Billions at Stake in Capacity Market Challenge

Regulators, consumer advocates and the Market Monitor last week urged the Federal Energy Regulatory Commission not to change a crucial rule for PJM’s upcoming capacity auction, warning that it would allow generators to exercise market power.

FirstEnergy Solutions Corp.’s request to change how PJM calculates the maximum price generators can offer into capacity auctions “would result in a direct transfer of potentially billions of dollars from customers to sellers,” said the PJM Industrial Customer Coalition and consumer advocates for Maryland, Pennsylvania, Delaware, New Jersey, West Virginia, Illinois and the District of Columbia.

In separate filings, the Ohio Consumers Counsel and the Organization of PJM States (OPSI), representing state regulators, also weighed in against FirstEnergy’s request.

PJM, however, said it agrees with FirstEnergy’s interpretation of its Tariff and urged the commission to approve the company’s request. Also siding with FE is the Electric Power Supply Association and the PJM Power Providers Group.

Declaratory Order Sought

On April 7, FE filed a petition for a declaratory order (EL14-36), asking FERC to rule that PJM’s Open Access Transmission Tariff requires the use of a generator’s cost-based energy offers in the determination of net projected PJM market revenues. Granting the request could result in higher Market Seller Offer Caps, likely increasing auction revenues for FE and other generators.

FE asked the commission for an expedited ruling by May 9, in time to set the rules for the Base Residual Auction that begins May 12.

FE’s request would change methodology the Monitor has used since 2007, which selects as an input whichever is lower, the unit’s market-based offer or the cost-based offer.

No Emergency

Opponents said there was no reason for FERC to rush to rule in the dispute.

“FES could have filed its Petition months (or perhaps years) ago,” said the Ohio Consumers Counsel. “Instead, FES chose to file five weeks before the BRA.”

Their colleagues in other states consumers agreed. “There is more potential harm in expediting a decision than in carefully reviewing the issue,” said the consumers’ filing.

State regulators said altering the methodology would require a Tariff change and thus should be subjected to PJM stakeholder review.

Calculating Marginal Costs

Because existing generators possess market power, PJM requires mitigation in the form of the Market Seller Offer Price (MSOP), a cap on the price they can seek in the capacity auction.

The MSOP is intended to represent the solution to the so-called “missing money” problem. It is calculated as the difference between the unit’s Avoidable Cost Rate — the cost of running the plant for another year — and its projected net revenue.

Net revenue is calculated as total energy and ancillary services revenues less marginal costs. It is the calculation of marginal costs that is at the heart of the dispute.

The Market Monitor has always calculated marginal cost as either the unit’s market-based offer or its cost-based offer, whichever is lower. The latter offer is a price cap designed to counter market power in the energy market.

“Cost-based” is a misnomer, according to the Monitor, because it can include a 10% “adder” to actual costs.

In practice, generators often make market-based offers that are below their cost-based offers — which the Monitor says better represents their marginal costs.

“Sellers want their unit dispatched when the market price (Locational Marginal Price (LMP)) is greater than marginal cost. Accordingly, a non-zero offer lower than the offer cap is the best available evidence of what the seller believes is its marginal cost,” the Monitor wrote in its filing last week.

FirstEnergy says it is unfair to use the lower offers in the MSOP calculations: Generators may offer into the energy market at prices below their marginal costs because they want to continue running regardless of the clearing price.

“The operational characteristics of some power plants require this strategy at times to maximize efficiency and to reduce long-term costs. For example, a unit might need to avoid cycling on and off in succession to prevent expensive tube leaks or other associated repairs, which in turn could result in forced outages, performance penalties in the capacity market, and obligations to pay for deviations in the energy market. Other units also may need to keep producing power to avoid incurring penalties under `take or pay’ fuel contracts,” FE said.

“By choosing to operate in some hours by generating when energy prices are below a plant’s marginal cost of production, the plant operator is making a rational decision to absorb a small loss to avoid an even greater loss caused by the inefficient cycling of the plant that would otherwise occur.”

Tariff Definition

PJM, in a filing last week, said it agrees with FirstEnergy. “Use of cost-based offers (and not the lower of price-based and cost-based offers) is required by the Tariff. Indeed, PJM could not remain complaint [sic] with its Tariff if it were to read unstated provisions into the rule to effect the outcome desired by the [Monitor].”

What neither PJM nor FirstEnergy told FERC, however, is why it took them so long to come to this conclusion.

Impact of change

The Monitor said FirstEnergy’s petition was filed after it rejected FE’s proposed offer price caps for certain of its coal-fired generating units. “FirstEnergy offers no attestation here or elsewhere that its price-based offers reflect anything other than FirstEnergy’s calculation of the actual marginal costs of the FE Units,” the Monitor said. “FirstEnergy’s behavior has been consistent with the behavior of other market participants who have for years accepted that their non-zero price offers lower than their offer price caps are the best indicator of their actual marginal costs.”

The Monitor said FirstEnergy’s offers could set or influence market prices. “For example, there is a possibility that the level of Sell Offers submitted for certain of the FE Units will influence whether specific zones clear as Locational Deliverability Areas (LDA) with price separation.”

The Monitor said it agrees that capacity market prices have been suppressed and noted recommendations it has made to address the issue. But it said the company’s attempt to upend long-standing practice is improper.

The Monitor said it discussed its method of calculating net revenues with FirstEnergy in November 2012 and again early this year.

“It is implausible that FirstEnergy did not calculate its own net revenues for prior RPM auctions. Yet FirstEnergy has never raised this issue before,” the Monitor said. “Any missing money problem faced by FirstEnergy did not emerge for the first time in the last thirty days.”

April 22, 2014

MRC/MC Preview

Below is a summary of the issues scheduled to be brought to a vote at the Markets and Reliability and Members committees Thursday. Each item is listed by agenda number, description and projected time of discussion, followed by a summary of the issue and links to prior coverage in RTO Insider.

RTO Insider will be in Wilmington covering the discussions and votes. See next Tuesday’s newsletter for a full report.

Markets and Reliability Committee

2. PJM Manuals (9:10-9:20)

The committee will be asked to endorse manual changes to implement lessons learned from the extreme weather in September and January. The committee also will be presented changes to four manuals that will implement new dispatch rules for demand response pending Federal Energy Regulatory Commission approval (ER14-822).

These include the split of DR into pre-emergency and emergency categories and implementation of 30-, 60- and 120-minute response windows.

Last month, FERC issued a deficiency notice requesting additional information on pre-emergency dispatch of DR and the reduction in the default response time from two hours to 30 minutes. (See FERC Questions May Delay New DR Rules.)

Below are some of the key changes to each manual:

A. Manual 18: PJM Capacity Market — Conforming the manual to recent FERC orders, including seasonal verification testing and Capacity Import Limits effective with the 2017/2018 delivery year.

B. Manual 13: Emergency Operations — The changes will allow declaration of Cold Weather and Hot Weather alerts several days in advance instead of the day before.

