WILMINGTON, Del. — PJM likely will recommend reducing a proposed $30,000 fee for studying transmission projects of $20 million or more.
PJM has deferred filing the plan with FERC pending further review, Paul McGlynn, general manager of system planning, told the Markets and Reliability Committee on Thursday.
McGlynn said that as planners were preparing the filing, data indicated that the fee might be more than necessary to cover the costs of internal labor and external consulting associated with the competitive windows during the approximately two-year trial period.
The fee proposal was approved Feb. 26 by the MRC and Members Committee after the Federal Energy Regulatory Commission rejected as discriminatory a previous plan to apply the fee to all greenfield projects but not upgrades of less than $20 million. (See FERC Rejects Fee on Greenfield Transmission Projects.)
McGlynn said the decision was based on the increased number of projects being considered under this new approach along with the most recent data drawn from the limited 2014 proposal windows.
“We just wanted to give you a heads-up that we will delay filing it and will update the proposal to some amount other than $30,000,” he said.
PJM had planned to ask FERC for approval that would affect the window that ended in February. Now, McGlynn said, “It likely will not be in effect for any proposal windows this year.”
A revised proposal is expected to be presented at the Planning Committee next month.
PJM: Mistaken LOC Credits Total $7M to $15M
PJM this week expects to finalize the amount of money it will seek from generators that mistakenly received lost opportunity costs when they were on forced outages and ineligible, Chief Financial Officer Suzanne Daugherty told the MRC.
Daugherty said staff had narrowed the total overpayments over two years to between $7 million and $15 million. The next step is to break down the cost by generator.
“It’s taking time to do this,” she said. “We are having to look at reporting data systems that have not been designed to interact with each other.”
While Daugherty said it’s likely the erroneous payments extend before April 2013, the Tariff allows the RTO to recover only 24 months’ worth.
Affected generators will begin being contacted this week, she said. Following these conversations, billing adjustments will be appearing in the June month-end statements, she said, and might roll into July’s bills.
The compensation applies to combustion turbines that are scheduled in the day-ahead energy market but are not committed in real time. However, if they are not able to operate in real time, they are not eligible for the credit. (See PJM to Recoup up to $15 Million in Mistaken Lost Opportunity Costs.)
Members OK Gas-Electric Initiative
The committee approved a problem statement and issue charge to review options for moving the day-ahead energy market and reliability unit commitment timelines in response to FERC’s final rule on coordinating gas and electric schedules.
The initial proposed solution involves shrinking the amount of time, from four hours to three and a half, that PJM has to resolve offers.
In a related discussion later in the meeting, stakeholders expressed concern that the earlier the offer deadline is moved, the less accurate a load forecast will be due to lack of good information about impending weather and gas trades.
Joe Wadsworth, who made a presentation on behalf of Vitol, raised several concerns, including that robust natural gas trading does not occur before 9:30 a.m. and often is later, especially in the winter. And, he said, trading is unlikely to shift earlier regardless of whether PJM moves up its day-ahead bidding. In addition, he said in his presentation, “Sequencing of NYISO’s DA market clearing well in advance of PJM’s DA bidding deadline is critical.”
The next educational session on the issue will be held following the June 10 Market Implementation Committee meeting.
Interim Fee for Virtual Transactions Fails
Two proposals from Inertia Power to impose a temporary $0.07/MWh uplift charge on virtual transactions failed — not surprising given the reception on their introduction in April. (See Cool Response to Proposed 7-Cent Fee on Virtual Transactions.)
One proposal would have imposed the fee on up-to-congestion bids (UTCs), increment offers (INCs) and decrement bids (DECs); the other would have applied to UTCs only. The first proposal failed with only 26% support; the alternative motion fell short at 31%.
The proposals would have expired in six months or upon FERC approval of an alternative. Transactions placed between September 2014 and the effective date of the filing would not have been affected.
“We haven’t been able to reach consensus. We need something to protect the market in the interim,” said Noha Sidhom in making the case for the proposal.
The fee, she said, would provide transactional cost certainty as well as a new revenue stream for uplift as the system heads into volatile summer months. It also would give insight into what a permanent fee could look like.
The proposal was in response to a Section 206 proceeding ordered by FERC to determine whether PJM is improperly treating UTCs differently from INCs and DECs.
While INCs and DECs are charged uplift and subject to the financial-transmission-rights forfeiture rule, UTCs are exempt from both. UTC trading volumes crashed after Sept. 8, the refund-effective date set by FERC for any uplift assessments.
Those who supported the fee pointed to the fact that at least it would constitute something rather than nothing.
“We’re not sure FERC is going to order retroactive refunds,” said Dave Pratzon of GT Power Group. “If they don’t, you might have a period of six to nine months where you’re collecting revenue where you don’t have that now.”
Some also worried that a large refund could potentially bankrupt some financial participants.
The Independent Market Monitor, represented by Howard Haas, led the opposition to the measure.
“We think this is an end-run around the EMU process,” he said in an interview after the vote, using a shorthand reference for the Energy Market Uplift Senior Task Force (EMUSTF).
If implemented, the proposed fee would replace an allocation of uplift charges in any retroactive collection ordered by FERC, he said. By relieving such pressure, it would remove the incentive for financial participants to reach a solution at the task force, he said.
And he said, “The jury is still out on the benefits of virtuals, particularly UTCs.”
Manual Changes Unanimously Endorsed
Members endorsed the following manual changes:
Manual 36: System Restoration — Annual review. Adds detail about when PJM assumes control and when it returns to normal operation. Also adds guidance on completion of interconnection checklist. Effective: June 15.
Manual 03: Transmission Operations — Updates index and operating procedures for PJM RTO operation (nuclear station voltage limits, operation procedures with neighboring systems and operation procedures for AEP, ComEd, Dominion, PPL, UGI, PSEG and PECO.) A change to section 2.1.1 adding a requirement that load dump rating be at least 3% higher than emergency rating was removed due to differing ideas over what it meant. The issue will return to the committee later. Effective: June 1.
Manual 38: Operations Planning — Makes minor changes due to system upgrades and specifies periodic review of IROL facilities. Updates the study process for transmission reliability analysis procedure. Effective: June 1.
The Independent Market Monitor for the Regional Greenhouse Gas Initiative found no evidence of anti-competitive conduct in the CO2 allowance secondary market, according to its report.
Potomac Economics found that the average transfer price of CO2 allowances during the first quarter of 2015 was $5.46, approximately 5% higher than in the prior quarter and 41% higher than the first quarter of 2014. The clearing price in Auction 27, held on March 11, was $5.41, which was consistent with secondary market prices leading up to the auction.
RGGI Reorganizes Executive Board
A Connecticut regulator has assumed the chair of the Regional Greenhouse Gas Initiative.
