Page 1244 – RTO Insider

December 4, 2017October 31, 2023

Mass. Prepares for EV Growth, Alternative Energy Standard

By Michael Kuser

BOSTON — Massachusetts’ $2,500 rebates are increasing electric vehicle sales, and state officials are preparing for the shift in demand now, the state’s Department of Energy Resources said Thursday.

“We do have a goal for 300,000 electric vehicles to be registered in the state by 2025,” DOER Director of Emerging Technology Will Lauwers said in a briefing to the Environmental Business Council of New England on Nov. 30. “Providing the charging infrastructure for that is crucial.”

On November 30th, the Mass. DOER held a briefing for the Environmental Business Council of New England | © RTO Insider

EV registrations have grown from 782 in July 2013 to 3,770 as of March 31, 2017, according to the state Department of Environmental Protection. In the same period, the number of gas-electric hybrids has increased more than five-fold, from 1,034 to 5,701. The state launched its rebate program, which covers both EVs and hybrids, in June 2014.

Although the alternative transportation sector includes biofuels and gas-electric hybrids efforts, electric vehicles and transportation electrification dominate the state’s efforts, Lauwers said. The DEP’s program to incentivize workplace charging stations exhausted its funding this year.

“Utilities have shown interest in helping to reduce the cost of entry to deploying EV charging, so they would help to cover more of the associated costs with new meters, new pads and new connections,” Lauwers said. “Then there’s the VW funding.”

As penance for having rigged diesel emissions test results, Volkswagen is spending $2 billion to install more than 300 vehicle chargers in 15 metro areas, including Boston.

Resiliency, not Totality

Lauwers said Massachusetts is “a nation-leader” in its commitment to reducing greenhouse gases and fostering new renewable energy resources and has “made a lot of progress in the past 12 months” on energy efficiency, energy storage and demand reduction.

He cited the DOER’s June announcement of $10 million in incentives for energy storage demonstration projects, a 200-MW storage deployment target and a $40 million initiative that awards grants to cities and towns to use clean energy technologies to mitigate the risks of power outages arising from severe weather. Award announcements on the storage incentives are expected by early 2018. (See Massachusetts Underwhelms with 200-MWh Storage Target.)

Judge (left) and Lauwers | © RTO Insider

Michael Judge, the DOER’s director of renewable and alternative energy, said storage is key for both grid stability and reducing emissions. Without storage “you end up keeping all these fossil fuel units going because they can’t ramp that fast,” Judge said.

In discussing resiliency studies that the department conducted on 12 state medical centers, Lauwer said resiliency doesn’t mean 100% of normal power availability, just enough to run core functions. For example, a nursing home might lose its heat in a power outage just because it needs 9 V to run the pilot light.

Infrequently used back-up generators at hospitals often fail in the first few hours of running, so energy storage can make a big difference in such situations, he said in discussing the agency’s analytical tools that help facility administrators understand what energy resiliency steps are economically viable for them. In addition, DOER will soon be clarifying how much energy storage utilities can own and how they will be compensated, Lauwers said.

Massachusetts is funding incentives to include energy storage in solar installations, as well as grants for peak demand reduction. Pairing energy storage with solar panels is meant to enhance grid resiliency by reducing the demand curves. Peak reduction grants cover a wide range of projects, from utilities improving the efficiency of substations, to municipalities working to reduce the energy consumption of big-box retail stores, to a thermal energy storage project on Nantucket that will delay the need for a new undersea transmission cable.

| Mass. DOER

The state this year launched its Solar Massachusetts Renewable Target (SMART) program to provide incentives for “long-term sustainable … cost-effective solar development.” The program provides adders based on location, and to projects that provide unique benefits, including community solar and energy storage.

Judge said the state’s new Alternative Energy Portfolio Standard is the only one of its kind in the country. The final draft regulations, expected to be promulgated on Dec. 29, include combined heat and power, flywheel storage, renewable thermal, fuel cells and waste-to-energy thermal technologies. The regulations oblige all retail electric suppliers to acquire a certain percentage of their power from eligible technologies, starting at 4.25% in 2017 and increasing by 0.25% each year.