C. These revisions will implement demand response “operational enhancements,” which are pending FERC approval:

Manual 11: Energy & Ancillary Services Market Operations — Specifying Emergency Demand Response price caps based on lead time, as well as an Economic DR price cap.
Manual 13: Emergency Operations —Implementing demand response rule changes:
- New categories: Pre-Emergency and Emergency
- New notification times: 30, 60 and 120 minutes’ notice
- Sub-zonal dispatch
Manual 18: PJM Capacity Market — Outlining DR compliance measures and rules, as well as exceptions to the 30-minute lead time requirement.
Manual 19: Load Forecasting and Analysis — Adding pre-emergency and emergency DR language.
Manual 28: Operating Agreement Accounting — Clarifying load management accounting procedures.

3. REGIONAL PLANNING PROCESS TASK FORCE (RPPTF) (9:20-9:50)

The committee will vote on Operating Agreement (OA) and Tariff revisions implementing multi-driver transmission projects. The proposed rules developed by the RPPTF would allow multi-driver project combinations as part of the annual Regional Transmission Expansion Plan, both parallel (combining standalone projects) and incremental projects (adding a market efficiency or public policy project “on top” of a reliability project). PJM will apportion the respective value of the combination(s).

PJM’s Transmission Owners will make a Section 205 filing to FERC to propose a cost allocation formula. (See Conflict Ahead for States, TOs over ‘Multi-Driver’?)

4. SETTLEMENT FORMULATION REVIEW – PHASE II (9:50-10:00)

PJM will seek approval of Tariff and OA revisions to clarify the calculation of the deviation between the regulation set point and the expected output of each regulation resource.

5. CREDIT AVAILABLE FOR VIRTUAL TRANSACTIONS (10:00-10:20)

PJM will seek approval of Tariff changes to more accurately reflect current PJM practices regarding credit provided for virtual transactions.

6. CLARIFICATION TO TARIFF AND MANUALS FOR SYNCHRONIZED RESERVE MARKET PENALTY CHARGES (10:20– 10:30)

Stakeholders will be asked to endorse changes to Manual 11: Energy and Ancillary Services Market Operations and Manual 28: Operating Agreement Accounting clarifying that generation owners providing Tier 2 synchronized reserves will be measured in the aggregate when PJM evaluates their performance under a new penalty structure.

(See Rule Changes Clarify Synch Reserve Aggregation.)

7. TRANSITION MECHANISM FOR CAPACITY MARKET CHANGES PROBLEM STATEMENT (10:30-10:45)

PJM will seek approval of a problem statement and issue charge that could result in a generic transition mechanism to hold capacity providers harmless for future rule changes. (See PJM Proposes Generic Transition Rule for Capacity Market Changes.)

8. OFFER CAP REVIEW PROBLEM STATEMENT (10:45-11:00)

PJM will seek approval of a problem statement and issue charge intended to reconsider PJM’s $1,000/MWh energy offer cap. On first read at last month’s MRC meeting, stakeholders representing load said they may oppose a change in the cap. (See Stakeholders Preview Offer-Cap Debate.)

9. GENERATOR DATA PROBLEM STATEMENT (11:00-11:15)

AEP’s Dana Horton will seek MRC approval of a problem statement and issue charge intended to simplify the sharing of real-time generator data. (See PJM Considers Easing Sharing of Real-Time Generator Data.)

10. PJM CHANGE OF ADDRESS (11:15-11:25)

The committee will be asked to endorse changes to the Tariff, OA and Joint Operating Agreements with neighboring regions to reflect the change in PJM’s mailing address, which took effect Jan. 1.

Members Committee

2. CONSENT AGENDA (1:20-1:25)

B. Members will be asked to approve revisions to the Tariff and Operating Agreement to clean up the list of agreements and transactions to which PJM Settlement, Inc. is not a counterparty.

C. The committee will be asked to approve Tariff and OA revisions reflecting changes to eSuite application names. eSchedules and EES will be changed to InSchedule and ExSchedule, respectively.

April 22, 2014

Federal Briefs

The Environmental Protection Agency said it will miss by a month its own deadline to issue a regulation to minimize the impact of industrial and power plant water cooling structures on fish populations. “In spite of its best efforts, EPA will not meet the April 17 deadline, but will require an additional 29 days, i.e., until May 16, 2014, to complete inter-agency consultation with the services,” the agency told a federal court.

As proposed in 2011, the rule would require plants to slow the velocity of their intakes or find some other way to stop fish from being trapped or killed. Environmental groups had sued the EPA for not issuing the rule — required by section 316(b) of the Clean Water Act — but settled when the agency agreed to finalize it. The most recent court-approved agreement had required the agency to issue the rule by last Thursday. The EPA said the delay was caused by its consultations with the federal Fish and Wildlife Service and the National Marine Fisheries Services, who are tasked with Endangered Species Act enforcement.

Riverkeeper Inc., an alliance of environmental groups that brought the lawsuit against the EPA to force it to issue the regulation, blasted the EPA’s delay. “EPA’s breach of the legal commitment it made to issue a final 316(b) rule by April 17 is yet the latest in a long string of failures by this agency to meet its own deadlines, leaving us no choice but to return to federal court where we can seek an order compelling the rule’s issuance,” Reed Super, an attorney for the group, said last week.

More: The Hill

Keystone XL Pipeline Decision Delayed Again

The Obama administration again extended the review period on the Keystone XL pipeline, and its final decision may not come until after the Nov. 4 congressional elections. The State Department said officials need more time to review some of the 2.5 million public comments on the project and investigate the impact of a pending Nebraska lawsuit that could change the route of the pipeline. Officials there did not say when those reviews would be completed.

Supporters of the pipeline denounced the delay. “Here’s the single greatest shovel-ready project in America, one that could create thousands of jobs right away,” Senate Minority Leader Mitch McConnell (R-Ky.) said. “But the president simply isn’t interested. Apparently radical activists carry more weight than Americans desperate to get back on the job.”

Environmentalists called it a sign that the project will be rejected. The latest postponement “confirms, yet again, that this project is not permit-able,” said Rachel Wolf, a spokesperson for a group called the All Risk, No Reward Coalition. “This export pipeline fails the climate test, fails the jobs test, and doesn’t even have a legal route.”

More: USAToday

NRC To Increase Oversight Of Exelon’s Ginna Plant

The Nuclear Regulatory Commission will increase its oversight of the Ginna nuclear power plant in Wayne County, N.Y., east of Rochester. The NRC had issued what is called a “white” safety finding — of low to moderate significance — having to do with flood protection at the plant and the threat to backup batteries and other emergency power sources.

Ginna owners made modifications late last year, but the NRC was unhappy with the time it took to make the fixes. “This was one of the primary areas of focus for the NRC after Fukushima back in March 2011, and basically we wanted to make sure that all of the plants were protected to the greatest degree possible, and a lot of that analysis work is still going on,” said NRC spokesman Neil Sheehan.

Exelon said it has faith in the actions taken. “Ginna is a robust, fortified facility designed to withstand the most severe weather related events, including the highest recorded flood levels in the area,” the company said in a statement. “This potential issue was corrected, [and] it did not affect the safe, reliable operation of the plant.”

More: WXXI

DC Court of Appeals Upholds MATS Rules

The U.S. Court of Appeals for the District of Columbia Circuit last week upheld a regulation that limits emissions of mercury and other hazardous pollutants, in a decision that affects mainly coal-fired power plants. The EPA’s Mercury and Air Toxics Standards (MATS) applies to 1,400 of the country’s largest power plants and begin taking effect in 2015.

