s Independent Market Monitor told the Federal Energy Regulatory Commission last week.

PPL and Riverstone Holdings announced in June they would join their generation businesses into a publicly traded independent power producer named Talen Energy. The new company would own 15,320 MW of capacity, including 12,000 MW in PJM.

In their application to FERC (EC14-112), the companies proposed selling about 1,300 MW of PJM generation to avoid market power complaints. The companies said that no company with more than 10% of PJM’s summer installed capacity would be permitted to bid for the plants. That would leave out Public Service Enterprise Group, Exelon and NRG Energy. (See PPL, Riverstone ID Plants for Sale in Talen Spinoff.)

Not Enough

The Market Monitor told FERC that isn’t enough.

“The transaction, even with the applicants’ proposed mitigation, would have an anticompetitive impact,” the Monitor’s analysis says.

“The analysis concludes that the transaction would significantly increase concentration in specific, highly concentrated locational energy markets, would increase concentration in the capacity market and would have minimal effect on the market for regulation.”

The Monitor said “behavioral mitigation” would level the playing field.

It recommended that FERC:

Require Talen to make cost-based offers in the energy and regulation market.
Require Talen to offer the same plants and output as PPL did, prohibiting it from holding back generation to drive prices up.
Expand the list of companies barred from purchasing the plants sold in mitigation to include American Electric Power, FirstEnergy, Dominion Resources, Duke Energy and Calpine. (Editor’s Note: The IMM said its initial filing, which was referenced in an earlier version of this story, erroneously included Edison International and failed to include Duke).

PPL questioned the IMM analysis and said it remains confident of FERC approval.

“PPL believes that the mitigation proposal addresses completely any potential FERC issues with concentration of power generation assets within PJM,” spokesman George Lewis said. “On first read, PPL believes the IMM’s comments are not justified by the facts of the PPL-Riverstone combination. We will review the comments in greater detail and respond at FERC.”

Allegheny Protest

The Monitor was not the only party to challenge the PPL-Riverstone deal. Allegheny Electric Cooperative, which owns 10% of the Susquehanna nuclear plant that is part of the spinoff, told FERC that it was blindsided by the deal and has not received assurances that the new owners are qualified to run a nuclear plant.

Allegheny said it first heard of the Talen deal late on the night of June 9, when PPL and Riverstone announced it.

“Even though Allegheny is a co-owner of and co-licensee for Susquehanna, PPL did not advise or provide any information to Allegheny concerning the proposed transaction until the proposed transaction was publicly announced,” the company wrote in its protest to FERC.

“The filing does not explain how PPL is complying with its contractual obligations to Allegheny regarding the operation and maintenance of Susquehanna in transferring its interests in the facility to Talen Energy,” Allegheny wrote in its protest. “Further, it fails to describe Talen Energy’s competence in owning, operating, maintaining and providing for the overall management of a facility as important to the region — both in terms of power supply and reliability — as Susquehanna.”

Lewis wouldn’t directly address the Allegheny complaints. “We are reviewing those as well and will provide a response at FERC,” he said.

In a July filing asking the Nuclear Regulatory Commission to approve the transfer of Susquehanna’s license, PPL said the spinoff will have little impact on plant operations. “The proposed transaction will not result in any undue risk to public health and safety and will not be inimical to the common defense and security,” PPL wrote.

September 23, 2014

Two of 4 Artificial Island Finalists Offer Cost Caps

Two of the finalists for the Artificial Island transmission fix have offered to cap their costs while a third has teamed up with Pepco Holdings Inc. in a bid to improve its chances.

In July, PJM’s Board of Managers delayed action on planners’ recommendation that it select Public Service Electric & Gas to address stability problems at Artificial Island at a cost of $211-$257 million. The board told PSE&G and finalists Transource Energy and Dominion Resources to “supplement” their proposals in response to finalist LS Power’s offer to cap its project cost at $171 million. (See PJM Board Puts the Brakes on Artificial Island Selection.)

In response, PSE&G offered to cap its price at $221 million and LS Power reduced its cap to $146 million.

Dominion declined to provide a cost cap but revised its estimate for one proposal to $174 million, including a 10% contingency for construction and a 50% contingency for real estate and permitting.

