FERC on Thursday approved reliability standards for mitigating supply chain risks in industrial control system hardware, software and computing and networking services. The commission also ordered NERC to develop rules expanding the supply chain protections to include electronic access control and monitoring systems (EACMS).
The commission’s final rule, intended to build on existing critical infrastructure protection (CIP) standards, approved NERC reliability standards CIP-013-1 (Cyber Security – Supply Chain Risk Management), CIP-005-6 (Cyber Security – Electronic Security Perimeter(s)) and CIP-010-3 (Cyber Security – Configuration Change Management and Vulnerability Assessments). The final rule hews closely to the commission’s January 2018 Notice of Proposed Rulemaking (RM17-13). (See FERC Backs NERC Supply Chain Standards.)
| Pixabay
The new rules, effective 60 days after publication in the Federal Register, will be implemented over 18 months, as requested by NERC. The commission said the transition was needed because compliance will likely require technical upgrades, with implications for capital budgets and planning cycles that have longer time horizons.
Counterfeits, Malicious Software
The rules are intended to protect the bulk electric system from counterfeits or malicious software and tampering. They require affected entities to implement security controls addressing: software integrity and authenticity; vendors’ remote access; information system planning; and vendor risk management. FERC said the rules will cover 288 reliability coordinators, generator operators, generator owners, interchange coordinators or authorities, transmission operators, balancing authorities and transmission owners.
FERC acknowledged the rules did not cover the supply chain risks of EACMS such as firewalls, authentication servers, security event monitoring systems, and intrusion detection and alerting systems. The commission said NERC must propose rules to address the gap within 24 months. “Once an EACMS is compromised, an attacker could more easily enter the [electronic security perimeters] and effectively control the BES cyber system or protected cyber asset,” FERC said.
The commission also noted the standards generally don’t address physical access control systems (PACS) or protected cyber assets (PCAs). “We remain concerned that the exclusion of these components may leave a gap in the supply chain risk management reliability standards. Nevertheless, in contrast to EACMS, we believe that more study is necessary to determine the impact of PACS and PCAs,” the commission said. “Compromise of PACS and PCAs are less likely. For example, a compromise of a PACS, which would potentially grant an attacker physical access to a BES cyber system or PCA, is less likely since physical access is also required.”
Budgets OK’d
The commission also approved NERC’s 2019 business plan along with almost $166 million in spending allocated for the U.S. share of funding NERC, its regional entities and the Western Interconnection Regional Advisory Body (WIRAB) (RR18-9).
The 2019 budgets include $62.5 million for NERC; $102.8 million for its seven regional entities’ funding and almost $630,000 for WIRAB.
Including funding from other sources, NERC’s 2019 budget is $79.1 million, an 8.4% increase over 2018. Most of the increase is attributed to expanding staffing and functions at its electricity information sharing and analysis center (E-ISAC). (See New NERC Chief Not ‘Smartest Guy in the Room’.)
NERC’s budget includes 205 full-time equivalents, an increase of six from 2018.
All three of California’s big investor-owned utilities this week shut down power or warned customers they might need to because of dry, windy conditions that could lead to wildfires, prompting one consumer group to call for a probe into the practice.
It was the first time Pacific Gas and Electric has cut off power to consumers in Northern California based on fire hazards. Southern California Edison and San Diego Gas & Electric have taken such steps before when the hot Santa Ana winds picked up, as happened Monday and Tuesday.
California’s investor-owned utilities have been cutting power to residents during the state’s fall fire season. | Bureau of Land Management
With large fires becoming more the norm, and the state asking utilities to de-energize lines during severe weather conditions, California’s summer and fall fire season is becoming a time of rolling blackouts in fire-prone areas.
Some ratepayer advocates, however, criticized the utilities this week for jumping the gun. They said the power outages may have been more about avoiding liability and sending a political message than about protecting residents.
“We clearly think it’s blackout blackmail,” said Jamie Court, president of Consumer Watchdog, an advocacy group based in Los Angeles.
The IOUs and Gov. Jerry Brown had urged state lawmakers this year to do away with California’s unique system of holding utilities strictly liable for wildfire damage to private property. But the bill Brown signed in September, SB 901, left that strict-liability standard, often called inverse condemnation, unchanged.
The new law requires utilities to file wildfire mitigation plans with the state that include procedures for shutting down power in extreme weather to prevent fires. (See California Wildfire Bill Goes to Governor.)
“They didn’t get inverse condemnation [changed],” Court said. “They want to get out of liability forever for everything, and this is the way they send a signal. The biggest power a utility has is the ability to turn off power.”
‘Last Resort’
PG&E spokeswoman Angela Lombardi said the decision to cut off power this week was solely about wildfire prevention.
“Power safety shutoff will only be done as a last resort,” Lombardi told RTO Insider. “It’s only in the interest of public safety.”
The company took the unprecedented step Sunday and Monday of shutting off power to about 60,000 customers and notifying 37,000 others they could lose power because of gusting winds and dry vegetation in the northern San Francisco Bay Area and the Sierra Nevada foothills near Sacramento. (See PG&E Shuts down Power to Prevent Fires.)
State fire authorities have blamed PG&E’s equipment for sparking numerous fires in Northern California during the 2017 fire season, one of the most destructive in California’s history. The utility is facing billions of dollars in damages for those blazes, which occurred during times of high winds and low humidity.
, National Weather Service
In Southern California, San Diego Gas & Electric notified 4,700 customers Sunday their power could be shut off “with the onset of Santa Ana winds and extremely low vegetation moisture forecasted for the next two days.” The company ended up cutting power to 360 customers living in the foothills near the Cleveland National Forest and had restored power to most as of Tuesday. A red-flag warning remained in effect.
SDG&E, widely considered a state leader in wildfire prevention, has de-energized lines a number of times in the past because of hazardous fire conditions.
Southern California Edison issued warnings this weekend that it might have to shut down power as hot, dry Santa Ana winds began blowing from the desert to the ocean. The winds are typically a harbinger of Southern California’s wildfire season, which tends to peak in the fall but has become more of a year-round problem in recent years with drought and climate change.
