No one spoke up when Market Monitor Joe Bowring opened the floor to stakeholders in the Monitor’s annual Advisory Committee meeting Friday.
No matter. Bowring and his staff took the opportunity to renew their case for eliminating “sham scheduling” and changing PJM rules on opportunity costs.
Opportunity Costs
The Monitor told the more than 20 members and PJM staffers who attended that he will seek Federal Energy Regulatory Commission approval for changes to the opportunity cost calculations because stakeholders have been unable to agree on a solution.
The Monitor says current methods of calculating opportunity costs for some markets and services are “inconsistent and inaccurate” and that there are no Tariff definitions for costs for black start units, reactive services and synchronous condensing.
Bowring said he plans to file proposed changes with FERC next year but is “very much open to discussion” with stakeholders beforehand.
‘Sham Scheduling’
Bowring also reiterated his call for an end to so-called “sham scheduling.” The Market Implementation Committee agreed in April to investigate the Monitor’s concern but the issue hasn’t surfaced since then. (See MIC to Probe “Sham Scheduling”) The MIC’s 2014 work plan shows the issue scheduled for discussion beginning next month.
PJM prices transactions with external balancing authorities based on the source and sink identified on the NERC eTag.
The Monitor said some traders could be manipulating PJM’s interface pricing points by breaking schedules into multiple “back-to-back” transactions that hide the actual source of generation.
Monitoring Analytics’ John Dadourian gave an example of a New York-to-PJM transaction that should result in a settlement of $16. Done by separate transactions through the other regions, the total settlement involved would be $37, Dadourian said.
In another example, a trade from Ontario to MISO, which should result in a net settlement of $5, instead totals $20 after separate transactions involving PJM. Such transactions also have loop-flow impacts of the kind that led the New York ISO to ban certain paths in 2008, Dadourian said.
To stop these transactions, the monitor recommends eliminating the Ontario interface price and requiring scheduling of complete paths, instead of “patching together” transactions with separate eTags.
Priorities
In answer to a stakeholder question at the end of the session, Bowring said the Monitor’s biggest priority is fixing problems with the capacity market — issues now before stakeholders and FERC. He also cited concerns over up-to congestion trades, allocation of uplift charges and scarcity pricing.
Coal plant retirements will boost PJM on-peak energy prices by $3 to $4/MWh — and as much as $11/MWh if gas prices increase — according to a study released last week by The Brattle Group.
(Source: The Brattle Group)
The analysis — which evaluates the “feedback” effects from coal plant retirements, retrofits and increased gas demand on capacity and energy prices — is a case study of PJM’s Mid-Atlantic (MAAC) region.
Brattle said the retirement of 2.8 GW of coal capacity in MAAC, 15% of the region’s total, would increase on-peak prices $3-4/MWh by 2015, assuming delivered gas prices of $5-6/MMBtu. The impact would decline to about $1/MWh by 2025 as new gas-fired plants increase supply. Off-peak prices would increase by $1-2/MWh under the same scenario.
If all of the replacement capacity came from combined cycle units and combustion turbines, however, the increased fuel demand would boost gas prices by 5% to 10%. As a result, on-peak prices could jump more than $10/MWh by 2015, declining to $6/MWh by 2025. Off-peak prices would increase about $5/MWh throughout.
The analysis compared projected prices with futures prices for the PJM-West hub as of summer 2012. It noted that PJM West prices in October 2013 were about $5/MWh lower than the 2012 baseline.
The increase in margins — with a present value of $100-300/kW — “are not likely to be large or persistent enough to alter the extent of overall plant retirements,” Brattle said but could be enough to reverse some retirement decisions.
Capacity Price Impact
Capacity prices will rise in the short-term as reserves drop but drop long-term as increased energy prices reduce the net Cost of New Construction Entry (net CONE). “This effect decreases the long-run equilibrium price of capacity until the energy price impacts of retirements disappear,” the study said.
