SAN ANTONIO — The National Association of Regulatory Utility Commissioners held its 131st Annual Meeting and Education Conference last week, bringing state and national utility regulators, federal and state policymakers, industry representatives, consumer advocates and other stakeholders to south-central Texas.
Here is some of what we heard during the four-day event.
A ‘Fabulous’ Leftover
Texas Public Utility Commission Chair DeAnn Walker moderated the leadoff panel, which discussed the changes facing competitive markets and the cost and potential benefits of restructuring.
Independent consultant Alison Silverstein said markets have become more complicated since they were created to balance supply and demand through competition. So much so, she said, that she lamented being unable to find clip art for her presentation to illustrate her point: that of an elephant standing on a stool and juggling a chainsaw, flaming batons and a flowerpot.
“A lot of things have changed: falling prices; older baseload generation retiring; little demand growth,” Silverstein said. “All of these things are incredibly complicated. Competition works, but the current market design is not working well. We need market changes for the next 20-plus years to deal with high decarbonization, variability and uncertainty.”
Silverstein listed the four factors of market design:
- What competes in the market?
- What are the market rules for ancillary service, dispatch and price calculations?
- Who buys — and how much — in the spot market vs. self-supply or bilateral contracts?
- What is the missing money mechanism (i.e., capacity payments or an operating reserve demand curve)?
Asked by Walker what regulators should focus on, Silverstein pointed to the markets’ ease of entry and exit.
“You don’t want old, expensive resources cluttering up your market,” she said. “Focus on energy efficiency, because your customers need as much energy efficiency as possible. Changes in technology and economics have changed completely what resources are available, and changes in society have changed what customers are willing to put up with.
“We need a lot of market changes to deal with uncertainty and variability,” Silverstein said. “Just because you’re in charge of market prices, don’t think those are the only dials that matter. There’s an awful lot of stuff going on that can screw up the best markets.”
Mason Emnett, Exelon’s vice president of competitive markets, said capacity markets “are not working out” in some portions of the country and suggested the answer could be regional resource adequacy.
“I think there’s a possibility, a hope, that the regions with capacity markets could evolve into something that is optimized over a larger footprint,” Emnett said. “We have hope that regional adequacy markets can evolve, but we’re not holding our breath. Those types of changes take years to develop.”
“When he talks about resource adequacy, that’s a fabulous leftover from the generation-centric days,” Silverstein said.
As proof, she offered up the “Texas experience” this past summer, when Texas PUC Briefs: Aug. 29, 2019.)
“You don’t have to have a sky-high resource margin or a resource adequacy construct in order to keep the lights on. That proves the fact that markets do work,” Silverstein said.
“Don’t let anyone say a 7.4% reserve margin doesn’t make you sit on the edge of your seat every day. It does,” Walker said in agreeing with Silverstein. “Generators have to come to the table to be on and produce during those [low-resource] days, but we had a huge impact from demand response. When prices hit $9,000, [industrial] loads come off. That’s something we’re learning.”
Glick Concerned with FERC Nominating Process
FERC Commissioner Richard Glick, the only federal commissioner to show up at NARUC and the only Democrat on the soon-to-be-four-person panel, shared his concerns over the agency’s nomination process during a “Nick & Glick” Q&A session with outgoing NARUC President Nick Wagner.
Glick said he has issues with the process, in large part because the tradition of pairing nominees for two or more vacancies was ignored with the recent nomination of General Counsel James Danly to fill one of two vacancies on the commission. (See FERC General Counsel Tapped for Commission.)
He said changes to the Senate’s filibuster rules have made it difficult for Democrats to have any say in the matter. Former Commissioner Cheryl LaFleur’s Democratic seat has been vacant since she left in August. Republicans will enjoy a 3-1 majority when Danly joins the commission.
“What does it say the next time a Democratic president and a Democratic Senate don’t pick any Republican nominees?” Glick said. “That was not the way the process was designed. I hope we can go back to a more normal process.”
Glick also hopes for a return to the days when FERC operated in a more bipartisan manner. He said a couple of protesters of FERC’s recent pipeline approvals showed up at his house on Halloween, unnerving his 10-year-old son.
“We have our share of protesters … but going to someone’s house? That’s beyond the pale,” Glick said.
Asked by Wagner about the relationship between state regulators and FERC, Glick said that low gas prices have resulted in additional zero-marginal-cost resources beyond renewables and “more contentious” markets.