CPUC Monitoring
Court, with Consumer Watchdog, said the conditions that prompted the utilities to shut down power were not sufficient to cut off power, especially to schools and to the elderly and infirm, including those who rely on oxygen machines.
“If there are no fires or firefighters in an area, there is no reason for a utility to shut down power unless they know they have faulty equipment or problems with vegetation management,” he said.
Consumer Watchdog sent a letter to California Public Utilities Commission (CPUC) President Michael Picker on Tuesday urging him to launch an investigation of PG&E’s power shutdown and to “investigate each and every time a utility turns out the lights due to high winds.”
In an email, CPUC spokeswoman Terrie Prosper said the commission had been monitoring this week’s power shutdowns and warnings.
“We will do a post-event review, including the factors that went into PG&E’s decision to de-energize, customer outreach and notification and restoration times.”
In general, Prosper added, “the state’s investor-owned utilities have general authority to shut off electric power to protect public safety under California law, specifically California Public Utilities Code (PU Code) Sections 451 and 399.2(a).
“The utilities have recently developed programs to exercise this authority during severe wildfire threat conditions as a preventative measure of last resort,” she said.
PJM’s Board of Managers said Tuesday it will conduct an “independent review” into GreenHat Energy’s massive default in the RTO’s financial transmission rights market.
The investigation comes amid pressure from PJM members for answers regarding the June default, which — with losses expected to exceed $100 million — is likely to be the RTO’s largest ever. (See PJM Reeling from Major FTR Default.) The board said it will throw open its books in response.
GreenHat listed its address as 826 Orange Ave., Suite 565, Coronado, Calif. — a UPS store between a nail salon and a RiteAid. | Google
“Examiners will have complete access to PJM records and staff for interviews and documentation review,” according to a news release.
The default highlighted flaws in the FTR market that allowed GreenHat traders, who had already been linked to a 2013 energy-market scandal, to amass the largest-ever portfolio of positions — 890 million MWh — on $600,000 in collateral. PJM has since identified “lessons learned” following a workshop staff conducted with independent experts and addressed many of the gaps through stakeholder-endorsed rule revisions, but member questions still remain. (See Doubling Down – with Other People’s Money.)
PJM analysis shows the continuing downward trajectory of GreenHat’s FTR portfolio. | PJM
The board has formed a special committee, chaired by board member Susan Riley, that also includes members John McNeely Foster and Mark Takahashi, along with “independent third-party experts.” Among the experts are Robert Anderson, executive director of the independent nonprofit Committee of Chief Risk Officers, and Neal Wolkoff, CEO of Wolkoff Consulting Services. Wolkoff was previously chairman and CEO of the American Stock Exchange and chief operating officer of the New York Mercantile Exchange. The Philadelphia firm of Schnader Harrison Segal & Lewis LLP has been retained as counsel.
The committee promises to answer outstanding questions about the default and highlights four goals:
examine the facts and circumstances associated with GreenHat’s participation in the FTR market and its subsequent default
assess PJM’s actions in connection with GreenHat
review lessons learned and make recommendations for the future of FTR markets
address questions raised by the members concerning the circumstances of the default
PJM members pressed the board for an independent investigation at their Oct. 3 meeting of the Liaison Committee. The committee, which bans media attendance, is an opportunity for PJM members to meet directly with the board several times throughout the year.
East Kentucky Power Cooperative’s Chuck Dugan, the committee’s chair, detailed members’ concerns in an Oct. 10 letter to PJM CEO Andy Ott. Dugan said several questions about the default were raised at the meeting and members are “pleased” the board agreed to the investigation.
The letter outlines six questions members have about PJM’s awareness, responsiveness and transparency regarding GreenHat’s portfolio, including why staff, after apparently learning about the potential default in February 2017, failed to inform members and instead proposed modifications to the RTO’s credit policy for members’ endorsement as if they were unprovoked.
Dugan acknowledged the investigation “will require time” but requested progress reports at upcoming Members Committee meetings. A PJM spokesperson could not provide a target date for completing the investigation.
RENSSELAER, N.Y. — NYISO on Monday floated a carbon pricing proposal that would leave importers and exporters to manage the risk of predicting carbon charges for real-time imports into New York, rather than saddling consumers with that uncertainty.
NYISO staffer Nathaniel Gilbraith recommended to New York’s Integrating Public Policy Task Force (IPPTF) applying carbon charges to external transactions such that they compete with internal resources and each other as if the ISO were not applying a carbon charge to internal suppliers.
Gilbraith cautioned adopting a carbon charge without considering the pricing effects at New York’s borders would likely cause large shifts in import and export dynamics because in-state suppliers would carry an additional cost burden not shared by external suppliers.
“Total carbon emissions as a result of not addressing this seams issue are up in the air and would depend on whether or not external marginal generation is more or less efficient than internal New York Control Area marginal generation,” Gilbraith said. “However, one thing is certain, there would be large financial implications.”
Under the plan, NYISO would base the carbon impact on LBMP (LBMPc) on the real-time system dispatch to determine carbon charges and credits, as opposed to forecasting the impact. The change would be consistent with the LBMPc used to allocate residuals to loads, and the ISO would also create a new billing code for carbon charge settlements.
By basing the LBMPc on real-time system dispatch, the ISO would not be required to produce a binding forecast of the carbon impact, and energy traders would bear the risk of carbon impact uncertainty.
Several stakeholders took exception to the “big change” in the way the ISO does business, but IPPTF Chair Nicole Bouchez, the ISO’s principal economist, said energy traders would be privy to the same information as the grid operator and have the ability to manage that risk.
“Where we landed is that it really wasn’t the best place for consumers to bear that risk because they don’t have the hedges available to [traders] and because the marketers have both the ability to manage the risk and also in many ways the direct incentive to manage that risk,” Bouchez said.
With the new separate line item for a carbon charge on bills and invoices, an import will see both a payment equal to the LBMP and a charge equal to the LBMPc, Gilbraith said.