Katie Dykes, deputy commissioner for energy at the Connecticut Department of Energy and Environmental Protection, became the new chairwoman on Friday, replacing Kelly Speakes-Backman. The executive committee includes Joseph Martens, commissioner of the New York Department of Environmental Conservation, vice chair; Thomas Burack, commissioner of the New Hampshire Department of Environmental Services, secretary; James Volz, chairman of the Vermont Public Service Board, treasurer; and David Small, secretary of the Delaware Department of Natural Resources and Environmental Control, member-at-large.
Biographies of executive committee members and of the entire RGGI board are available here.
State lawmakers have overwhelmingly approved a bill that would ban power companies from signing up residents for variable-rate electricity contracts. The measure, which would take effect Oct. 1, now goes to Gov. Dannel P. Malloy, who is expected to sign it into law.
The legislation attempts to quell a source of consumer complaints against third-party suppliers who seek to switch residents from the state’s two utility-managed standard-generation offers.
Although the bill would prohibit suppliers from signing up customers for variable-rate plans, it does not ban variable rates outright. The majority of residents with variable electric plans do not sign up for such plans; they are rolled over into a variable plan by their suppliers at the termination of their fixed-rate plans. The legislation requires regulators to address this issue.
Proposed Gas Rate Changes Would Increase Larger Users’ Cost
The state’s chemical industry is fighting a proposed Delmarva Power & Light natural gas rate plan that would lower costs for residential customers while increasing charges by 6 to 30% to larger users. The utility proposed the changes after a consultant for the Public Service Commission said last year that some gas customers appear to be subsidizing larger, bulk purchasers. “A potential 25% natural gas cost increase to Delaware businesses is not the message that the state should be sending,” Josh Young, executive director of the 14-member Chemical Industry Council of Delaware, said in a letter to the PSC. For residential customers, the changes would mean a 1.4%, or $1.75, decrease in bills for an average winter month.
A public workshop is scheduled for Wednesday in Wilmington. The PSC said a decision could come by the end of the year.
Exelon’s Nukes in Limbo as Legislature Ignores Bill
Three clean power bills — including one backed by Exelon to support three of its struggling nuclear plants — have stalled in the General Assembly. Part of the legislature’s delay relates to the surprise results of MISO’s Planning Resource Auction, which is expected to result in higher rates next month. (See related story, Public Citizen to FERC: Investigate Dynegy Role in MISO Capacity Price Jump.) “There are an awful lot of questions, some of which arose after the auction,” said Steve Brown, spokesman for House Speaker Michael Madigan.
On Monday, in an 8-K filing with the Securities and Exchange Commission, Exelon said that it doesn’t expect the legislature to pass its proposed Low Carbon Portfolio Standard during the current session. The company has said that without the revenue the legislation would bring in, it might have to close the plants in Byron, Quad Cities and Clinton. (See Exelon-Backed Bill Proposes Surcharge to Fund Illinois Nukes.)
In April, Exelon Executive Vice President Joseph Dominguez had said the company wouldn’t wait until the fall veto session for an answer. Last week, however, the company appeared to be more flexible. “We remain open to participating in any and all discussions designed to enact a legislative package,” the company said.
Northern Indiana Public Service Co. will reimburse customers nearly $1 million and reapply for any rate increases under a settlement reached with the Utility Regulatory Commission. The settlement, a response to a state Court of Appeals ruling that overturned the IURC’s previous approval of NIPSCO’s seven-year infrastructure modernization plan, will result in refunds averaging about $6 per customer.
The settlement covers only NIPSCO’s electric customers. A separate plan covers the company’s gas customers.
The Office of Utility Consumer Counselor and some of NIPSCO’s industrial customers appealed the company’s seven-year plan, saying they were concerned about double recovery and the accuracy of the company’s rate-based investments.
The Legislature’s Energy, Utilities and Technology Committee on Thursday scuttled Republican Gov. Paul LePage’s energy proposals in a 7-6 party line vote.
LePage’s proposals would have made sweeping changes in longstanding state energy policies designed to encourage renewable energy development and to fund efficiency programs. They included a repeal of the state’s renewable portfolio standard and a measure that would require utilities to provide a credit “backstop” to help large businesses expand natural gas pipeline capacity. One bill would cut conservation programs by returning a larger share of revenue from a regional carbon credit auction.
LePage’s energy director, Patrick Woodcock, said that he hoped some elements of the governor’s proposals could be resurrected this year.
Two-Year Fracking Ban Enacted as Hogan Declines Action
Hogan
Gov. Larry Hogan last week allowed a state-wide fracking ban to take effect without his signature.
When the ban passed in both houses of the General Assembly with a veto-proof majority, Hogan said he would neither sign the law nor veto it. The deadline for action passed Friday night, and the ban will go into effect on Oct. 1.
Sponsors of the bill said the ban would allow scientists the chance to study the potential environmental impacts of fracking. Hogan had called fracking an “an economic gold mine” during his 2014 election campaign. But since taking office in January, he had been quiet on the issue.
Protesters Interrupt Snyder; Call for Action on Enbridge Pipeline
Environmental activists opposed to an aging Enbridge oil pipeline interrupted a speech by Gov. Rick Snyder at the 2015 Mackinac Policy Conference, before being escorted out of the conference.
The protesters are calling for the closure of the 61-year-old Enbridge Pipeline No. 5, which carries crude oil from northern Wisconsin to southern Ontario beneath the Straits of Mackinac. They cited studies from an environmental nonprofit that question the pipeline’s structural integrity.
Pipeline safety is a looming issue, especially in Michigan. Just last week Enbridge reached a $75 million settlement with state environmental regulators related to a 2010 spill into the Kalamazoo River. Cleanup for that spill, which is ongoing, has already cost the company $1.21 billion.
PUC Approves $250 Million Geronimo Energy Solar Project
The Public Utilities Commission has approved a $250 million solar project comprised of 21 facilities throughout the state.
The sites for the Aurora Solar Project are mostly in rural Minnesota near established transmission lines. The power will be sold to Xcel Energy. It will be the largest solar installation in the state and increase the state’s solar output by a factor of seven. Surprisingly the project beat several natural gas projects in the bidding process.
“This signals that something big is happening in solar energy in Minnesota,” said Michael Noble of Fresh Energy, a non-profit solar advocacy group. The PUC rejected three other sites because of local zoning rules.
Literal Power Struggle Keeps Revel Casino from Opening
A legal standoff between the developer that bought Atlantic City’s Revel complex out of bankruptcy and ACR Energy Partners, its sole power supplier, will keep the shuttered casino at the complex from reopening this summer.
