BOSTON — Ideas to build out the energy infrastructure in New England are plentiful. Still, concerns remain about the execution of potential projects to address the region’s ambitious climate change goals in addition to reliability.
American and Canadian business and government officials addressed the ideas-to-execution paradox during the New England-Canada Business Council’s 29th Annual Executive Energy Conference on Nov. 4-5.
The recent referendum rejection by Maine voters of the New England Clean Energy Connect transmission line was top on attendees’ minds.
The following is some of what we heard during the two-day event.
NECEC Project Vote
Voters in Maine went to the polls on Nov. 2, and a majority of them cast ballots to block construction of NECEC’S 145-mile transmission line through western Maine to deliver 1,200 MW of hydropower from Quebec to Massachusetts. However, on Nov. 3, Avangrid, the parent company of project developer Central Maine Power, filed a lawsuit in Maine Superior Court challenging the constitutionality of the referendum. (See Maine, NY Voters Prioritize Conservation on Election Day.)
Speaking on a panel Friday, Avangrid CEO Dennis Arriola did not pull any punches about the future of the $1 billion project, which he said will be built on existing rights-of-way and commercial logging lands. NECEC, Arriola said, is good for the economy and environment and is “respectful of the local lands where the transmission lines are going to go.”
“The arguments that this project is doing really bad things to the forest, and everything, is totally false,” Arriola said. “I think that the narrative has been manipulated by, candidly, some characters that will be on the losing end of the energy transition.”
Arriola did not mention any specific “characters” by name.
More baseload fuels are needed to complement the intermittent electricity from offshore wind and solar, according to Arriola. It is essential to understand, he added, that “especially here in the Northeast,” projects specific to transmission have been blocked by companies that only care about “the bottom line.”
“When you look at what we need in this country, we don’t just need the renewables, we don’t just need more battery storage, we don’t just need more green hydrogen, we need a lot of transmission to be able to transport that clean energy to where it’s needed,” Arriola said.
If the U.S. and New England are serious about hitting “bold, audacious goals for carbon reduction” and getting to net-zero emissions in the next 15-30 years, he said, it will not happen without transmission.
“We’ve got to stop just talking about things,” Arriola said. “We got to put things into action.”
Government policymakers must “stand up and help push these projects along when they’re done right by the rules” established by them, he said.
Hydro-Québec can be “part of the solution in the Northeast,” Dave Rhéaume, senior director of development, strategy and commercial relations outside Québec, said during the panel discussion. He recognizes that whenever Hydro-Québec develops new deals, “obviously they come with very expensive transmission projects” like NECEC. As a renewable energy supplier, Hydro-Québec finds a market that requires renewables and sees the value proposition in building transmission lines that take energy in one direction … for now, Rhéaume said.
“We believe that in the long run, these lines won’t be unidirectional anymore,” he said. “They will be used to reduce the amount of curtailment periods in neighboring markets.”
Speaking of Tx
The referendum in Maine should be “sobering,” according to NERC CEO Jim Robb. He believes it put a “stick in the spokes of progress.”
There is a “robust transmission system” in New England, according to ISO-NE CEO Gordon van Welie. Still, there is more work to be done ahead of the integration of more renewable energy.
Eversource Energy operates about 50% of the transmission assets in the region, and Bill Quinlan, president of transmission and OSW projects for the utility, said that despite some of the headwinds for extensive energy infrastructure, “there are some paths forward.”
Quinlan cited Eversource’s $49 million project with National Grid in Boston, the first competitive transmission solicitation under FERC Order 1000. ISO-NE issued the RFP to address transmission violations expected after the retirement of Exelon Mystic Units 8 and 9, whose closing was extended to May 2024, under a two-year, $400 million cost-of-service contract. The Eversource-National Grid project has a projected in-service date of Oct. 1, 2023, eight months before the end of the contract. (See ISO-NE Chooses Incumbent as Boston RFP Winner.)
Quinlan said the retirement of a significant fossil-fuel asset like Mystic would help with decarbonization efforts.
“I know there are challenges, but I think if you’re creative and you deal effectively with stakeholders, you can build infrastructure, and that is going to be the challenge of the future,” Quinlan said.
Washington will convert its entire state-owned vehicle fleet to electric by 2040, according to an executive order issued by Gov. Jay Inslee on Sunday.
Inslee discussed the order at a virtual press conference Monday morning with the Washington media. He is attending the 26th U.N. Climate Change Conference of the Parties in Glasgow, Scotland.
The executive order calls for the electrification of all the state’s light-duty vehicles by 2035 and medium- and heavy-duty fleets by 2040. The order covers roughly 5,000 vehicles.
The plan will be implemented by replacing gas-powered vehicles as they wear out. Inslee will work with the state legislature to obtain state funding, which will then be leveraged to obtain additional federal money.
“The capital costs will not be an insignificant figure,” Inslee said at the press conference. However, the state will save money because of smaller operating and maintenance costs, he said.
Last spring, Washington lawmakers passed a bill that ordered carbon emissions from gasoline and diesel fuel sold in Washington be cut by 10% below 2017 levels by 2028 and 20% by 2035. (See LCFS Bill Passes Washington Legislature.) A 2008 law sets overall carbon-reduction targets of 45% below 1990 levels by 2030, 70% by 2040 and 95% by 2050.
A 2021 Washington Department of Ecology report put the state’s carbon dioxide emissions at 99.57 million metric tons in 2018. The report shows that from 2016 to 2018, the transportation sector was the largest contributor at nearly 45% of emissions.
“This is the kind of nuts-and-bolts thing that enables us to reach our target,” Inslee said.
Inslee’s announcement comes roughly a week after Seattle Mayor Jenny Durkan announced a similarly sweeping climate-based executive order at the Glasgow summit.