“Carbon charges and credits will only occur if the transaction flows in real-time,” Gilbraith said. “For example, if an importer receives a day-ahead schedule at a certain $50/MWh, and they buy out of that schedule prior to flowing in real-time, they will not be responsible for any real-time dispatch carbon charge because the transaction did not flow.”
NYISO is targeting the Oct. 22 or 29 task force meeting to discuss LBMPc calculation and transparency of data with stakeholders.
The study assumed lower-emission dispatch leading to a need to buy fewer renewable energy credits (RECs) to meet the Clean Energy Standard decarbonzaion goals, “so if you get this low-cost emissions abatement through the carbon price, you don’t have to do quite as much higher-cost abatement,” Newell said.
The IPPTF is attempting to ensure that consumers derive the maximum benefit from carbon pricing through reduced payouts for RECs. | Brattle Group
The effect is “not very big because it’s assessed at the REC price post-carbon charge, which is quite low, but that’s always been there and it ends up being trivially small,” he said.
The grid operator the previous week had recommended steps to prevent certain wholesale market suppliers, designated as carbon-free in the CES, from collecting double payments for carbon emissions reductions that have already been captured by REC contracts. (See NY Carbon Task Force Looks at REC, EAS Impacts.)
The ISO proposed applying a carbon charge to wholesale market suppliers with active, fixed-price REC contracts with the New York State Energy Research and Development Authority that are based on a REC solicitation that began or was completed prior to the carbon pricing rules taking effect, which the ISO estimates to be the second quarter of 2021 at the earliest.
Clawback Issues
The Brattle study accounted for pre-2020 RECs getting a so-called “clawback,” and Newell emphasized that “we’re not endorsing that at all; that’s a very tricky issue. That was our assumption because it was a proposal by New York ISO.”
Warren Myers, Department of Public Service director of market and regulatory economics, asked, “If New York doesn’t change its policy and index future contracts, do you think the clawback might have an effect on that discount, on how much of that credit is translated into these future REC contracts?
“Yes, in general it raises regulatory risk with the state on anything,” Newell said. “I think there are a number of fairly compelling arguments why not to do it.”
The perception of a double payment is not quite accurate and a clawback carries a lot of potential unintended consequences, Newell said.
Newell said including pre-2020 RECs poses questions: Was the REC payment generators were receiving unambiguously just for carbon or for something else? To what extent did the suppliers already offer a lower price because of the potential upside from getting carbon pricing?
“There also may be some hedging instruments that would have the effect, if you gave them a lower price at their generation node, of impoverishing the generation owners,” Newell said. “They’d actually be losing money if you clawed back the carbon component of the LBMP.”
Rule changes create regulatory risk in general and not just for the next REC payments, he said.
“Even if you believe that these REC prices were based on a view of the world that would never have carbon pricing and was fully just compensating them for their non-emitting attributes, the carbon component of the LBMP would be too much to claw back because there are dynamic effects that have already lowered the energy and capacity prices,” Newell said.
Looking Ahead
Michael DeSocio, the ISO’s senior manager for market design, listed the stakeholder requests so far for additional analysis, such as considering assumptions of a higher social cost of carbon or different RGGI values for 2030. The ISO will prioritize the requests and recommend what analyses the task force undertake, he said.
The task force next meets at NYISO headquarters Oct. 22 to follow up on the treatment of resources with existing REC contracts and to hear a Calpine presentation on how a carbon charge might affect hedges on transmission congestion contracts.
In a victory for transmission owners, FERC on Tuesday signaled a major change in how it sets TOs’ return on equity rates, saying it will no longer rely solely on the discounted cash flow (DCF) model it has used since the 1980s.
Instead, the commission said it will give equal weight to results from the DCF and three other techniques: the capital asset pricing model (CAPM), expected earnings model and risk premium model.
The commission’s new policy came in its long-awaited response to the D.C. Circuit Court of Appeals’ April 2017 ruling vacating Opinion 531, FERC’s 2014 order on the New England Transmission Owners’ (NETOs) ROE rates. (See Court Rejects FERC ROE Order for New England.)
Tuesday’s order proposes a methodology for addressing the issues remanded to the commission in Emera Maine v. FERC and pending in three other proceedings involving NETOs’ ROEs, setting a paper hearing on how the methodology should apply.
“In relying on a broader range of record evidence to estimate NETOs’ cost of equity, we ensure that our chosen ROE is based on substantial evidence and bring our methodology into closer alignment with how investors inform their investment decisions,” the commission wrote (EL11-66-001, et al.).
Higher Hurdle for ROE Complaints
FERC said it would use the methodology to determine initially whether an existing ROE remains just and reasonable. It said it will use three of the models — the DCF, CAPM and expected earnings — to establish a composite zone of reasonableness, which will be “an evidentiary tool to identify a range of presumptively just and reasonable ROEs.” (The risk premium model results in a single number and cannot produce a range of reasonable rates, the commission said.)
Zone of reasonableness quartiles | FERC
“Under this approach, we intend to dismiss an ROE complaint if the targeted utility’s existing ROE falls within the range of presumptively just and reasonable ROEs for a utility of its risk profile — unless that presumption is sufficiently rebutted,” the commission said.
This new threshold, and FERC’s indication that it will act more quickly on complaints, appears to address complaints by TOs and the Edison Electric Institute over “pancaked” ROE complaints being filed while prior cases remained pending. (See EEI White Paper Calls for End to ‘Pancaked’ Rate Cases.)
When the existing ROE has been shown to be unjust and unreasonable, the commission said, it will use all four models to produce four individual cost of equity estimates; the just and reasonable ROE will be the average of the results.
“For each of the DCF, CAPM and expected earnings models, we propose to use the central tendency of the respective zones of reasonableness as the cost of equity estimate for average risk utilities. We would then average those three midpoint/median figures with the sole numerical figure produced by the risk premium model to determine the ROE of average risk utilities. We would use the midpoint/medians of the resulting lower and upper halves of the zone of reasonableness to determine ROEs for below or above average risk utilities, respectively. Because our current policy is to cap a utility’s total ROE, i.e., its base ROE plus incentive ROE adders, at the top of the zone of reasonableness, we propose to use the composite zone of reasonableness produced by the DCF, CAPM and expected earnings to establish the cap on a utility’s total ROE.”