“Heating is behind the electric sector in decarbonizing and amounts to about 30% of GHG emissions,” Judge said. “DOER incentives for renewable thermal energy and heat pumps are paying off, with nearly 500 MW of combined heat and power systems installed as of the end of October 2017.”

Energy Efficiency Peaking?

Arah Schuur, DOER director of energy efficiency, said the state will deliver $8 billion in efficiency benefits from 2016-2018 and that those savings will continue to grow.

Schuur | © RTO Insider

“You put in a light bulb, you put in an efficient piece of technology and it lasts for five, seven, 11 or 20 years, and those benefits accrue as we add more to the portfolio,” Schuur said.

Lighting savings comprise 83% of residential energy efficiency gains and 23% of overall savings. Although the state has nation-leading goals for both electric and natural gas, efficiency savings seem to be peaking, she said.

“That’s because of the change in the lighting market and the change in federal lighting standards. So, screw-in light bulbs are nearing market saturation. There’s natural uptake of LED lights. This [is a] great good news story overall for energy efficiency,” Schuur said.

The limits to lighting’s contribution to efficiency savings will “require a whole new way of thinking about energy efficiency,” she said. The DOER is exploring new ways to achieve efficiency results, such as addressing demand through utility programs, looking at the residential contractor market and driving innovation.

December 4, 2017

ERCOT Stakeholders OK $246.7M in Freeport Reliability Projects

By Tom Kleckner

ERCOT stakeholders unanimously endorsed almost $250 million in transmission projects during last week’s Technical Advisory Committee meeting, sending the package to the Board of Directors for its Dec. 12 meeting.

The two projects will address “significant” industrial growth in the Freeport area, a seaport south of Houston on the Gulf of Mexico. Newly committed industrial loads are expected to push the area past 2.2 GW by 2022, surpassing the heavily populated Rio Grande Valley.

The market “thinks about big meaty load pockets like the [Dallas-Fort Worth] area, Houston, San Antonio and Austin, but we haven’t really thought about Freeport,” said Jeff Billo, ERCOT’s senior manager of transmission planning.

ERCOT staff project a 92% increase in the area’s load by 2019, from 1,028 MW to 1,979 MW. An additional 300 MW is expected by the end of 2022.

CenterPoint Energy, which services the area, submitted the “Freeport Master Plan Project” to ERCOT’s Regional Planning Group, proposing a two-phase approach to solve reliability criteria violations caused by the increased load. Staff’s independent review agreed with the projects’ needs, finding multiple reliability criteria violations in 2020 and 2022 cases.

The $32.3 million first phase, or “bridge-the-gap upgrades,” focuses on near-term reliability needs. It consists of a 345-kV loop and a series of reactors, autotransformers and capacitor banks at a key substation.

The $214.4 million second phase comprises a new 48-mile, 345-kV double-circuit line and circuit upgrades to another 345-kV line. It was one of five options considered by staff, four of which involved a new 345-kV right of way, and would meet the “long-term reliability criteria needs in the most cost-effective manner.”

The other four options had cost estimates of between $223.2 million and $281.8 million.

“We realize there is a long-term need to put in bigger infrastructure projects, but to get to that point, interim upgrades need to be done,” Billo said. “More upgrades will need to be done in order to meet the long-term needs of the system.”

Staff’s recommendation met little resistance from members, who only needed to be assured the load increase will be included in ERCOT’s next Capacity, Demand and Reserves (CDR) report. That report, to be released Dec. 18, includes a snapshot of planned resource additions during the next five years, current information about existing resources and the annually updated peak demand forecast for the next 10 years.

Billo also updated members on the South Plains Project, a proposed $247.5 million, 345-kV line in the Texas Panhandle.

Billo said Sharyland Utilities has proposed the transmission line as an economic project but that ERCOT’s analysis has yet been able to economically justify the project. He said about $210 million of the South Plains Project overlaps with work that would be done to integrate Lubbock Power & Light, which wants to shift 470 MW of load from SPP into ERCOT.