The regulations are expected to cause a wave of coal plant retirements. U.S. companies have shut or converted more than 22,000 MW of coal-fired power plants since 2009 and have plans to shut or convert more than 42,000 MW in the next decade.

More: Reuters

April 22, 2014

Who’s to Blame for Negative Prices?

Exelon Corp. owns 1,300 MW of wind generation, a portfolio dwarfed by its 22,000-MW nuclear fleet.

So when company executives decided in 2012 that the interests of wind and nuclear power had diverged over the renewal of wind’s Production Tax Credit, Exelon called on Congress to let the subsidy expire.

The American Wind Energy Association, which spends much of its time lobbying for continuation of the PTC, responded by kicking Exelon out of the trade group. The wounds haven’t healed since.

Last month, AWEA released a study in response to Exelon’s claims that wind farms subsidized by the PTC are responsible for negative prices that are hurting the revenues of the company’s nuclear plants.

At last week’s Federal Energy Regulatory Commission meeting, Commissioner John Norris said the AWEA study provided “very compelling evidence” that “the PTC and negative pricing … are having none or negligible impact on nuclear facilities.”

“If that’s not a factor [in nuclear’s woes], as the AWEA study would seem to indicate, let’s get it out of our rhetoric,” Norris said, calling on Exelon to respond to the analysis.

AWEA’s report is intended to bolster its case for renewal of the PTC, which expired Dec. 31. On April 3, the Senate Finance Committee approved a two-year PTC extension, retroactive to Jan. 1, sending it on to the full Senate.

Exelon has been lobbying Illinois state legislators, warning that the company may shutter as many as three of its six nuclear plants in the state. The company has cited low natural gas prices and flaws in PJM’s capacity market as causes of its plants’ declining revenue. (See Exelon in Lobbying Push to Save Ill. Nukes.)

It also blamed the PTC, which pays wind generators $23/MWh of output, the equivalent of $37/MWh before taxes.

With no fuel cost and with revenue from the PTC and renewable energy credits (RECs), wind farms can profitably generate even when prices are negative.

On that, AWEA and Exelon agree. AWEA, however, takes issue with being blamed for causing negative prices.

The AWEA report, authored by analyst Michael Goggin, says that wind projects have the same impact on real-time and day-ahead prices with or without the PTC.

A generator receiving the PTC and selling RECs would offer at -$20 to -$40 per MWh, says Goggin.

“A wind project that does not receive the PTC will offer into power markets at just above $0/MWh, based on wind’s zero fuel cost and very low variable O&M [operation and maintenance] costs,” the study says. “This offer will always be lower than almost all other offers.”

Northbridge Group analyst Aaron Patterson, co-author of a 2012 Exelon-sponsored report critical of the PTC, does not question AWEA’s data but does disagree with the conclusions.

Wind “may set the price in certain hours. It has a much broader effect in all hours of pushing the dispatch curve out,” Patterson said in an interview. “That manifests itself in some hours in negative prices but in other hours in positive prices that are lower than what they would otherwise be.”

“We can work with AWEA on a clean energy future but we can’t deny the truth,” said Joe Dominguez, Exelon’s senior vice president for governmental and regulatory affairs and public policy, in an interview. “We didn’t pick a fight with the wind industry for the fun of it. We’re trying to save plants and jobs.”

Below is a summary of the major points of the AWEA report and Exelon/Northbridge’s response.

PTC Corrects for “Market Distortion”

AWEA: “The PTC is correcting for market externalities that are not currently accounted for, such as the cost of carbon emissions and the other major environmental and human health costs of fossil fuel consumption. As a result, the PTC is actually countering the market distortion that occurs on an ongoing basis because market pricing does not account for these factors.”

Exelon has complained that zero-emission nuclear power also gets no credit for its contribution to meeting climate change goals.

But Patterson notes that the PTC subsidy typically represents more than half of the per-MWh revenue of wind plants.

“I think it’s fair to say that to the extent that carbon reduction is a goal that it’s more efficient to price carbon rather than selectively subsidizing some sources and not others,” he said.

Pretax carbon prices in California and the Regional Greenhouse Gas Initiative range from $4 to $12 per ton, equivalent to $2 to $6/MWh, Patterson said. “$37 [per MWh] doesn’t strike me as an appropriate level of compensation given the carbon markets we have today,” he said.

As wind’s growth has depended on the PTC, nuclear power has benefited from the Price Anderson Act, which limits nuclear plant liability in an accident.

But that’s different, Patterson said. “It’s not production-based. It doesn’t affect how nuclear units operate in the market,” he said. “In my view, it’s not a distortionary subsidy.”

Negative Prices Overstated

AWEA: “Exelon has grossly overstated the frequency of negative prices at its nuclear plants, by a factor of at least 10 in most cases, and in some by a factor of 20 or more.”

AWEA cites a February 2013 statement by Exelon CEO Christopher Crane that the company’s Byron nuclear plant sees negative prices 16% of the time. In May 2013, Crane was quoted as saying that the Clinton nuclear power plant and the rest of the company’s nuclear plants face negative prices about 14% of the time.

Quad Cities Versus Northern Illinois Hub Around the Clock Prices (Source Exelon) — Between 2009 and 2013, Exelon says real-time and day-ahead prices at its Quad Cities nuclear plant were about $6/MWh less than at the Northern Illinois hub because of competition from subsidized wind. In 2012, the differential totaled $130 million. “That’s huge,” said Exelon’s Joe Dominguez.

AWEA says real-time prices at the Byron and Clinton plants were below zero only 2 to 5.5% of the hours between 2011 and 2013. In the day-ahead market, negative prices occurred in only 0.8 to 2.4% of hours over the same period, AWEA says.

Dominguez said Crane’s comments referred to only off-peak hours.

“In the off-peak hours wind tends to produce most of its output and it is also coincident with when our consumers use the least amount of electricity. And the combination of those two factors and transmission congestion leads to negative prices,” Dominguez said. “It’s an upside-down argument to criticize nuclear plants because they can’t ramp when windmills unpredictably run.”

Real-Time vs. Day-Ahead Prices

AWEA: “Merchant nuclear plants almost exclusively sell their energy into day-ahead markets, so day-ahead data captures the true impact of negative prices on Exelon’s nuclear plants.”

Patterson responded: “To say that negative prices don’t matter because Exelon or any other nuclear generator sells their output in [forward markets] is not correct. Those prices are lower than they would otherwise be because of negative prices in the real-time market.”

Wind’s Blame for Negative Prices

AWEA: “Market price data and wind plant output data show that most instances of negative prices occurred when wind plant output was very low. … If Exelon were correct, and wind plants were the factor causing these negative prices, one would expect to only see negative prices during hours when wind plants were producing at nearly full capacity.”

Three incidents that appear to have involved localized transmission outages were responsible for most of the negative prices affecting the LaSalle, Braidwood, Byron, Quad Cities and Clinton plants in 2013, Goggin said.

Patterson agrees with AWEA that transmission outages play a role in negative prices — along with, he says, unexpectedly low load or unexpectedly high wind production. “Disentangling the specific cause for a specific negative price is very hard,” he said.