Based on evidence from the first NETO complaint, the new approach resulted in a range of presumptively just and reasonable ROEs of 9.6 to 10.99%. Based on this analysis, the commission said the just and reasonable base ROE would be 10.41% and the cap on NETOs’ total ROE, including incentives, would be 13.08%.
“However, these findings are merely preliminary,” it added, saying the paper hearing would incorporate feedback on its proposed framework.
The commission’s 2014 ruling — prompted by a 2011 complaint by New England state officials and others alleging that the NETOs’ 11.14% base ROE was excessive — reduced the base ROE to 10.57%. (See FERC Splits over ROE.) But the D.C. Circuit said FERC failed to meet its burden of proof in declaring the existing 11.14% rate unjust and unreasonable.
‘Administrative Burden’
Although FERC acknowledged that using multiple models increases the “administrative burden” in ROE cases, the commission said it decided to broaden its approach after concluding that the DCF methodology no longer captures how investors make decisions.
“We believe that, since we adopted the DCF methodology as our sole method for determining utility ROEs in the 1980s, investors have increasingly used a diverse set of data sources and models to inform their investment decisions. Investors appear to base their decisions on numerous data points and models, including the DCF, CAPM, risk premium and expected earnings methodologies.”
FERC said the discounted cash flow methodology produced lower ROEs than the three other models for the four test periods at issue in the New England Transmission Owners’ proceeding. | FERC
The commission said the DCF methodology produced lower ROEs than the three other models for the four test periods at issue in the NETO proceeding. It noted that the models’ results sometimes “move in opposite directions.”
Models Explained
The commission’s order includes an appendix explaining the four approaches. The two-step DCF methodology incorporates both short-term and long-term growth projections. CAPM is used by investors to measure the cost of equity relative to risk.
The risk premium methodology considers interest rates as a direct input to compare returns on stock investments to that on less risky bonds.
The expected earnings analysis is based on the book value of individual stocks and can be either backward-looking using historical earnings, or forward-looking using analysts’ earnings forecasts.
Analyst: Higher Rates Likely
ClearView Energy Partners analyst Christine Tezak said the commission’s new approach will likely result in higher top values to the zone of reasonableness than seen since Opinion 531’s adoption. “This potential re-expansion of the zone of reasonableness would make it more likely that transmission owners will realize higher base ROEs than the DCF model alone indicated without a subsequent subjective upward adjustment. A broader range of reasonableness returns also looks likely to restore the full value of incentive adders awarded to transmission owners in prior proceedings.”
Information on how FERC may apply the new methodology to other TOs may come at Thursday’s open commission meeting, the agenda for which includes the NETO docket.
“We will be looking for an indication at the open meeting as to whether the industry should begin integrating these new principles into pending, recently filed and upcoming rate cases and pending complaints now, or wait” for the conclusion of the paper hearing, Tezak wrote.
The commission set a 60-day deadline for filing initial briefs (Dec. 17), with reply briefs due 30 days after that (Jan. 17, 2019).
The New England TOs are Emera Maine (formerly Bangor Hydro Electric); Avangrid’s Central Maine Power; National Grid; New Hampshire Transmission; The United Illuminating Co.; Unitil Energy Systems; Fitchburg Gas and Electric Light; Vermont Transco; and Eversource Energy (formerly Northeast Utilities, Connecticut Light and Power, NSTAR Electric, Western Massachusetts Electric Co. and Public Service Company of New Hampshire).
Commissioner Richard Glick, who formerly worked at Avangrid, did not take part in the ruling.
Commissioner Neil Chatterjee on Wednesday acknowledged concerns that uncertainty over how FERC would respond to the D.C. Circuit’s remand had chilled transmission investments. “So, our action should help ensure [there is] more clarity going forward,” he said during remarks at the Department of Energy’s Electricity Advisory Committee meeting.
At the commission’s open meeting Thursday, Chatterjee said “the commission will need to make important decisions about how the policy we’ve proposed in Emera Maine applies” in other ROE dockets.
Commissioner Cheryl LaFleur, who was chair when the commission issued Order 531, said that ruling was a compromise that set a tighter zone of reasonableness, with the ROE higher within the zone. “Here we’re allowing a much wider band and the ROE is in the middle of the band.”
VALLEY FORGE, Pa. — Stakeholders at last week’s Planning Committee meeting endorsed PJM’s annual reserve requirement study and recommendations for a 15.7% IRM and a 1.0887 forecast pool requirement (FPR) for next year’s Base Residual Auction, both slight reductions from last year. (See “IRM, FPR Reduced,” PJM PC/TEAC Briefs: Sept. 13, 2018.)
The study found a reduction in the standard deviation for the RTO-wide forced outages from the 2017 study to the 2018 study, which indicates the outliers “are slightly less extreme than they were last year,” PJM’s Andrew Gledhill said.
Staff traced the change back to a “slightly smaller” average unit size this year of 121 MW compared to 129 MW in 2017.
Ride Through
PJM’s Emanuel Bernabeu detailed the results of the RTO’s two-day workshop on distributed energy resources ride-through held on Oct. 1 and Oct. 2.
“We made tons and tons of progress,” he said, adding that staff plan to seek an endorsement vote at the Nov. 11 PC meeting on a problem statement and issue charge to address questions surrounding implementation of a new Institute of Electrical and Electronics Engineers standard on how DERs should react to system voltage fluctuations.
The PC will then vote on endorsing required settings for resources wishing to participate in PJM’s markets, but it will not vote on guidance developed by staff for state regulations on locally regulated resources. The issue raised stakeholder concerns at last month’s meeting. (See “Workshop Set on DER Ride-through Standard,” PJM PC/TEAC Briefs: Sept. 13, 2018.)
Bernabeu confirmed that several revisions have been made to the problem statement and issue charge since then, including not making the standards retroactive for existing resources and creating rules for both inverter-based and synchronous resources.