“No doubt, state policies impact the wholesale markets, and that was true the day they invented energy policy in general,” he said. “The more traditional generators are essentially insisting those continued subsidies are depressing the markets. But [fossil fuel] technologies have been subsidized for a long time. If we only recognize the more recent subsidies, particularly renewables and nuclear, we are being short-sighted. Over the long term, these other subsidies have a long-term effect over the markets.”
Glick also recounted how he became a FERC commissioner. At the time, he was a staff member for U.S. Sen. Maria Cantwell (D-Wash.), and he recalled telling her that if a FERC position came open, “sure,” he would be interested.
“Sometimes we’re in the wrong place at the wrong time,” Wagner cracked.
New President: Remember the Customer
Newly installed NARUC President Brandon Presley — yes, he’s related to Elvis, a fellow Mississippian — showed off his public speaking chops with a stem-winder of an acceptance speech that highlighted his theme for the upcoming year: “Bridging the Divide.”
“At the end of the day, you serve the people of this country in all 50 states and [the] territories,” Presley said, encouraging his fellow commissioners and regulatory staff to avoid the use of the term “ratepayer.”
“They’re a customer. A person. We’ve got to keep that in the forefront of our minds,” he said. “Many challenges exist for the least; the last; the left out; those people who are marginalized in our society. We have the biggest impact on their lives because we affect the cost of living for those people and those businesses. We have to keep this organization focused like a laser on the customer.”
To that end, Presley said he plans to appoint a task force to look at how best to bring broadband service to rural communities, such as those in the northeastern portion of Mississippi that he represents. He said his goals include identifying and closing other gaps that impede regulators and industry from better representing the public interest.
“We know that gulf exists. We know the brain drain in rural America is real,” Presley said. “We’ve got to find a way as a national association to solve this problem. I hope in the next year, we can be progressive; we can be alert and on the lookout for opportunities to make real, impacting decisions and policies that translate back to the people.
“There’s no greater satisfaction in life than knowing that you left something better than you found it,” he said.
Presley was first elected to the Mississippi Public Service Commission in 2007, winning re-election in 2011, 2015 and 2019. He served as mayor of his hometown of Nettleton from 2001 to 2007, being elected at the age of 23. Presley is a member of MISO’s Advisory Committee.
Joining Presley as NARUC officers are First Vice President Paul Kjellander, with the Idaho Public Utilities Commission, and Second Vice President Judith Jagdmann, chair of the Virginia State Corporation Commission.
On Friday, Presley added to the Executive Committee by naming North Carolina Utilities Commissioner ToNola Brown-Bland as treasurer and Arkansas Public Service Commissioner Kim O’Guinn as one of two appointed members.
Brown-Bland was appointed to the NCUC in 2009 and reappointed in 2017. O’Guinn was appointed to the PSC in 2016.
State Commissioners Evaluate PURPA NOPR
“At long last, it is finally here — the PURPA NOPR!”
That invitation to a panel discussion on FERC’s Notice of Proposed Rulemaking for changes to the 41-year-old Public Utility Regulatory Policies Act did the trick. An overflow audience overwhelmed the seating, grabbing empty spaces on the floor to listen to regulators and consumer advocates discuss the potential changes to rate-setting and which markets qualify for an exemption from PURPA’s “mandatory purchase obligation.” (See FERC to Reshape PURPA Rules.)
FERC’s proposed top-to-bottom changes include the elimination of a fundamental principle of the rules: fixed-price contracts at an “avoided-cost” rate for qualifying facilities. Utilities and state commissions have been among those complaining about PURPA, though most ISO/RTO members are exempt from the rule.
“PURPA has given me more grey hairs per policy than most I’ve worked on,” said Megan Decker, chair of the Oregon Public Utility Commission. Noting FERC declined to extend a deadline for comments on the NOPR, Decker said, “I hope that denial does not reflect FERC’s intention to not engage with a number of compromise solutions put forward. We don’t want continued uncertainty.”
“Idaho has a pretty tormented history with PURPA,” PUC Commissioner Kristine Raper said. “The NOPR was very responsive to the technical hearing. They clearly discounted cogeneration in the NOPR, and they looked at things like cost. These are all the things Idaho has tried to bring to the attention of FERC. FERC has narrowed the way states can interpret those rules.”
