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July 31, 2020

Robb Sees Need for Remote Grid Operations

The electric industry has performed well during the coronavirus pandemic but needs to improve its ties to state officials, maintain vigilance on cybersecurity and develop plans for operating control rooms remotely, NERC CEO Jim Robb said Thursday.

“I know my workforce feels very, very stressed in the environment that they’re in because they don’t have the normal work hours that going to and from the office created and because of people having to communicate more electronically,” Robb told attendees of WIRES’ virtual Summer Meeting, adding that NERC’s email traffic increased by 500% in April over February.

Robb remote grid — NERC CEO Jim Robb | © *ERO Insider*

“That creates a lot of opportunity for opportunistic actors to play on anxiety and just the distraction that people have” through phishing emails, such as those spoofing Johns Hopkins’ website “saying, ‘click here for the latest information on COVID in your state,’” Robb said. “You can’t take your eyes off the ball for a second. … Our adversaries were very, very active, and I think all of the work that the sector has done to prepare appropriate cyber defenses and encourage proper cyber hygiene among its staff has also served us very, very well.”

Improved Collaboration

Robb said he was pleased with the improved collaboration and cooperation between FERC, the Department of Energy, the Department of Homeland Security, the FBI and NERC and its Electricity Information Sharing and Analysis Center (E-ISAC).

“Relationships across those entities haven’t always been perfectly smooth by any stretch of the imagination. But I think everybody came together during this period of crisis to really work together for the common good,” he said. “The level of information coming out of the government that we could share with the industry through the ISAC is I think at an all-time high in the last three to four months.”

Joseph McClelland, director of FERC’s Office of Energy Infrastructure Security, told the conference that the “unprecedented mass telework,” combined with the use of new procedures and tools, created “a perfect storm” of cyber risks.

He also praised the collaboration between the federal government and NERC, citing the role of the E-ISAC and DOE’s Office of Cybersecurity, Energy Security and Emergency Response (CESER) in distributing information to industry.

“The intel we received, particularly from the Department of Energy … has been timely and very actionable. We’ve been able to share that intel between agencies as well as with NERC and the ISAC. And in turn, the ISAC would share back with us,” McClelland said. “I think adversaries do well when there’s walls and separation between the entities that are affected. COVID, for one reason or another, has helped really dismantle the walls. I’d really like us to build on the models we’re using now and take that further if we can.”

While the industry’s collaboration with federal agencies has improved, Robb said the pandemic highlighted a need to also strengthen relationships with state officials. “One of the things we learned was many things happen at the state level as opposed to the federal level. I think more attention needs to be paid to building … relationships between the asset owners and operators and emergency response departments and infrastructures in the states,” he said.

New Dimension to Resilience

The pandemic has also added a new dimension to the concept of resilience, Robb said. “Most of the time when we think about resilience, we’ve always thought about the physical characteristics of the grid: Do we have enough redundancy built into it? Are we able to recover quickly? I think what this event has taught us is the importance of the resilience of the workforce — the ability to get people quickly into safe places to continue to perform their critical operations.”

The industry isn’t well equipped to deal with “what would happen if you couldn’t get workers isolated safely in a control room and you actually had to run your system remotely,” Robb said. “We published some guidance through the ISAC on how that could be done securely. But I think that’s one of the lessons learned coming out of this: that we spend much more time on which is the way to actually operate the system from a remote posture.”

Disrupted supply chains also are a concern for NERC — for both personal protective equipment and supplies needed for electrical maintenance and repairs. Although the industry hasn’t faced major problems thus far, Robb said, “people are going to have to think about inventory management differently.”

Continuity plans will need to be revised based on lessons learned, he said. NERC’s 2010 report on high-impact, low-frequency event risks included a chapter on pandemic planning.

“I think it was a great starting point for the industry, but I don’t think any of us, when that was put in place, contemplated something as long-lasting and impactful and devastating as the COVID [pandemic] has been. I think at the end of this — whenever the end is — we will need to take a very thorough look back and log all the things that we wish we had done earlier on,” Robb said.

“Everybody had pandemic plans. They were all exercised on occasion. I think now that we’ve lived through [COVID-19], we might exercise those with more purpose than we might have before.”

July 31, 2020

PG&E Reports Steep Q2 Loss on Bankruptcy, Fire Costs

In its first post-bankruptcy earnings report, PG&E Corp. said Thursday it expects stronger financial performance going forward, as it improves its wildfire-prevention efforts and employs more limited public safety power shutoffs this fire season.

But PG&E reported GAAP losses of $3.73/share in the second quarter, driven mainly by $2.5 billion in costs to exit bankruptcy and help pay for the 2019 Kincade Fire.

The earnings call was led by PG&E Director and interim CEO Bill Smith, who replaced Bill Johnson after he retired June 30. (See PG&E Names New Board of Directors.)

It was the first live earnings report in many months. PG&E, one of the nation’s largest utilities, filed for bankruptcy in January 2019 following two years of devastating wildfires ignited by its equipment. It emerged from Chapter 11 reorganization July 1.

“Today’s call marks a milestone for us, and we’re excited to share our post-emergence vision for the coming years,” Smith said. “We’ve emerged from bankruptcy as a stronger company. The complex legal matters are now resolved, and major regulatory cases establishing our revenues are either approved or settled.”

Smith said PG&E plans to return to investment-grade status after credit ratings agencies reduced its corporate debt to junk bond status during bankruptcy.

Even in June, as the company prepared to exit bankruptcy, the three major ratings agencies — S&P Global Ratings, Fitch Ratings and Moody’s Investors Service — assigned sub-investment-grade status to billions of dollars in PG&E debt, including $4.75 billion in new debt it issued to help pay for its nearly $60 billion reorganization plan.

Share Price Lags

The company’s stock rose slightly during Thursday’s 11 a.m. ET earnings call from $9.12/share at the start of trading to $9.48 at 11:15 a.m., before falling back to $9.29 by 4 p.m.