Glenn Straub, the developer who bought the casino, agreed to a tentative deal with ACR to keep the building minimally powered while he looks for a way to either connect into the Atlantic City Electric grid or tap into the defunct Showboat casino next door, which is now owned by Stockton University. Straub’s company, Polo North Country Club, is battling ACR over fees. The state’s second tallest building was without power for three weeks after ACR pulled the plug April 9 following the bankruptcy sale. State officials have ordered the two companies to keep the building’s fire-suppression powered. The parties also are dueling over who owns $40 million in electric equipment that connects ACR to the complex.
NYISO is changing its Consumer Impact Analysis, a process that evaluates the impact of market administration projects and rule changes, to improve transparency and provide more opportunities for stakeholder input.
The Consumer Impact Analysis evaluates the potential impact of changes based on reliability, environment, cost and transparency. The revised process will give stakeholders notice at the outset of a market design initiative if a project is expected to have a major consumer impact. Stakeholders will receive a description of the methodology to be used in the impact analysis, the results of which will be presented at least 30 days prior to stakeholder votes.
The changes incorporate feedback received from end-use consumer representatives, other market participants and policymakers.
Some residents in Walnut Grove, a town of about 1,500 located on top of potential shale gas reserves, are objecting to a state plan to conduct core sampling on publically owned land to explore for natural gas.
“The community we love is in the middle of a David-and-Goliath battle with big industries that seem to care very little about the people in the area we call home,” town resident Tracy Brown Edwards said. Walnut Grove already hosts the third-largest coal ash dump in the state.
The legislature approved fracking last year but almost immediately issued a moratorium while legal challenges are prepared.
PUCO Delays Decision on AEP’s Coal Rider Until PJM Capacity Auction, FERC Ruling
The Public Utilities Commission said it would wait until after the PJM capacity auction to rule on American Electric Power’s request to guarantee rates from its aging coal plants in return for a vow to keep them operating.
The commission in February approved most of AEP’s three-year security plan but rejected the company’s guaranteed-income request. Two other utilities — FirstEnergy and Duke Energy — have similar requests pending before the commission.
The commission said it wants to see the results of the PJM Base Residual Auction, and the final outcome of the state’s plan to meet the Environmental Protection Agency’s Clean Power Plan, before ruling. The auction for 2018-19 should have taken place in May, but it was delayed to give the Federal Energy Regulatory Commission time to approve PJM’s Capacity Performance proposal. That reform is expected to benefit coal plants in PJM, including those in AEP’s fleet.
Gov. Mulls Ban on Fracking Bans After Texas Passes Similar Law
A law prohibiting local government bans on fracking is awaiting the governor’s signature.
The Senate voted 33-13 on the bill — which also prohibits local bans on wastewater disposal wells — at the urging of the oil and gas industry. The industry has faced increased pressure from communities where fossil fuel opponents have made headway after Denton, Texas, last year voted to ban fracking within town limits. Denton is located in the heart of the Barnett Shale region.
The industry argues that regulation of oil and gas development comes under the aegis of state or federal regulators, not local officials.
Coal Alliance: Benefits of Clean Power Plan Overestimated
Pennsylvania Coal Alliance CEO John Pippy says the federal government has underestimated the cost of imposing regulations related to the Environmental Protection Agency’s Clean Power Plan and overestimated its benefits.
Washington needs to consider the effect of forcing coal plants into retirement, Pippy told the Pittsburgh Business Times. “There’s no place to sell the coal right now,” he said.
Last week, Murray Energy and Alpha Natural Resources announced layoffs of more than 2,000 people. Alpha plans to close its Emerald mine in Greene County by the end of the year. Consol Energy has said it will reduce its state mines to a 32-hour workweek.
Wolf Nominates Environmental Professional to Seat on Public Utility Commission
Gov. Tom Wolf nominated a gas industry executive and climate change researcher to the Public Utility Commission. Andrew Place, EQT ’s corporate director for energy and environmental policy, would take the place of outgoing Commissioner James H. Cawley.
“Andrew Place brings the knowledge and expertise to help advance my vision for the PUC, and I am pleased to nominate him,” Wolf said. “We must ensure there is a balance between consumers and utilities. We also have to develop Pennsylvania’s abundance of energy resources to make sure we have the infrastructure to support the natural gas and other energy industries.”
Place has degrees in economics and public policy and worked as a research fellow at Carnegie Mellon University’s Department of Engineering and Public Policy, becoming an expert in carbon capture and sequestration.
Qualifying electric vehicles bought or leased and registered in the state will be eligible for rebates of up to $2,500 beginning June 15.
The total pot of money available for consumers is $682,500, and it will be doled out on a first-come, first-served basis. Drivers of zero-emission battery electric vehicles will get $2,500. Those that lease or buy plug-in hybrid electric vehicles will receive $1,500.
Dealerships will be responsible for filing a claim and then will give the money to their customers.
Xcel Energy is asking state regulators to raise its fixed monthly fee for electricity and natural gas customers, rather than seeking an increase in usage rates.
Xcel wants to increase the fixed monthly customer charge from $8 to $18. The company said it would decrease its usage rate by about 0.7 cents/kWh. The increases would boost electricity revenue 3.9% and gas revenue 5%.
Regulators in neighboring Minnesota this year rejected a similar request by Xcel to increase the customer charge. Customer advocates said fixed-fee increases penalize smaller users and reduce the incentive to conserve. The company argues that bigger fees provide for a more equitable recovery of costs to maintain distribution networks. “The nature of the electric grid is going to change,” an Xcel executive said. “The grid is there and costs something regardless.”
Manitoba Hydro has asked the Public Utilities Board for a 3.95% increase in its electricity rate to cover increased borrowing costs, especially for projects like the Keeyask plant. The request comes after the utility received a 3.5% increase in 2013 and a 2.75 % interim increase in 2014.The Consumers’ Association of Canada and the Manitoba Metis Federation have told the PUC they oppose the rate increases, which they say will hurt lower-income customers. Consumer advocates also noted that Manitoba Hydro has said it will seek a similar increase next year.
Keeyask is a 695-MW hydro station being built on the Nelson River. When completed it will be the company’s fourth largest hydro station.
INDIANAPOLIS — MISO will release the results of its latest resource adequacy survey later this month, after a survey last year caused alarm, with forecasts of capacity shortages in three zones in MISO North and Central.
How bad will the new numbers be? And how can MISO increase its reserve margins in the future? Those were among the topics that dominated discussion at Infocast’s MISO Market Summit last week.
“We do not have a capacity shortage,” Lin Franks, Indianapolis Power & Light’s senior strategist for RTO, FERC and compliance initiatives, said flatly. “The message has been ridiculously presented to the world as if the sky is falling. The sky is not falling. It’s been very difficult with [the Environmental Protection Agency] disrupting all our planning processes, but we are rallying. We are solving it. We have an obligation to serve load and damn it, we’re going to.”