While numerous studies have projected the volume of coal capacity likely to retire and undergo retrofits, Brattle said few studies have evaluated the impact of these changes on energy and capacity prices and the feedback effects on plant economics. (A 2011 MISO study estimated an increase of up $4.80/MWh in its region due to environmental regulations. Exelon predicted in 2011 that the regulations could increase PJM prices by $12/MWh.)
Caveats
Note: For On-Peak Energy Prices.
The size of the price increases will depend on the amount and timing of plant retirements, the spread between coal and gas prices and the mix of peaking, intermediate and baseload generators that enter the market. The study did not evaluate the impact of retirements on renewable generation or new transmission projects, which in turn would also influence power prices.
Brattle also cautioned that its results did not take into account other potential changes in the market. “For instance, it is possible that a material portion of the nuclear fleet in the U.S. will shut down if gas prices and resulting wholesale power prices continue to be low. And gas usage itself could increase sufficiently that it begins to dampen its own attractiveness.”
The study included a sensitivity analysis to determine the impact if natural gas prices remain at current levels of $3-4/MMBtu. Under this “Low Gas” scenario, coal retirements had almost no impact except for near-term on-peak prices. “This is not surprising because the coal plants that would potentially retire are the less efficient ones and they would not run a lot under such low gas prices if remained in-service. Thus, the marginal units that set the market prices would stay the same whether or not the coal plants retire.”
EcoPower Generation, developer of a 58 MW wood-burning plant in Perry County, hopes to begin construction this year and qualify for tax credits. The Public Service Commission approved the sale of power from the plant to Kentucky Power, but its order is being challenged by an industrial group.
The Public Service Commission denied Attorney General Jack Conway’s request to reconsider its approval of Kentucky Power’s purchase of a 50% stake in a West Virginia’s Mitchell coal plant. The purchase will replace supply from a Big Sandy unit set to retire. Conway may take his objections to court.
The Public Service Commission approved spending almost $95 million on the state’s EmPOWER Maryland program. The program’s goal is a 15% reduction in per capita and per capita peak consumption by the end of 2015. About half of the goal has been reached, but progress is lagging.
Most local speakers favored development of Exelon’s 30 MW Fair Wind project for the revenue it would provide to Garrett County. Environmental interests still oppose it, though, as they did when it was owned by Clipper Windpower.
FirstEnergy’s Potomac Edison finished a $5.3 million reconstruction of a 138-kV line in western Maryland, a project that replaced more expensive work the utility had planned when it was part of Allegheny Energy.
A research project is studying snow’s effects on solar power production and how to minimize it. The two-year Michigan Technological University project is testing at the university and at other locations, including in Pennsylvania.
Regulators filed notice that they will appeal the October federal court ruling that called the state’s Long-Term Capacity Pilot Project unconstitutional. The Board of Public Utilities’ legal arguments were not laid out in the notice. The capacity program — similar to one in Maryland that was also rejected by a court — was intended to get cost-effective supply in needed areas where the state said PJM’s capacity market had failed.
Trinity Solar has finished installing 12.3 MW of solar generators at the residential facilities for Joint Base McGuire-Dix-Lakehurst. The installation — more than 10,000 modules on 650 rooftops — is expected to provide over 30% of the community’s annual power needs.
A bill to promote combined heat and power was approved by a state committee, but the way forward for CHP is unclear. Interests are divided on the question of subsidies and the state cut CHP money from its clean energy fund. Board of Public Utilities examination of the issue has made little progress.
Assemblyman Upendra Chivukula, chair of the Telecommunications and Utilities Committee, wants to cut the Board of Public Utilities’ membership and restructure its operations because he says it is not doing its job.
Eighty-five municipalities and counties have expressed strong support for Public Service Electric & Gas’ controversial Energy Strong program, which would spend $3.9 billion to fortify the utility system. PSE&G now has filed changes that may cut the cost by 15%.