The Public Utility Commission of Texas has scheduled a hearing on LP&L’s integration Jan. 17-18 (Docket 47576). Until then, staff has paused further analysis.

“We will wait to see what happens in that hearing and the subsequent decision that comes out of the PUC,” Billo said. “That may supersede the need to analyze part of [the South Plains] project. If the commission says we’re going to go ahead with Lubbock and those lines get approved, we don’t have to do an economic justification for [the South Plains] lines anymore.”

Billo said staff would update its assumptions and Sharyland’s capital cost updates, and add plant retirements and other fresh data in a potential reassessment of the project that could be ready by mid-2018.

December 1, 2017

Winter Launch for MISO Website, Market System Project

By Amanda Durish Cook

MISO will roll out a new public website this winter and begin a $130 million project to replace its aging “monolithic” market platform with a new “modular” system.

The RTO is “off to a good start” to replacing the platform, Vice President of System Operations Todd Ramey said during a Nov. 28 conference call of the Board of Directors’ Technology Committee. MISO expects to spend $21.7 million on the project in 2018, one-sixth of the amount budgeted over the next seven years. (See MISO Makes Case for $130M Market Platform Upgrade.)

Executive Director of Market Design Jeff Bladen said MISO will provide quarterly project briefings to both the board and stakeholders, with the first one slated for a Dec. 5 meeting of the board’s Markets Committee. The RTO has already convened the chief information officers of some of its member companies for a nonpublic meeting to discuss project risks and timelines.

MISO Director Baljit Dail asked that the RTO’s next update identify key milestones in the platform replacement that could affect the overall project timeline if not met. MISO expects to begin migrating to the new system in 2020, keeping the current one in operation at least until 2021.

Bladen said MISO has met with the leaders of other RTOs that also use vendor General Electric to discuss how to ensure the company honors its delivery deadlines.

New Site Ready for Launch

MISO plans to launch its new external website next month, moving the current site to old.misoenergy.com, where it will remain available until early 2018 to ensure the RTO maintains its web presence if the new site fails.

MISO market platform website — beta.misoenergy.org | *MISO*

“We’ll keep both sites running concurrently, at least for the first few months, then make a decision on the old site in the first quarter of 2018,” said Kacey George, MISO public relations specialist.

A beta version of MISO’s new website has been up since October at beta.misoenergy.org.

December 1, 2017

MISO Monitor Blames PJM for Market-to-Market Errors

By Amanda Durish Cook

CARMEL, Ind. — MISO’s Independent Market Monitor said Wednesday that PJM has for years been committing two market-to-market operations errors that have possibly cost MISO millions of dollars.

Monitor David Patton contended that PJM has been “overstating” its response to transmission loading relief (TLR) requests and — more seriously — failing to order mandated tests required to define M2M constraints between the two RTOs.

As a result, PJM’s neighboring balancing authorities have been forced to make up for the RTO’s TLR shortfall and spend more on congestion, incurring costs they are not likely to recover.

Neglected M2M Constraint Test

The test cited by Patton uses real-time system topology to measure the congestion generating resources in a non-monitoring RTO (in this case MISO) contribute to a PJM flowgate, and is mandated by the joint operating agreement between the two RTOs.

PJM MISO market-to-market m2m David Patton — Stakeholders at the Nov. 29 JCM meeting in Carmel, Ind. | © *RTO Insider*

“This has not been instituted since it was introduced, which I don’t know, is a decade or more,” Patton said during a Nov. 29 Joint and Common Market meeting between MISO and PJM. “It was an error that was known and is a serious violation of the JOA.”

PJM Director of Energy Market Operations Tim Horger said his RTO is still examining the potential impacts of failing to request the tests but cautioned against labeling the failure to act a Tariff violation.

“PJM is not in a position to say that by not requesting the study it is in a Tariff violation,” Horger said.

“That’s a FERC determination,” Patton agreed.

It would be “very difficult to quantify the impacts” of PJM’s neglected tests, Patton said, but he thinks they explain some of the past gaps his monitoring firm has observed in M2M coordination. The Monitor’s 2016 State of the Market report showed that substantial volumes of congestion were not coordinated because constraints were not properly identified as being M2M. From January 2016 to October 2017, Patton detected $341 million worth of congestion on constraints that should have been coordinated by PJM.