PG&E’s share price has lagged since the COVID-19 crisis started in March. It fell further in June as the company prepared to issue more than $5 billion in new equity, diluting its existing stock value.

PG&E earnings — Interim CEO Bill Smith delivered remarks during PG&E’s first earnings call in months. | *PG&E*

The company is hoping to recover billions of dollars in lost value.

A month before the Northern California wine country fires of October 2017, PG&E’s stock had hit a high of $70.64/share. It plunged as the utility’s equipment appeared the likely cause of most of the 21 major fires during dry, windy conditions in Napa and Sonoma counties.

The company’s stock fell further after it acknowledged one of its aging transmission lines likely started the Camp Fire in November 2018, killing 85 people and leveling much of the town of Paradise, Calif. The corporation pled guilty to 85 felony counts in December related to the fire. (See PG&E Sentenced; Bankruptcy Plan Approved.)

Shares hit a then-low of $7.23/share after the company announced it would declare bankruptcy and reached a historic low of $3.80 on Oct. 28, 2019, three days after another of its transmission line appeared to have caused the Kincade Fire, which tore through the Sonoma County wine region, burning nearly 78,000 acres and destroying 374 structures.

The California Department of Forestry and Fire Protection on July 16 said that its investigation had determined a PG&E high-voltage line running from a geothermal plant near the town of Geyserville had started the fire.

The company still faces lawsuits and a possible criminal investigation from the blaze. In its quarterly report to the U.S. Securities and Exchange Commission on Thursday, PG&E said its “financial condition, results of operations, liquidity and cash flows could be materially affected as a result of the 2019 Kincade Fire.”

Fire-prevention Efforts

With California’s late summer and fall fire season just around the corner, PG&E’s worst enemy would be a new fire started by its equipment. The ratings agencies said in June that the risk of another catastrophic wildfire was a primary reason for keeping PG&E’s credit rating so low.

In Thursday’s earnings report, Smith and other PG&E executives cited ongoing efforts to reduce the risks of wildfires, including grid hardening and enhanced weather monitoring.

PG&E said it is on track to meet the goals it laid out in its 2020 Wildfire Mitigation Plan, submitted to the California Public Utilities Commission.

The utility said it has completed more than half of the system-hardening work it committed to this year by undergrounding or installing stronger poles and covered conductor along 122 circuit miles, a small portion of its huge system.

PG&E owns 106,681 circuit miles of distribution lines and 18,466 circuit miles of transmission lines. More than 50% of its 70,000-square-mile service territory is in high fire risk areas.

The company also said it has completed 70% of its enhanced vegetation management program this year.

“PG&E has reviewed more than 1,200 miles of distribution and lower-voltage transmission lines and taken necessary action to trim or remove hazards and expand rights-of-way,” it said in a news release.

The utility said it fell behind on its “situational awareness” efforts because of supply-chain disruptions caused by the pandemic but still installed 144 weather stations and 60 high-definition cameras in fire-prone areas.

Advanced analytics and artificial intelligence are being added to its fire-prevention arsenal, PG&E said, along with technology from Australia that can de-energize a falling overhead line before it hits the ground, sparking dry vegetation.

The company has promised it will try to keep its public safety power shutoffs shorter and more limited geographically this fire season. Last year, the company shut off power to hundreds of thousands of customers, for as long as a week in some cases, prompting a public and political backlash. (See California Officials Hammer PG&E over Power Shutoffs.)

The company remains under threat of a government takeover should it fail to meet state safety requirements. (See Governor Signs PG&E ‘Plan B’ Takeover Bill.)

PG&E understands that vows to change, apologies and financial settlements with fire victims will no longer be enough, Smith said in a statement Thursday.

“We know that what’s needed now is action,” he said. “We will continue to work tirelessly to combat the growing threat of wildfires and keep our customers and communities safe.”

July 31, 2020

WIRES Conference Talks Order 1000, Tx Incentives

The impact of the coronavirus pandemic on electric demand could lead some state regulators to reconsider their transmission rate structures, former FERC and North Dakota Public Service Commissioner Tony Clark told WIRES’ virtual Summer Meeting on Thursday.

Clark, a former president of the National Association of Regulatory Utility Commissioners, said state regulators took a “do no harm” approach at the beginning of the pandemic by suspending service cutoffs for nonpayment.

WIRES FERC transmission — Tony Clark, Wilkinson, Barker & Knauer | *WIRES*

Now, utilities and regulators are trying to determine how to deal with the bad debts that have mounted as many unemployed become unable to pay their electric bills. Utilities will likely be permitted to create regulatory assets for those debts and then engage with regulators in proceedings about recovering the debts, Clark said.

“Either government steps in and picks up the tab for all this societal debt that the utilities are holding, or … you allow the utilities to recover that through rates over some period of time,” Clark said. “But there really aren’t a lot of other options besides some variation of those two concepts.”

The long-term impact, he suggested, could be a change in the “political tradeoff” that has seen many jurisdictions collect much of their utilities’ fixed costs through volumetric charges.

“When you have something like the pandemic hit and volumetric usage drops off dramatically, at least for some classes of customers, that means you’re going to have a utility cost-recovery system that doesn’t work anymore,” Clark said. “So, this is what regulators will be dealing with: trying to figure out what the new normal is … in terms of volume. I think it leads regulators to a place where they begin to look more seriously at trying to recover fixed costs through fixed charges and variable costs from variable charges, which is probably where we should have been all along.”

Clark said commercial and industrial customers’ subsidization of residential ratepayer use also could be reconsidered.

Zach Smith, vice president of system and resource planning for NYISO, said New York power demand is about 7% lower than normal following the “astounding” 33% drop in GDP in the second quarter.