Transource, which also declined to agree to a cost cap, revised its estimated cost to $203 million, excluding work required at the Salem station and a $52.3 million contingency. The company, which had previously estimated its project at $165 million to $208 million, said its revised estimate reflected the need to employ specialized drilling techniques and the addition of a second underwater cable.

Transource said it would forego 50% of any return-on-equity incentives on any costs between $203 million and $255.3 million and 100% of the ROE incentives on any costs exceeding $255.3 million.

Transource also disclosed that it had signed a memorandum of understanding with Pepco, parent of Delmarva Power & Light, to partner on the project. “This arrangement significantly improves the likelihood of project success based on PHI/Delmarva’s significant experience working in the project area, familiarity working with the numerous permitting agencies and on‐the‐ground resources to provide operations and maintenance services over the life of the project,” Transource said.

FERC Oversight

The board delayed action on staff’s recommendation of PSE&G following criticism over planners’ decision to eliminate two 500-kV lines from the company’s original $1.066 billion proposal.

Seeking to avoid additional controversy, the board also asked the Federal Energy Regulatory Commission to appoint an administrative law judge to serve “in a non-decisional role to ensure the fairness and due process” regarding PJM’s discussions with the finalists.

ALJ Steven Sterner will attend meetings between PJM and the finalists or review agendas and proposed questions to “ensure that PJM’s line of inquiry is consistent with each of the bidders and that no bidder is given an undue advantage in their presentation to PJM,” the RTO said in an Aug. 29 letter to Chief ALJ Curtis Wagner.

Sterner “will observe and comment upon … the fairness of the process undertaken by PJM through these final negotiations but not attempt to influence PJM staff’s substantive recommendation or the final PJM board decision in any way.”

PJM will not be required to follow the judge’s recommendations.

September 23, 2014

FERC, New York PSC to Meet on Capacity, Regulatory Reform

By William Opalka

The Federal Energy Regulatory Commission and New York regulators will hold a joint technical conference Nov. 5 to discuss the state’s capacity market and plans to revamp the utility business model to accommodate renewable energy and distributed resources.

FERC’s conference with the New York Public Service Commission will be held from 9:30 a.m. to 5 p.m. at the New York Institute of Technology in Manhattan.

Reforming the Energy Vision

One focus of the conference will be the PSC’s Reforming the Energy Vision (REV) initiative, which the commission announced in April.

The PSC noted that technological innovation and the increased competitiveness of renewable energy and distributed resources is occurring as the state confronts aging infrastructure, extreme weather events and challenges to system security.

FERC Chairman Cheryl LaFleur said the commission wants to learn about how the REV program intends to reform the state’s energy industry and regulatory practices to meet these challenges.

“The New York PSC and New York leadership have produced some interesting things around their REV … that would potentially require evolution in the role in some of the things that we’re looking for from the ISO,” she explained after announcing the technical conference at last week’s FERC meeting.

The PSC released a straw proposal in August that found “There is large potential for the integration of Distributed Energy Resources (DERs) into the New York electricity market, via a Distributed System Platform (DSP) framework.”

The report outlined potential reforms in the utility ratemaking process “to provide the correct incentives for utilities and markets to develop a cleaner and more efficient electric system.”

A two-track public proceeding is examining the regulatory reforms. The first track examines the role of distribution utilities in deploying distributed energy resources to promote load management and system efficiency, including peak load reductions. The second, parallel track will consider changes in tariff and market designs and incentives to align utility interests with the policy objectives.

Public comment on the proposal was due yesterday.

Capacity Zone Controversy

The Nov. 5 conference will also be something of a fence-mending effort for FERC, following its approval of a controversial capacity zone intended to address transmission congestion north of New York City.

Opponents claim the zone, which took effect May 1, will create a windfall for existing generation owners before the region’s constrained supply issues can be full addressed.

In July, New York Sens. Charles Schumer and Kirsten Gillibrand voted against the reconfirmation of LaFleur, a fellow Democrat, to FERC. Before the vote, Majority Leader Harry Reid (D-Nev.) said he had spoken to LaFleur about the criticism of the capacity zone and that she had agreed to “take a hard look at” it. (See New Yorkers Upset over NYISO Capacity Zone.)

LaFleur Thursday acknowledged the controversy over FERC’s approval of the zone. “Those orders are final but it seemed like it might be a good time to consider: Is the capacity market attracting the investment we need for reliability? Let’s have a refresher on where we are,” she said.