David Cruthirds brings this report from the Gulf Coast Power Association’s Feb. 5 special briefing: “Challenges & Changes in Energy on the Bayou.” Among the topics discussed were Entergy’s growth plans, Year 1 in MISO South and the RTO’s ongoing seams battles.

Entergy’s Growth Plans: Room for Competitors?

NEW ORLEANS — Entergy Louisiana CEO Phillip May talked about Louisiana’s industrial growth, saying Entergy will need to build or acquire additional generation to serve 1,700 MW of new load by 2017. He noted Entergy is reviewing bids for long-term resources in one request for proposal (RFP) and expects to issue one or more RFPs in the future. May said declining reserve margins in MISO North/Central are expected to absorb the excess generation capacity in MISO South, so Entergy would need new steel in the ground, whether in the form of self-build projects or long-term power purchase agreements (PPAs).

May said Entergy’s needs also would be impacted by expiring PPAs and possible generation retirements.

May also said the company needs to be able to act quickly. He noted it took three years to construct the recently completed Ninemile Unit 6 combined-cycle project, but the overall process took six years, including the time for the RFP and permitting. Entergy is evaluating ways to accelerate that process, he said.

Louisiana Public Service Commissioner Eric Skrmetta also talked about Entergy’s growth plans. (See related stories, Entergy Retail Sales Up 2.3% in 2014; Higher Growth Forecast Through 2017.)

Comment – Skrmetta and May provided interesting perspectives on plans to build new generation to serve growing loads in Louisiana. Skrmetta’s view was that Entergy would be building the new generation itself, while May was careful to say the company would be issuing RFPs to measure bids against self-build projects. The Louisiana PSC requires jurisdictional utilities to test self-build proposals against the market under the oversight of an independent monitor, but the “market-based mechanism” rules were adopted years ago and none of the current commissioners are very strong supporters of wholesale competition.

Entergy’s comments on recent earnings calls clearly indicate the company plans to meet its ambitious earnings growth targets by building the new generation itself, so the company likely will structure its RFPs in a way to favor its self-build projects. Entergy single-handedly decimated the once-thriving merchant sector in its footprint through its “market foreclosure” strategy, prompting the U.S. Department of Justice to conduct an as-yet unresolved investigation of the company’s transmission and power-procurement practices. As a result, there aren’t any merchants left to compete, and non-affiliated suppliers know of Entergy’s predisposition toward self-dealing, so no one should expect very robust participation in the upcoming RFPs. That increases the chances that Entergy’s self-build proposals will “win” upcoming RFPs.

Skrmetta Throws down Gauntlet on FERC and MISO

The outspoken Skrmetta came out swinging with his opening keynote speech at the briefing. Skrmetta, who defeated challenger Forest Wright in a hotly contested and closer-than-expected run-off last December, attacked the Federal Energy Regulatory Commission and the Environmental Protection Agency, saying that the federal government is trying to supplant the state’s authority.

Skrmetta wasn’t alone in his criticism of the federal government. Some speakers questioned the impact the EPA’s proposed carbon emission rules would have on Louisiana’s industrial renaissance. Baker Botts lawyer Pam Giblin lamented the “meteoric shower” of EPA air emission regulations that likely will be extended to the chemicals, oil and gas sectors “if the EPA gets away with it” in the power sector.

In later remarks, Skrmetta turned his attention to MISO’s transmission cost allocation policies, noting Louisiana is expected to export a significant amount of power to the RTO’s North and Central regions because environmental regulations are expected to leave them 2.6 GW short of generation, while Louisiana is expected to have a surplus of the same amount. Skrmetta wants to make sure those who benefit from those imports pay their share of the estimated $1.25 billion of transmission investment needed.

MISO CEO John Bear countered in a subsequent talk that low-cost wind generation from MISO North/Central is lowering energy costs in states without renewable mandates such as those in MISO South. Bear contended that consumers in those states shouldn’t object to paying their share of transmission needed to obtain wind generation.

Skrmetta acknowledged the MISO relationship has been beneficial to Louisiana, but he said MISO needs to be more cognizant of the Louisiana PSC’s jurisdiction, calling that a “paramount concern.” He called on MISO to have more interaction with the commission and its staff, noting that the PSC is “laser-focused on serving consumers” rather than on executing federal programs. Skrmetta cautioned that the long-term success of MISO’s relationship with Louisiana requires “great deference” by MISO to Louisiana’s goals and objectives.