While a typical recession is often followed by two years of recovery, this downturn is the result of the “externality” of COVID-19, Smith said. “So there is a real debate about what that recovery is going to be, [and] it’s really a huge question mark as to how this energy demand is going to recover.”

Chatterjee on Order 1000 Disappointment

FERC Chair Neil Chatterjee, speaking via satellite phone from Montana, briefed the conference on the commission’s May order on return on equity and its Notice of Proposed Rulemaking on transmission incentives.

Chatterjee said he was confident Opinion 569-A on ROE “better reflects investor expectations … and is also legally durable so that it will stand up if challenged in court.” The commission said it would consider three inputs in its ROE calculations: the risk premium model, the discounted cash flow and capital asset pricing model. (See FERC Ups MISO TO ROE, Reverses Stance on Models.)

WIRES Executive Director Larry Gasteiger | *WIRES*

The chairman said he was eager to review comments due in mid-August on FERC staff’s June white paper on cybersecurity incentives (AD20-19). (See FERC Seeks Comments on Cyber Investment Incentives.)

Chatterjee said “one of his great disappointments and frustrations” has been the inability to address Order 1000’s failure to produce the “innovation and cost discipline” he hoped would result from opening transmission development to competition.

“We’re at a point now where I think Order 1000 clearly isn’t delivering the results that were initially envisioned,” he said. “That, unfortunately, is where the agreement ends. What to do about it is a very challenging thing.

“What I’ve just come to recognize [is that] with all of the other complex challenges that we are facing, to try and reopen Order 1000 right now would be biting off more than we could chew. So, what I’m focused on is interacting with stakeholders to see if there are targeted fixes that the commission can examine.”

Transmission Incentives NOPR

FERC’s controversial NOPR on transmission incentives, which generated much comment and criticism in its docket in July, was the subject of WIRES’ final panel, moderated by Nina Plaushin, vice president of ITC Holdings. (See Tx Incentive NOPR Leaves Many with Sticker Shock.)

NARUC Executive Director Greg White, a former Michigan regulator, said he welcomed a fresh look at the policy. “I’m not convinced that FERC’s past incentives have been very effective,” he said, noting he was speaking for himself and not on behalf of NARUC.

White was particularly critical of the adder for participation in an RTO, which FERC has proposed increasing from 50 to 100 basis points. He agreed with Commissioner Richard Glick’s observation that transmission owners are unlikely to leave RTOs and noted that some states require their utilities to participate.

Speaking on FERC’s transmission incentives were (clockwise from top right) Nina Plaushin, ITC Holdings; Julien Dumoulin-Smith, BofA Securities; Julia Frayer, London Economics International; and NARUC Executive Director Greg White. | *WIRES*

Julia Frayer, managing director of London Economics International, spoke about her white paper, which WIRES submitted with its comments on the NOPR. The paper contends TOs take on risks by joining RTOs because of the grid operators’ “governance and operational nature.” The paper also made the case for a transmission technology incentive.

Julien Dumoulin-Smith, managing director at BofA Securities, gave a passionate, highly caffeinated seven-minute speech, beginning with his argument for why “people’s historical understanding of how to establish ROEs are upside-down.”

He ended by urging transmission planners to begin thinking about the role hydrogen could play under electrification that doubled renewables and the size of the grid.

“How do you see the hydrogen role evolving? Is it a midstream industry? Do you do things [with hydrogen] and then send it on electricity? It’s an open question. We’ve seen these tensions between gas — gas by wire and gas midstream itself,” he said.

Transmission planning should reflect how “you think about a distributed or centralized hydrogen economy 30 to 40 years from now,” he said. “I throw that out as my big-picture thought. Take it or leave it.”

July 31, 2020March 11, 2025

Experts Discuss Clean Energy Transition in CGEP Webinar

Energy experts and officials from New England and New York on Wednesday debated how the power sector can deliver clean, affordable electricity as society moves to a low-carbon and increasingly electrified economy.

All but one of the four panelists were affiliated with Columbia University’s Center on Global Energy Policy (CGEP), which hosted the webinar.

Melissa Lott, Center on Global Energy Policy | Center on Global Energy Policy

The exception was Peter Fox-Penner, founder and director of Boston University’s Institute of Sustainable Energy, who set up the discussion by summarizing his recent book, “Power after Carbon: Building a Clean, Resilient Grid,” published in May by Harvard University Press.

CGEP senior research scholar Melissa Lott moderated the panel and invited the audience to vote on questions, such as whether the lack of a coherent federal decarbonization policy is the biggest obstacle to progress in transitioning to a clean economy. (42% of respondents said “yes.”)

Following is some of what we heard at the meeting.

A Bigger Boat

“We’re going to need a power industry about half again as large as we have [by 2050], maybe as large as double if you take all of current uses,” Fox-Penner said. “If you account for the greater efficiency that electrification brings, and you apply it to every single BTU of energy use in the United States, you about double electricity use.”

Peter Fox-Penner, Boston University | Center on Global Energy Policy

Variable factors on power sector growth include how much electricity is used to produce hydrogen or for direct carbon extraction from the atmosphere, he said.

“We have a big job ahead of us, but that amount of growth in the size of the power grid in 30 years is very manageable,” Fox-Penner said. “The power industry in fact has grown that fast; during the 1940s and ’50s and ’60s, it grew almost exactly that fast, so we know we can do that. But it’s not easy, and it takes planning.”

Distributed energy resources alone will not be able to supply the power needed in the coming decades, he said.

“There are no surprises here; it’s going to come from resources of wind and solar PV,” Fox-Penner said. “I think advanced nuclear will play a role, and certainly current nuclear is playing a role, accounting for 20% of our supply. Gas with carbon capture and storage is coming along strongly.”

Many other resources will contribute less, he said, and then there are “important balancing resources such as large-scale, storage-flexible load and the grid itself, all of which are really far and away the most important and difficult part of achieving a decarbonized grid.”

