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.”
ORLANDO — A top EPA official told state regulators the agency is still in listening mode in drafting its greenhouse gas rules on existing power plants, while some regulators said their customers could face double-digit rate increases as a result.
The Environmental Protection Agency is expected to issue its proposed rules by June. In September, EPA issued GHG rules that effectively banned new coal generation that lacks carbon capture and sequestration (CCS), an expensive and unproven technology.
But Janet McCabe, Acting Assistant Administrator for EPA’s Office of Air and Radiation told the audience at a joint FERC-NARUC panel that the agency will not require CCS for the existing fleet.
Section 111 (d) of the Clean Air Act requires states to develop implementation plans to meet the standard EPA sets.
McCabe said EPA is using a “bottom-up approach” in developing the standard that will acknowledge the varying fuel mixes by state and the remaining life of fossil fuel plants.
“People are asking `What’s the target?’ We will ultimately [answer] that,” McCabe said. “But we keep pushing back. We’re not ready to do that until we have more discussion and see what’s reasonable to do.”
In recognition that the transmission grid crosses state lines and that power companies own plants in multiple states, EPA will encourage states to join in regional solutions, McCabe said.
Florida Commissioner Eduardo Balbis told the audience at another panel discussion that the regulations could increase monthly bills by as much as $38 for customers of coal-dependent Gulf Power. For fixed income customers, he said,”even a $1increase is something that’s untenable.”
Kentucky Commissioner Jim Gardner also warned of “incredible increases” for some customers in his state, which got 97% of its electricity from coal last year.
Len Peters
Len Peters, who heads Kentucky’s Energy and Environment Cabinet, said a 25% increase in the state’s electric rates (currently in the bottom 10 nationally) will cost 70,000 jobs because it is has the most energy-intensive economy in the U.S., with half of its electricity used by manufacturers.
Skiles Boyd, vice president of environmental management and resources at DTE Energy, predicted a big workload for lawyers.
“The Clean Air Act was not written to handle greenhouse emissions … We’re going to be pounding a whole lot of square pegs into round holes,” he said. “If it’s done wrong there will be stranded costs and that will cost customers. They’ll be mad at us. They’ll be made at [state regulators] and they’ll be mad at the administration.”
Rate-Based Versus Mass-Emissions Standards
Kentucky has asked EPA to allow it to pursue a “mass-emissions” approach to reducing total average emissions rather than a standard that sets an emissions threshold of tons per MWh.
“We can work with the utilities in the state to develop retirement plans,” Peters said. “Whose feet do you [EPA] hold to the fire? You hold the state’s feet to the fire.”
Steve Schleimer
But Steve Schleimer, vice president of governmental and regulatory affairs for Calpine, said a market-based approach, such as the cap-and-trade program used by the nine states in the Regional Greenhouse Gas Initiative is cheaper and fairer. “You can’t draw a border around Kentucky in the electric market,” he said.
Reliability Issues
Gerry Cauley, CEO of North American Electric Reliability Corp., said NERC expects plant retirements will cause particular reliability challenges in Texas, the Midwest and New England.
Cauley said NERC is less concerned with having sufficient capacity than in having capacity that can provide grid stability. Renewable resources lack the inertia that allows large traditional generators to help stabilize the grid, Cauley said.
“This is not the usual utility whining,” Cauley said. “Once you get to 20%-30% integration of renewables and distributed generation this problem is real.”
PJM Executive Vice President for Markets Andy Ott echoed Cauley’s concern, asking “should we be compensating for some of these basic services we’ve taken for granted?” he asked.
Roles for Nuclear, Renewables, Efficiency
David Cash
Several speakers at the conference said the new regulations will require the U.S. to make a renewed commitment to nuclear power. “If you want to sustain these gains it can’t be simply a reliance on low natural gas [prices] and the [weak] economy,” said Chris Hobson, chief environmental officer for Southern Co.
“Renewables can’t provide baseload” power, said Kentucky’s Peters.
Massachusetts Commissioner David Cash disagreed. “I actually can see a future when renewables are the bulk of that,” Cash said, citing the potential of offshore wind. Cash acknowledged renewables will have to be supported by storage to overcome their intermittency.
Peters and Cash also disagreed over how much “low-hanging fruit” remains in the form of energy efficiency.
Cash said benefit cost ratios for efficiency investments are still in the range of 3- to 5-to-1. “I still think there’s a huge amount of low-hanging fruit,” he said.
Gas pipeline operators can exchange non-public operational information with PJM and other RTOs under a final rule approved by the Federal Energy Regulatory Commission.