But he said the frequency of negative prices has grown since 2008, “which coincides with the expansion of wind capacity in Iowa and Illinois and surrounding regions. The nuclear plants were there [before]. The transmission was what it was. The load is what is was. What changed? The wind.”

Tx Upgrades Reducing Negative Prices

AWEA: “Instances of negative prices have rapidly dropped to near zero in all regions of the country. … Negative prices are being eliminated as long-needed transmission upgrades are completed and grid operating procedures are modernized.”

AWEA cites data showing the frequency of negative prices peaking in Illinois in 2009 and 2010 and falling since, consistent with the Northbridge report.

“It’s too early to tell whether we’re going to see a trend of reduced negative pricing,” responded Exelon’s Dominguez. “Transmission [expansions are] always trying play catch-up to the introduction of subsidized generation. The reality is we have seen many years of negative pricing. We can’t claim victory simply because one season it didn’t show up.”

PTC Discourages Investment in Conventional Generation

AWEA has noted the boom-and-bust cycle of wind capacity additions in response to cancellation and resumption of the PTC.

Northbridge says the PTC also discourages investments in conventional generation needed to maintain reliability. “In recent years, about 85% of total wind capacity has not operated during the peak hours on the highest demand days of the year, on average,” the Northbridge report says. “Controllable conventional generation is thus needed to backstop wind and ensure the lights stay on.”

Goggin said wind also contributes to reliability, noting it provided PJM more than 3,000 MW of generation during the polar vortex, when many coal- and gas-fired generators suffered forced outages.

“No resource is 100% reliable. This past winter was a very good example of that,” he said. “Every resource is backed up by all other resources.”

April 22, 2014

Tiny Hydro Projects Joining Generation Mix in PJM

PJM’s newest hydropower project will be barely large enough to power nine homes. But if some visionaries have their way, it will be the start of a trend that could add up to a substantial new power source.

The North Wales Water Authority in suburban Philadelphia won Federal Energy Regulatory Commission approval last month for an 11-kW turbine and generator to capture the energy from a 12-inch water line.

North Wales’ project is among 19 projects approved by FERC since September under legislation enacted last year that a Department of Energy study says could unlock 12 GW of capacity at existing non-powered dams and manmade water conduits, including about 1.5 GW in PJM.

The Hydropower Regulatory Efficiency Act (H.R. 267) amends the Public Utility Regulatory Policies Act of 1978 (PURPA) to exempt dams up to 10 MW from FERC licensing requirements (up from 5 MW).

The law also amends the Federal Power Act to relax regulations on conduit hydropower facilities — tunnels, canals, pipelines or other “manmade water conveyance” used in distributing water for agricultural, municipal or industrial consumption — of up to 40 MW.

A second law, the Bureau of Reclamation Small Conduit Hydropower Development and Rural Jobs Act (H.R. 678), authorizes the U.S. Bureau of Reclamation to develop small hydropower projects at existing canals, pipelines and other man-made waterways.

Only 3% of the 80,000 dams in the United States generate electricity. An addition of 12 GW would boost U.S. hydropower resources — 2,500 dams generating 78 GW — by 15%. (See PJM Small Hydro Potential: 1.5 GW.)

Three Projects in PJM

The North Wales project is one of three approved thus far in PJM.

Pelton Wheel Diagram (Source: civilengineeringterms.com)

Ellwood City, a town 40 miles north of Pittsburgh, won approval for a 10-kW turbine on a 24-inch wastewater pipe that discharges 1.7 million gallons of water daily. The Pelton wheel turbine would use the momentum of the 50-foot “head” — or drop in elevation — in the 340-foot pipe.

Another project that won approval is a 250-kW project by Oak Lawn, Ill., a Chicago suburb, which will install a turbine in a drinking water pumping station.

Oak Lawn buys water from Chicago’s purification plant, storing it in eight reinforced concrete reservoirs. Water must be delivered to the reservoirs through an air gap to prevent backflow into the Chicago delivery system.

Oak Lawn had been using butterfly valves to create the air gap and reduce the 45 pounds per square inch pressure. When the town began planning a major overhaul of the water system, engineers decided to replace the valves with a turbine. “Why not recapture what [energy] they can?” explained Randy Rogers, an engineer with CDM Smith Inc., which is designing the project.

The turbine and generator, about the size of a side-by-side washer and dryer, will save the town more than $160,000 annually in electricity, about 15% of what it spends powering the pumps that deliver water to its customers.

Village Manager Larry Deetjen said the hydro project was an easy sell in the environmentally conscious town, which runs an electronic waste center and was an early adopter of the switch to more efficient LED street lights.

The cost of the turbine, generator and related electrical equipment will be about $1 million, with a payback period of 10 to 12 years, Rogers said.

“I can see this being used wherever you burn head” (move from high pressure to low pressure water flow), he said. “I expect there to be a lot of interest in this.”

$10 Billion Market?

The North Wales hydropower project will install a “reverse pump” on a 12-inch water pipe to replace a pressure-reducing valve at a water transfer station. The station serves a role akin to an electrical substation that steps down voltage from transmission lines to the distribution system.

North Wales is using the valve to reduce the water pressure by about 30 psi. “In doing so, it becomes wasted energy,” said Frank Zammataro, CEO of Rentricity Inc., a New York City-based startup that won a $300,000 grant from the New York State Energy Research and Development Authority to build the project. Pending regulatory approvals, the company hopes to begin construction within two months and have the generator running by summer.

There are about 23,000 locations in the U.S. with such pressure-reducing valves, said Zammataro, a former Merrill Lynch banker. That represents a $2.4 billion market for potable water systems in the U.S.

Industrial uses — food processors, mines, chemical and pharmaceutical manufacturers, and the pulp and paper industry — boost the market size by another $1 billion in the U.S., he said, with worldwide potential of more than $17 billion.

Improving Cost Effectiveness

Current hydropower technology is only cost-effective at scale of 30 kW or more, Zammataro said. But for every 30-kW opportunity there are 10 to 20 opportunities of 5 kW to 30 kW.

Thus Rentricity set out to find cheaper technology that could make the small projects viable. The turbine in the North Wales project will be a modified version of a pump by Xylem Inc., the second-largest pump maker in the world. Rentricity also has a distribution deal with manufacturer Cornell Pump Co.

“The equipment is getting very cookie-cutter, very plug-and-play,” which is essential to reducing cost, Zammataro said.

Workers install Rentricity’s turbine and generator at a pump station for the Municipal Authority of Westmoreland County near Pittsburgh. The "behind-the-meter" 21-kW installation powers two of four large horsepower pumps that send water up hill to a treatment plant 2,500 feet away. (Source: Rentricity Inc.) — Workers install Rentricity’s turbine and generator at a pump station for the Municipal Authority of Westmoreland County near Pittsburgh. The “behind-the-meter” 21-kW installation powers two of four large horsepower pumps that send water up hill to a treatment plant 2,500 feet away. (Source: Rentricity Inc.)

Reducing regulatory costs and delays are also key to making small projects viable. Zammataro said it formerly took six months or longer to win a Federal Power Act licensing exemption from FERC. Under the new legislation, the agency is now approving exemptions in about 50 days. “This is, in my opinion, a big breakthrough at FERC,” Zammataro said.