Willingness to Sacrifice

“I start from the premise that the U.S. has achieved far less decarbonization than we’re capable of, given our financial, technical and natural resources,” said former FERC Commissioner Cheryl LaFleur, now a CGEP fellow and member of the ISO-NE Board of Directors.

LaFleur cited several big, systemic issues impeding progress.

“The first one … is the lack of a national consensus that climate change is a problem and thus the lack of a strategy or goal,” LaFleur said. “Quite simply, if you’re not trying to do something, it should be no surprise that you’re not getting maximum success.”

The second factor is disaggregated decision-making among the different federal agencies and state and local governments, all pursuing policies that are sometimes working at cross-purposes, she said.

“In particular, a lot of people have the say over what gets built, where it gets built and who pays for it,” LaFleur said. “Finally, I think there’s a mismatch between people’s expressed support for climate action and their willingness to do something about it, and I don’t mean just not using plastic straws, but allowing resources, whether they’re utility-scale renewables or transmission to connect renewables, to be built near them.”

One of the more difficult problems will be developing cost-effective, carbon-free resources to balance renewables, but even the so-called “easy” things like solar and wind are difficult to site and build, she said.

LaFleur quoted Fox-Penner’s book as recommending “improved cost allocation and interregional planning for transmission,” saying “those were the exact words in FERC Order 1000, which is nine years old … but has been very little utilized in practice, particularly in states agreeing on the allocation of costs for public policy resources and also the introduction of competitive transmission processes.”

Regarding planning among states, LaFleur said that if Congress wants to require regional planning, people should make use of regional planning structures that already exist and do some things well.

Clockwise from top left: Peter Fox-Penner, Boston University; Richard Kauffman, NYSERDA; Cheryl LaFleur, ISO-NE; Melissa Lott, Center on Global Energy Policy; and David R. Hill, NYISO. | Center on Global Energy Policy

In a side panel on the webinar screen, energy analyst Matthew Wittenstein asked, “What is your view on CAISO Proposal Sets Course for EIM Day-ahead.)

“I don’t know if it’s a stepping stone or an alternative to an RTO, but I strongly believe that the best thing is to let them decide,” LaFleur said. “I’d love to see it develop from an imbalance market to a day-ahead or something stronger, but even if it stays at one of those stops, it’s still a big improvement on using resources over a broader geography, which is especially needed in the West.”

On a separate question as to whether she was worried about the differences between RTO and non-RTO regions when it comes to regional policy, LaFleur said, “Yes, every time FERC upped the ante and required another thing for the RTOs to change their tariff in a slightly different way, I worried we were creating more and more of a divide between the two different Americas, in the organized markets and in the bilateral markets.”

Don’t Wait; Act Now

CGEP scholar Richard Kauffman, chair of the New York State Energy Research and Development Authority and board chair of San Francisco-based Generate Capital, said he prefers market forces over regulatory fiat.

Richard Kauffman, NYSERDA | Center on Global Energy Policy

“By market forces, I’m not talking about FERC-like wholesale market structures, which are quite anachronistic to the power sector. I’m talking about market forces that exist elsewhere in the economy,” Kauffman said. “Our sector has been in a kind of bubble, away from forces affecting other sectors of the economy.”

Investment banker and project consultant Gary Krellenstein said that Kauffman correctly pointed out that the system capacity factor in New York is only 54%. “But given the physical constraints on usage, such as seasonality and weather, won’t using more renewables further decrease system capacity factor? More reliance on intermittent renewables implies a lower capacity factor and higher capital costs.”

Kauffman agreed that if the regulatory and utility business model doesn’t change, average capacity utilization will indeed go further down.

“We may not like flying, but the industry has moved from 50% to 90% average capacity utilization as a result of technology adoption, business model change and flexible pricing,” Kauffman said. “This has resulted in much lower costs for customers. The same lessons are true for the chemical and other manufacturing industries. We need to adopt these lessons to the regulatory utility sector, which has been protected by the golden cage of regulation.”

On the other hand, energy efficiency and demand response are not businesses, but activities forced on utilities by regulators, he said.

David R. Hill, NYISO | Center on Global Energy Policy

David R. Hill, CGEP fellow and a member of the NYISO Board of Directors, recommended avoiding making the same mistakes that led to stranded asset costs in some cases when regulators opened transmission development to competitive markets.

“I’m a skeptic of grand master plans, and I think it’s a mistake to hold our breath and wait for them, or to use the lack of one as the reason why we’re not doing things,” Hill said. “Instead, there are so many tools we already have and have available, some of which we haven’t tried to use here in terms of coming up with the least-cost, fastest, most effective way of solving some of the problems we’re talking about.”

Hill agreed with Kauffman on looking for market-based solutions.

“In the New York ISO, we’re trying to put forward a carbon-pricing initiative as a part of the ISO’s program, and of course we’re trying to slog through what it takes to get support for that to make it happen,” Hill said. “FERC is having its carbon pricing conference in September, and there’s a lot that could be done with existing authority. Waiting for Congress to pass laws or to do something else — we should not wait on that.”

Fox-Penner said he is “convinced that markets work much better if government does a certain amount of planning and a certain amount of adjudication of the markets.”

Hill said it would pay to go back to the fundamentals of why wholesale power markets were opened in the first place, which was to solve problems. The electricity market effort was not a complete success, but the industry can learn from experience and not make the same mistakes as transportation electrification gets underway, he said.

“The lack of innovation on the consumer side of the electric business is amazing,” Hill said. “We need to think about what are the models that can best bring about the innovation. … So much of what happens on the wholesale side now is walled off from consumers, leaving them unable to see it or participate in it.”

July 31, 2020

Householder Removed from Ohio Speaker Post

On the same day Larry Householder (R) was voted out as speaker of the Ohio House of Representatives, the longtime legislator was officially indicted by a federal grand jury on a racketeering conspiracy charge related to the alleged $61 million bribery scheme by FirstEnergy to pass and maintain a billion-dollar nuclear plant bailout.