Franks
Franks found some support from Kathleen Spees, a principal of The Brattle Group. “There’s more [capacity] that gets offered than comes out in these surveys. So I’m not particularly worried that we’re really going to have a shortage.”
Snapshot in Time
Franks said the survey data, which is collected by the Organization of MISO States, makes the situation look worse than it is.
Utilities are asked, for example, about the certainty of their plans for new generation. “[You] are never certain at all until you get your certificate of public convenience and need. So it’s not a graduated certainty. It is or it isn’t, period,” she said. “What you’re seeing is a snapshot in time. It doesn’t mean that there won’t be a solution [when the capacity is needed].”
Gardner
Joseph Gardner, MISO’s vice president for forward markets and operations services, said the RTO will change how it presents the survey data in the new report. “So hopefully it will address some of those things,” he said.
There is no question, however, that MISO, which has enjoyed reserve margins exceeding 20% in the past, is facing a much tighter future.
Calls on Interruptible Loads to Increase
Gardner noted that it’s been nine years since MISO last deployed its load-modifying resources — currently about 6 GW of behind-the-meter generation and 4 GW of interruptible loads.
David Sapper, of Customized Energy Solutions, speaks as Jim Carson of RisQuant Energy (left) and Chris Plante of Wisconsin Public Service listen.
“We’re going to start having to use that quite often. I don’t expect we’ll have to use it very often this year, but we do expect to use it very often starting next year,” he said. “How often is hard to tell. It depends on what kind of a summer we have. If we have a summer like we did three years ago: not much. If we have a summer like we did two years ago: a lot — upwards of two dozen times of more.”
That could result in departures from the program, Gardner and others said.
“Essentially those interruptible customers start to look like a peaking generator,” said Chris Plante, director of resource planning and policy for Wisconsin Public Service. “Those customers … are not accustomed to regular interruptions. Our thought is that as they start to experience those interruptions, they may actually decide to leave the interruptible program and become firm load, which of course makes the situation even more tight.”
David Sapper, director of midcontinent regulatory affairs for Customized Energy Solutions, said MISO officials’ recent suggestion that they are considering testing the response of interruptible loads may also contribute to defections.
Challenges to Adding Generation
Losses of interruptible loads would make the construction of new generation even more crucial. But that won’t be easy, Plante said, because of “friction” in MISO’s interconnection process.
Plante
“You have to get into the MISO interconnection queue early enough so that you get your study results done and you get the transmission issues identified. Usually that time frame is so long that I don’t even have a good idea yet on whether I’m going to build a one-on-one combined-cycle or a two-on-one. If it’s a one-on-one, is it 400 MW or is it 450 MW? That might not seem like a big deal, but to MISO’s interconnection process it’s a big deal. You can’t go in with 400 and later say, ‘Well it’s really 450.’ You have to get out of the queue and get back in with 450.”
Plante also criticized MISO’s modeling of wind power at 100% of nameplate capacity during off-peak hours. “When my combined-cycle is modeled at 100% and the wind’s modeled at 100%, there’s all kinds of constraints. And those constraints show up in my interconnection agreement as issues that I need to resolve before I can count that generator as capacity. Depending on the lead time of those constraints, I might have to wait for 10 years [for a major transmission project] before I can get the capacity value out of that combined-cycle when in reality … we believe that off-peak wind probably won’t be at 100% and the constraints that MISO identifies might not ever show up.”
No Rescue from IPPs
Don’t expect to see independent power producers riding in like the cavalry to build new generation.
Kruse
Brett Kruse, vice president of market design at Calpine, said his company won’t build in MISO without a contract because all but two of its states are dominated by vertically integrated utilities and its voluntary capacity market provides too little revenue.
“The contract has to be 10 or 20 years depending on how much you can frontload it … where you basically have to stick all the value of your plant into that contract, because once you get out and you’re a merchant plant in a construct like [MISO], you have very little value other than what you’re seeing the IPPs in Michigan do: Either you build a line to get into PJM like [Tenaska Capital Management’s Covert, Mich., plant] did or you sell to the utilities.”
As the biggest natural gas buyer in the U.S. and one of the biggest operators and builders of gas-fired generation, “I can build … a gas-fired plant cheaper than anybody else in America. … We’re very confident we can run circles around any utility self-build in America.”
But he added, “If I went to my board and said I wanted to invest $500 million into building a [merchant] plant in MISO, they’d laugh me out of the room — and then fire me.”
Until recently, MISO’s ample reserve margins have meant there hasn’t been much need for merchant entry, said Brattle’s Spees.
Capacity Prices Too Low?
But, she said, “That’s not going to last forever. The only way it can last forever is if the regulated states overbuild into perpetuity by a sufficient margin that they can meet the resource adequacy needs of their neighbors” in Illinois and Michigan, the two MISO states with retail competition.
Spees said she sees promise in the concept of setting up a PJM-like forward capacity market for the states with retail choice.
Marka Shaw, a director of wholesale market development for Exelon, also criticized MISO’s structure, saying it is not only unable to attract new entry but also provides insufficient revenue to cover expenses for existing baseload generation, such as Exelon’s Illinois nuclear fleet.
Kruse and others agreed that MISO’s capacity prices are too low, with some noting that the $150/MW-day price seen in Illinois Zone 4 in the most recent auction — which sparked complaint to the Federal Energy Regulatory Commission last week — is less than two-thirds of the $247/MW-day cost of new entry in the zone. (See Public Citizen to FERC: Investigate Dynegy Role in MISO Capacity Price Jump.)
Gas vs. Nuclear
But Kruse’s Calpine colleague, Joe Kerecman, jumped into the discussion from the audience to criticize what he called Exelon’s request for “out-of-market subsidies.” Exelon has been lobbying for the Illinois legislature for a bill that would charge Illinois electricity users a fee to ensure continued operation of three nuclear generators that the company says are unprofitable. On Monday, Exelon acknowledged that the legislation would not pass during the current legislative session.
“These plants are also getting old,” Kerecman said, accusing Exelon of abandoning its support for competitive markets. “There’s a fallacy that they won’t get replaced.”
“Clinton [one of the generators Exelon says is losing money] is one of our newest plants,” Shaw shot back.
Shaw found support in Spees, who said the relief nuclear operators are seeking is to address the unpriced cost of carbon emitted by coal and natural gas plants. “That’s a market failure,” she said.
ATLANTIC CITY, N.J. — The Members Committee last week gave final approval to a measure tightening rules on lost opportunity payments for generators.
Under the new rules, PJM will use the schedule that the resource is committed on for energy as the reference for lost opportunity costs unless it is self-scheduled. For self-scheduled resources, PJM will use the higher of the available cost or price curves.