The nuclear industry contributes $20 billion to the Carolinas’ economy, according to a Clemson study commissioned by the industry. The impact is attributable to the states’ seven nuclear plants, but also to the associated nuclear industries and facilities housed in the Carolinas.
The Charlotte Douglas airport is seeking bids to install up to 53 MW of solar panels, which would make it among the largest solar producers in the state. The output probably will be sold to Duke Energy.
Duke Energy asked regulators to approve a program allowing big customers to offset new power needs with renewable energy or certificates. The green power would come from sources in or out of state not already meeting the state’s renewables requirements.
American Electric Power surprised at least some observers by coming out for a bill that would ease the state’s energy efficiency and renewables mandates. As protests mounted against S.B. 58, a Senate committee cancelled its markup of the measure and an unusual coalition of environmentalists and user groups started trying to work out a compromise.
Iberdrola Renewables said it will reconsider the two wind farms it is developing in the state if the legislature approves S.B. 58. The company chose Ohio for the new plants, and the 304 MW wind farm it already operates, because of the current law’s requirement that half of the state’s renewables come from in-state resources.
Developers of an 18 MW wind farm in Lake Erie were peppered with questions at the state Siting Board’s first public hearing on the pilot project. The six-turbine development, which is vying for a federal grant, would feed its output to Cleveland Public Power.
The state Ballot Board said backers of a green-energy constitutional amendment may collect signatures to get their amendment on the November 2014 ballot, but the board’s chairman urged voters to reject it. The amendment would authorize a $1.3 billion annual bond issue to develop renewables.
Cabot Oil & Gas wells in Susquehanna County may be among the most productive on the planet, resetting geologists’ expectations. The company’s top two wells will produce 14 billion cubic feet over their lifetime, multiples of normal output.
New Material for Solar Panels (Source: Drexel University)
Solar Breakthrough for Penn, Drexel?
Researchers at the University of Pennsylvania and Drexel University have created a material they say would be more efficient and less expensive than those used now to make solar power panels. “A new category of ways of making a solar cell,” one professor said.
The Public Utility Commission must release documents it used to reach a $60,000 penalty agreement with PPL concerning 2011 storm-caused power outages, the Office of Open Records said.
A property developer’s lawsuit adds to more than 30 filed recently against the 23-turbine, 55 MW Pinnacle Wind Farm, whose output is being sold to Maryland. Plaintiffs charge noise and vibration from the 2.4 MW turbines are damaging health and property values. Pinnacle is a unit of Edison Mission Energy.
Constellation NewEnergy signed a 25-month power supply agreement with the city of Chicago that saves the city 2% from its last power contract. In accordance with a City Council directive, the deal sources the power from non-coal sources: nuclear and natural gas generation based in Illinois. The rate and annual weighted average price for the fixed facility portion of the contract is $42.67/MWh. The power will supply 450 city facilities as well as street and traffic lights.
FirstEnergy will invest $2.8 billion more in the “Energizing the Future” transmission plan announced last year. Most of the work will be on 69 kV lines and substations in the Ohio Edison, Cleveland Electric Illuminating, Toledo Edison and Penn Power territories.
One analyst said the company’s new focus — after years of investing on its unregulated businesses — has it looking more like rival American Electric Power.
Duke CEO Lynn Good chose her management team after Duke’s merger with Progress Energy based on “capabilities and track record.”
“There is a comfort level with people you’ve known for a long time — you’ve been in the foxhole with them. But when you bring an organization together, you need to be agnostic about background,” she said in an interview.
PPL has set up a partnership with 21 Pennsylvania banks that will provide a $300 million revolving credit facility to support investments, including the $4 billion in utility infrastructure improvements that PPL companies plan to make.
The Tennessee Valley Authority will shut Units 1 and 2 at its Paradise coal station near Central City once a new natural gas plant is built at the site. Paradise 3, a 1,100 MW coal unit with mercury-emission controls will remain in operation.
The retirements of the two 700 MW Paradise units were among 3,000 MW of retirements TVA just authorized, bringing its total coal retirements to 5,600 MW. Also being shuttered are six coal generators at two locations in Alabama.