He said state regulators in New England also are on board and allow such projects to qualify for renewable energy credits under state renewable portfolio standards. Not so in Pennsylvania, which he complains is “behind the curve.”

Earlier this month, he was informed that the Pennsylvania Public Utility Commission had rejected “in-pipe micro hydro generation” from being qualified as an “Alternative Energy” resource under state law. The PUC said the technology is not listed among the sources identified by the state’s Alternative Energy Portfolio Standards law and doesn’t qualify as “low-impact hydropower.”

Without such certification, the project cannot qualify for net metering, which provides a higher value for the power than it would be able to obtain though a purchase power agreement. Zammataro said he plans to file a challenge.

Because of its topology, Pennsylvania is “a prime target within the PJM region,” he said. “There’s a lot of hills and mountains they’re moving water over.”

Smaller Footprint than Wind, Solar

To date, Rentricity has completed about a half-dozen projects.

Two turbines at Keene, N.H. water treatment plant, the first energy-neutral water treatment plant powered by its own in flow of water in the U.S. (Source: Rentricity Inc.)

In Keene, N.H., the company installed a 62-kW generator, creating what he says is the “first energy-neutral water treatment plant in the country.”

The company’s largest project is a 325-kW generator installed at the California Water Services Co. The generator is in a 20-foot by 20-foot vault, a much smaller footprint than wind or solar for an equivalent output. “This form of hydropower is very efficient and very compact,” he said.

Zammataro says all new water pipeline projects should be required to investigate the opportunities for energy recovery. In addition to offsetting water utilities’ electric bills — typically 30 to 35% of utilities’ budgets — it can provide remote power sources to run sensors to monitor flow and pressure data and identify the leaks that waste an estimated 20% of water.

“We have a relatively dumb electric grid. We have an even dumber water grid,” he said. “When you replace it you ought to replace it with smart technology.”

April 22, 2014

FERC Rejects PJM Schedule Rules

PJM’s scheduling rules aren’t flexible enough to meet the needs of wind and other variable energy resources, the Federal Energy Regulatory Commission ruled last week.

The commission said PJM’s rules failed to meet the requirements of Order 764, which requires transmission providers to offer scheduling at 15-minute intervals. FERC ordered PJM to submit a new compliance filing within 30 days.

Prior to Order 764, the pro forma Open Access Transmission Tariff — developed for generation that could be scheduled with relative precision — included no option for adjusting transmission schedules within the hour.

As a result, variable energy resources could not avoid generator imbalance charges when they knew their generation was likely to change within the hour. Generator imbalance charges pay for energy the transmission provider must purchase when a generator’s output falls short of the amount scheduled.

The revised pro forma OATT requires that transmission providers allow scheduling changes be made within 20 minutes “or a reasonable time that is generally accepted in the region … before the start of the next scheduling interval.” The commission said it wanted to allow generators to adjust their schedules in 15-minute intervals.

PJM proposed amending the firm and non-firm point-to-point transmission service provisions of its Tariff to allow 15-minute schedules. But the commission said it was not compliant with Order 764 because the proposed Tariff required that the changes be made 20 minutes “before the next clock hour,” rather than before each 15-minute interval.

(As a practical matter, PJM said it does not assess imbalance penalties on any generators, because virtually no market participants use point-to-point transmission to serve load.)

Interchange Transactions

FERC also took issue with PJM’s practice of requiring that interchange transactions have a minimum duration of 45 minutes, which the commission said “is inconsistent with Order No. 764 because it does not allow a generator to schedule for less than three consecutive 15-minute intervals.”

PJM said it implemented the 45-minute rule on interchange transactions in 2008 to prevent “market abuses.”

In 2007, MISO and its Independent Market Monitor determined that nearly 60% of intra-hour schedules between MISO and PJM occurred in the final 15 minutes of the hour. PJM said the trading was the result of “market participants’ ability to see price differences between the two RTO markets for the first third of the hour and thereby predict with relative certainty the direction of the price separation between the two RTOs when the hourly integrated prices were calculated.”

PJM said this resulted in interchange spikes of up to 1,000 MW — increasing uplift charges because of the need to call on combustion turbines to balance the generation swings.

“A return to a 15-minute duration rule would cause an increase in imbalance charges [and balancing operating reserve] costs because it is entirely reasonable to expect that market participants would return to the [prior] practices,” PJM said.

Last year, the commission rejected MISO’s proposal to retain an existing requirement that schedules starting at the 30- and 45-minute marks of the hour be made by the beginning of the hour, which MISO said was intended to prevent the problems identified in 2007.

The commission last week granted MISO an extension until June 30, 2015 to fully implement Order 764.

Data Requirements

Order 764 also requires variable resources to provide meteorological and forced outage data to help transmission providers more accurately forecast generation. The commission accepted PJM’s addition of these requirements to its Tariff.

April 22, 2014

Company Briefs

Calpine Corp. is selling six power plants in the Southeast and Midwest to LS Power for $1.57 billion in cash as part of a plan to focus on its electricity sales businesses in the Mid-Atlantic, Texas and California. The plants — representing a combined 3,498 MW — are in Alabama, Oklahoma, Louisiana, Florida and South Carolina.

Calpine spokesman Brett Kerr said the company planned to sell the six power plants for some time. It wanted to sell additional plants in Alabama, Arkansas and Florida but wasn’t able to get the price it needed for those assets. The LS Power deal is expected to close in the second quarter, and Calpine said it plans to use proceeds to pay down debt, buy back shares and possibly buy new generation.

The company operates 77 natural gas-fired power plants across the U.S., including 24 in California, 20 in Mid-Atlantic states and 14 in Texas. Calpine also has geothermal power plants in California.

More: The Wall Street Journal

PSEG’s Izzo Frustrated Over Opposition to “Energy Strong”

A frustrated Public Service Enterprise Group chief executive Ralph Izzo last week renewed his call for the state to approve a multibillion-dollar infrastructure-hardening project the company proposed shortly after Hurricane Sandy. In comments following PSEG’s annual shareholder meeting in Newark, Izzo questioned how the project’s opponents could maintain what he believes are two competing objections: that it costs too much and that it won’t help enough customers.

“The only way to reconcile those two is by saying, OK, we’re not proposing to spend the money in an optimal way,” Izzo said in an interview. “In which case, I say, we’re an open book. Tell us a better way to do it. And the reality is, there isn’t a better way to do it.”

Izzo said part of the planned 10-year, $3.9 billion “Energy Strong” project calls for strengthening facilities that were damaged by Sandy and Tropical Storm Irene. Newark-based Public Service Electric & Gas — PSEG’s largest subsidiary — filed Energy Strong with the state Board of Public Utilities in February 2013, four months after Sandy. While the utility maintains the project would improve reliability and help prevent the kind of massive power outages Irene and Sandy caused, opponents have pushed back against its price tag. The state Division of Rate Counsel, AARP New Jersey and a coalition of large energy users have also questioned the project’s stated effectiveness and the utility’s insistence on receiving approval for the money before starting construction.