Durkan’s order creates new carbon-based building performance standards, bans fossil fuels in city-owned buildings by 2035, and expands access to public transportation, according to KING-TV.
The order calls for Seattle’s Office of Sustainability and Environment to create legislation for carbon-based building performance standards for commercial and multifamily buildings that are 20,000 square feet or larger by July 2022, KING-TV reported. The executive order also bans the use of fossil fuels in city-owned buildings by 2035.
Despite Gov. Phil Murphy’s (D) narrow margin of victory in last week’s gubernatorial race, environmental and business advocates believe his sweeping clean energy initiatives will advance as planned through his second term.
Murphy squeaked back into office with a margin of 2.6 percentage points more than Republican challenger Jack Ciattarelli, who has not conceded. Democrats’ grip on the legislature eased somewhat, emerging with 23 out of 40 senate seats with two still to be decided, compared to 25 in the current session. The party now holds 43 of 80 seats in the General Assembly, with nine seats still to be decided, compared to its current 52.
To add to Democrats’ woes, Senate President Stephen Sweeney lost his re-election bid to a truck driver Edward Durr, who has never held elected office. Sweeney, a former ironworker and union business manager who led the Senate for 12 years, is a supporter of Murphy’s offshore wind initiatives and the New Jersey Wind Port, which is sited in his legislative district.
Those losses aside, the Democrats will continue to hold all three levers of power. And environmentalists say they expect the main planks of Murphy’s climate change policy — his commitments to advance solar energy, champion the offshore wind sector and heavily promote the uptake of electric vehicles — to continue.
One reason is that environmental issues were not a central part of the election, said Doug O’Malley, director of Environment New Jersey.
“I think [the] results speak more broadly to national trends and some lingering conservative anger on a set of economic and pandemic issues,” O’Malley said. “But they’re not a repudiation of the environment.”
In fact, one of the Democratic bright spots on election night was the victory of Assemblyman Andrew Zwicker, a vigorously pro-environment legislator who won a Senate seat in a formerly Republican stronghold that was redistricted, O’Malley said.
Jeff Tittel, former head of the Sierra Club in New Jersey, also is not concerned that the governor’s climate change initiatives will slow down.
“Nothing’s going to really change,” he said. “The laws have been set. The money’s going out. The programs are being approved.” The impetus for those initiatives comes from the New Jersey Board of Public Utilities (BPU) and the New Jersey Economic Development Authority, where Murphy appoints the key players and his sway is unchanged by the election outcome, Tittel said.
Raymond Cantor, vice president of government affairs for the New Jersey Business and Industry Association (NJBIA), one of the state’s largest business trade groups that disagrees with some of Murphy’s clean energy initiatives, said a win is enough for him to hold his course.
“He’s the governor,” said Cantor, whose organization believes the state should go more slowly on some of the initiatives. “He doesn’t need to have a large margin of victory to exercise his executive powers. So, we’re assuming he’s going to move forward with his plans.”
First-term Energy Initiatives
In his first term, Murphy placed a high priority on environmental issues, and called for the state to reach 100% clean energy and reduce 80% of 2006 emissions by 2050. He put the state back into the Regional Greenhouse Gas Initiative after his predecessor, Republican Chris Christie, pulled the state out of the initiative. (See NJ Senate Ushers in Revamped Nuclear Bailout Bill.)
Working with the legislature, Murphy also created a master plan that set aggressive targets for clean energy and jump-started the state’s offshore wind program that had been slow-walking for years. The state has now approved three offshore wind projects totaling 3,758 MW of power that are expected to be operating by 2029. The state expects to bring the total of approved projects to 7,500 MW in three more rounds of awards.
Murphy shrunk the incentives in the state’s Solar Renewable Energy Certificate (SREC) program, which some analysts considered overly generous and burdensome to ratepayers. It was replaced with the Successor Solar Incentive Program, which paid about half the SREC value. (See NJ Sees Solar Growth in Reduced Incentives.)
Murphy also placed a high priority on putting more electric vehicles on New Jersey roads, creating incentive programs to encourage private and government EV purchases and the installation of chargers to overcome the so called “range fear” that there are too few chargers available to recharge vehicles.
The state wants 330,000 more registered light-duty EVs on state by roads by 2025, and the master plan assumes that 75% of medium-duty trucks and 50% of heavy-duty trucks will be electric by 2050. To move the state toward that goal, the state Department of Environmental Protection is moving towards the adoption of rules from California – Advanced Clean Trucks regulation – that would require truck manufacturers to make EV trucks an increasing proportion of their sales in New Jersey. (See NJ Electric Truck Rules Face Many Questions).
For all that, the environment, and climate change, did not feature much in the election, prompting one news outlet to run a story under the headline “Climate change: An urgent issue that figures little in NJ governor’s election.”
Murphy’s opponent, Ciattarelli, is not a climate-change denier, and his platform called for the state to “minimize pollutants and carbon emissions, reduce dependence on fossil fuels and ultimately transition to cleaner, renewable energy sources.” But on the campaign trail, he criticized Murphy for moving too fast on clean energy strategies and failing to calculate, or make public, the cost of his plans.
Ciattarelli said he would divert $200 million designated for offshore wind to be spent on “impactful projects such as dredging and electric vehicle charging stations.”
Strong Public Support for Wind
Greg Gorman, conservation chairman for the Sierra Club in New Jersey, noted the absence of climate change as an election issue and said the state is generally behind on climate change initiatives. He cited a recent poll by Nexus Polling, the Yale Program on Climate Change Communication and the George Mason University Center, released on Oct. 28, that found that 75% of New Jersey voters support expanding offshore wind in the state. The public also supports the governor’s solar initiatives, Gorman said, noting that the recent BPU solicitation for community solar proposals attracted 412 applications, about 60% more than a similar solicitation in 2020. (See NJ Selects 165 MW in Community Solar Projects.)