“Not all of this amount is due to this violation of the JOA; some are likely due to simply not testing constraints or not testing them in a timely manner,” Patton said.

But in consistently failing to evaluate constraints affected by its neighbor’s generators, PJM couldn’t capture transmission outages, “frequently the cause of severe binding constraints,” he said.

“Not only did this undermine efficient dispatch and congestion management, but [it] also effectively granted PJM an unlimited entitlement to MISO transmission” because it did not test for constraints causing congestion, Patton said.

He added that it would be impossible to eradicate all congestion from MISO and PJM’s M2M coordination.

“We know that some of this uncoordinated congestion in MISO is because some constraints weren’t requested to be identified. To be honest, we think that all issues that prevent a constraint from being quickly identified are problematic,” Patton said.

PJM Miscalculation

Patton also contended that PJM’s TLR calculation — which enables MISO, PJM and SPP to acknowledge and receive credit for relief provided during TLR procedures — has been incorrect since 2009. MISO first noticed PJM’s error in September, when binding constraints during TLR procedures in the Tennessee Valley Authority area alone boosted MISO Midwest real-time monthly average prices by almost 8%, according to Patton.

“This has been very costly for MISO because MISO has incurred extreme costs attempting to provide the relief requested in response to a TLR,” Patton said. “If it raised the relief obligation that MISO had, we’re talking a lot of money.”

MISO officials believe PJM has since corrected the problem, although they continue to investigate.

Patton and MISO seams management expert Ron Arness said no precedent exists for resettling energy prices because of TLR errors, but the Monitor thinks the impact could easily reach into the millions of dollars.

“In any particular month, the cost may not be big, but this has been happening for years,” Patton said.

Horger pointed to the challenge of resettling prices influenced by TLRs.

“If after investigation, PJM decides that prices were affected, that doesn’t change the fact that the dispatch reflected the generation movement [in response to TLRs]. That’s a dangerous slope,” he said.

December 1, 2017

Hydro, Jointly Owned Coal Face EIM Challenges

By Jason Fordney

BOISE, Idaho — Integration into the Western Energy Imbalance Market (EIM) can present challenges for resources that don’t fit neatly into CAISO’s existing market model, market participants said during a regional conference Tuesday.

CAISO’s EIM Regional Issues Forum met on November 28 at Idaho Power headquarters in Boise | © *RTO Insider*

Speakers at the Nov. 28 Regional Issues Forum discussed their approach to effectively integrating hydropower, coal and jointly owned plants into the market. The group, which includes representatives from 10 sectors that gather to discuss various EIM topics, can produce opinions and other documents for CAISO, the EIM Governing Body or the ISO Board of Governors.

EIM Regional Issues Forum MISO hydropower — Le | © *RTO Insider*

Khai Le, senior vice president at generation supply management software developer PCI, told the forum that hydropower units are ideally suited to balance the variable output of renewables in the EIM, but could be much more effective with some operational changes to the market. Most EIM participants have a fairly rich mix of hydro and renewables, and “properly coordinated, that could be a very good marriage between the two,” Le said.

But hydro operators believe “there is lots of room for improvement in terms of hydro dispatch in the EIM market,” he said.

EIM hydro operators include PacifiCorp, Pacific Gas and Electric, Portland General Electric, Puget Sound Energy and Southern California Edison. Their hydro resources vary, and include pumped storage and “cascading hydro” systems in which the discharge from one hydro plant is used as intake for another. Seattle City Light will be the first EIM participant to offer 100% hydro resources when it joins the market in April 2019.

Modeling hydro resources can also be more difficult than other types of generation, Le said. Hydro owners cannot model their plants using CAISO’s “multi-stage generator” (MSG) model because some MSG parameters might only be updated one or two times a month, while hydro units have much more dynamic characteristics that require modeling on an hourly basis.