“They behave quite differently. … We are trying to tackle the entire DER space and not just focus on inverters,” he said. “We are trying to achieve both.”
Alex Stern of Public Service Electric and Gas and Tonja Wicks of Duquesne Light expressed appreciation for PJM’s willingness to address stakeholder concerns.
“We just have to be sure at the RTO level that, as we incorporate greater levels of distributed energy resources, … we’re doing it safely and reliably,” Stern said.
“That’s why we want to solve this now as opposed to California,” Bernabeu said in reference to solar generators disconnecting from the grid during wildfires. “I don’t want to be like California.” (See NERC Chief: Inverter, Fuel Assurance Standards Needed.)
Offshore Wind Interconnection
The growing wave of interest in offshore wind is finally hitting PJM. Staff announced plans to review the Tariff for revisions necessary to address the “new and creative ways” offshore wind developers are proposing to interconnect facilities, which include offshore transmission networks with multiple interconnections.
“We haven’t anticipated this,” PJM’s Susan McGill said of the developers’ proposals. “There’s some ideas out there that this [current] construct doesn’t fit perfectly.”
Ken Foladare of Tangibl requested that PJM also look into other long-term firm transmission projects that sometimes cause delays with generation interconnection queue requests and asked that staff investigate ways to eliminate these delays.
“For generation project developers, these delays often cost them a considerable amount of time and money,” he said.
Impacts of the Energy Transition on Transmission
PJM’s Yuri Smolanitsky detailed plans for two new 500-kV lines and substations that highlight the changes resulting from shale gas and solar development in the RTO.
The Flint Run 500/138-kV substation west of Clarksburg, W.Va., will tap the Belmont-Harrison 500-kV line to provide extra-high voltage for Marcellus shale load growth in the area. The $40.1 million project in the Allegheny Power Systems zone — b2996 in PJM’s Regional Transmission Expansion Plan — will run 138-kV lines of approximately 3 miles each to 138-kV buses at Waldo Run and Sherwood. It’s expected to be in service by December 2019.
In addition, a $5.7 million project in Dominion’s zone will upgrade the Spotsylvania substation and construct approximately half a mile of 500-kV line to connect with the 500-MW Spotsylvania Energy Center solar farm. Smolanitsky said it will be the largest solar farm in the RTO when it goes into service, which is expected next fall. It was developed by Sustainable Power Group (sPower), which was acquired by AES and AIMCo in February 2017, according to the project’s website.
TMEP Congestion Analysis
Two recently approved targeted market efficiency projects (TMEPs) would have resolved $55 million (approximately 11%) of the total $523.2 million in congestion costs over 2016 and 2017 from the 61 facilities that MISO and PJM identified as part of study begun in the spring, PJM’s Alex Worcester announced. (See MISO, PJM Endorsing 2 TMEPs for Year-end Approval.)
Other planned system changes would have resolved $213 million (approximately 41%). Outages drove $201 million (approximately 38%), and $6 million (1.1%) were caused by situations where the congestion isn’t persistent. The remaining $48.2 million (9.3%) includes potential TMEPs, as well as ones where the effectiveness is uncertain, the upgrade is unknown or the proposal didn’t meet the necessary benefit-to-cost ratio.
RTEP Recommendations
PJM’s Board of Managers approved another $214.9 million in RTEP baseline reliability projects at its Oct. 2 meeting. The recommendations come after the board approved $629.23 million in recommended baseline projects at its July 31 meeting.
The majority of the cost comes from a $155 million plan to construct two new 69/13-kV substations in the Doremus area of the PSE&G zone.
Dominion Supplementals
Dominion’s Ronnie Bailey presented three new need assessments and two planned solutions as part of the transmission owners’ new FERC-ordered process for developing supplemental projects. Dominion has presented 19 needs assessments since the process was implemented in September. (See “First M-3 Experience,” PJM PC/TEAC Briefs: Sept. 13, 2018.)
The planned solutions address the first and second needs identified by Dominion last month. The solution for the first need, which would serve a new data center campus in Loudoun County, Va., with total load in excess of 100 MW, is estimated to cost $27.8 million.
The second solution, which would accommodate a request by Old Dominion Electric Cooperative to serve residential, commercial and industrial growth south of Fredericksburg, Va., that is expected by 2023, is estimated to cost $1.4 million. The summer load in the area is around 35 MW, Bailey said, and the winter load is expected to be around 41 MW.
VALLEY FORGE, Pa. — The Mid-Atlantic region experienced heavy precipitation this summer that was great for hydro generation, PJM staff told attendees at last week’s meeting of the Operating Committee.
“The story of this summer has been rain,” PJM’s Chris Pilong said.
He noted that several states within the RTO’s footprint recorded some of the wettest months of July and August since records began in 1895. While all the rain created localized flooding and high rivers, it didn’t result in any system issues. Generation outages on Aug. 28, when the RTO had its peak demand this year at 150,650 MW, were down compared to generation outages during last year’s peak on July 19. There were 13,590 MW on outage this year, while there were 16,538 MW on outage last year during a lower peak of 145,638 MW.
There were seven hot weather alerts between Aug. 27 and Sept. 6 that resulted in 100 planned transmission outages being deferred.
Staff also addressed the impacts of Hurricane Florence, which impacted 2,000 Dominion Energy customers in the North Carolina section of PJM’s zone. Staff held calls with several industry stakeholders and federal officials and declared conservative operations for the period.
Pilong also noted that the Oyster Creek nuclear facility in New Jersey went offline at noon on Sept. 17 and that there were no related system impacts.
Resilience Study Delayed
PJM’s Dave Souder announced that the special session of the Markets and Reliability Committee on fuel security scheduled for Sept. 22 had been moved to Nov. 1 to coincide with the revised publication date of the RTO’s study of the issue. (See related story, PJM CEO Ott Briefs Senate Committee on Black Start.)
The study had to be revised because of new deactivations that have been “communicated” to PJM, Souder said. The goal of the study is to identify locations with fuel delivery risks, evaluating how resources can reduce them and determine the need for additional mitigation efforts. (See Stakeholders Debate PJM Fuel Security Scope.)