“I don’t think the election is actually going to have a big effect on initiatives for climate change,” he said.
Still, several groups have proposals that they would like to see Murphy pursue. O’Malley said he would like to see Murphy continue to spend heavily on subsidies to help get more EVs on state roads, as he did in the award of $100 million in January from the Volkswagen settlement for the purchase of trucks, buses and port vehicles. O’Malley also said he hopes that the governor will dedicate a fund for NJ Transit, the state’s mass transit agency, to use for the purchase of electric buses. (See NJ Gov. Unveils Green Transportation Plan.)
The NJBIA would like to see the state slow down in its adoption of clean energy, and wait for the development of other new technologies that can provide low-emission energy, said Cantor, the agency’s lobbyist.
“We’re not comfortable right now with where we think they’re going, which is 100% electrification of transportation and building sectors and, essentially, all sources of power past 2050,” he said, adding that the organization would like to see greater consideration of natural gas until other technologies are developed to provide energy without emissions.
Support for Aggregated Energy
In Teaneck, voters approved by a 2-to-1 margin setting up a program giving residents the option to use an electricity provider that is heavily sourced with clean energy. The approval means the township must now strike a deal with an provider that would enable residents to buy electricity of which 50% or more is from clean resources.
Residents led by Food & Water Watch, a nonprofit environmental advocacy group, collected enough voter signatures to trigger a state law that requires the governing body to either enact an ordinance allowing the municipality to purchase electricity through community choice aggregation (CCA), or to place it on the ballot. The law requires the collectors to reach 10% of the number of votes from the last General Assembly election.
The township rejected signatures collected electronically online because of the COVID-19 pandemic. But a New Jersey Superior Court judge on Sept. 13 ruled that the signatures were valid and required the issue to go before voters. (See NJ Municipalities Tackle Carbon Emissions.)
Mayor James Dunleavy released a statement two days after the Nov. 2 vote, saying that the township would “begin discussions with our town manager to map out the process needed to undertake and find the best possible program for our residents.”
The township will need to solicit bids for energy aggregation services, he said, and nonresidential energy consumers would be given the chance to either opt into the program and residential consumers would get the chance to opt out.
“The program must show it will help improve New Jersey’s air quality and public health, while reducing harmful climate pollution and decreasing its reliance on fossil fuels,” the mayor said.
The clock continues to tick on the Texas Public Utility Commission’s self-imposed December deadline for the ERCOT market redesign, with the regulators no closer to consensus than they were during their last design work session.
During the PUC’s fifth work session on a new market design Thursday, PUC Chair Peter Lake again brought up a load-serving entity obligation as a means to provide firm dispatchable generation in a market flush with renewable resources. Again, he faced pushback from the other three commissioners concerned over the mechanism’s effect on ERCOT’s “crown jewel” of a retail market. (See Texas PUC Nears Market Redesign’s Finish Line.)
Lori Cobos, who was CEO of the consumer-oriented Office of Public Utility Counsel before being appointed to the PUC, reminded the commission that ERCOT’s market was deregulated more than 20 years ago to take investment risk away from consumers served by regulated utilities and place it on investors.
PUC Chair Peter Lake | Texas PUC
“I feel that we’re taking that risk and putting it right back on the consumers and steering away from the reliability principles of [the 1999 legislation],” she said. “We must be vigilant and ensure we’re not weakening the market and putting the risk back on consumers. I continue to believe we need to move in a strategic, targeted manner while we take the time to thoughtfully, deliberatively, holistically evaluate all long-term options that must be fully evaluated and considered before pulling the trigger.”
“I’m trigger happy. The grid is demanding we be trigger happy,” said Lake, who often refers to legislation passed earlier this year in the wake of February’s Winter Storm Uri and the compliance burden it places on the PUC.
The LSE obligation addresses resource adequacy concerns by introducing a formal reliability standard and a mechanism to ensure sufficient resources meet this standard. (See Study Suggests Texas LSEs Can Provide Reliability.)
In an October memo, Lake suggested parameters for the LSEs’ obligation. They would need to have firm resources to meet 50% of their forecast net peak load three years out, 70% two years out, 90% one year out and 100% one month out.
“I’m worried about suppressing the animal spirits of the real-time market,” Commissioner Will McAdams said, calling for market flexibility to price-responsive behavior.
“We’ve been asking for ideas and gotten a very narrow scope of ideas,” Lake said. “An LSE obligation is not a risk on consumers; it’s a risk on companies that have promised to provide power to those consumers. Those retail companies also have investors. In no way would an LSE obligation move risk to consumers.”
To back up his point, Lake recounted a recent meeting he had with a retailer, who said “we don’t provide power; we sell things,” Lake said. “Which is not, in my mind, providing reliable power to our consumers or businesses.”
“I have no problem adding some risk [on LSEs],” he said.
Capacity Market in Disguise
Attorney Catherine Webking, general counsel for the electric retailer lobbying group Texas Energy Association for Marketers, said her constituents have “very grave concerns” about the LSE obligation’s capacity requirements.
“That’s not to say that [retail electric providers] don’t hedge and buy firm power … they do, today,” she said. “It still looks to the LSE to demonstrate a capacity procurement, specific to a physical resource, which is not how it’s done today.”
Webking said that qualified scheduling entities (QSEs) procure resources on behalf of the retail electric providers (REPs) in ERCOT’s market.
“Ultimately, a physical obligation is there, but the individual REP does not necessarily have to demonstrate which unit and which megawatts at that resource are being procured,” she said. “As I understand the proposal, the LSE would have to say I understand these physical resources are where I’m buying power. It’s still tied to physical generation and physical capacity of that unit. There’s no revenue stream with that forward capacity purchase.”