The rule, approved Nov. 15, is the first regulatory change by FERC since it began an inquiry on gas-electric interdependence in February 2012 (AD12-12-000).
The order includes a No-Conduit Rule that prohibits recipients of the information from disclosing it to an affiliate or a third party. The No-Conduit Rule does not affect current communications among pipelines, local distribution companies and gatherers regarding conditions affecting gas flows between them.
In response to comments, the final rule allows transmission operators to seek commission authorization if they wish to share information from an interstate pipeline with a local distribution company.
More than 1,800 people from 200 industry and government organizations, including about two dozen PJM staffers, took part in the North American Electric Reliability Corp.’s two-day cyber and physical security drill Nov. 13-14.
GridEx II tested utilities’ and transmission providers’ crisis response plans through a series of mock cyber and physical attacks, building on lessons learned from NERC’s initial exercise in 2011.
The exercise also tested communications among industry and government agencies through NERC’s Electricity Sector-Information Sharing and Analysis Center (ES-ISAC). The departments of Energy, Homeland Security and Defense participated, along with the FBI and Canadian and Mexican utilities and agencies.
NERC said it will issue a report detailing findings and recommendations from the drill in the first quarter of 2014.
The Federal Energy Regulatory Commission last week gave final approval to Critical Infrastructure Protection (CIP) standards that for the first time cover all bulk power system assets according to their impact on the grid.
Version 5 of the CIP cybersecurity standards replace the current “in or out” designations with a tiered approach which classify assets as high, medium or low impact. (See What You Need To Know About CIP Version 5.)
TOP, IRO Standards Remanded
At the same time, FERC issued a notice of proposed rulemaking that remanded to the North American Electric Reliability Corp. its proposed revisions to reliability standards for system monitoring.
NERC’s Transmission Operations (TOP) and Interconnection Reliability Operations and Coordination (IRO) reliability standards go in the right direction – combining similar requirements, clarifying responsibilities and eliminating redundancies – but go too far, FERC said. Commissioners took pains at their public meeting to strike a friendly tone. “We tried to make sure that the remand tone was such that passions would not be inflamed,” Commissioner Philip Moeller said.
Commissioner Cheryl LaFleur said that the proposed revisions wrongly eliminate transmission operators’ current obligation to monitor and operate within all system operating limits. They would exclude from monitoring, for example, certain system operating limits in one operator’s area that affect another operator’s area. Failing to monitor such limits, FERC said, could contribute to outages.
Language Deleted
Although it approved nearly all the Version 5 CIP standards NERC had proposed, FERC deleted language that it identified as a problem when it proposed approval in April: a provision that required CIP standards to be implemented in a way that “identifies, assesses and corrects” deficiencies. That language would cause inconsistencies and difficulties with enforcement, the commission said. Everyone involved “must have a common understanding of the obligations imposed by reliability standards.” LaFleur said in a statement. “Otherwise, we risk creating gaps in reliability, confusion during audits and a compliance backlog that diverts resources away from improving reliability.”
FERC also told NERC to develop objective criteria for evaluating entities’ cyber protection for low-impact assets.
Although some had objected to creating burdens for assets in the lowest rung of impact, the commission reiterated its position that the standard “does not provide those entities with a clear roadmap of what they need to do.” NERC will not have to draw up a set of specific controls, but could take a number of approaches to fulfill the requirement, FERC said.
Standards Retired
In another reliability action, FERC approved NERC’s proposed retirement of 34 requirements in 19 reliability standards that provide little protection or are redundant of other standards. The order also withdraws 41 outstanding commission directives that NERC modify standards that have been addressed in another way or are too broad.
The Federal Energy Regulatory Commission last week approved a rule sought by the solar industry to streamline interconnections for the growing segment of small generators.
1.1 MW Solar Array at University of Toledo (Plug Smart)
The final Small Generator Interconnection Agreements and Procedures rule (Docket #RM13-2) expands the field of projects eligible for a fast-track process from a 2-MW size limit, but does not adopt the notice of proposed rulemaking’s designation of up to 5 MW for eligibility. Instead, it retains the 2-MW threshold for synchronous and induction machines and expands eligibility for inverter-based machines that meet certain system and generator characteristics.
All projects connecting to lines larger than 69 kV will be ineligible for fast-tracking.
While narrowing the scope of eligible projects, the changes maintain fast-tracking for most distributed solar applications, according to the Solar Energy Industries Association. SEIA, renewables companies and utility associations participated in a stakeholder group that developed the changes on eligibility and other matters.