“The PURPA NOPR does a terrible job of distinguishing between competitive markets and those regions that don’t have wholesale competition,” said Katherine Gensler, vice president for the Solar Energy Industries Association. “PURPA’s structure is basically a balancing act between telling utilities to purchase a product and sellers that have to accept the price. Utilities have to buy a product they often claim they don’t want, and the seller has to accept the price published by the utility commissioners. This NOPR shifts that balance … moving away from the developers’ rights to give greater authority and power to the utility state commissions.”
Former FERC Commissioner Philip Moeller, now executive vice president of regulatory affairs for the Edison Electric Institute, argued that the NOPR would give states additional flexibility in approving QFs.
“This is about cost. Who’s paying? Are your constituents, your customers, overpaying for the projects? Most people think that’s a bad thing, unless you’re the one getting overpaid.”
FERC Commissioner Glick, who dissented against the NOPR, said what “perturbed” him the most was that the first 50 pages describe PURPA as no longer being a necessary statute.
“You can make a reasonable argument that that’s the case … but it’s our duty to administer [PURPA] and carry it out,” Glick said. “Congress has told us we need to facilitate small power production. To the extent a utility has a procurement practice or a market setup that allows all entrants to fully participate, you can get out of the PURPA requirements. If everyone has access to the procurement process, that seems to be best for users and consistent with Congress’ intent.”
Gold Still Sees Place for Renewables
Wall Street Journal reporter Russell Gold, whose “Superpower: One Man’s Quest to Transform American Energy” details Mike Skelly’s failed attempt to use HVDC lines to ship renewable energy across the country, called for changes to the current regulatory system “because of what’s coming.” (See Book on Tx Developer Transmits Climate Hope.)
He noted ERCOT has 22 GW of wind energy and 2 GW of solar — “[Solar] used to be fine if you wanted to warm water,” Gold said, referring to the efficiency advances for solar resources — and that the numbers will only increase as technology continues to improve and renewable energy prices stay low.
“There’s no blackouts and no one’s panicking,” Gold said. “Coal and nuclear are having trouble competing. Natural gas is soon going to have problems competing. The question for utilities and utility regulators is how long do you want to hold on to a coal plant that is above market prices? You have the potential for lots of inexpensive renewable electricity.”
But to bring that energy to market, he said, “you need to stitch this country together with HVDC transmission lines.”
In the end, not even the determined Skelly could do that.
“The biggest problem was that it was hard to get [landowners] to accept the sacrifice for the greater good of less carbon and clean power,” Gold said.
Speaking before a friendly audience, Gold couldn’t resist putting in a plug for his book.
“I’ve been told my book does the impossible,” he said. “It turns the regulatory process into a page-turner.”
Reality ‘Sinks in’ for Undoing Mexican Reforms
A two-person panel on the slowing energy reforms in Mexico said reality is “beginning to sink in” for President Andrés Manuel López Obrador’s administration as it marks its first year in power on Dec. 1.
José María Lujambio Irazábal, a partner with Cacheaux Cavazos & Newton in Austin and a former general counsel for Mexican Energy Regulatory Commission, and Peter Nance, managing director for Que Advisors, said AMLO, as he is more commonly known, has made it clear that he will neither expand nor fully implement the energy reforms begun before his 2018 election and may even reverse some of the measures. (See Overheard at GCPA Mexico Power Market Conference.)
“If [Enrique] Peña Nieto proposed something,” Nance said, referring to AMLO’s predecessor, “we’re against it because of those guys.”
Some of the pushback has come from the Federal Electricity Commission (CFE), the state-run monopoly. The latest market reforms, begun in 2015, split up its generation into six different companies in an effort to break up its hold on the market.
“The work was not finished. It was really a matter of resistance from CFE,” Lujambio Irazábal said.
“Some people have long memories and believe in the state and the role of the state in these entities,” Nance said.
CFE’s aging fossil plants have increased operating costs. Faced with an operating reserve margin reportedly as low as 0.7% and a succession of blackouts in the Yucatan Peninsula, the government earlier this year announced plans to build five combined cycle gas-fired plants with an aggregate capacity of 2.76 GW and has made overtures to public-private partnerships.
“In special situations, it might be possible to have private partnerships,” Nance said of the new reality. “You just can’t put five power plants on the balance sheet.”
— Tom Kleckner