Independent consultant Alison Silverstein, who advocates for demand response and energy efficiency measures, said the LSE obligation “looks pretty much like a capacity market” in disguise.
“It also requires both the commission and ERCOT do a significantly better job of planning and forecasting than either of them have shown the capability of doing to date,” she said.
Stoic Energy’s Doug Lewin, who has been live tweeting the PUC’s recent work sessions, lamented other solutions that have been sidelined in favor of the LSE obligation’s discussion.
“They’ve spent so much time talking about the [LSE obligation], which won’t make a difference for a couple of years anyway,” he told RTO Insider. “They could have implemented some of the other things that could have been implemented much faster, like demand response and targeted energy efficiency.”
In drawing the discussion to a close, Lake said, “It’s clear we still have a lot of work to do.”
He asked the commissioners to “put pen to paper” before the next work session and provide their thoughts on firming mechanisms, a reliability adder, and other market changes.
The PUC delayed decisions on revisions to the operating reserve demand curve and other changes until The Brattle Group completes an assessment of alternative ORDCs. An overview of the study dropped Friday.
Brattle suggested a $10/MWh adder to cover start-up costs of marginal resources could be imposed around 5,550 to 5,800 of online reserves to encourage self-commits and reduce the need for reliability unit commitments.
The commission tabled a rulemaking that will lower the high system-wide offer cap (HCAP) from its current $9,000/MWh to $4,500/MWh to time its publication with changes to the ORDC. The HCAP was dropped to $2,000/MWh after February’s winter storm and is set by rule to revert back to $9,000/MWh on Jan. 1 (52631).
Stakeholders at last week’s Operating Committee meeting endorsed a PJM proposal seeking to improve the deployment of synchronized reserves during a spin event.
The proposal, which was developed from discussions in the Synchronized Reserve Deployment Task Force (SRDTF), was endorsed with 164 members voting in favor (72%). PJM first presented the proposal at last month’s OC meeting. (See “Synchronous Reserve Deployment Initiative,” PJM Operating Committee Briefs: Oct. 7, 2021.)
Ilyana Dropkin, an engineer in PJM’s performance compliance department, provided a review of the task force initiative endorsed at the March OC meeting. Stakeholders were educated about synchronized reserves and created a matrix to develop proposals through the task force. (See PJM OC Endorses Synchronized Reserve Discussion.)
Synchronized reserve events are emergency procedures triggered by PJM to maintain grid reliability in accordance with NERC’s Resource and Demand Balancing (BAL) standards. PJM invokes those procedures under conditions such as the simultaneous loss of multiple generating units or a sudden influx of load.
The SRDTF examined ways to secure controlled deployment of synchronized reserves throughout emergency events by using tools such as real-time security-constrained economic dispatch (RT SCED) to maintain consistent pricing and dispatch signals. The goal was to ensure BAL compliance during the recovery process and maintain a reliable transition in and out of emergency events and to define clear rules and expectations that address how PJM operators approve RT SCED cases around a synchronized reserve event.
The task force developed two different proposals: PJM’s intelligent reserve deployment (IRD) proposal, and another by the Independent Market Monitor. In a nonbinding poll taken by stakeholders, PJM’s proposal received 75% support, while the IMM’s received 9% support. Sixteen percent of stakeholders preferred the status quo.
Michael Zhang, senior lead engineer in PJM’s markets coordination department, reviewed the PJM proposal. Zhang said no changes were made to the proposal since it was first presented at the October OC meeting.
The IRD proposal is a SCED case that simulates the loss of the largest generation contingency on the system and for which approval of the case will trigger a spin event, Zhang said.
The PJM proposal calls for taking the megawatts of the largest generation contingency and adding them to the RTO forecast to simulate the unit loss, Zhang said. PJM would then be allowed to flip condensers and other inflexible synchronized resources cleared for reserves to energy megawatts and procure additional reserves to meet the next largest contingency.
Zhang said some of the significant changes over the status quo in the proposal include updating the economic basepoints to replace all-call instructions and having active constraints controlled by IRD so that deployed resources don’t have negative impacts on the constraints.
PJM is looking to conduct a phased approach of IRD with the initial phase of 6 to 12 months beginning in early 2022, Zhang said, possibly by March. The RTO will reconvene the SRDTF toward the conclusion of the initial phase to review performance metrics, solicit stakeholder feedback and adjust and finalize deployment approach and adapt to market changes.
“IRD is production ready,” Zhang said. “It’s been designed to be highly flexible and customizable so we can make changes on the fly as needed.”
Siva Josyula of Monitoring Analytics asked what changes could be made “on the fly” by PJM.
Zhang said one of the major changes is the use of the largest contingency, which was a major focus of the effort. Zhang said the development of using the largest contingency was driven by fears of both over- and under-deployment of resources.
Josyula reviewed the IMM proposal, saying the concept was to ensure reserves are deployed in proportion to the cause of the spin event. He said the resources deployed during a spin event would be those that clear and are being compensated for providing synchronized reserves.
The proposal called for using a reserve deployment tool that generates new dispatch signals, and the total megawatts to deploy would be equal to those lost or required for area control error recovery.
Stakeholders voted down the IMM proposal, with 159 votes against (76%).
Brock Ondayko of AEP Energy questioned the effectiveness of both the PJM and IMM proposals, saying it wasn’t clear what problems they solve. Ondayko said units will be forced into a market system that “doesn’t model things correctly” and that will ultimately have ramifications for other market products and systems, opening a “pandora’s box” of issues.
“You’re trying to fix a problem with solutions that don’t address the main issue while you’re trying to force people to update things in a system that’s not adequate for updating,” Ondayko said.
The PJM proposal will go on to the Nov. 17 Markets and Reliability Committee meeting for a first read and a final endorsement vote at the January Members Committee meeting.