Adam Keech, PJM’s director of wholesale market operations, said the previous rules either over- or under-compensated generators.
Demand Response Verification
Members also approved Tariff and manual revisions regarding PJM’s use of sampling to measure and verify residential demand response. The new measurement method was originally endorsed by the MC in January. Thursday’s vote approved the inclusion of an additional transition year because of delays in filing the new method with the Federal Energy Regulatory Commission.
With its reliance on demand response and behind-the-meter generation increasing amid generator retirements, MISO plans to update the way it sets prices during emergency resource offers.
The emergency pricing proposal is “one of the key reforms” that MISO is likely to make next year, Jeff Bladen, executive director of market design, told the Markets Committee of the Board of Directors on Wednesday.
“It’s at least plausible, and maybe even likely, that under emergency conditions when we deploy load-modifying resources, we would … depress prices,” Bladen told the committee. “The rule change that we’re pursuing is designed to ensure that the price at least doesn’t go down and may well go up based on the highest offer of economic resource at the time.”
The proposal would involve a price floor, set as the maximum of the emergency resource’s offer cost or the highest available economic offer cost of the last resource cleared prior to the initiation of the maximum generation procedure, MISO said.
More Reliance on DR, LMR
Generation resources are projected to fall with the retirement of coal-fired plants due to the Environmental Protection Agency’s Mercury and Air Toxics Standards, which took effect in April, and its proposed Clean Power Plan, aimed at reducing carbon dioxide emissions.
MISO projects 2015/2016 total generation at 122.9 GW — down nearly 1.6 GW from 2014/2015.
“What you see is a reduction of about a gigawatt-and-a-half of actual generation supply as being relied on to meet our reliability requirements. It’s effectively being replaced by behind-the-meter generation and by demand response and to a lesser degree by external resources,” Bladen told the committee.
Will They Show Up if Needed?
Because it has had ample generation supplies in the past, MISO has no recent history of deploying load-modifying resources (LMR) — and that’s a challenge of its own.
Bladen told the committee that MISO “has questions about the degree to which we can actually rely on emergency and load-modifying resources,” particularly what’s available on a real-time basis. “The challenge here is we have no recent deployment history.”
To better gauge reliability, MISO staff have been running monthly LMR drills with participants. Participation rate has been increasing significantly since 2014. One problem identified has been that participants sometimes do not provide signals to MISO when their LMR or DR resources have been already deployed, leaving uncertainty as to how much relief MISO can count on.
“There’s no testing protocols currently. Even though people are required to provide availability notifications, there’s no penalty, if you like, for not providing availability notifications, although most are very diligent about doing it. So that leads to real concerns about the reliability and availability of those load-modifying resources,” Bladen said.
Todd Ramey, MISO’s head of real-time operations, said as a control room operator, the bottom line is that “I don’t have situational awareness of 2 to 3 GW of planned capacity resources” claimed by members to meet their firm requirements.
Ramey said he plans to seek development of an issues statement to address the lack of information on such resources.
Director Baljit “Bal” Dail echoed concerns, saying the discussion about the reliability of DR and LMR has been going on for a long time.
“In a market that is tightening, I think we need to have much greater clarity about what is going to show up and what isn’t,” Dail said.
Director Michael Curran underscored the urgency, saying: “Aren’t we at the ‘time-is-of-the-essence’ stage? … Time is essentially running out on us.”
‘Cascade’ Effect
Unlike PJM, most of MISO’s DR assets are administered through state programs. As a result, they would not be directly affected if the U.S. Supreme Court lets stand an appellate court ruling voiding the Federal Energy Regulatory Commission’s jurisdiction over DR in energy markets. (See MISO Ponders Large DR Role.)
But Bladen said MISO could be affected if the court’s ruling results in neighboring systems being unable to certify as much DR as they have in the past to meet their requirements.
“It might well mean that some capacity or other resources that we currently rely upon actually become that much more interested in supplying other systems,” Bladen said.
“Maybe prices go up on other systems and that further encourages exports. So the cascade event is likely the one that we would watch mostly closely,” he said.
ATLANTIC CITY, N.J. – The PJM Members Committee last week elected South Carolina electrical engineer Terry Blackwell to the Board of Managers, where he will serve out the term of William Mayben, who is retiring after eight years.
Mayben’s term expires next year.
Blackwell, who retired in 2013 from his post as senior vice president of power delivery for Santee Cooper, was chosen from 10 candidates with expertise in transmission-dependent utilities, per PJM’s Operating Agreement.
With no other candidates on the ballot, the vote lacked any drama. But board member Jean Kinsey, the non-voting chair of the Nominating Committee, followed the appointments with more surprising news: Going forward, members will be ineligible for re-election once they either turn 75 or have served five terms.
Had the new rule been in place, it would have disqualified Schneider from another term. The term limit will preclude Richard Lahey from seeking re-election when his term expires in 2016. Like Schneider, he has served on the board since its inception in 1997.
Kinsey’s term also expires next year. She joined the board in 2003.
PJM would not disclose the ages of its board members, so it’s unclear who might be affected by that limit.
The Nominating Committee was comprised of eight members, three from the Board of Managers. In addition to Kinsey, Ake Almgren and Susan Riley took part. Participating PJM members and the sectors they represent were: Pati Esposito (Other Suppliers), Ken Foladare (Generation Owners), Lisa McAlister (Electric Distributors), Jackie Roberts (End Use Customers) and Hertzel Shamash (Transmission Owners).
10 Candidates
The committee hired executive search firm Russell Reynolds, which identified 10 candidates, three of whom were interviewed.
Blackwell retired in 2013 after 35 years with Santee Cooper, the last four and a half as senior vice president of power delivery. He is a senior consulting engineer with McCall-Thomas Engineering, in Orangeburg, S.C. He also is a former board member and chairman of the Southeastern Electric Reliability Corp.
“He is regarded not only for his technical acumen but is widely praised in the industry for his character and collaborative working approach, both as a representative of public power, and with other industry and regulatory interests focused on the challenges of power system reliability,” outgoing CEO Terry Boston said in a letter to PJM members announcing the committee’s choice.
The board also includes Boston, who will cede his seat to incoming CEO Andy Ott, and Charles Robinson, who did not attend the Annual Meeting.
ATLANTIC CITY, N.J. — Consumer environmental advocates told the PJM Board of Managers last week that the Capacity Performance proposal could saddle ratepayers with excessive costs because of its treatment of renewable energy. They made their case during their annual meeting with the board last week, at which they also delivered a wish list on issues ranging from cost allocation to load forecasts.
Mike Jacobs, of the Union of Concerned Scientists, said wind and solar resources will be unable to qualify as Capacity Performance resources due to their intermittent nature.