PJM’s Jonathon Monken outlined the remainder of the RTO’s “resilience roadmap,” which includes short-, mid- and long-term goals. Short-term actions are expected to be completed by the end of the year and encompass mostly analysis and planning. Mid-term changes, which include incorporating “resilience criteria” in the RTO’s Regional Transmission Expansion Plan, gas-electric coordination for its Dispatcher Interactive Map Application (DIMA) and gas-electric contingency pricing, are targeted to be implemented by the end of 2019. The long-term changes are intended for 2020 or beyond and include strategic islanding of critical infrastructure, enhancing tools for dynamic restoration and a “deep dive” vulnerability assessment with the Department of Homeland Security.
Regulation
PJM’s Danielle Croop said an MRC proposal to revise pricing for regulation will fix what is “a little broken” in the regulation market but won’t impact operations. The proposed problem statement and issue charge, which would consider not allowing the benefits factor to decrease past 0.1, received a first read at the MRC’s September meeting.
“I really don’t think we’re going to see operational changes at all,” she said. “You’re talking about very small megawatts at that point.”
Croop noted the average clearing price for regulation in September was $20/MWh, which was $1 lower year-over-year and in line with the trend. She said manual moves of resources, in which PJM operators manually direct resources up or down for a maximum of two minutes, was “drastically down” thanks to the new regulation signal that was implemented in April 2017. Resources are set to automatically follow the signal, but many resources following the RegD signal often ended up moving the wrong direction. Operators performed approximately 16 manual moves in September for a total duration of roughly 1,600 seconds compared to approximately 40 moves in January for a total duration of roughly 4,600 seconds.
Croop said a spike in the number of RegD pegging incidents, in which a resource is held at the top or bottom of its regulation continuum based on system conditions for a certain amount of time, wasn’t “anything chronic” or an issue necessary to consider revising the signal. There were nine incidents of resources pegged for between 20 and 30 minutes, compared to August when there was only one such incident.
“I think it’s probably just a shoulder-month operation,” she said, referring to the weather vacillations in spring and fall months as the seasons change.
PJM’s Vince Stefanowicz discussed cold-weather preparations for generators, which include submitting a checklist preparations into the RTO’s eDART system by Dec. 15. A seasonal fuel and emissions survey must be completed by Nov. 16.
“We’re focused on fuel supply and delivery,” Stefanowicz said.
PJM will create a list by Nov. 10 of generators eligible to participate in a cold-weather exercise “to identify and correct start-up, operational and fuel switching issues prior to cold-weather operations,” and owners will have until Nov. 20 to identify participating units. Only non-Capacity Performance units are eligible for compensation.
PJM’s Rebecca Stadelmeyer reviewed a problem statement and issue charge proposed by the RTO to document timing and tasks required by generators in its Resource Tracker application. Staff believe the solution is “simple and straightforward” and have already proposed a solution, which would survey generation owners about windows and deadlines for inputting information in the application. PJM prefers one four-week window at the end of the year for revising information rather than the current two-week biannual windows.
The proposal would also install the final details in Manual 14D.
Mount Washington 115-kV RAS Done
Ken Braerman with Baltimore Electric and Gas announced the retirement of the Mount Washington remedial action scheme (RAS), which has been in service since June 1, 2014. The RAS addressed potential N-1-1 voltage drops at five buses in BGE’s territory by “reliev[ing] load to acceptable voltage levels,” but it will no longer be necessary once the Camp Small ring bus and capacitor bank goes into operation of Oct. 31.
SACRAMENTO — Pacific Gas and Electric pre-emptively shut down power to thousands of its customers on Sunday and Monday, one year after high winds toppled live utility lines and started wildfires that burned through large swaths of Northern California.
The shutdown happened during similar conditions to those that preceded the 2017 blazes. The National Weather Service issued a red-flag warning for the potential rapid spread of fires through 11 p.m. Monday. Wind gusts of up to 55 mph were predicted in the state’s coastal mountains and inland valleys. PG&E, which has installed 100 weather stations in fire-prone areas, said it also weighed factors that included low humidity, dry fuel on the ground and the low moisture content of live vegetation.
PG&E shut off power to thousands of customers in Northern California because of high winds and extreme fire conditions. | National Weather Service
Up to 87,000 customers would be without power in mostly rural communities of the northern San Francisco Bay Area and the Sierra Nevada foothills, PG&E said in a news release Sunday.
“We have made the decision to turn off power as a last resort given the extreme fire danger conditions these communities are experiencing,” Pat Hogan, PG&E’s senior vice president of electric operations, said in the statement.
One major urban area, Santa Rosa, was also slated to have its electricity turned off. A significant part of the city was leveled in the Tubbs fire of October 2017, with 2,800 homes destroyed. The cause of that fire has yet to be determined.
PG&E is facing billions of dollars of liability for last year’s fires, many of which started after the company’s equipment came into contact with trees and other vegetation, according to the California Department of Forestry and Fire Protection.
Cal Fire most recently blamed PG&E equipment for starting the Cascade fire on Oct. 8, 2017, in Yuba County, saying in a news release, that “a high wind event in conjunction with the power line sag on two conductors caused the lines to come into contact, which created an electrical arc.” That fire killed four people, destroyed 264 structures and burned 10,000 acres.
The weekend shutdowns were meant to prevent additional blazes. The company said it would conduct line inspections after the winds had passed and restore power once it deemed conditions were safe.
The electrical shutdown was extraordinary for Northern California, although San Diego Gas & Electric has implemented similar measures in Southern California during recent fire seasons.
The northern part of the state experienced by far its largest fire ever this summer, when the Mendocino Complex of fires burned more than 400,000 acres in rugged terrain north of San Francisco. Previous fire records also were set in 2017 and 2016.
The State Legislature and Gov. Jerry Brown have been seeking ways to prevent wildfires. Proactive shutdowns were a major topic of discussion during discussions this year of SB 901, a wildfire prevention and liability-relief act for utilities.