The rule allows interconnecting customers to ask transmission providers for a pre-application report about system conditions at the point of interconnection. There is a fixed $300 fee for the report but providers can seek higher fees with cost justification. PJM had told FERC that the amount was not enough. PJM also had opposed formalizing the report, saying the RTO already does a lot of pre-application engagement and that a report could create “an inflexible box.”
PJM and others did prevail in arguing for more time -— 20 days instead of 10 — for delivery of that report.
They also won a disclaimer that since the report will require only readily available data at the time of request, it will be non-binding.
FERC also agreed with PJM’s request for more time to provide interconnection agreements, increasing it to 10 days from five, because the fast-track reforms could result in more such agreements.
The rule also accounts explicitly for interconnection of storage devices, and it makes clear that only FERC-jurisdictional systems are subject to the requirements.
Transmission providers will have to submit compliance filings within six months. FERC will allow for regional variations, and will give regional transmission organizations such as PJM more flexibility than transmission providers that are also market participants.
Cheryl LaFleur became acting chair of the Federal Energy Regulatory Commission Sunday, succeeding Jon Wellinghoff, who came under pressure to resign after accepting a law firm position in October.
FERC Commissioner Cheryl LaFleur at PJM Grid 20/20
As a sitting commissioner, LaFleur won’t require Senate confirmation. But she would need congressional clearance if she were to continue in the post after her four-year term ends in June.
Wellinghoff, who is joining the Washington office of Portland-based Stoel Rives LLP, announced his departure at the end of Thursday’s commission meeting. Sen. John Barrasso (R-WY) had criticized Wellinghoff’s plans to remain on the commission until the end of the current session of Congress, even though the chairman said he would recuse himself from cases involving Stoel Rives.
Wellinghoff had remained on the commission after his term expired in July while awaiting Senate confirmation of a successor. Colorado regulator Ron Binz withdrew from contention Oct. 1 in the face of opposition from Senate Republicans and coal interests.
Among those floated as potential nominees to the five-member commission are Arkansas Public Service Commission Chair Colette Honorable, who was elected last week as president of the National Association of Regulatory Utility Commissioners; Norman Bay, director of FERC’s Office of Enforcement; Tennessee Valley Authority board member Lynn Evans, and former Nevada regulator Rose McKinney-James. The commission is currently split between Democrats LaFleur and John Norris and Republicans Philip Moeller and Tony Clark.
Wellinghoff was FERC’s longest-serving chair, appointed in March 2009 after about two years as a commissioner.
A Harvard Law School graduate, LaFleur held numerous positions in New England Electric System and its successor, National Grid USA. She was senior vice president and acting CEO when she retired in 2007.
At FERC, LaFleur has concentrated on reliability and grid security issues. She co-chaired the FERC/NARUC Forum on Reliability and the Environment.
In a statement yesterday, LaFleur noted the commission’s role in ensuring reliability as the generation fleet faces retirements due to environmental regulations. “The Commission also has important work ahead in implementing Order No. 1000, setting transmission rates, and ensuring competitive markets work fairly and effectively for consumers,” she said.
Although she has backed the commission’s major initiatives, LaFleur has not agreed with all decisions. In March, for example, she dissented from an order requiring PJM to allocate the costs of large new transmission lines on a broad “postage-stamp” basis. LaFleur had favored a hybrid approach, combining a localized, “distribution factor” calculation and a broader assessment of benefits for postage-stamp allocation. The effect of that decision is limited to projects PJM had approved before February of this year. The grid operator proposed a hybrid method for projects approved after that time; FERC approved it in March.
ORLANDO — MISO officials last week signaled their opposition to PJM’s new limits on generation imports but said they will be capacity buyers in the near term as they face a shortfall that could result in load shedding as early as 2016.
MISO CEO John Bear said officials hope generation plants being built on Marcellus Shale deposits in Pennsylvania will provide relief as the region copes with a potential 5 to 7 GW capacity shortfall in 2016-17 due to the loss of coal-fired generation.
“We’d like capacity to come in this direction,” Bear told a press briefing on the sidelines of the National Association of Regulatory Utility Commissioners here. “In 16-17 we’ll be capacity challenged.”
MISO is completing analysis of a survey to determine the extent of its shortfall, with results due to be released as soon as next month. MISO officials fear their current 15% reserve margin could be reduced by more than half, even with the anticipated import of 1,000 MW of capacity from the south.
MISO currently meets a 1 event in 10-year loss of load expectation. “You’re going to have more events” in the future, Bear said. “We could go to three events a year.”
Asked about predictions of rolling blackouts, Bear responded, “that’s a little strong.” More likely, officials said, are localized load shed events, similar to what PJM experienced in September.