Mike Jacobs, UCS
“There’s a real possibility that capacity needs will be overstated, misallocating capital and overcharging users,” he said, explaining that while the renewable resources won’t be in the capacity auction, they will be added as a result of state renewable portfolio standards. Thus, he said, “consumers will pay twice” for that capacity.
The consumer advocates said they doubt the need for the “vast changes” in the proposal, which they said will be “a dominant focus” of their cost concerns. The advocates asked the board to limit future changes to permit “a period of stability in the capacity markets.”
“I think many of us think of our grandmothers or others in our lives who depend on energy and for whom price increases that seem maybe to us the cost of an extra latte at Starbucks really do make a difference,” said Robert Mork, deputy consumer counselor for the Indiana Office of Utility Consumer Counselor.
The Federal Energy Regulatory Commission is expected to decide by June 9 on the proposal.
Demand Response
The consumer advocates said they were “heartened, but not over-optimistic” by the Supreme Court’s decision to reconsider the D.C. Circuit Court of Appeals’ ruling vacating FERC’s authority over demand response in wholesale energy markets. The court said DR is a retail product and thus subject to state, not federal, jurisdiction. (See Supreme Court Agrees to Hear Demand Response Appeal.)
“Should the Supreme Court uphold the Circuit Court order, we urge the board to limit PJM’s response to the energy market until FERC rules on any further implications” regarding regulation of DR in capacity markets, the advocates said.
Artificial Island Cost Allocation
The cost allocation issue was sparked by PJM planners’ recommendation of a stability fix for New Jersey’s Artificial Island nuclear complex.
While one transmission solution considered by PJM would have spread costs among two dozen transmission zones and merchants, the proposal selected may be assigned entirely to the Delmarva Power & Light zone in Delaware. (See Delaware Unhappy with Artificial Island Cost Allocation.)
“The potential allocation of all costs to a single zone suggests, to us, that cost allocation rules should be revisited,” the consumer advocates said in their presentation.
Clean Power Plan
The environmentalists focused largely on the Environmental Protection Agency’s Clean Power Plan, which the agency is expected to finalize this summer.
Clements said that while most RTOs’ studies of the plan have not met minimum modeling requirements, PJM’s have been good.
“There’s not a doubt in my mind that a multi-state plan will save millions of dollars,” said outgoing CEO Terry Boston. But, he said, “In any multi-state plan, there will be winners and losers. How can we collectively work so there can be economic benefit for those states that lose? How can we work together to show these benefits are real and can be traded?
“This is something for you as a group to be thinking about and working with your states on,” he said.
Jackie Roberts, director of the West Virginia Public Service Commission’s consumer advocate division, said the best way to persuade political leaders opposed to the plan to join in regional compliance is to “show them the economics of it. That’s what’s going to be persuasive to the governors and their environmental departments.”
Richard Lahey, PJM Board
Board member Richard Lahey asked the environmentalists about their opinion on nuclear power’s role in meeting compliance. Nuclear power provided more than one-third of PJM’s generation in 2014.
“If we lose that, we’re really worried about the stability of the grid and there would be a huge increase in CO2. It would be irreversible,” Lahey said.
Clements said there is “no consensus” among environmentalists on the subject. As a result, she said, Sustainable FERC Project has focused on “cheap, clean and quick” resources such as energy efficiency and renewables.
Clements lauded adjustments PJM is making in its load forecasting to reflect the impact of energy efficiency. She urged planners to broaden their efforts to capture the impacts of distributed generation and price-responsive demand. “Traditional GDP-related variables no longer correlate well with load growth,” she said.
Pledge to Seek Consensus
While they mostly made requests, the consumer advocates also pledged to do their part to help reach consensus in the stakeholder process — a response to requests by Boston and Board Chairman Howard Schneider.
Ruth Ann Price, Delaware Division of the Consumer Advocate
The federal government’s energy statisticians last week released their analysis of the Environmental Protection Agency’s proposed Clean Power Plan, concluding it will hasten the shift from coal-fired generation and ultimately reduce electric bills.
The Energy Information Administration’s report concludes that:
The switch from coal- to natural gas-fired generation will be the most used compliance strategy in the early years of the new rules. At 90 GW, coal plant retirements through 2040 are more than double the 40 GW in EIA’s 2015 Annual Energy Outlook (AEO2015) reference case, with nearly all retirements occurring by 2020. The Clean Power Plan is not expected to impact natural gas prices significantly except during the first two to three years of implementation.
Renewable power and energy efficiency will become the more important compliance method by about 2025.
Nuclear capacity would grow if new nuclear generation receives the same treatment as new renewable generation in compliance calculations.
Retail electricity prices will rise by 3 to 7% during 2020-25 due to spending on new generation and increased use of natural gas. Prices return to near-baseline levels by 2030 in many regions but remain higher in some regions, with prices in Florida, the Southeast, the Southern Plains and the Southwest regions remaining about 10% above the baseline in 2030. By 2040, total electricity expenditures under the Clean Power Plan are slightly below those in the AEO2015 reference case, as decreases in demand more than offset the price increases.
State Calls for More NRC Oversight at Indian Point Nuclear Station
New York state is calling for the Nuclear Regulatory Commission to step up oversight of Entergy’s Indian Point nuclear station after a May 9 transformer explosion, fire and oil leak into the Hudson River. Entergy is seeking a license renewal, which the state has opposed.
“As the history of explosions and fires at Indian Point make clear, transformers play an important role in nuclear plant safety,” state Attorney General Eric Schneiderman said. “The time has come to require that transformers be closely and frequently monitored as a part of the facility’s aging management program as I have raised in the re-licensing proceeding.”
A recent NRC inspection found that the plant met all requirements. The commission will hold a public meeting to discuss the plant’s performance.
Utilities Call for NRC Review of New Metallic Fuel Design
Four energy producers, representing the operators of nearly half of the country’s nuclear reactors, are asking the Nuclear Regulatory Commission to review a new design for metallic fuel components. Lightbridge Corp. has devised a new design for metallic fuel for use in pressurized water reactors. The design operates at lower temperatures, has increased heat transfer rate and fluid flow and increased structural strength, according to Lightbridge. The company also boasts that the design could provide 30% more power with the same fuel cycle length.
Dominion Generation, Exelon Generation, Southern Co. and Duke Energy all have asked for federal refuel of the new type of fuel assemblies. Lightbridge said they could be ready as soon as 2020.
DOE Report Says Wind Energy Possible in All 50 States
A Department of Energy report examining the rise of wind energy in the U.S. said advances in turbine technology make wind power feasible for all 50 states, instead of the 39 that already have wind farms. The advances, according to the report, “enable wind to be a true nationwide economic resource.”