More: NJ.Com

As Stock Slides, Exelon’s Crane Gets 70% Raise in 2013

Even as the company’s stock slid nearly 8% last year, Exelon Corp. CEO Christopher Crane was rewarded with a 70% raise, making more than $17 million in 2013. Crane’s total compensation in cash, stock and benefits topped out at $17.2 million, up from $10.2 million the year before. Crane’s compensation moved to a new performance-pay system that ties rewards over a three-year period rather than year-by-year. The company also eliminated stock options and moved its stock-based compensation to restricted shares and performance shares.

Exelon said it raised Crane’s pay to make it comparable to the median for peer CEOs. Before 2013, his pay was targeted at 20% less than the median. Exelon has suffered from falling wholesale power prices as its nuclear plants have grown less profitable. Increases at its regulated utilities — particularly ComEd, which is collecting annual delivery rate hikes per a state law authorizing $2.6 billion in local grid upgrades — have partially offset the declines at the power plants. But the 8% stock slide last year followed a 31% drop in 2012.

More: Crain’s

Duke Shareholders Urged To Oust Board Members Over Ash

Two of Duke Energy’s major institutional investors are urging fellow shareholders to vote out four directors at the May 1 shareholders meeting over the company’s ongoing coal ash problems. The California Public Employees’ Retirement System (CalPERS) and the New York City Pension Funds wrote shareholders last week, asking that they not reelect four board members responsible for environmental safety and health compliance.

The letter cites the Feb. 2 ash spill into the Dan River, saying Duke had “forewarning of the public risk” from environmental groups that had intended to sue Duke over ash contamination. None of the committee members named — Alex Bernhardt, James Hyler, James Rhodes and Carlos Saladrigas — has coal industry or other relevant experience, CalPERS and New York City comptroller Scott Stringer wrote. “In light of the serious failures of oversight, scale of impact on the company’s risk profile and the poor response to shareowner enquiry thus far, we urge our fellow investors to hold the relevant board members accountable.”

Duke said last week it has spent $15 million so far cleaning up the spill but said the costs would not be “material” to the company. Duke CEO Lynn Good has said Duke will pay for cleaning up the 70-mile trail of ash in the Dan River, but that it will ask the North Carolina regulators to approve ratepayer funding of costs associated with closing 33 ash basins at Duke sites across the state.

Duke had no immediate comment on the stakeholders’ action. CalPERS owned $140 million in Duke stock in 2013. The New York City funds have $62 billion in U.S. stocks, although it’s unclear how much of that is Duke stock.

More: Charlotte Observer; News & Observer

PPL Generation, Trading Sale Rumors Fuel Stock Rise

PPL Corp. stock is trading near the top of its 52-week range amid continued speculation that the company may spin off its generation and energy marketing business. PPL shares closed Friday at $33.14, close to its 52-week high of $33.55. The rise came after the International Strategy and Investment Group raised its target price for PPL, citing the strength of its regulated utilities and the potential benefit if it spun off its generation. The report also cited the potential upside for PPL if it merged its power plants with another company’s.

A trade publication earlier this year published a report saying PPL hired Morgan Stanley and Citibank to conduct an internal review of PPL Energy Supply, the business arm that includes PPL’s generation and energy trading and marketing businesses. That report pointed at Dynegy as a possible buyer. PPL declined comment on any sale or spinoff rumors.

More: The Morning Call

Dominion Plans Quake Study For North Anna Plant

North Anna Nuclear Plant (Source: Dominion)

Dominion Virginia Power will conduct an earthquake risk assessment for its North Anna nuclear generating station but doesn’t expect the study to point to any significant modifications. The plant’s two 980-MW reactors were knocked offline by a 5.8-magnitude earthquake that shook central Virginia in August 2011. Although the temblor caused no significant damage, the station remained out of service for three months while the company and the Nuclear Regulatory Commission conducted a thorough safety check.

“These plants have so much design margin on the seismic side, I have no concerns about this whatsoever,” said David A. Heacock, president and chief nuclear officer of the parent company’s Dominion Nuclear operating group, said last week. “We verified our plant can withstand a stronger earthquake” than it was designed for.

In 2012, the U.S. Department of Energy, the Electric Power Research Institute and the NRC updated the seismic model for the central and eastern U.S., reflecting a greater seismic hazard at some nuclear plants than previously thought. Forty-seven plants will have to conduct additional studies to determine whether their designs protect them from earthquake hazards. Once the assessments are complete, the NRC will decide if plants require upgrades.

More: Richmond Times-Dispatch

April 22, 2014

State Briefs

Judge: Bloom Competitor May Fight Surcharge Rule

A judge allowed a competitor of a Delaware fuel cell company to challenge a state-sanctioned surcharge added on the bills of Delmarva Power customers last Thursday. U.S. District Court Magistrate Christopher Burke decided that FuelCell Energy, of Connecticut, can go forward with its suit against Delaware Gov. Jack Markell and the state Public Service Commission, saying it violated the Constitutional prohibition against state interference with interstate commerce.

The subsidy was created and approved by the commission in 2011 in a successful attempt to get Bloom Energy to move its fuel cell operation from California’s Silicon Valley to Delaware. The subsidy is funded by a surcharge on Delmarva’s residential customers averaging $4 to $6 a month. Burke wrote in his ruling that the tariffs help Bloom, but not FuelCell, and put FuelCell at a competitive disadvantage. There was no public solicitation for bids from out-of-state fuel cell companies.

More: News Journal

ILLINOIS

ComEd Asking For Rate Hike; Says Improvements Paying Off

Commonwealth Edison Co. is asking for a rate hike, marking the fourth time since 2011 that the company has gone to regulators for permission to boost rates for modernization programs. The company said this increase request would add about $3 to the average electric bill. ComEd says improvements already undertaken have prevented 500,000 power outages, saving consumers about $82 million.

“These improvements, if done right, should pay for themselves in the long run, but the key moving forward is to hold ComEd accountable,” said Jim Chilsen, a spokesman for consumer advocacy group Citizens Utility Board in Chicago.

More: Chicago Tribune

South Side Petcoke Storage Spurs Residents’ Outrage

Southeast Chicago residents vowed to take their fight to the streets over the increasing piles of petroleum coke being stored in their neighborhood. Saying they’ve been let down by elected officials who last year promised to crack down on companies storing the fuel, residents are planning an April 26 march and a boycott of BP, the source of the “petcoke” being stored along the Calumet River.

An expected City Council vote on an ordinance that would have limited petcoke storage morphed into a tamer proposed ordinance that allows more petcoke storage. Opponents are concerned the new ordinance would be the first step in the eventual approval of a contentious proposal for a synthetic gas plant in the area.

The gas plant plan was tabled last year after Gov. Pat Quinn vetoed legislation that would have committed Chicagoans to pay a fixed rate for synthetic gas from the plant for 30 years, even if market natural gas prices were much lower.

More: Midwest Energy News

Ameren Brags on Upgrades; Critics Remain Unconvinced

Ameren Illinois’ pride in its transmission and distribution upgrades and resultant reliability improvements are being met with a jaded eye by some customers. The company said the $625 million spent on upgrades have shown a 20% improvement in reliability and savings worth $57 million a year since 2012 for residential and small business owners. Ameren Illinois was forced to make the investments, which included smart meter installations and energy-efficiency programs, under the Illinois Energy Infrastructure Modernization Act of 2011.