Day-ahead Schedule Reserve Endorsed
Members unanimously endorsed changes to the 2022 Day-ahead Scheduling Reserve (DASR) requirement.
David Kimmel, senior engineer in PJM’s performance compliance department, reviewed the proposed changes to the DASR requirement, which is the sum of the requirements for all zones within the RTO and any additional reserves scheduled in response to a weather alert or other conservative operations. (See “Day-ahead Schedule Reserve (DASR),” PJM Operating Committee Briefs: Oct. 7, 2021.)
PJM chart of under-forecasts of load forecast error from November 2018 to the present. | PJM
DASR is the sum of the three-year averages of both the under-forecasted load forecast error (LFE) and eDART forced outage rate component.
The final endorsed 2022 DASR requirement was 4.43%, Kimmel said, slightly lower than the 2021 requirement of 4.78%. Kimmel said the number comes from the LFE component of 2.04%, which is down 0.14% from last year, and the forced outage component of 2.39%, down 0.21%.
The value is incorporated into Manual 13 changes and effective through Sept. 30, 2022, after which it will be replaced with the day-ahead secondary reserves. Kimmel said the change is dependent on FERC’s review and action on reserve price formation and PJM’s operating reserve demand curve (ORDC).
Manual Changes Endorsed
Several manual updates were unanimously endorsed. They included:
Manual 14D — Vince Stefanowicz, senior lead engineer with PJM’s generation department, reviewed updates to Manual 14D: Generator Operational Requirements as a part of the periodic review. The updates featured the addition of several new sections, including one describing eDART modeling requirements.
Manual 10 — Stefanowicz also reviewed updates to Manual 10: Pre-Scheduling Operations as a part of the periodic review. The updates resulted from FERC’s approval of changes to black start unit testing.
Manual 3 — Dean Manno of PJM’s transmissions operations department reviewed updates to Manual 3: Transmission Operations as a part of the periodic review. Updates included minor changes such as removing a reference to NERC standard PRC-001 because of its retirement.
Manual 13 — Brian Oakes of PJM’s dispatch department reviewed updates to Manual 13: Emergency Operations as part of the periodic review. Updates include notes to articulate the expectations of members’ load shed plans.
The manual changes will be voted on at the November MRC.
FERC on Friday said it had determined that GreenHat Energy and its owners violated the Federal Power Act by “engaging in a manipulative scheme” in PJM’s financial transmission rights market, issuing a total of $242 million in fines for the company’s 890 million MWh default in 2018 (IN18-9).
The commission assessed civil penalties of $179 million on the company and $25 million each on owners John Bartholomew and Kevin Ziegenhorn. FERC also directed GreenHat, Bartholomew, Ziegenhorn and the estate of Andrew Kittell to disgorge more than $13 million in unjust profits, plus applicable interest.
GreenHat acquired the largest FTR portfolio in PJM between 2015 and 2018 but defaulted on the portfolio in June 2018, leaving PJM stakeholders to cover more than $179 million in the market to the present. When the company defaulted, FERC said, GreenHat had only $559,447 in collateral on deposit with PJM. (See Doubling Down — with Other People’s Money.)
GreenHat’s significant growth in exposure and MTA loss
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“Respondents, over several years, deliberately carried out one of the largest frauds in the history of organized energy markets, leading to the largest default in the history of those markets, resulting in losses of more than $179 million,” FERC said in its ruling. “Staff notes that Bartholomew and Ziegenhorn showed no commitment to compliance, did not self-report their violations and provided limited cooperation.”
FERC Findings
The commission found that GreenHat and its owners violated the FPA in four different ways, calling it a “classic fraud,” similar to a “bust-out” scheme involving selling assets that one does not intend to pay for. The violations cited by the commission included:
engaging in a manipulative scheme in PJM’s FTR market to acquire a portfolio made up of primarily long-term FTRs with “virtually no supporting, upfront capital, planning not to pay for losses at settlement” and selling profitable FTRs to third parties at a discount to obtain cash for the owners;
buying FTRs not based on market considerations but to accumulate as many FTRs as possible “with minimal collateral, thereby engaging in a course of conduct for the purpose of impairing, obstructing or defeating a well functioning market”;
making false statements to PJM concerning money supposedly owed by Shell Energy North America with the intent to convince the RTO not to proceed with a planned margin call; and
submitting inflated bids into the PJM long-term FTR auction to “artificially raise the clearing price” of FTRs that Shell had purchased from GreenHat and offered for sale in the auction.
FERC said the Office of Enforcement found documents showing GreenHat’s “continued reliance” on the PJM Credit Calculator, instead of “traditional market fundamentals,” to purchase FTRs “despite multiple indications that such strategy was resulting in an increasingly negative portfolio for the firm.” The office said the owners failed to provide any “reasonable economic rationale” for using the calculator.
The commission said staff also discovered emails during the investigation “demonstrating that GreenHat sought to sell its profitable FTRs to third parties using other valuation methodologies” rather than the calculator, while “continuing to grow its negative portfolio using the PJM Credit Calculator.”
“Respondents intentionally misled PJM to enable GreenHat to buy FTRs that it otherwise would not have been able to afford to buy and extract profits from the PJM FTR market with the intent to default on their portfolio losses,” FERC said.
Kittell Estate
The decision is slightly complicated by an ongoing investigation by the Department of Energy’s Office of the Inspector General (OIG) into an email exchange between FERC Enforcement’s Division of Investigations (DOI) lawyers Thomas Olson and Steven Tabackman regarding the GreenHat case. FERC released the emails in October after Olson, who is part of the litigation staff in the GreenHat proceeding, disclosed them to Enforcement management.
The estate of Kittell, who killed himself by jumping off the San Diego-Coronado Bridge in California on Jan. 6, made a filing for FERC to drop its enforcement action and investigate the two employees. (See Estate of GreenHat’s Kittell Lobbies FERC to End Enforcement Action.)