Higher turbine tower — up to 110 meters tall, as opposed to the current 80-meter heights — would enable a 54% increase in wind power deployment because it would enable the turbine blades to reach faster wind speeds that are at greater heights. Building 140-meter towers would boost the increase to 67%, according to the report.
“Regions primarily affected by this increased technical potential include the Southeast, states bordering the Ohio River Valley, the Great Lakes Region, the Northeast, and portions of the Interior West and Pacific Northwest,” according to the study.
The taller towers require stronger supports and foundations, higher costs and transportation challenges getting components to the sites.
Senators Call on Obama to Name Pipeline Safety Head
Two days after a pipeline leaked more than 100,000 gallons of crude oil into the Pacific Ocean, 10 U.S. senators urged President Obama to name a new head of the Pipeline and Hazardous Materials Safety Administration.
In a letter to the president, the lawmakers — Jon Tester, Dianne Feinstein, Heidi Heitkamp, Patty Murray, Debbie Stabenow, Tammy Baldwin, Maria Cantwell, Gary Peters, Joe Manchin and Barbara Boxer — cited an increase in pipeline failures across the country.
The administration has not had a permanent head since October. “Given PHMSA’s responsibilities of regulating approximately 2.6 million miles of pipelines that carry natural gas, crude oil, gasoline and other hazardous liquids all over the country, and the critical role the agency plays in regulating crude-by-rail,” the senators wrote, “we are concerned that we still do not have a permanent administrator to head the agency.
“Additionally, several of our states have experienced crude-by-rail accidents in recent years, emphasizing the need to work to prevent future accidents.”
Jeb Bush Acknowledges Climate Change, but Says Science ‘Convoluted’ as to Cause
Jeb Bush, speaking at a New Hampshire house party last week, began to frame a position on climate change during the run up to the 2016 election. Asked to comment on President Obama’s characterization of climate change as a “serious threat” to national security, the former Florida governor acknowledged that Earth’s climate is changing, but he stopped short of attributing it to human causes.
“The climate is changing,” he said. “I don’t think the science is clear on what percentage is man-made and what percentage is natural. It’s convoluted. And for the people to say the science is decided on this is just really arrogant, to be honest with you.”
Senate Energy and Water Bill Lacks Yucca Mountain Funding
The Senate Appropriations Committee has stitched together a $35 billion energy and water spending bill, but the proposed funding includes nothing for the Yucca Mountain nuclear waste repository. While Republicans still vow to get legislation to include the controversial Nevada project, keeping it out of the appropriations stage helps ensure that it doesn’t get caught up in committee.
Some Republicans, including Sen. Lamar Alexander (R-Tenn.), say the way to assure funding for Yucca Mountain is through an amendment.
“Putting an end to our decades-long nuclear waste stalemate will involve completing Yucca Mountain,” said Alexander, the chairman of the Appropriations Committee’s energy and water panel. “I look forward to an open amendment process in the U.S. Senate and to working with the House to remove obstacles to nuclear power.”
Republican lawmakers have argued that the Nuclear Regulatory Commission has a commitment to complete a full review of the project. A House version of an energy and water funding bill includes $50 million for a review. The NRC has said it has only a small fraction of the necessary funding for the review.
EPA Tells States to Crack Down on Emissions from Start-ups and Shutdowns
Regulators have typically allowed some pollutants emitted by industrial facilities during the start-up and shutdown periods and equipment malfunctions, but the Environmental Protection Agency is urging states to cut down on emission limit exemptions. The agency on Friday formally issued a regulation that tells 36 states to stiffen pollution standards in the Clean Air Act. Under the new rule, the states have until November 2016 to make the changes.
Environmentalists see the agency’s move as a long-needed closure of loopholes. “For too long, neighborhoods adjacent to dirty oil refineries, coal plants and other sources of pollution have been left with little recourse to protect their families from toxic pollutants such as sulfur dioxide and soot,” Sierra Club Executive Director Michael Brune said. “More often than not, the communities that face the worst of this pollution are low-income communities or communities of color,” he said.
Fed Study Shows Dolphin Deaths Tied to Deepwater Horizon Spill
A study overseen by the National Oceanic and Atmospheric Administration concludes that 46 dolphins that washed up on Gulf of Mexico beaches between 2010 and 2014 died from ailments caused by oil from the 2010 Deepwater Horizon spill. The study said the dolphins died of bacterial pneumonia, adrenal disease and lung lesions, all caused by the Deepwater Horizon spill.
“These dolphins had some of the most severe lung lesions I have ever seen,” said Kathleen Colegrove, a veterinary pathologist who worked on the study. “The dolphins were swimming in oil,” said Stephanie Venn-Watson, National Marine Mammal Foundation, the study’s lead author.
WASHINGTON — It’s Friday afternoon at St. Stephen and the Incarnation Episcopal Church in the Columbia Heights neighborhood in D.C. and, to anyone who’s attended a Federal Energy Regulatory Commission open meeting over the past year, there are a few familiar faces.
There’s Ted Glick, national campaign coordinator for Chesapeake Climate Action Network, who was among the first to test FERC’s new rules regarding disruptive behavior in March — as well as the first protester to speak at Norman Bay’s first meeting as the commission’s chair in April.
There’s Jimmy Betts, who started a chain of interruptions at FERC’s meeting in January, leading then-Chairman Cheryl LaFleur to call a recess while security cleared the floor of protesters.
And there’s Lee Stewart, who was carried out of April’s meeting by security.
But there are more unfamiliar faces, some of them FERC is seeing for the first time.
They all have taken up temporary residence at the church for a week’s worth of protest activities: marches, workshops, training and, of course, rallying outside of FERC headquarters. It is a somewhat homogenous group, mostly from the Northeast U.S., but with a variety of concerns, ranging from climate change to eminent domain to hydraulic fracturing’s effects on the environment. But all of them agree: FERC is a rogue agency that is beholden to the natural gas industry, insulated from public scrutiny and unconcerned with the long-term effects of fossil fuels on the planet’s climate.
Beyond Extreme Energy
Called “Stop the FERCus,” the events scheduled through May 30 were planned months ago. They were intended to begin on Thursday to coincide with this month’s FERC meeting. But the commission rescheduled it a week earlier in an effort to avoid any major disruptions. Instead, there were only minor ones. (See Another Meeting Day, Another Drama at FERC.)
The protests against FERC are often attributed to a single group, called Beyond Extreme Energy. Glick calls BXE a “coalition” of about 70 groups, mostly local alliances created to stop individual pipeline projects.
BXE’s mission now is to fundamentally change FERC’s structure and purpose. It doesn’t have an active roster of members nor any centralized leadership. While Glick is often the de facto leader — starting chants and kicking off the disruptions at open meetings — Stewart was identified as the coordinator for this week’s activities. Anyone can join, so long as they are committed to peaceful, nonviolent protests, multiple activists said.