In a unanimous decision, House members voted to remove Householder from the powerful position more than a week after his arrest for his alleged involvement in a three-year scheme resulting in the passage of House Bill 6, which authorized zero-emission credits for FirstEnergy Solutions’ (FES) Perry and Davis-Besse nuclear plants. (See Feds: FE Paid $61M in Bribes to Win Nuke Subsidy.)

The members quickly approved the measure without any debate in the Thursday morning session. Householder, who still retains his seat in the house despite calls for his resignation, was not present for the vote. Rep. Bob Cupp, a former Ohio Supreme Court justice, was elected speaker by a 55-38 vote.

Republican House leaders, including Speaker Pro Tempore Jim Butler, who was vying for Householder’s position, issued a statement after the vote.

“Today’s strong bipartisan vote to remove Larry Householder as speaker of the Ohio House of Representatives is not a decision any member of the House took lightly, but it was clear that Mr. Householder is unable to effectively lead the House,” the statement said. “This is an opportunity to move the House forward and continue our work to move Ohio forward.”

Legislators on the other side of the aisle were also quick to tout Thursday’s vote for removal.

“The criminal allegations detailed last week and the indictment handed down today made it clear that Larry Householder could no longer serve as speaker of the People’s House,” said House Minority Leader Emilia Strong Sykes (D). “His removal is the first step toward restoring public trust, which for the second time in three years has been eroded by Republican leadership that sees itself as above the law.”

Thursday’s action follows a call late last week by Ohio Gov. Mike DeWine (R) to repeal H.B. 6 and a denial of any wrongdoing by FirstEnergy CEO Charles Jones. (See Ohio Gov. Calls for Repeal of Nuke Bailout and FirstEnergy, AEP CEOs Deny Wrongdoing.)

Grand Jury Indictment

Coming immediately after the House vote, U.S. Attorney David M. DeVillers, of the Southern District of Ohio, announced the grand jury indictment of Householder and four others, including: Matt Borges, a lobbyist who previously served as chair of the Ohio Republican Party; Jeff Longstreth, Householder’s longtime campaign and political strategist; Neil Clark, a lobbyist who owns and operates Grant Street Consultants and previously served as budget director for the Ohio Republican Caucus; and Juan Cespedes, a multiclient lobbyist.

Jennifer Thornton, a Department of Justice spokeswoman, said the charges in Thursday’s indictment were the same as the ones issued in the July 21 criminal complaint.

According to the indictment, from March 2017 to March 2020, the “enterprise” headed by Householder received millions of dollars in exchange for his help in passing H.B. 6. “Company A,” which references FirstEnergy in the indictment, filtered nearly $61 million to a 501(c)(4) nonprofit organization called Generation Now, created by Longstreth and controlled by Householder, to elect him to the speaker role and to support House candidates loyal to him.

Money from Generation Now was also used to fund television advertisements and mailers supporting H.B. 6, according to the indictment. Finally, money was used to defeat a ballot referendum that sought to overturn the law — including bribes to those working for the referendum.

The affidavit filed in support of the criminal complaint also alleges that money passed from “Company A” through Generation Now was used to pay for Householder’s campaign staff, which would otherwise have been paid by his candidate committee, Friends of Larry Householder. It also alleges Householder received more than $400,000 in personal benefits, including funds to settle a personal lawsuit, payments on a house he owns in Florida and to pay off credit card debt.

The racketeering conspiracy charge is punishable by up to 20 years in prison. Thursday’s indictment also seeks forfeiture of any property derived from the racketeering activity and the proceeds from several different bank accounts of Generation Now.

“Dark money is a breeding ground for corruption,” DeVillers said in a statement. “This investigation continues.”

Second Repeal Effort

Meanwhile, two Democratic House members last week proposed repealing part of the state’s two-year budget bill that allows FirstEnergy’s Ohio utilities — Ohio Edison, Cleveland Electric Illuminating Company and Toledo Edison — to consider the profits made by all three subsidiaries averaged together when determining whether they have earned “significantly excessive” profits.

Cleveland.com reported that the provision was added by an unknown House member to the budget bill signed by DeWine last year.

July 31, 2020

MISO, SPP Regulators Mull Seams Recommendations

MISO and SPP regulators are close to asking the RTOs for improvements to transmission operations on their seam as their market monitors wind down a study on the subject.

The short list of recommendations could arrive at an opportune time, with both RTOs signaling a willingness to usher in a new era of cooperation.

The Organization of MISO States (OMS) and SPP’s Regional State Committee (RSC) will discuss which recommendations could be most beneficial when their Seams Liaison Committee (SLC) meets on Aug. 10 and Sept. 14. Texas Public Utility Commission Chair DeAnn Walker, who leads the RSC side of the SLC, said July 27 that the committee is moving from the study phase to recommendation selection.

The MISO Independent Market Monitor and the SPP Market Monitoring Unit have recently summarized what they believe are the more effective actions the RTOs can take based on the study.

The SLC has indicated it will urge the RTOs to work together and quickly apply the easiest fixes that don’t entail major software upgrades. The improvements could include implementing a test based on the available flow relief an RTO can provide the other, an automated means to control power swings on constraints, and better testing and activation of flowgates near the seam.

The monitors said the RTOs cause large power flows on each other’s systems. Better managing them could save more than $30 million of the $150 million in annual congestion costs that the RTOs’ flowgates have accrued.

An Age of Teamwork?

SPP CEO Barbara Sugg has prioritized a better relationship with MISO since assuming her leadership position in January. That could bode well for the RTOs’ willingness to implement seams improvements, should the SLC recommend them.