“You could expect more pinched operating days [forcing operators] into emergency operating procedures,” said General Counsel Steve Kozey.
No `Arbitrary Caps’
Officials said they can’t be certain they’ll be able to tap the new generation in PJM. “They’ve got a lot of retirements, so their flows will change,” Bear said. In an apparent swipe at PJM’s new import limits, he added: “We want flows to be dictated by the physics of the system, not any arbitrary caps.”
PJM stakeholders gave final approval Thursday to new methodology that will limit imports from MISO to 3,000 MW in next year’s base capacity auction. The limits do not apply to pseudo-tied generators that are under PJM control and meet other conditions. (See Members Deadlock on DR in Capacity Auctions)
Richard Doying, MISO executive vice president of operations, said PJM’s methodology for determining cross-border transfer capability is unduly conservative. The methodology dispute was the subject of a hearing before the Federal Energy Regulatory Commission in June. (See FERC Likely to Increase Pressure on PJM-MISO Joint Market Talks.)
The two RTOs are attempting to find agreement on a common methodology as part of their Joint and Common Market initiative. If no agreement is reached, said Bear, “FERC will call balls and strikes. They’ve already done that.”
Interchange Optimization
To optimize real-time interchange energy flows the two regions also are seeking ways to prevent traders from guessing wrong on prices and making uneconomic transactions. PJM stakeholders last month approved creation of a new product, Coordinated Transaction Scheduling, to reduce uneconomic flows with NYISO.
Optimizing flows between MISO and PJM will be more complicated, officials said, because of the higher transaction volume between the two regions.
Entergy Integration
MISO North and South (Source: MISO)
In the short term, MISO officials are focused on completing the integration of “MISO South” — Entergy, Cleco, Lafayette Utilities System, Louisiana Energy and Power Authority, Louisiana Generating and South Mississippi Electric Power Association. Market trials are being conducted now with the cutover scheduled for Dec. 19. The expansion will increase MISO’s peak load from 100,000 MW to 140,000 MW.
MISO lost in the competition for the Western Area Power Administration, Basin Electric and Heartland Consumers Power District, which decided to join the Southwest Power Pool (SPP). “The transmission cost allocation deal with SPP is advantageous to them,” Bear said. “We can’t overcome that.”
Lacking consensus, PJM Thursday dropped plans for a vote on measures to prevent speculation in the capacity auctions, returning the issue to a lower committee.
The Markets and Reliability Committee voted by acclimation to approve PJM’s recommendation to return the issue to the Capacity Senior Task Force.
(Source: Monitoring Analytics)
Because clearing prices in Incremental Auctions (IAs) are usually lower than those in the Base Residual Auction (BRA), participants can profit by selling capacity in the BRA and buying out their commitments in the IAs.
The CSTF voted earlier this month on 11 proposals to remove arbitrage incentives, with PJM’s proposal winning 60% support and the others ranging from 0% to 33%. Two-thirds of voters backed a change in the status quo.
Executive Vice President for Markets Andy Ott said officials hope the delay will allow more members to coalesce around a single proposal, resulting in “less angst” over whether the result will be approved by FERC.
Craig Glazer, vice president for federal government policy, noted that FERC staff raised questions about the issue at a FERC technical conference Nov. 13. Ed Tatum, of Old Dominion Electric Cooperative (ODEC) told the staff at the hearing that one reason for the disparity in prices between the Base and Incremental auctions is that PJM has procured too much capacity in the BRA — imposing excessive costs on load. (See FERC Staff Skeptical on PJM Demand Response Changes.)
Dan Griffiths, director of the Consumer Advocates of PJM States (CAPS), said the MRC would have rejected the staff proposal had it come to a vote. But he was skeptical about the chances of reaching consensus. “I don’t want anyone to think we’re going back to the CSTF to negotiate against ourselves,” he said.
Members spent the first half of yesterday’s CSTF session attempting to narrow their differences on the issue with no apparent breakthrough. Much of the discussion focused on developing penalties — and related credit requirements — tough enough to discourage speculation without creating barriers to entry for small market participants.
Task Force Chair Scott Baker called the delay a “reset … not a reboot,” saying the previous work had provided a “solid foundation” to move forward.
Market Monitor Joe Bowring said the committee needs to develop “clear enforceable rules” to define prohibited speculation. “Right now there’s nothing I can do regarding a participant that I know for a fact is engaging in behavior that we’re concerned about.”
The CSTF has three additional meetings scheduled through January. PJM hopes to win passage of a consensus plan by the end of January in time for a FERC filing in February.