Senate Democrats’ move last week to abolish the filibuster for judicial nominees clears the way for President Obama to fill vacancies on the appellate court that frequently reviews federal energy and environmental policy.
Meade and Prettyman Courthouse (Source: DC Circuit)
The U.S. Court of Appeals for the District of Columbia is widely considered second only to the Supreme Court in its influence. Also known as the D.C. Circuit, the court is the frequent forum for oversight of rulemakings by the Federal Energy Regulatory Commission and the Environmental Protection Agency.
The court’s eight current full-time judges are split between Democratic and Republican appointees; five of the six part-time senior judges were appointed by Republicans. With the elimination of the filibuster threat, Obama’s nominees for three vacancies on the court are expected to be confirmed. Cases before the court are often heard by three-judge panels.
A coalition of utilities, including Public Service Enterprise Group, told the D.C. Circuit that the Federal Energy Regulatory Commission’s Order 1000 mandates for interregional planning and cost sharing amount to “a regulatory sea change” with no basis in law. FERC has no authority “to direct utilities to fund transmission developers from whom they do not take service,” the coalition said in a brief.
The D. C. Circuit stopped collection of Nuclear Waste Fund fees, calling Department of Energy arguments for them no more than “razzle dazzle.” The Nuclear Regulatory Commission resumed work, at a low level, on a study of Yucca Mountain as a depository.
The Environmental Protection Agency is not ruling out the possibility of allowing state-level carbon taxes as a way of complying with the rules it is writing for control of greenhouse gas emissions from existing power plants.
A survey of 100 IT professionals working on critical infrastructure protection (CIP) standards showed that 70% believe compliance with standards is only the start of protection.
Coal being loaded into a hopper (Source: James River Coal)
Coal Still Big in PJM
Coal-fired generators are producing nearly half of the electricity in PJM thanks to cheap supplies from the Illinois Basin. While Ohio and Pennsylvania are shifting to natural gas coal is holding its own in Indiana and Illinois.
Changes to the following PJM manuals were endorsed by the Markets and Reliability Committee on Nov. 21.
Manual 13: Emergency Procedures
Reason for Change:Updates to terms, procedures and day-ahead scheduling reserve components.
Impacts: Sets Load Forecast Error and Forced Outage Rate effective Jan. 1. References to interruptible load for reliability (ILR), no longer a valid term, are removed. Revised order of emergency procedures so that curtailment of non-essential plant and building load is curtailed as step 6, prior to issuing a manual load dump warning (step 7) and voltage reduction (step 8).
PJM Contact: Chris Pilong, Tom Hauske
Manual 14A: Generation and Transmission Interconnection Process
Reason for Change: Align cost allocation rules for new service customers with Tariff.
Reason for Change: A problem statement concerning cyclic peaking and starting factors was referred to CDS by the MRC. CDS came to consensus on the issue at their September 2013 meeting.
Impacts: Resource owners shall use Original Equipment Manufacturer (OEM) values if available and grandfather in OEM values for technologies no longer being built. Section 11.5 changed to read “Battery and Flywheel Units do not have No Load costs.”
PJM Contact: Jeff Schmidt
Manual 18: PJM Capacity Market
Reason for Change: Conforming revisions to reflect filings ER12-513, ER13-535, ER13-2140, ER13-1023.
Impacts: Updates Cost of New Entry (CONE) values; revises Minimum Offer Price Rule (MOPR); changes deadline for submission of must-offer exemption request; corrects NEPA qualification calculation; other changes.
PJM Contact: Jeff Bastian
Manual 41: Managing Interchange
Reason for Change: Both Manual 41 and the Regional Practices Document cover topics related to interchange scheduling.
Impacts: The content of Manual 41 will be merged into the Regional Practices document and Manual 41 will be retired.