And while MSG allows for modeling of so-called “forbidden regions” — the different configurations, characteristics and overlapping regions that constrain the operations of many hydro resources — the CAISO system does not recognize cascading hydro and does not understand hydro topology and constraints, Le said.

Integrated properly, hydro operators will get more value in the EIM for the same output they had prior to joining the market, he said. Flexible capacity payments from the EIM are not sufficient for hydro operators to modify their operating rules for the market, he said, constituting just about 5% of the market’s revenue, which is mostly energy payments.

“The greatest challenge in operating your hydro resources is somehow trying to use your bid parameters to reflect the real-life hydro constraint that you have,” Le said.

Difficulties for Jointly Owned Units

Operating jointly owned units in the EIM can also be a challenge, according to Kelcey Brown, PacifiCorp manager of market and analytics. When it first joined the market, PacifiCorp modeled the full output of its jointly owned Jim Bridger plant but ran into problems with modeling schedules, ramping, heat rates and other issues.

“There were a lot of problems, actually,” she said. “We just could not get it right.” So in February 2016, the company began modeling only its share of the plant, which has made the situation much smoother, she said.

CAISO does not have the ability to model one unit as separate, individual units, she said, creating the need for PacifiCorp to modify the model to show its individual share of each unit. The company is exploring participation with its Hunter 1 and 2 coal units, which would require a similar approach.

Crossing the Rubicon

Clay MacArthur, vice president of power marketing at Utah-based Deseret Power Electric Cooperative, met resistance from plant operators and others when he proposed joining the EIM, which the company finally did in August. Deseret’s primary coal resource is the 500-MW Bonanza coal-fired plant, located in EIM member PacifiCorp’s balancing authority area.

“There was a pitchfork-and-torches moment when I announced to the coal plant, ‘Hey, I would like to take the plant into the EIM,’” MacArthur said. The company wanted to optimize its resource portfolio and improve reliability while gaining experience in organized markets.

“Everybody said ‘You’re insane, this is a huge mistake, you can’t do this,’” MacArthur said, because of worries about engineering and responding to the market. The co-op had to be careful to model the Bonanza units for the EIM in a way that would not destroy the unit, he said.

Co-op members visited a PacifiCorp coal plant that was already participating in the EIM and explored what he called “tribal knowledge” about transitioning into the market, which helped convince the doubters.

Regional Issues Forum participants: (Left-Right), Kelcey Brown, PacifiCorp; Clay MacArthur, Deseret; Zach Sanford, Navigant; RIF Chair Cameron Yourkowski, Renewable Northwest; Therese Hampton, PGP; Matt Lecar, PG&E.

The EIM does not require owners to completely turn over control of their plants, MacArthur said, but for Deseret, joining the market did involve plant upgrades, simplifying market modeling and using bidding strategies and operational expertise.

“We had to just kind of cross the Rubicon, and hope for the best.”

November 30, 2017

Glick on Board, FERC Awaits McIntyre

By Peter Key

Richard Glick was sworn in at FERC on Wednesday, giving the commission four members as it awaits the arrival of its new chairman, Republican Kevin McIntyre.

FERC Richard Glick Kevin McIntyre — Glick | © *RTO Insider*

Glick, the general counsel for the Democrats on the Senate Energy and Natural Resources Committee, and McIntyre, the co-leader of the global energy practice at the law firm Jones Day, were confirmed by the Senate on Nov. 2.

Glick, who will serve a term ending in June 2022, did not respond to a request for comment. The term for McIntyre, who will replace fellow Republican Neil Chatterjee as chairman, ends in June 2023. A FERC spokesman said the agency had no information on when McIntyre will be sworn in.

No Conspiracy

The delays in the commissioners’ arrival led some observers to speculate that the Trump administration was purposely dragging its feet so the two could not take part in a vote on the Department of Energy’s proposed price supports for struggling coal and nuclear generators.

On Tuesday, Chatterjee attempted to quash that notion after speaking at a Consumer Energy Alliance event.

“I do want to be clear with everybody: You guys are reading way too much into this,” Chatterjee told reporters, according to an account in The Hill. “There is no conspiracy here. There is no intentional delay or dragging things out to some nefarious end.”