The commission said the email exchange between Olson and Tabackman “addressed procedural matters that might arise under California probate law” in a proceeding addressing the Kittell estate, but it was not a conversation about the “issue currently before the commission in this proceeding.”
FERC said with the OIG investigating the matter, it was not ruling on the Kittell estate motion “at this time” and will instead “address the merits of the motion” in a separate order once the OIG rules on the case.
Danly Dissent
Danly dissented from the views of the commission, saying, “Enforcement failed to provide the proof necessary to meet its burden.”
Having reviewed GreenHat’s answer and Enforcement’s reply, Danly said he remained “deeply skeptical” of GreenHat’s explanations, but he said his skepticism is “irrelevant.” He said it was not necessary for GreenHat to prove its innocence, but it was for Enforcement to “prove its case to a preponderance of the evidence.”
Danly had harsh words for PJM, saying the RTO was partially to blame for the result of the default.
“While not the subject of the instant proceeding, we would do well to keep in mind the share of the blame that must rightly be assigned to PJM,” Danly said.
Tri-State Generation and Transmission may finally have in place exit procedures for members leaving the cooperative, but regulatory roadblocks remain for the contract termination payment (CTP) methodology.
FERC issued an order Oct. 29 accepting the co-op’s proposed methodology effective Nov. 1, subject to refund, and rejecting nearly a dozen protests from members. However, the commission said its preliminary analysis indicates that the methodology has not been shown to be just and reasonable and established hearing procedures to address issues not in the record (ER21-2818).
The commission also opened a Federal Power Act Section 206 proceeding so it can establish a just and reasonable CTP-calculation methodology and just-and-reasonable procedures for Tri-State’s utility members to obtain the CTPs and withdraw in an orderly manner. It encouraged the hearing’s presiding judge to expedite the hearing where feasible “to facilitate the … resolution of these longstanding disputes.”
Tri-State’s first CTP methodology filing was submitted in April 2020. FERC accepted it subject to refund but also established hearing and settlement judge procedures. The process was repeated several times as the co-op filed policies and other calculation methods in response to member protests.
In May, FERC rejected the CTP methodology without prejudice, leading to Tri-State’s latest filing in September. Many of the complaints centered on members being able to see the calculations. (See FERC Rejects Tri-State Exit Fee Proposal.)
FERC said Tri-State’s newly proposed procedures allowing members’ access to the modified CTP methodology “appear to satisfy a number of the commission’s concerns.” The co-op proposed providing CTP calculations annually to all utility members at no charge by April 1, whether or not the member intended to withdraw from Tri-State.
Members seeking to terminate their wholesale electric service contracts (WESCs) and co-op membership must provide a two-year advance notice of their intention and pay its CTP to Tri-State on the withdrawal date.
“These procedures are clear and transparent,” the commission wrote.
FERC, however, disagreed with Tri-State’s claims that a CTP methodology must be based on a lost-revenues approach to be just and reasonable. It also said it shared protesters’ concerns that additional mitigation efforts could be used to decrease revenues that the co-op would otherwise be losing upon a member’s exit.
“While we disagree with some of the positions being taken by select parties, we appreciate FERC providing the opportunity for broader participation by all interested members in the case,” Tri-State CEO Duane Highley said in a statement last week. “We welcome the continued engagement of our membership, and we will continue to work to ensure that all members, large or small, have a voice that is heard on these important matters.”
The co-op said the modified CTP tariff ensures remaining members are held harmless if another member decides to terminate its contract early and includes “clear, transparent and objective procedures.”
“At the same time, we are mindful of the questions and concerns expressed by the commission … and will do our best to address them through the hearing process,” Tri-State said.
Tri-State has 45 members, including 42 utility distribution cooperatives and public power district members in four states that supply power to more than 1 million electricity consumers across nearly 200,000 square miles of the West.
The American Council on Renewable Energy held its annual Grid Forum over two days last week. As was the case last year, it was a completely virtual event because of the ongoing COVID-19 pandemic.
The first day of the event, Wednesday, focused on infrastructure policy, transmission planning and energy markets, while Thursday featured discussions on the Biden administration’s agenda.
FERC Commissioner Mark Christie on Wednesday compared the transition to clean resources in the electricity industry to the transition to mobile devices in telecommunications.
The former chair of the Virginia State Corporation Commission, Christie also taught regulatory law at the University of Virginia School of Law. Every year he would ask his students how many of them had a land-line telephone, and every year fewer of them would raise their hands, until the last couple of years, during which not one hand would go up.
But the very last year he taught, one student did raise their hand.
FERC Commissioner Mark Christie | ACORE
“‘So you have a land line?’” Christie said he asked. “And the student said, ‘Well, what is a land line?’”
Regulating the telephone industry is very similar to regulating electric utilities, going by Christie’s description: Smaller companies would file complaints against the incumbent utilities because they were not interconnecting their services. Meanwhile, the utilities need to file rate cases with the state commission for approval.
By the end of his career at the SCC, however, the commission had not reviewed a telephone utility’s rate case in years. “The law hadn’t changed; the technology had changed,” he said. “Wireless technology eliminated” the natural, networked monopolies held by telephone utilities. “And it didn’t happen because of smart regulators. It happened because smart engineers in a lab figured out how to transmit [voice data] wirelessly on a mass scale at a cost that consumers could afford.”
Distributed energy resources — particularly battery storage combined with rooftop solar — could do the same thing in the electricity space. Disputes over net metering rates would “all go away,” Christie said.
“These are the kinds of technologies [that] I’m really optimistic will be transformative. And the challenge is to make sure the regulatory structures are either not behind or not ahead but try to get a rational connection to this transformational technology that I know we’re going to see.”