“This is a long-term process, but we have been able to deliver results to customers while keeping their rates reasonable,” said Ron Pate, senior vice president of operations for the utility.

Critics hope Ameren’s calculations are right but think the company may be jumping the gun. “We haven’t seen the evidence yet, and we think it’s too early to tell,” said David Kolata, executive director of the Citizens Utility Board public watchdog group. “It’s really going to be in the next six months that we’ll really start to get a read on it.”

More: Herald-Review

KENTUCKY

East Kentucky Power Co-op Deactivating Dale Plant

East Kentucky Power Cooperative plans to shut down all four units at the 196-MW William C. Dale coal-fired power plant in Clark County over the next year, but the company said the two largest units will be held ready for restart if needed. East Kentucky decided that retrofitting the units so they meet 2015 pollution limits would be too expensive. The company said it has often been cheaper to operate other plants or purchase power from the market, particularly since East Kentucky’s 2013 integration into PJM.

“Dale Station was East Kentucky Power Cooperative’s first power plant,” Tony Campbell, the co-op’s president and CEO, said in a statement. “This plant has been a reliable workhorse, generating the electricity that powered many thousands of Kentucky homes and businesses over the past 60 years.”

East Kentucky also owns and operates the 341-MW Cooper baseload coal plant in Pulaski County and the 1,279-MW Spurlock baseload coal plant in Mason County. The co-op has installed pollution controls on both plants and intends to continue operating them.

More: East Kentucky Power Cooperative

MARYLAND

Maryland Gives Customers Break on Utility Cutoffs

The Public Service Commission is giving utility customers a gift after a brutal winter: a two-month extension to the period when certain utility companies can cut off service to non-paying customers. The new deadline is May 31, instead of March 31, and applies to Baltimore Gas & Electric Co., Potomac Electric Power Co. and Delmarva Power Co.

The utilities themselves had proposed the extension during a meeting with the commission. The commission is calling for all Maryland utilities to adopt the extension and wants utilities to move faster in switching customers with smart meters to competing retail suppliers when asked.

More: The Washington Post

SMECO Signs PPA With Proposed 10-MW Solar Farm

Southern Maryland Electric Cooperative signed a 20-year power purchase agreement last week with the developers of a proposed 10-MW solar facility in Charles County. Under the PPA with Juwi Solar Inc., SMECO will purchase all energy, capacity and renewable energy credits from the Rockfish Solar farm. If approved by the Public Service Commission, the $40 million project is scheduled to be completed by the end of the year.

SMECO has a 5.5-MW solar farm in Hughesville and purchases energy from two wind projects in Pennsylvania.

More: Southern Maryland News

NORTH CAROLINA

AG Cooper Appeals Duke Rate Increase – Again

Attorney General Roy Cooper is returning to the state Supreme Court to try to block Duke Energy’s recent rate increase. Cooper argues that the state Utilities Commission failed to weigh the rate hike’s economic impact on Duke’s electricity customers.

The Utilities Commission originally approved Duke’s 7.2% rate increase in 2012 and upheld its decision in 2013. The state Supreme Court agreed with Cooper the first time around, setting up the current challenge. Now Cooper says the Supreme Court needs to send a clearer message to get the point across.

“The commission’s position is deeply unfair to consumers,” according to the attorney general’s legal challenge, which was filed Thursday.

Duke said the commission did everything correctly. “We believe the commission’s order satisfies all of the requirements set out by the N.C. Supreme Court and that the commission properly weighed the evidence,” the company said in a statement.

More: News & Observer

OHIO

Thomas Johnson Sworn In As New PUCO Chairman

Thomas W. Johnson was sworn in last week as the new chair of the Public Utilities Commission, bringing with him experience in finance and budget issues from 22 years in the Ohio House. Johnson takes the helm of the 330-person agency for a five-year term.

Johnson, Thomas - Ohio PUC swearing in (PUCO) — (Source: PUCO)

Gov. John R. Kasich swore in Johnson Wednesday, after expressing misgivings over the state’s move to retail choice.

“The ideological effort to deregulate, I’m not so sure it’s the smartest thing we’ve done in the state of Ohio,” Kasich said, speaking to the audience in the PUCO chamber before the swearing-in. “But we are where we are, and we can’t go backwards now. So it’s onward in a deregulated environment, and we’ve got to figure it out.”

More: The Columbus Dispatch

Poll Shows Ohio Voters Back Renewables, Efficiency

Ohio residents overwhelmingly favor using renewable power to replace coal-fired generators and want utilities to help customers increase energy efficiency, according to a poll commissioned by a green energy advocacy group. The telephone survey of Ohio voters found that 72% favor renewable energy over traditional power plants and 86% favor mandated utility energy efficiency programs. Two-thirds of those polled said they would back legislative candidates who promote renewable power over those who continue to support coal and nuclear power plants.

The poll was commissioned by Ohio Advanced Energy Economy, which opposes a Republican-backed bill that would freeze energy-efficiency efforts at the current level pending a study.

More: The Plain Dealer

AEP Consolidating TX Ops To New Building in New Albany

American Electric Power plans to build offices in New Albany for its division that manages the interstate flow of electricity, bringing together about 500 workers who are now based at several central Ohio locations.

AEP Transmission Executive Vice President Lisa Barton said the company expects “significant cultural, operational and efficiency benefits” from having all transmission operations employees in one spot. The new headquarters will be completed in about two years.

More: Columbus CEO

PENNSYLVANIA

PPL Requests Change For Default Customers

PPL Electric Utilities wants to update its price to compare for default electricity customers twice a year, rather than quarterly, according to a proposal filed with the Public Utility Commission. PPL said twice-yearly prices “will provide customers more certainty around shopping and provide retail suppliers with more time and flexibility in creating pricing programs to encourage customers to shop.”

The price to compare is the price customers pay for generation and transmission if they don’t choose a competitive electricity supplier. PPL’s plan would cover the period from June 1, 2015 to May 31, 2017. The PUC is expected to rule on the request in early 2015.

More: The Morning Call

VIRGINIA

Appalachian Power Seeking Near 100% Rate Increase

Appalachian Power will ask the State Corporation Commission to let it increase the monthly residential customer charge from $8.35 to $16, but offset that by decreasing the base rate for each kilowatt-hour used. The SCC has set a Sept. 16 hearing date in Richmond to review the electric provider’s rates.

The SCC will review Appalachian Power’s generation, transmission and distribution rates, with any changes approved to take effect early next year. Appalachian Power also is seeking to establish two residential energy-efficiency programs. Appalachian Power serves about 500,000 customers in Virginia.

More: Times-Dispatch

April 15, 2014

Planners Near Artificial Island Pick

By David Jwanier

After several months of evaluation, PJM is close to naming a developer to fix the Artificial Island transmission stability problem, with LS Power’s proposal for an overhead crossing of the Delaware River holding on as the lowest-cost choice.

PJM’s Paul McGlynn told the Transmission Expansion Advisory Committee last week that the RTO will schedule a special meeting shortly — preferably before the next TEAC meeting May 8 — to discuss its evaluations of the proposals in detail. PJM expects to recommend a winner to the Board of Managers in July.