About 500 activists will be coming and going throughout the week, according to Stewart. About 25 gathered on a soggy Thursday morning outside FERC, “a good, solid start,” said Melinda Tuhus of New Haven, Conn., who is handling media relations for the group. On Friday — sunny, with a light breeze — there appeared to be less than that.
Protesters described a “cat-and-mouse game” with police, starting with a sit-in outside FERC headquarters as employees arrived at work, then a stop at the Department of the Interior to protest Arctic drilling. Later, they returned via Metro to FERC.
The turnout was a far cry from last June, when two dozen activists protesting Dominion Resources’ Cove Point liquefied natural gas export terminal were arrested for blocking the main entrance to FERC, making the national news. Three protesters were arrested and charged with a misdemeanor for unlawful entry at this month’s meeting on May 14, but no one protesting last week was arrested. “That may change” this week, Tuhus said.
Police had the main entrance barricaded last week, directing some FERC staff members to use side entrances while chatting with others who came outside to catch a glimpse of what was going on.
At St. Stephen, sleeping bags and backpacks line a wall in an auditorium, where protesters sleep for $5 per person per night. The church, known for being among the first to allow women to be ordained as Episcopalian ministers, has been allowing activists to rent sleeping space since the 1960s. Some immediately take a nap after arriving back from Friday’s morning rally, before a private meeting is held to discuss the schedule for next week as well as long-term plans.
While they come from different areas and cited different priorities, each of the activists shares similar concerns. (See related story, Organic Farmer Turned Protester.)
“We’re not crazies. We’re not irrational. We are deeply concerned about the future of this country and the world and our children and our grandchildren and what kind of world they’re going to inherit,” Glick said. “We wish the FERC commissioners took much more seriously what so many people from all over the world and walks of life are saying about the necessity of moving off of fossil fuels.”
“I’m here for my children,” said Don Weightman of Philadelphia. “I worry desperately that the climate will be unlivable in 100 years.”
Jane Kendall of New York — where Gov. Andrew Cuomo recently announced plans to ban fracking — came to show solidarity with those wanting to end the technique. She has long been involved in opposing local gas projects, including Port Ambrose, a proposed LNG import facility off the coast of Long Island. “FERC is like the bogeyman in my house,” she said.
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Every activist interviewed on Friday said they wanted to see FERC become more transparent, with more public input. Some talked about their initial confusion when attending their first open meeting, expecting to be given a chance to speak.
Painting a banner at St. Stephen’s (Source: Beyond Extreme Energy)
The BXE website lists nine changes it says are needed at FERC. One of them is “FERC monthly meetings must include time for public comments.” Another one: “FERC must make its website easier to navigate.”
To the activists, these aren’t just common sense requests; FERC is structured to specifically exclude public input and favor industry insiders, they say.
“I think that FERC is used to operating in the darkness, and they rely on a lack of public scrutiny,” said the 28-year-old Stewart, a D.C. resident. “And one function of these actions is to shine a spotlight on FERC, to bring attention to what this agency does.”
For Thomas Parker, 19, of western Massachusetts, an open comment period isn’t enough. “I would like to see community members hold chairs” — that is, become commissioners.
“I think you start out getting pissed off by the climate change but end up realizing it’s a democracy issue as much as a climate change issue,” explained Theo Talcott of Manchester, Vt.
Natural Gas
At the top of the BXE list: “Enact a moratorium on new gas infrastructure and export terminals until FERC has been reorganized with independent funding and a clearly defined mission of playing a leading role in reducing greenhouse gas emissions, and shifting to renewables and an energy-efficient power grid.”
Protesters say that, despite the increasing demand for natural gas due to lower prices, coal plant retirements and harsher winter weather, there is already plenty of pipeline infrastructure in the country.
“I would say that if we continue to invest in fracked gas infrastructure, it’s ultimately going to be costly to everyone because of the climate change impacts of these projects,” Stewart said. “And it will only become increasingly clear as time goes on.”
That was the question Independent Market Monitor Joe Bowring posed during his Year in Review presentation at PJM’s Annual Meeting last week, setting off a lively debate with one of the consultants that Richard and Kevin Gates, enlisted in their high profile defense against market manipulation allegations.
“If the rules are imperfect, is it OK to do anything not explicitly prohibited?” Bowring asked.
He quickly provided his own answer. “It is not permissible,” he said, citing what he called the “duty” of market participants to inform RTO officials and federal regulators of such “money trees.”
Bowring referred to PJM’s poorly designed rules on rebating excess line losses, which allowed the Gates brothers’ Powhatan Energy Fund and a handful of other traders to profit through what the Federal Energy Regulatory Commission later called riskless, back-to-back up-to-congestion trades. The rules were later changed. The Gates brothers and their associates — despite stopping the practice after being warned by Bowring — are now facing up to $29.8 million in fines. (See FERC Staff Seeks $30 Million Fine in Powhatan Case.)
“Almost all of the market knew these opportunities existed and chose not to take advantage of them,” Bowring said. “That raises the question: Who’s the smartest guy in the room? The guy who took advantage or the guy who didn’t?”
That brought a response from consultant Roy Shanker, who is quoted on the Gates’ brothers’ website criticizing FERC’s case. “It’s really unfair to have an ill-defined affirmative obligation to do something,” Shanker said.
On the website, Shanker says he believes the Gates and their associates “were simply engaging in rational economic decision making.” He rejected FERC’s contention that the trades were riskless “wash trades.”
In response to Bowring, Shanker cited traders that schedule power deliveries through the IMO interface with Ontario’s Independent Electricity System Operator. Bowring has identified the interface as a location where traders can manipulate PJM’s pricing rules by breaking transactions into multiple “back-to-back” transactions, a practice he has called “sham scheduling.” (See Monitor Gives Lukewarm Review to PJM ‘Sham Scheduling’ Fix.)
“It may be a money tree or there just may be [ambiguity] about the rules,” Shanker said. “We know that ambiguity is out there. It sits like a heavy stone on everyone.”
“When you find something, [the RTOs should] identify it, post it and try to change the rules,” Shanker said. “Because you can’t hit every [possibility] that doesn’t mean that you do not try to address some.”
“Would you be supportive if we proposed such [an affirmative obligation] rule?” Bowring asked.
“Yes,” Shanker responded.
He later explained that he would support “the coupling of an affirmative obligation on market participants” with a “safe harbor” that would protect traders from manipulation charges as long as they stop activity of concern after being specifically warned. “Then it is up to RTO or IMM to act to clarify or change rules,” he said, adding that he was speaking for himself and not the Gates brothers.
Andy Ott, senior vice president for markets, said he, too, would support such a rule. As long, he said, as it was not seen as an “inoculation” for traders that have done something not explicitly listed.