The Markets and Reliability Committee approved the sunset of the Regulation Performance Senior Task Force, which has completed all of the tasks in its charter. The task force was created in 2011 to create ways to grade and compensate regulation sources based on performance as well as optimizing their deployment.
The Members Committee selected Jim Jablonski, representing the Public Power Association of N.J., as committee vice chair for 2014. Dana Horton, of AEP, moves from vice chair to chair, replacing Neal Fitch of NRG Energy.
The committee also selected members of the Nominating and Finance committees as well as sector whips:
Nominating Committee (one-year term)
Electric Distributors — Lisa McAlister, American Municipal Power
End Use Customers — Jackie Roberts, West Virginia Consumer Advocate Division
Generation Owners — Reem Fahey, Edison Mission
Other Suppliers — Joe Wadsworth, Vitol
Transmission Owners — Paul Napoli PSEG
Finance Committee (three-year term)
Electric Distributors — Charlie Bayless, NCEMC
Generation Owners — Joe Kerecman, Calpine
Sector Whips (one-year term)
Electric Distributors — Steve Lieberman, ODEC
End Use Customers — Susan Bruce, PJM Industrial Customer Coalition
Generation Owners — Joe Kerecman, Calpine
Other Suppliers — Katie Guerry, EnerNOC
Transmission Owners — John Horstmann, Dayton Power & Light
The Market Implementation Committee will consider changes to PJM’s real-time pricing mechanism, which RTO officials say is depressing energy and reserve prices.
The Markets and Reliability Committee approved PJM’s request for a problem statement and issue charge by acclamation Thursday.
The initiative would allow system operators to increase reserve requirements under certain circumstances, such as when operators are carrying additional resources to cover units at risk of being shut down because of environmental limitations or mechanical problems. Requirements also could be boosted when operators have data quality concerns or are uncertain about load or interchange.
(Source: PJM Interconnection, LLC)
The revised methodology could increase reserve and real-time energy prices while reducing uplift.
Officials said the need for changes was illustrated during the September heat wave. On Sept. 10, operators under-forecast load by more than 4,000 MW and overestimated the availability of Tier 1 Synchronized Reserves.
On the 11th, uncertainties over the load forecasts and availability of reserves led operators to deploy more demand response than was ultimately needed. Load rose sharply in the morning of the 11th, exceeding forecasts through early afternoon but peaking earlier and much lower than expected.
Adam Keech, director of wholesale market operations, said PJM staff hopes to implement at least some changes by May 1. “We need to draw a line in the sand and say we need to make changes before next summer,” he said.
The Consumer Advocates of PJM States (CAPS) introduced Dan Griffiths as its first director at the annual meeting of the National Association of State Utility Consumer Advocates.
Griffiths, a former deputy of Pennsylvania’s longtime advocate Sonny Popowski, criticized PJM’s proposed changes to the capacity market as harmful to consumers. (See Members Deadlock on DR in Capacity Auctions) Griffiths said it was difficult to quantify the impact of the changes. “But you can determine whether the arrows point up or down,” he said. “We see a lot of arrows pointing up.”
Dan Griffiths
Griffiths made his remarks as PJM Chairman Howard Schneider sat in the front row.
CAPS President Stefanie Brand, director of the New Jersey Division of Rate Counsel, said advocates needed Griffiths to represent them because individual state offices lack the staff to attend all-day PJM meetings.
West Virginia Consumer Advocate Jackie Roberts, a CAPS board member, agreed: “If you’re not involved in the stakeholder process your influence is minimized.” Once an issue gets to FERC, she said, “it’s too late.”
Griffiths is being funded through CAPS’ $1.2 million share of a FERC settlement with Constellation Energy Commodities Group in a market manipulation case. Griffiths said the group would like a long-term source of funding similar to that of the Organization of PJM States, Inc. (OPSI). OPSI, which represents state regulatory commissions at PJM, receives about more than $600,000 in funding annually from the PJM tariff.