The presentation to the TEAC listed 10 apparent finalists among the 26 proposals submitted in July, including five that would add a 17-mile 500-kV line that parallels an existing 500-kV line from Red Lion to Hope Creek.

Five other proposals would cross the Delaware River to the Delmarva Peninsula south of Artificial Island with a 230-kV line and run to a new or expanded substation. Three of the proposals would run a submerged line in the river bed and two others would run the line above the water.

McGlynn said PJM planners and the RTO’s engineering consultant concluded that they needed to add options that increased the proposals’ price tags by as much as $192 million. The additional costs included an additional cable for the submarine crossings and an auto-transformer to proposals that included only one bank.

LS Power’s overhead proposal, the lowest cost proposal by its own estimate, remained the cheapest in PJM’s recalculation.

Dominion’s overhead proposal tumbled from second to fifth as PJM added $125 million in costs, nearly doubling its price tag. The Pepco Holdings/Exelon proposal received the biggest boost in the relative rankings, rising from sixth to second even as PJM added $59 million in costs.

PSEG’s cost estimate was the only one reduced by PJM’s calculations, though its ranking rose only from 10th to seventh.

The review estimated all of the projects would take about two years to build. For the Southern Delaware crossing proposals, it identified obtaining permits for the river crossing and crossing Delaware Route 9, a “Scenic and Historic Highway,” among the chief scheduling risks.

The Red Lion proposals face challenges including coordinating with the Salem and Hope Creek nuclear plants and the need to take out of service line 5015, which has had no more than an eight-day outage in the last 15 years.

Stakeholders have raised several technical questions about the proposals, including directional carrier blocking (DCB) schemes and the performance of static VAR compensators (SVCs).

Esam Khadr of PSE&G questioned the security of using DCB schemes and reliability of using SVCs.

“There are 3,800 MW of generation at Artificial Island. If the SVCs fail to respond to a severe disturbance, it could lead to unit instability [at Artificial Island] and a loss of the electrical system,” he said.

Steve Herling, vice president of planning, said planners will conduct market efficiency studies on the proposals before selecting a winner, but that they are unlikely to have a major impact because there is little congestion in the area.

April 15, 2014

PJM, FERC Defend Reliability Efforts in Senate Hearing

By Rich Heidorn Jr.

WASHINGTON — PJM and the Federal Energy Regulatory Commission were summoned to the Capitol last week to defend their actions to ensure reliability — FERC in response to sabotage concerns, and PJM in the wake of an extraordinary winter that featured more near calamities than a James Bond movie.

The early expectation was that last month’s leak of a FERC study revealing the grid’s vulnerabilities would dominate the hearing before the Senate Energy and Natural Resources Committee and new Chair Mary Landrieu (D-La.). The day before the hearing, the Department of Energy’s Inspector General released a report that criticized FERC’s security procedures. (See related story, IG Faults FERC on Leaked Sabotage Report)

But the hearing instead focused largely on how PJM — after resorting to voltage reductions and load shedding in January — will keep the lights on over the next two years, as economics and EPA regulations idle 40,000 MW of coal-fired generation.

Role for Coal

It was a stage, and a topic, that Sen. Joe Manchin had been waiting for. Manchin, the West Virginia Democrat who put the final bullet in the FERC nomination of Ron Binz last year, was the most animated person in the hearing room.

Manchin cited a report by AEP that 89% of the coal capacity that it will retire in the next 14 months was dispatched in January.

“I’m not here trying to push a product that you don’t want,” Manchin insisted, referring to coal. “But when we hear from people like you, the professionals, who say we’ve gotta have it. And I’ve got an [Obama] administration that’s fighting me every way they can, to get rid of it,” he said, shaking his head over the contradiction.

Then Manchin concluded with a triplet worthy of Yogi Berra: “You gotta have it, but you don’t want it, but you know you need it.”

Natural Gas Dependency

Several witnesses and senators expressed concern over growing too dependent on natural gas. But Calpine CEO Thad Hill, whose company’s generating fleet is 95% natural gas-fired, had no nostalgia for coal.

Of the 30,000 MW of PJM generation that suffered outages due to mechanical problems in January, Hill said, almost 15,000 MW were coal-fired versus only 1,500 MW of modern combined cycle. (Another 7,500 were older gas units, Hill said.) “The point being: This isn’t about overreliance on any one fuel. It was about operational readiness this winter.”

While PJM will lose 15,000 MW of coal over the next three years, it will get 19,000 MW of new resources, Hill said, including a 309-MW combined-cycle plant Calpine is building in Dover, Del.

He noted that the current retirements, sparked by EPA’s Mercury and Air Toxics (MATS) rule, is thinning the coal fleet of its most aged and inefficient units. The median AEP plant being retired is about 50 years old and less than 200 MW.

The coal fleet is certain to be reduced further after the EPA announces its greenhouse gas regulations for existing generation in June. (See related story, Now Comes the Hard Part) In addition, some nuclear generation is at risk due to low energy and capacity prices and pending EPA cooling-water regulations.

AEP CEO Nick Akins complained that PJM’s capacity market was “not functioning as intended.

“Yes, PJM has more than 8,000 MW of planned (mostly gas) generation identified in the last two auctions, but many of those generators are being proposed with some form of state regulatory funding support,” he said in his written testimony. “What this means is that many new builds are the result of state directives rather than a response to market signals.”

Kormos: PJM is Prepared

PJM Executive Vice President for Operations Mike Kormos noted that the RTO’s fuel diversity will actually increase over the next few years as coal is replaced by gas and other resources. Coal will remain one-third of PJM’s capacity, he noted.

PJM generation capacity is expected to drop by almost 3,500 MW through 2017. (See chart.) Nevertheless, Kormos told the senators that PJM’s capacity auction has obtained more than its required energy and reserves “through the MATS [transition] period.”

He acknowledged challenges ahead. For one, Kormos said, there will be more price volatility as a result of the replacement of coal by natural gas and demand response, which he described as “one of highest priced resources.”

After enjoying several years of low-priced shale gas tranquility, natural gas generators were jolted in January when prices briefly spiked to more than $100/mmBtu. Kormos said PJM’s costs also were boosted in January by what he called the gas pipeline industry’s “onerous” contract provisions.

“It would not be realistic for me to stand up here and tell you that there will never be an interruption in service,” he said. “But … we will be able to serve the load in all but the most extreme circumstances.”

Moeller: Not Confident in Retirement Data

Commissioner Philip Moeller said he is troubled by contradictory capacity forecasts.

Commissioner Philip Moeller, FERC (L) and Mike Kormos, PJM (R)

“We have executives who say we can get through this period without any problem,” he said. “We have others who are very concerned. My focus has been to try and get the data: which plants retire when; where they are on the system.

“We’re not exactly confident in a lot of the numbers,” he continued. “And that has me very concerned going into the next two to three years.”

Moeller cited MISO, which recently predicted a 2-GW capacity shortfall in summer 2016 — down from estimates a few months ago of a 6-GW deficit. He noted that the revised projection assumes an annual 0.75% drop in energy consumption. “That’s a pretty big assumption,” he said ruefully.

Moeller’s prediction: “A lot of it’s going to depend on the weather. If we have mild weather for the next couple of years we might make it through. But if we have extreme weather in the summer or … in the winter, the system will be extremely stressed.”