Chatterjee has proposed “interim” protections for threatened generators while the commission considers the department’s Notice of Proposed Rulemaking. Chatterjee, the only commissioner who has publicly supported the NOPR, said FERC will act on the rulemaking by Dec. 11. (See Chatterjee ‘We’ve Moved Past’ DOE NOPR.)

Commissioners Rob Powelson, a Republican, and Cheryl LaFleur, a Democrat, have reacted more warily to the NOPR, expressing concern it could damage wholesale markets. They have declined to take a position on Chatterjee’s “interim” proposal. (See DOE, Pugliese Press ‘Baseload’ Rescue at NARUC.)

Glick and McIntyre have not commented publicly on the NOPR. During his Senate confirmation hearing, however, McIntyre said, “FERC is not an entity whose role includes choosing fuels for the generation of electricity.”

Glick’s Experience

richard glick kevin mcintyre ferc — Left to right: FERC Commissioner Cheryl LaFleur, Glick, Chief Administrative Law Judge Carmen Cintron, Commissioner Rob Powelson | *FERC*

Before joining the Senate staff, Glick was vice president of government affairs for Iberdrola’s U.S. renewable energy, electric and gas utility, and natural gas storage businesses. Earlier, he served as a director of government affairs for PPM Energy and PacifiCorp, and legislative director and chief counsel to Sen. Dale Bumpers (D-Ark.). During the Clinton administration, he was a senior policy adviser to Energy Secretary Bill Richardson.

He is a graduate of George Washington University and Georgetown Law. He and his wife, Erin, have a son.

November 30, 2017

Thumbs Up/Down for CAISO Gas Constraint Measures

By Robert Mullin

FERC on Tuesday approved CAISO’s request to extend temporary market measures instituted last year in response to natural gas pipeline restrictions stemming from the 2015 closure of the Aliso Canyon gas storage facility.

But the commission rejected the ISO’s proposal to make other gas-related measures permanent throughout the ISO and the Western Energy Imbalance Market (EIM), in addition to the Southern California region affected by the gas constraints (ER17-2568).

Aliso canyon gas burn cap — Aliso Canyon | *California Governor’s Office of Emergency Services*

Aliso Canyon was cleared to resume normal operations in July, but is still operating at reduced capacity. CAISO sought to implement the permanent Tariff provisions to prepare for potential operational issues in other areas it oversees. (See Plan Would Apply Aliso Canyon Measures Across CAISO, EIM.)

In its ruling Tuesday, FERC accepted the ISO’s bid to extend a measure allowing Southern California generators to reflect gas cost expectations in day-ahead bids by using an approximation of next-day gas prices, which are published after the ISO’s day-ahead market runs. ISO rules typically require generators to incorporate the previous day’s gas prices into energy bids.

The commission also approved continued use of a gas adder and an after-the-fact cost recovery mechanism for generators connected to the Southern California Gas system to tie cost recovery and penalties to same-day gas prices rather than day-ahead gas indices.

“As CAISO reports, Aliso Canyon will continue to experience limited operability for the foreseeable future, which presents the risk of curtailments to gas-fired generators and, potentially, the interruption of service to load,” the commission said. “We find that continuation of the interim measures for an additional year should improve scheduling coordinators’ ability to manage their gas procurement and enhance their ability to recover gas procurement costs, while also providing CAISO with flexible tools to maintain reliability and avoid adverse market outcomes related to the limited operability of Aliso Canyon.”

The temporary provisions will remain in effect until Nov. 30, 2018.

Gas Burn Cap

FERC rejected CAISO’s proposals to make other interim measures permanent and to extend their application to the EIM. Chief among them was the ISO’s proposal to limit the amount of gas that generators can burn during periods of restricted gas supply.

Within its own balancing authority area, the provision would have allowed CAISO to develop the constraint on its own motion, then require it to publish details about the constraint and provide market participants an opportunity to comment.

In the EIM, the ISO would have enforced constraints “at the request of and in coordination” with the relevant EIM balancing authority. The EIM currently includes Arizona Public Service, NV Energy, PacifiCorp, Portland General Electric and Puget Sound Energy.