The final measure, signed by Brown in September, requires electrical corporations to submit wildfire mitigation plans to the Public Utilities Commission. The plans must include “protocols for disabling reclosers and de-energizing portions of the electrical distribution system” as well as procedures for notifying customers. (See California Wildfire Bill Goes to Governor.)
Over the weekend, PG&E sent automated voice messages, texts and emails to customers alerting them to potentially extreme weather conditions with high wildfire danger starting Sunday evening and lasting through Monday morning.
PG&E’s automated call to potentially affected customers said: “Extreme weather conditions with high fire danger are forecasted in (county name), starting today and lasting through Monday morning. These conditions may cause power outages. To protect public safety, PG&E may also temporarily turn off power in your neighborhood or community. If there is an outage, we will work to restore service as soon as it is safe to do so.”
MISO last week proposed bringing the three major players in its load forecasting together to coordinate on predictions for long-term transmission planning in the footprint.
MISO’s proposal would have both Purdue University’s State Utility Forecasting Group (SUFG) and consulting firm Applied Energy Group working with 20-year forecasts provided by load-serving entities. The RTO uses Applied Energy for distributed resource data predictions in its annual Transmission Expansion Plan.
The idea came in part from the Coalition of Utilities with an Obligation to Serve in MISO (CUOS), an ad hoc group of utilities and regulators, which proposed to require LSEs develop a 20-year base load forecast that includes monthly predictions for energy and non-coincident peaks. (See MISO Utilities Float New Load Forecasting Approach.)
The RTO put a temporary hold on ordering more independent load forecasts from the SUFG while it explored other stakeholder-proposed forecasting options. (See MISO Looks to Members for Load Forecasting Ideas.) It had received stakeholder criticism for its plan to order four versions of the Purdue forecast, each tailored to one of the futures used to inform its annual transmission plan, beginning with MTEP 20.
Speaking during an Oct. 12 special conference call, MISO planning manager Tony Hunziker said the RTO’s new approach draws from the CUOS proposal in incorporating the LSEs’ 20-year forecasts.
MISO would send LSE-originated demand and energy forecasts to the SUFG, which would compile and analyze them to inform its state-by-state forecast. The RTO also envisions the SUFG using LSE data to produce a complete 20-year demand and energy forecast for each of the 140-plus LSEs, which will influence the four MTEP futures. The SUFG uses its state-by-state forecast to corroborate what share of a state’s load is located within MISO territory.
The LSEs’ gross forecasts would not include energy efficiency or other demand-side factors, such as distributed resources and electric vehicle programs. MISO staff said the RTO will ask LSEs to submit demand-side data separately to AEG, which would use them to develop the demand-side management potentials in the futures.
But some stakeholders are unconvinced that LSEs can simply change their forecast methods in under two years to detach energy efficiency totals from their forecasts.
Hunziker said LSEs, MISO staff and the SUFG will be able to communicate throughout the forecasting process.
“As [the SUFG] is looking at the data and they see an irregularity, there’s a feedback loop. They can get ahold of the LSE that made the forecast and discuss and hash [it] out,” Hunziker said.
Stakeholders were also concerned about how the SUFG would adjust LSEs’ original forecasts to make the final LSE-specific forecasts used in the MTEP.
Hunziker said the SUFG will use its independent load data to fill in any missing gaps.
“There may be entities that don’t provide some information, and we want to fill in those gaps. That’s always been a concern for MISO,” Executive Director of System Planning Aubrey Johnson said. “We still need to fill in for LSEs that don’t provide forecasts or submit incomplete data.”
He promised stakeholders that LSE data would be the “foundational piece” of the load forecast and said MISO will provide more detail on how and under what conditions the SUFG will modify LSE forecasts.
Johnson said MISO will present a firmed-up proposal at the Nov. 14 Planning Advisory Committee meeting. He asked for stakeholders to send written input on the proposal by Oct. 31.
VALLEY FORGE, Pa. — A proposal to revise PJM’s credit requirements for financial transmission rights in response to the historic GreenHat Energy default will be delayed a month but should still be on track for April implementation, PJM’s Lisa Drauschak told attendees at last week’s Market Implementation Committee meeting. RTO staff had previously planned to bring a problem statement and issue charge to the meeting for consideration.
“We think it’s important to take a breath,” Drauschak said, explaining that the RTO’s Credit Subcommittee has decided to further vet the proposals before it.
“We still feel we can get a filing to FERC in January” to be effective April 1, she said.
Dayton Power and Light’s John Horstmann asked that staff consider alternatives to the current market design to eliminate the structural credit flaws that allowed the default and to the usual stakeholder process that develops the credit requirements for the risky and sophisticated long-term FTR product. Attorney Steve Huntoon asked why the list of “lessons learned” from GreenHat didn’t address PJM’s efforts to increase GreenHat’s collateral. [Editor’s Note: Huntoon is a columnist for RTO Insider and is representing it in its effort to open meetings of the New England Power Pool to the press and public.]
Staff said it will prevent the situation from occurring again by revising the credit policy to give the RTO increased authority to make collateral calls.
“That agreement did not come out of a collateral call. It came out of something else,” Drauschak said.
“If we had the authority to do a collateral call, we would have done that,” PJM counsel Jen Tribulski said.
Despite the revisions, staff were careful to avoid suggesting the FTR market has no risk of defaults.
“Nothing is 100% absolute,” Drauschak said.
However, stakeholders pressed PJM to take more responsibility for the market’s security.
“We agree that you can’t prevent defaults — those things will happen — but we depend on PJM to protect us,” Rockland Electric Co.’s Brian Wilkie said.
DC Energy’s Bruce Bleiweis questioned whether the lessons learned fully encapsulated the advice PJM received during the closed-door workshop that precipitated the document. He said he was told by one of the participants that they weren’t given an opportunity to review a draft of the RTO’s takeaways.
“These items did come out of the workshop. … I’m not sure why someone would say that, but these items did come out of the workshop,” Drauschak said, defending staff’s work.