Binz Wins Consolation Prize
Ron Binz
Former Colorado regulator Ron Binz, whose nomination to the Federal Energy Regulatory Commission was shot down by opposition from the coal industry, received NARUC Committee on Energy Resources and the Environment’s Mary Kilmarx Award, which honors “good government, clean energy and the environment.”
“This is one more thing for me to defend before the Senate Energy and Commerce Committee,” Binz joked. “The Mary Karl Marx award.”
Binz said he is resuming his consulting practice with a focus on regulatory reform, smart grid, new market entrants such as energy storage, and greenhouse gas emissions. “It was the forces of the status quo who took me down in the FERC battle,” he said.
PTC Extension ‘Reasonably Strong’: AWEA
Tom Kiernan, CEO of the American Wind Energy Association, said chances for an extension of the Production Tax Credit for 2014 are “reasonably strong” but that Congressional action probably won’t happen until after the New Year.
(Source: AWEA)
Because of the late renewal of the PTC for 2013, the U.S. added only 1.6 MW of wind capacity in the first half of the year, although activity has been “picking up steam” since, Kiernan said in an interview. A record 13,000 MW of nameplate capacity was added in 2012.
Kiernan said that the trade group would be willing to seek a phase out of the subsidy in six years, if it were accompanied by the elimination of other generation sources’ subsidies. (Unlikely, he acknowledges.)
Beyond the industry’s need for subsidies, Kiernan said it also needs more transmission to continue its growth. “We need to keep our shoulder to the wheel,” he said. “Transmission is still a very limiting factor.”
Kiernan joined AWEA in May after serving 15 years as president of the National Parks Conservation Association.
`Honey pot’ Lures Cyber Attacks
Kyle Wilhoit, a threat researcher with security firm Trend Micro, captivated NARUC members with an account of how he created a “honeypot” to lure hackers as a research project.
Kyle Wylhoit
The first fictitious water utility, created from the basement of his St. Louis area home, attracted attacks within 18 hours of their creation. Later, he set up 12 servers in eight countries, which were attacked 74 times from sites in Russia, China, Germany, the U.S. and other countries. Eleven of the attacks were critical and would have compromised a real water system by stopping pumps and modifying temperature or pressure
One of the key lessons from the exercise, Wilhoit said, is that critical devices should be on virtual private networks. Attackers can easily discover ICS (industrial control system) and SCADA (supervisory control and data acquisition) devices through search engines, such as Google and SHODAN.
Regulators Consider State Role in FERC Market Enforcement
Rishi Garg
Rishi Garg, an attorney with the National Regulatory Research Institute, presented the initial results of a study on FERC enforcement of market manipulation rules and said he is working on a second phase to consider whether state regulators should engage in their own enforcement actions.
Garg said recent penalties and disgorgements totaled more than $1 billion. “That suggests there’s a lot of money coming in — and a lot of money being left on the table,” he said.
A paper published in the Energy Law Journal last year argued that consumers are less likely to be made whole when rates are found to be unjust and unreasonable under market-based rates than under traditional cost-based regulation. (See Analysis – JP Morgan Settlement: A Verdict on Electric Markets?)
Founded in 1976, the Institute conducts research for NARUC members.
Dodd Frank Ups Coop-Bank Trading: EEI
Lopa Parikh
Lopa Parikh, of the Edison Electric Institute, told the conference of consumer advocates that cooperatives and municipal power companies are having trouble finding counterparties among utilities — and doing more business with banks – as a result of the Dodd-Frank law.
Parikh, EEI’s director of federal regulatory affairs for energy supply, said EEI members are spending an average of $1 million each for new record keeping systems due to the law and don’t want to incur further costly obligations by being classified as a swaps dealer.
The law says that companies doing $25 million in transactions in the prior year can be considered a swap dealer “That could be one or two PJM wholesale transactions,”she said.
A former consumer advocate in Ohio and the District of Columbia, Parikh beseeched advocates and state regulators to express their concerns to the CFTC. “They see us as trying to avoid rules and regulations,” she said, “so they don’t always take what we say to heart.”