MISO SPP seams — SPP CEO Barbara Sugg | © *RTO Insider*

During SPP’s quarterly stakeholder meeting July 27, Sugg said she’s “decided to take ownership of [seams issues] and work directly with MISO.” Sugg, joined by COO Lanny Nickell, has met several times with MISO CEO John Bear and President Clair Moeller.

“I have high hopes for the two companies working together to resolve issues on the seams and that the discussions will be very beneficial to both sides,” Sugg said.

“I commend her for working with John Bear on that relationship, which quite frankly has been lacking in the past,” Walker told SPP stakeholders. “Part of a goal of mine — and some of that has already been accomplished — has been better interaction between MISO and SPP staff, and now the boards.”

SPP Board Chairman Larry Altenbaumer concurred, saying the SLC “was a bit of a catalyst to try and foster an improved relationship at all levels with SPP and MISO.”

MISO also confirmed it was meeting with SPP senior leadership to “discuss opportunities to work more collaboratively on key seams items,” according to spokesperson Allison Bermudez. She said MISO looks forward to providing feedback on the recommendations and would possibly route some of them to stakeholder groups for solution development.

The monitors’ study also concluded that SPP should improve its modeling of MISO’s market-to-market (M2M) constraints. MISO, on the other hand, should eradicate its generator shift factor for low-voltage constraints and M2M constraints, the study said.

But the monitors didn’t find significant value in a joint dispatch model, saying the RTOs might save about $17 million per year, or 0.1% of the region’s total production costs. MISO Monitor David Patton said he believes that the benefits of joint dispatch aren’t being fully captured because MISO assumes optimized congestion management across the seams.

But Patton has said the RTOs could be close to implementing better interface pricing, if SPP will actively model MISO’s transmission constraints at the seams. Patton said MISO’s interface pricing with SPP could be better than its pricing with PJM because SPP is generally better at modeling the MISO transmission system than PJM.

“SPP has a pretty good depiction of the MISO system,” Patton said during July’s Market Subcommittee meeting.

Both monitors concluded this spring that a coordinated transaction scheduling process, like MISO uses with PJM, doesn’t stand to help much unless the RTOs rethink fees they impose on one another. (See Monitor Casts Doubts on MISO-SPP CTS Benefits.)

On the other hand, SPP’s MMU found that unreserved use charges are rare along the seams and don’t negatively impact the systems’ efficiency.

Charges that occur are usually because of outages or extreme weather events, MMU Executive Director Keith Collins said during a recent study update.

Tom Kleckner contributed to this report.

July 31, 2020

UPDATE: IIF Closes El Paso Electric Purchase

The privately held Infrastructure Investments Fund (IIF) completed its acquisition of El Paso Electric (EPE) on Wednesday following a final regulatory check by the Nuclear Regulatory Commission, the companies said in a statement.

The statement came after FERC on July 22 approved EPE’s and IIF’s market power mitigation plan and rejected rehearing requests challenging the commission’s approval of the deal (EC19-120). (See FERC OKs El Paso Electric Mitigation.)

The commission in March approved the transfer to IIF of EPE’s license for the company’s share of Palo Verde, but it recently sent a letter to the organizations with questions about the ownership (STN 50-528, STN 50-529, STN 50-530, 72-44).

El Paso Electric owns 15.8% of the Palo Verde nuclear plant (pictured). The Nuclear Regulatory Commission had raised questions over the private Infrastructure Investments Fund’s foreign interests. |

NRC had questions about possible “foreign ownership, control or domination” of EPE’s 15.8% share in the renewed operating license for the Palo Verde nuclear plant in Arizona. On July 28, however, the agency said in a letter to the utility’s interim CEO that a previous order approving the transaction still stood.

Staff said that following a brief review, they had determined not to modify, suspend or revoke the order, but that “future changes to the … partnership agreement that affect the restrictions on passive limited partner investors may constitute an indirect transfer of control of the Palo Verde licenses that would require prior NRC approval.”

Scott Burnell, an NRC public affairs officer, told RTO Insider in an email that staff began reviewing the EPE and IIF responses July 27 to determine whether the agency needed to take further action on the transferred license.

Burnell noted that staff recently learned about the possible foreign ownership ties to IIF entities linked to the transaction through filings the private equity group made with the U.S. Securities and Exchange Commission and the Federal Communications Commission.

The company said July 29 that its new board of directors had appointed Kelly Tomblin as its new CEO. Tomblin joins the company after more than 30 years of leading utilities in the U.S. and internationally. She was most recently CEO of INTREN, a utility solutions provider with 14 regional offices across the U.S.

“EPE plays a critical role in the communities [it] serve[s], and I look forward to making this community my own,” Tomblin said in a statement.

EPE and IIF announced the transaction in June 2019. IIF is a $12.5 billion private investment vehicle advised by a dedicated infrastructure company investment group within J.P. Morgan Investment Management.

IIF is the umbrella name referring to the three master partnerships that hold all of its investments: IIF US Holding 2, IIF US Holding and IIF Int’l Holding. IIF US Holding 2 owns Sun Jupiter Holdings, which has formed a corporation to merge with EPE, with the utility as the surviving entity.

EPE shares disappeared from the New York Stock Exchange on Wednesday. The stock closed at $68.25 on Tuesday, up $1.85 since hitting $66.40 on July 20 before FERC’s final approval.

July 30, 2020

MISO Cost Allocation Plan Wins OK on 3rd Round

The third time’s a charm for MISO getting FERC approval of its sweeping, cost-allocation overhaul for large economic transmission projects.

The commission on Tuesday accepted MISO’s proposal to lower the voltage threshold for market efficiency projects (MEPs) from 345 kV to 230 kV, add two new benefit metrics and eliminate the current 20% postage stamp allocation in favor of allocating full project costs to benefiting transmission pricing zones (ER20-1723).