ANOPR
Rob Gramlich, president of Grid Strategies, moderated a panel on FERC’s Advance Notice of Proposed Rulemaking on transmission planning.
The panelists reiterated a consensus among many commenters in the ANOPR docket that transmission planning in the U.S. is reactive to generator interconnection requests, the queues for which are backlogged because transmission construction is not keeping up. The ANOPR presents an opportunity for FERC to create a forward-looking approach, they said. (See Transmission Industry Hoping for Landmark Order(s) out of FERC ANOPR.)
“We’re not really planning for the future now, which sort of raises [the question of] why do we even call it transmission ‘planning’ if it’s not about the future generation,” Gramlich said.
He asked Danielle Fidler, senior attorney with Earthjustice, how she would respond if the D.C. Circuit Court of Appeals questions FERC’s authority “to require these plans and allocate these costs so broadly” under a potential final rule. “Where does that come from?”
“Congress in 1935,” Fidler responded laughing. “The Federal Power Act gives FERC really broad authority … and not just authority but obligation to regulate the transmission system. … So in our view, FERC not only should act; it must act.”
An attendee asked about the timeline of the proceeding, specifically whether the commission would wait for the findings of a joint task force with the National Association of Regulatory Utility Commissioners.
Elizabeth Salerno, FERC’s lead for transmission and technology initiatives, could not say when the commission would act, but she did say that “there’s a sense of urgency to start chipping away at the block. The scope of the ANOPR is huge. I think it’s possible we can’t solve all this in one go. There is a consideration of [if we] try to break these up into pieces and tackle them in a logical order. I’m not sure that’s how we’ll go, but I think that option is on the table.”
Gramlich concluded the panel by speaking to the high expectations of the transmission industry for the proceeding. “I spent a couple years of my life on another major rulemaking that never got finalized, so the last thing I want is for all this work to go in” and nothing to come out of it, he said.
Western RTO, SEEM Face Headwinds
A panel Wednesday devoted to the expansion of wholesale markets in the West and the Southeast shared their thoughts on the possibility of future RTOs but had few answers.
Consultant Rebecca Wagner, a former member of the Nevada Public Utilities Commission, noted the alphabet soup of Western markets and organizations, including CAISO’s EIM and proposed EDAM, SPP’s WEIS market and RTO West, the Northwest Power Pool’s WRAP and the Western Markets Exploratory Group (WMEG). (See Western Utilities to Explore Market Options.)
“There’s always something going on in the West,” she said. “There’s a lot of places to plug in to.”
Rebecca Wagner, Wagner Consultants | ACORE
Wagner said she hopes that, given Western states’ climate and clean-energy policies, a clean, reliable and affordable grid of the future can be built that unlocks resource diversity and maximizes customer benefits.
“There’s a lot of movement. I’m not sure how it’s going to shake out,” she said.
Colorado Public Utilities Commission Chair Eric Blank said an incremental approach makes the most sense for his state in the near term. The legislature has directed the state’s utilities to join an RTO by 2030 — similar to Nevada legislation — and a regulatory study found that participation in a regional market could yield a 5% cost reduction off $6 billion in revenues, or about $300 million a year, he said.
“There are significant unresolved concerns with RTOs: struggles to ration rare interconnects for resources; fights over cost allocation limiting new transmission; challenging governance structures,” Blank said, pointing to SPP’s four-year backlog in its generator interconnection queue. “For us, we need to see either CAISO’s governance improve or SPP solve its interconnection and cost allocation problems.”
She said SEEM is “closer to a bilateral market than anything else,” lacks transparency and is not open to independent power producers.
“It’s being pitched as a software upgrade, rather than physically calling people on the phone,” she said. “It’s not a stepping-stone to competition like we’re seeing in Nevada and Colorado.”
In a report on market design and the Southeast, ACORE said, “Absent many traditional market benefits, SEEM is not necessarily a step toward a wholesale power market, but its introduction provides a helpful lens through which to assess energy market design and the Southeast.”
Biden’s Agenda
On Thursday, Kelly Speakes-Backman, principal deputy assistant secretary for the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy (EERE) spoke with ACORE CEO Gregory Wetstone about the Biden administration’s clean energy goals.
Kelly Speakes-Backman, DOE | ACORE
Speakes-Backman, previously CEO of the Energy Storage Association, oversees her office’s $2.8 billion portfolio of research and development, demonstration and deployment activities in energy efficiency, renewable energy, and sustainable transportation.
“We’re focused on supporting President Biden’s clean energy goals of … achieving a carbon-free electric sector by 2035 and [a] clean-energy economy with net-zero emissions no later than 2050. …
“President Biden placed this particular goal at the center of his agenda, and we know that we are kind of the tip of the spear, if you will, for that. So in order to really sort of support that, in driving research and development, but even more so the demonstration and the deployment of these technologies, we’re really underscoring the fact that this is going to create jobs and economic opportunity. Yes, the climate crisis is an enormous challenge. … But we also see this as a huge opportunity to create millions of good-paying, middle-class jobs, to ensure that there’s clean, affordable, reliable energy options for all Americans.”
Environmental Justice
Thursday’s first panel, “Centering Environmental Justice in the 21st Century Grid,” dealt with the impact of grid investments on low- and moderate-income communities.
Yvonne McIntyre, NRDC | ACORE
Yvonne McIntyre, director of federal electricity and utility policy for the Natural Resource Defense Council, moderated a panel that included Jahi Wise, senior adviser for climate policy and finance in the White House Office of Domestic Climate Policy.
McIntyre asked Wise about Biden’s executive orders to implement his Justice40 Initiative, intended to ensure federal agencies work with state and local governments to “make good on President Biden’s promise to deliver at least 40% of the overall benefits from federal investments in climate and clean energy to disadvantaged communities,” according to the White House.