Independent Market Monitor Joe Bowring, who attended the workshop, concurred that the document accurately reflected the results of the meeting.
Must-offer Exception
Stakeholders deferred a vote on revising exceptions to capacity providers’ must-offer requirement after PJM changed its proposal from the last time it was presented to the MIC. Staff revised the proposal to give resources receiving an exception three years before being required to change their status from a capacity resource to energy-only. Capacity resources must offer any uncommitted capability into all capacity auctions unless they have been granted an exception.
PJM’s Pat Bruno explained that, after three consecutive years of exceptions, a unit would be modeled as energy-only in the capacity model, so its capacity megawatts would be reduced to zero and its owner would have 12 months to nominate its capacity interconnection rights (CIRs) elsewhere. The nominated generator wouldn’t have to be operational if it’s in the interconnection queue, he said. CIRs, which grant access to inject generation into the transmission system, have value and can be sold. (See PJM, Generators Debate Injection Rights for Exempted Capacity.)
The proposal, which has undergone several iterations, was satisfactory for some stakeholders.
“I feel pretty confident in this,” said Carl Johnson, who represents the PJM Public Power Coalition.
Bowring, however, objected to the changes.
“We’re not confident at all that this will prevent exercising market power,” he said, noting that resources could potentially delay reallocation of the CIRs for perhaps six years. “This is a very long time period. It’s not consistent with maintaining open access to the grid.”
Exelon’s Sharon Midgley said that while her company — which requested the rule changes — would like to vote, she was willing to wait another month.
Surety Bond Use
Stakeholders endorsed two competing proposals to allow use of surety bonds as credit in PJM’s markets, despite concerns raised by Bowring and others. The proposals will receive consideration at the Markets and Reliability Committee.
A proposal developed by the PJM Credit Subcommittee that would allow surety bonds as credit for all activity except FTR portfolios received 61% in favor in a sector-weighted vote, easily surpassing the necessary 50% threshold. The proposal would also set a $10 million cap per issuer for each member and a $50 million aggregate cap per issuer.
Exelon’s proposal, which would allow using surety bonds for all credit requirements with a $20 million cap per issuer for each member and a $100 million aggregate cap per issuer, received 58% in favor. Stakeholders also indicated their interest in making a change, voting 66% in favor of not keeping the status quo.
Bowring repeatedly asked PJM and Exelon, which proposed the change, to verify that surety bonds are as secure as letters of credit (LOCs), which the RTO currently accepts.
“We believe they are legally as strong,” PJM’s Hal Loomis said.
“They’re a weaker form of credit,” Bowring said. “That’s why they’re cheaper.” He asked PJM whether it had requested the opinion of the same expert panel it used for a review of FTR credit issues on the advisability of using surety bonds and whether it has determined whether exchanges permit the use of surety bonds in place of LOCs.
Midgley countered that surety bonds are cheaper than LOCs because of Basel III and a more robust underwriting process. Since 2008, banks must now realize LOCs as a liability on their balance sheet, which affects their capital ratios for regulatory purposes.
“We don’t share your view that this is an inferior product. … We would not be seeking to [get them approved] unless they were comparable,” she said. “What you have before you is a proposal that would reduce cost for market participants, provide diversification for PJM and, at the end of the day, benefit customers.”
Other stakeholders were concerned about comparing PJM’s markets to those of NYISO and ERCOT, where surety bonds are already accepted for credit needs.
“It’s extremely smaller than the amount of dollars we’re talking about in PJM,” Direct Energy’s Marji Philips said. “Now I am mindful of a huge default happening [again like GreenHat], so now I’m seeking detail.”
PJM staff’s proposal to modify the FTR forfeiture calculation rules to include loop flow impacts doesn’t go far enough for some stakeholders. Staff proposed incorporating loop flows when determining whether virtual transactions in the day-ahead market have a 10% or greater impact on coordinated market-to-market flowgates.
Chris Carpenter of VECO Power Trading would also like to see the FTR impact test relaxed so that a virtual trade that creates a very small contribution to an FTR’s settlement wouldn’t trigger forfeiture of the FTR profit. Exelon and NextEra Energy supported VECO, which proposed three alternatives to mitigate that situation:
Forfeit the portion contributed by the “triggered” constraint instead of the entire FTR settlement value;
Require the FTR to have a 0.1 distribution factor (DFAX) on the triggered constraint; or
Require the triggered constraint to be “substantially linked” and contribute a “significant dollar share of the FTR settlement value.”
The current FTR impact test, which has been in effect only since last year, triggers forfeiture if the DFAX multiplied by the shadow price is greater than or equal to $0.01. The previous test triggered forfeiture if the DFAX was greater than or equal to 0.1.
“There is a pretty significant impact from that change,” Carpenter said. “From our perspective, this forfeiture amount doesn’t really line up with the impact of the activity.”
“One penny manipulation is manipulation,” the Monitor’s Howard Haas said. “What we have seen, under the current rule, is a dramatic reduction in forfeitures because of changes in behavior.”
Carpenter acknowledged the reduction but attributed it to market participants “not feeling the risk tradeoff is worth” attempting the virtual trades.
“My firm has stopped doing [increment offers] and [decrement bids] because we’re concerned about this rule,” Midgley said. “In the FERC proceeding, PJM raised concerns that the new rule would restrict legitimate market activity that promotes market convergence and increases market efficiency. I’m here today to say this is happening. … I think it’s a really beneficial conversation to have.”
Gabel Associates’ Michael Borgatti, representing NextEra, said the rule should be very selective in not penalizing unforeseen impacts and only punishing manipulative behavior.
“We agree that we think the PJM package takes a meaningful step forward. … Having a rule that serves as a [deterrent] to that activity is healthy,” he said. “It’s an oversimplification at best to say that a penny change in the FTR is tantamount to manipulation.”
Carpenter argued that the first alternative proposed is like CAISO’s forfeiture rule in that “the concept of forfeiting by constraint is something that has been done.”
Haas countered that CAISO’s definition of an FTR is different from PJM’s. “You have to rethink the FTR product itself,” he said.