In the latest iteration, MISO removed all mention of the local economic project category that FERC twice rejected. The small project type was a sticking point in the earlier filings because the commission took issue with a proposal to measure the value of such a project on a regional basis but cost-share only locally. The category was intended for smaller, economically driven transmission projects between 100 and 230 kV, in which 100% of costs would be allocated to the local transmission pricing zone containing the line. (See Local Projects Axed from MISO Cost Allocation Refile.)

Now such projects will again be consigned to MISO’s “Other Project” category, which has no regional benefits test and prescribes that smaller economically beneficial projects be allocated to the transmission pricing zone in which they are located.

In keeping with its previous orders, the commission found no problems with MISO’s plan to add new benefit metrics for savings if a project can reduce dependency on the RTO’s transmission contract path with SPP or eliminate needs for other reliability projects. The two new savings calculations will join MISO’s existing adjusted production cost savings metric in project evaluation.

“We find that the cost allocation resulting from the application of the three benefit metrics will be more precise at determining benefits,” FERC said.

The new rules will also provide limited exceptions to the competitive bidding process if a transmission project were needed immediately for the sake of reliability.

Dairyland Power Cooperative argued that the 230-kV threshold is still too high and “unduly discriminates against areas of the MISO footprint that do not utilize the 230-kV voltage class.” The co-op said MISO was dismissing the idea that smaller transmission projects could deliver regional benefits. It said 2018’s Old Dominion Electric Cooperative v. FERC — in which the D.C. Circuit Court of Appeals ruled that FERC erred when it prohibited cost-sharing for a class of high-voltage projects that demonstrated significant regional benefits — should be applied as caselaw, even for lower-voltage facilities in MISO.

But the commission pushed back on that assertion, saying, “Unlike the situation in ODEC, neither MISO nor the commission … has made the finding that MISO projects between 100 kV and 230 kV produce ‘significant regional benefits.’”

No 100-kV Threshold

FERC declined another request for a 100-kV MEP threshold in a separate order issued the same day (EL19-79).

LS Power last June asked FERC to compel MISO to lower the threshold for competitively bid transmission projects from 345 kV to 100 kV and outline a procedure for identifying beneficiaries. (See Complaint Seeks Bigger Role for Smaller MISO Projects.)

The company argued that “MISO’s transmission planning process fails to provide a path for development of regionally beneficial economic enhancements that do not currently qualify as [MEPs] and … this failure has resulted in unnecessary congestion costs and unjust and unreasonable rates.”

FERC pointed out that it just accepted MISO’s plan to lower the MEP voltage threshold to 230 kV. But even if it didn’t accept the allocation proposal, LS Power didn’t have a strong enough argument, the commission said.

“Although the concurrent … order lowers the market efficiency project voltage threshold to 230 kV, we nevertheless find that LS Power has failed to demonstrate that the then-existing 345-kV voltage threshold … and the current cost allocation method for economic other projects is unjust and unreasonable,” FERC said.

FERC said LS Power’s examples of hypothetical 100-kV projects that could benefit the footprint regionally also didn’t meet the burden of proof.

July 30, 2020

ComEd on Hot Seat at ICC Hearing

Commonwealth Edison officials apologized to the Illinois Commerce Commission, while ICC Chair Carrie Zalewski defended herself against conflict-of-interest allegations Wednesday in the wake of the company’s bribery scandal.

The ICC questioned ComEd officials for 90 minutes during its open meeting over the company’s agreement to pay a $200 million fine to settle allegations that it bribed Illinois House Speaker Michael Madigan (D) in return for legislation that increased the company’s earnings and bailed out parent Exelon’s money-losing nuclear plants.

The U.S. Attorney’s Office in Chicago filed a one-count information on July 17 alleging that ComEd arranged no-work jobs for Madigan associates including former Chicago Alderman Michael R. Zalewski, the father-in-law of the ICC chair, to influence legislation favorable to the company.

The allegations came several weeks after radio station WBEZ reported that it had obtained emails showing Madigan’s top aide recommended Zalewski for the ICC in December 2018, about four months before Gov. J.B. Pritzker named her to a five-year term as chairwoman. (See How ComEd Got its Way with Ill. Legislature.)

In opening remarks, Republican Commissioner Sadzi Martha Oliva said she was concerned by the “optics” of the hearing.

ComEd ICC — ICC Chair Carrie Zalewski | © *RTO Insider*

“I believe the allegations surrounding the bribery scheme may conflict with Chair Zalewski’s ability to do her job effectively by adversely affecting the confidence of the public,” Oliva said. “Holding this hearing in this manner is not good for the integrity of the commission while attempting to restore trust from ratepayers. I fear that not raising my concerns to the public and on the record makes me complicit in failing to restore the public’s trust.”

“I have not done anything wrong,” Zalewski, a Democrat shot back. “To suggest otherwise [is] both disingenuous and irresponsible. I perform my duties ethically, honestly [and] with integrity. I came from the [state] Pollution Control Board, where I earned that reputation for nine years — never been questioned.”

Public Comments

Several people also spoke about the scandal during the public comments section of the meeting.

Republican activist Jesus Solorio said Zalewski should resign or that her fellow commissioners should demand she recuse herself from any matters regarding ComEd, calling her a member of “one of the most politically connected families in Illinois.”

Solorio said Zalewski’s husband, Democratic state Rep. Michael J. Zalewski, “received thousands of campaign contributions from Commonwealth Edison and voted for the legislation that we now know involved a criminal conspiracy orchestrated by Mr. Madigan and his friends. We also know that Commonwealth Edison gave Ms. Zalewski’s father-in-law a $5,000/month contract around the same time Mr. Madigan recommended Ms. Zalewski to be Commonwealth Edison’s regulator. We cannot pretend this cloud over the commission’s integrity is not a problem. We deserve more than empty assurances.”

Federal officials say ComEd’s bribes aided passage of the 2011 Energy Infrastructure Modernization Act (EIMA) — which approved a formula rate mechanism — and the 2016 Future Energy Jobs Act (FEJA), which authorized subsidies for Exelon’s Clinton and Quad Cities nuclear generators.