“It’s historic in its scope and scale and trying to orient the federal government around equitable investment in climate and clean energy infrastructure,” Wise said. “Folks who are in this space for a while know that’s not the way that things have historically gone, so the intentionality there is unprecedented.”
Jahi Wise, The White House | ACORE
About 20 federal government programs are covered by the initiative, he said, “and right now those programs are working through their stakeholder engagement plan, their initial implementation and kind of paving the way for the rest of the federal government to begin this investment process. And so we expect in the next few months to see even more programs join that cohort but also more from the initial set of programs.”
He said that Biden “directed a number of White House components and agencies to put out environmental justice scorecards, and so those scorecards are supposed to be like our first accounting of whether or not we’re actually meeting our targets on environmental justice as a component of climate policy. And that will look at everything from Justice40 to the different environmental justice offices at the agencies. So there’s kind of a really robust, whole-of-government effort on this topic.”
The California Public Utilities Commission adopted criteria Thursday allowing it to hold Pacific Gas and Electric (NYSE:PCG) more accountable for starting wildfires or undermining reliability with public safety power shutoffs.
PG&E’s failure to meet the 32 new safety and operational metrics can serve as triggering events in the CPUC’s enhanced oversight and enforcement process. Established as a condition of the utility’s bankruptcy reorganization last year, the six-step process involves increasing oversight and penalties, potentially culminating in the revocation of PG&E’s operating license.
“Each step is triggered by a specific finding or specific events, and the triggering mechanisms include a failure to make specific, sufficient progress on the metrics that we’re adopting today,” Commissioner Clifford Rechtschaffen said of the plan. “It’s a very important part of making sure that we can implement this unique six-step enforcement framework, which we think is very important to holding PG&E accountable.”
PG&E is currently in the first step of the process for failing to prioritize vegetation management around power lines in high-risk fire areas. A tree falling on a PG&E line is suspected of this summer’s immense Dixie Fire. (See CPUC Applies Stricter Oversight to PG&E.)
In August, CPUC President Marybel Batjer warned PG&E it could face additional oversight.
“I have directed California Public Utilities Commission staff to conduct a fact-finding review regarding a pattern of self-reported missed inspections and other self-reported safety incidents to determine whether a recommendation to advance [PG&E] further within the [CPUC’s] enhanced oversight and enforcement process is warranted,” Batjer said in a letter to PG&E CEO Patti Poppe. (See CPUC, Judge Pressure PG&E to Clear High-Risk Lines.)
The new and updated metrics adopted Thursday include injuries and deaths among members of the public caused by PG&E operations, the frequency and duration of unplanned outages, and the number of fire ignitions in high-risk fire areas.
Another factor is the impact on reliability of PG&E’s public safety power shutoffs (PSPS). The intentional blackouts are meant to prevent fires, but PG&E has been criticized recently for using PSPS too often and without warning customers. (See PG&E Expects $1B in Costs from Dixie Fire.)
Starting in March, PG&E must file reports every six months with the CPUC that include data for each metric, a description of progress toward its safety targets and proposed methods for remedying deficiencies.
The measures are part of the CPUC’s Safety Model Assessment Proceeding (S-MAP), a means of applying risk-based, outcome-driven criteria to large investor-owned utilities through their general rate cases. The CPUC on Thursday added metrics for Southern California Edison, San Diego Gas & Electric and Southern California Gas to consider when investing in infrastructure and operations.
“Transparent, risk-based investment decision-making approaches better inform the CPUC and interested parties in evaluating how energy utilities assess, manage, mitigate and minimize safety risks,” the commission said in a statement.
FirstEnergy (NYSE:FE) on Sunday announced $3.4 billion in new equity financing investments from two global investors that the company believes will position it for a long-term earnings-per-share growth rate of 6 to 8%.
The company announced that it will issue $1 billion in common equity to New York City-based Blackstone Infrastructure Partners (NYSE:BX) at $39.08/share and appoint a Blackstone representative to its board of directors no later than its next annual meeting.
FirstEnergy further announced that it had agreed to sell a 19.9% minority interest in its transmission subsidiary First Energy Transmission (FET) to Toronto-based Brookfield Super-Core Infrastructure Partners (NYSE:BAM) for $2.4 billion in cash.
FET is a holding company for FirstEnergy’s three FERC-regulated transmission subsidiaries that operate 24,000 miles of high-voltage power lines across six states. The sale of a minority interest in FET to raise cash has been under discussion for several months.
Under questioning from analysts at FirstEnergy’s third-quarter earnings call two weeks ago, CFO Jon Taylor described the interest in FET as “very strong, and preliminary indications are very supportive of our financial plan and targets.”
The sale, subject to FERC approval and review by the Committee on Foreign Investments in the U.S., is expected to close in the first half of 2022, FirstEnergy said.
The company believes the transactions will enhance its credit profile, which was recently returned to investment-grade, and provide enough cash to address all of its needs for new equity now and in the near future. The company is planning major grid upgrades.
In a statement accompanying the news of the equity sale and minority interest sale, FirstEnergy CEO Steven Strah called the two agreements “key catalysts to fulfill our long-term strategy and drive smart grid and clean energy initiatives for our customers and communities.”
Donald T. Misheff, non-executive chairman of FirstEnergy’s board, said, “The entire board, including our voting and non-voting members, unanimously supports these important actions.
“This represents a pivotal moment in the company’s trajectory and positions FirstEnergy to drive shareholder value.”
Avangrid CEO Dennis Arriola | © RTO Insider LLC
From left on stage: Gordon van Welie, ISO-NE; John Gulliver, Pierce Atwood Bill Quinlan, Eversource. On video: Richard Dewey, NYISO; Francis Bradley, Canada Electricity Association; Doreen Harris, NYSERDA. | © RTO Insider LLC