MISO South ‘Year in Review’

Bear was the keynote speaker following lunch, providing MISO’s views on a number of topics.

Bear said MISO’s surplus generation margins meant the RTO didn’t need to move very quickly in the past, but shrinking margins as a result of the EPA rules and issues that arose during last year’s polar vortex are forcing it to reexamine its processes and respond much faster.

Bear also provided a recap of the first year for MISO South, saying things went well overall, but that MISO needs to continue to improve and examine its processes, especially for transmission planning. He said the net economic benefits for MISO South during the first year were 50 to 60% more than initial projections of $524 million.

Lauren Seliga, a MISO analyst for Genscape, provided a very interesting recap of power trading, pricing, flows and market barriers during the first year of MISO South’s integration. Contrary to the expectations of many, she said power flowed from MISO North/Central to MISO South more often than South to North. She said the MISO-SPP seams dispute is a significant barrier to trading and efficient power flows, but that the scheduled March 1 launch of market-to-market integration should help. (See SPP, MISO Move Ahead on Flowgate Rules.)

Patton Slams Seams Management

Bear tiptoed around the ongoing seams disputes with MISO’s neighbors, asserting the disputes are driven by fundamental differences between organizations that are equally convinced they have the best models. He acknowledged the need to compromise and resolve the disputes, and that he expects a settlement on the MISO-SPP dispute to be reached this summer. (See MISO Seeks FERC Review on ‘Hurdle Rate’ for SPP Seam.)

MISO Independent Market Monitor David Patton was extremely critical of the way the MISO-SPP seams dispute has been handled, scoffing at the notion that operational transmission congestion was the problem. Patton said it is very clear the issue is a “generation imbalance” situation between MISO North/Central and MISO South rather than physical congestion on the grid. Patton was very critical of the “completely ridiculous” constructs approved by FERC, calling the situation a “nightmare” that likely would get worse. Patton said there is “nothing physical” about the MISO-SPP constraint, asserting it is “totally fictional” to describe it as “congestion.”

Patton also criticized SPP for trying to get MISO to pay for SPP’s embedded transmission costs. He lamented that the current construct is undermining reliability based on a cost dispute. Patton said the “hurdle rate” approach helped, but the $10/MWh hurdle rate isn’t economically efficient and leaves a lot of savings on the table. He said raising the hurdle rate to $40/MWh would totally shut down flows and hurt customers.

Patton went on the attack again by sharply criticizing MISO’s lack of progress on transitioning to a capacity market that would send price signals for where new generation and transmission upgrades are needed. Patton acknowledged the opposition to capacity markets in MISO, but he also blamed FERC for not clearly addressing and providing guidance on capacity market issues.

Load Pockets Generate Discussion

Bear said MISO is performing economic studies to address the WOTAB (West of the Atchafalaya Basin) and Amite South load pockets in Louisiana. He said high “voltage and local reliability” (VLR) payments (known in some regions, including PJM, as reliability-must-run generation) prompted MISO to study whether transmission upgrades to address those areas would be economical. He said MISO sees $70 million in uneconomic generation dispatch costs, but the transmission upgrades don’t appear to be economic based on the current analysis. MISO expects to finalize its recommendations later in 2015.

Patton agreed that the make-whole VLR payments probably don’t justify transmission investments, which leaves the regions vulnerable to reliability risks because of their reliance on old, inefficient generation, he said. Patton said the situation “cries out for a market solution” rather than MISO’s transmission planning approach. MISO needs to develop a 30-minute planning reserve product that would attract developers to build new gas-fired combustion turbines in the load pockets, he said.

Jennifer Vosburg, NRG Energy’s senior vice president for the Gulf Coast Region, said that the load pocket issues aren’t new, but — “setting aside the lack of historical transmission investment by Entergy” — transmission may need to be built for the long-term. She agreed with Patton’s concern about the cost and risk to ratepayers if the problems are solved by utility self-build generation.

Can’t get enough Cruthirds? Click here for a more detailed account of the GCPA conference.