Illinois PIRG Director Abe Scarr | *Illinois Commerce Commission*

“In many ways, this corruption is not news. It’s been plain to see to anyone willing to look. ComEd and Exelon have used political power to corrupt utility regulation in Illinois,” said Illinois Public Interest Research Group Director Abe Scarr, who called for a “comprehensive audit” of the utility.

“Many benefits ComEd promised in EIMA have not arrived,” Scarr said. “Without proper examination, we have no way to know if customers are getting real value for the 40% increase in delivery rates they have paid since 2011 or if alternative investments would have brought more value at lower costs.”

Jeff Scott, associate state director for AARP Illinois, said FEJA should be repealed and EIMA — which he said guaranteed ComEd automatic rate hikes — allowed to expire. He also called on the state to repeal retail choice in response to the threat posed to nuclear and renewable generation by PJM’s expanded minimum offer price rule. (See Clock Ticking on Exelon Illinois Nukes Under MOPR.)

“Rather than create a new complicated capacity procurement mechanism on top of the already complicated PJM, Illinois should instead end retail choice and restructuring altogether, end deregulation and again allow the utilities to own generation fully regulated by the ICC with an open, transparent and honest planning process.”

ComEd Promises Reform

ComEd CEO Joe Dominguez said he was saddened that “a few” ComEd officials responsible for the bribery scheme tainted the work of thousands of utility workers who have continued to provide “world class service” despite the coronavirus pandemic.

“There are no excuses for our conduct, and I will offer none today,” he said.

Dominguez said the deferred prosecution agreement ComEd signed did not allege that EIMA “was bad policy or the investments didn’t benefit customers.”

“I simply don’t agree that those investments were not carefully reviewed and were not deemed to be prudent in every measure for the customer. We’ve done studies about the cost-benefit analyses of things like the installation of smart meters and our energy efficiency programs.

“Residential customer bills today are less than they were 10 years ago. I want to emphasize that that is not adjusted for inflation … and if you were to adjust it for inflation, it’s 20% less than it was a decade ago.”

Critics have said lower bills are a result of lower wholesale power costs, not delivery-service rates, which are the only component covered by formula rates.

Dominguez said Exelon hopes to restore ComEd’s reputation by its hiring in March of former Assistant U.S. Attorney and former Securities and Exchange Commission Regional Director David Glockner as Exelon’s executive vice president of compliance and audit.

“I don’t think there is a person better suited” for the job, Dominguez said, citing Glockner’s “impeccable reputation.”

Glockner cited Exelon’s new policies regarding interactions with public officials and the vetting and monitoring of lobbyists and political consultants.

All employment and vendor referrals or requests from public officials must be tracked and referred to the utility CEO, general counsel and compliance department under the new rules. “The request can be approved only if everybody in that process signs off,” he said.

“There were policies that the company had that were in place that prohibited this sort of conduct that occurred here, but in retrospect, it’s clear that those policies alone weren’t enough and the interactions with public officials are an area where we need to give employees more detailed guidance. We need more controls and most importantly more eyes on decisions that are often difficult and where there can be a real risk of … misconduct.”

Glockner agreed to return to the ICC to discuss its compliance record. “We realize that there is a significant public trust deficit,” he said.

Dominguez assured the commission that ComEd would not seek to recover its $200 million fine or any of the questionable lobbyist spending and no-work jobs from ratepayers.

“The commission obviously is going to be exploring this issue for a while and take actions in the interests of ratepayers,” Zalewski said in closing the meeting.

Legal Bills

The chair’s husband has spent nearly $75,000 in campaign funds on legal services since his father’s home was raided by federal agents, radio station WBEZ reported last week.

“In early June 2019, I engaged Jones Day for legal counsel. I wanted to ensure legal compliance in case any investigatory agency sought my cooperation,” Rep. Zalewski said in a statement, declining to comment on whether he had been contacted by federal law -enforcement officials. “As several investigations are ongoing, I’ll have no further comment at this time.”

WBEZ said the state representative had been Madigan’s point man on negotiations for a gambling bill last year but relinquished his role after complaints that he was conflicted. WBEZ said a review of state lobbyist-disclosure documents showed Zalewski’s law firm had more than 30 clients with interests in gambling legislation the state.

July 30, 2020

Entergy Beats Expectations with Strong Quarter

Entergy on Wednesday reported second-quarter earnings of $361 million ($1.79/share), bettering 2019’s second-quarter performance of $236 million ($1.22/share).

When adjusted for nonrecurring items, such as the removal of Entergy Wholesale Commodities when it exits the merchant power business in 2022, earnings came in at $276 million ($1.37/share). (See Entergy Celebrates Sale of Final EWC Nuke.) Entergy’s results beat projections by Zacks Investment Research’s survey of analysts, who expected average earnings of $1.23/share.

“We delivered another strong quarter and remain on track to achieve our full-year objectives. Sales were better than expected; we’re on pace to achieve our cost savings target for the year; and our capital plan is unchanged,” Entergy CEO Leo Denault said in a press release.

The New Orleans-based company is affirming its full-year guidance range of $5.45 to $5.75/share, pinning some of the projection on the petrochemical-heavy regional economy.

“While we have seen some slowdown in industrial activity, our industrial base is among the most economically advantaged in the world,” Denault told financial analysts during a conference call. “We expect it to lead the region’s recovery in their respective industries.”

Executives said Entergy could take an earnings hit of 15 to 20 cents/share following a FERC administrative law judge’s July decision recommending the commission return to ratepayers $147.3 million related to nuclear decommissioning tax deductions for the Grand Gulf Nuclear Station in Mississippi (ER18-1182).

The company’s stock price gained $1.45 during the day, closing at $104.12. The stock price is still down 11.7% for the year, having begun 2020 at $117.93.