In rejecting the proposal, the commission found that CAISO failed to demonstrate how it would a prevent an EIM entity from having “too much discretion” over the development and enforcement of a constraint. “This raises the concern that an EIM entity would be able to develop a constraint to help it manage gas supply issues of its affiliated resources while other market participants would have to rely on appropriate bidding and contracting,” the commission wrote.

The commission also said that CAISO had not explained how it would monitor and enforce maximum burn constraints in the EIM, nor did it define the role of the relevant natural gas company within the Tariff.

Still, FERC left the door open for CAISO to develop a gas burn cap for its own BAA, saying such a measure could be a “useful tool” to help manage gas limitations “more efficiently than relying solely on manual dispatch.”

The commission also rejected CAISO’s proposals to make permanent two other interim measures: One allows the ISO to suspend virtual bidding in the face of gas constraints; the other permits it to release two-day-ahead advisory schedules to certain scheduling coordinators.

“These solutions may be appropriate for an interim Tariff provision to address an identified problem, such as Aliso Canyon’s limited availability, but CAISO has not provided justification that they are appropriate or adequate in their current form as permanent features of CAISO’s market,” the commission said.

FERC acknowledged that its denial of the permanent Tariff changes would leave CAISO without some existing tools designed to address limited operations at Aliso Canyon.

“Our rejection of these permanent Tariff provisions does not foreclose CAISO from proposing an extension of these interim Aliso Canyon-specific Tariff provisions for an additional year, as CAISO did with the three Tariff provisions that we accept on a temporary basis in this order,” the commission said.

November 30, 2017

Market Monitors Bring FTR Complaints to Congress

By Michael Brooks

WASHINGTON — The Market Monitors for CAISO and PJM told a House subcommittee Wednesday that their respective financial transmission rights markets are significantly flawed and need fixing, although they stopped short of asking for congressional action.

Appearing before the House Energy Subcommittee, Eric Hildebrandt, director of CAISO’s Department of Market Monitoring, said electricity ratepayers in RTOs/ISOs nationwide are not receiving the full amount of congestion revenues as intended, losing more than $400 million a year instead.

FTR FTRs market monitors financial transmission rights — House Energy Subcommittee Chair Fred Upton (R-Mich.) opens the hearing. | © *RTO Insider*

After allocating an initial round of FTRs to load-serving entities that use the instruments as a hedge, RTOs auction off additional FTRs to third parties, typically sophisticated financial entities seeking to speculate on the potential to collect high rents from congested transmission segments.

“Unfortunately, revenues that ISOs collect from auctioned FTRs are consistently much lower than what the ISOs pay out to entities purchasing these FTRs,” Hildebrandt said. “This makes FTRs highly profitable for financial entities, but these profits directly reduce the congestion revenues that would otherwise be refunded back to transmission ratepayers.” He said that ratepayers only receive 52 cents in auction revenues for every dollar an RTO/ISO pays out to FTR holders, representing a nearly 100% profit for buyers.

Hildebrandt repeated his call for grid operators to end FTR auctions, a proposal he first made in CAISO a year ago. (See CAISO Monitor Proposes End to Revenue Rights Auction.)

In written testimony, PJM Independent Market Monitor Joe Bowring explained his RTO’s auction revenue rights construct before echoing Hildebrandt’s criticism.

“The current ARR/FTR design does not serve as an efficient way to ensure that load receives all the congestion revenues or has the ability to receive the auction revenues associated with all the potential congestion revenues,” Bowring said. “The goal of the ARR/FTR design should be to return 100% of the congestion revenues to the load. But the actual results fall well short of that goal.”

Opposing Hildebrandt at the hearing was TPC Energy CEO Noha Sidhom, appearing on behalf of the Power Trading Institute.

“The problem [in CAISO] is not with the FTR product; the problem is with the market design,” Sidhom said. “They’ve got significant modeling issues. … There’s something wrong with their pricing model. Also their outage scheduling is a real problem.”

Sidhom said that more than 50% of network outages are not identified in time to be modeled in the ISO’s FTR auctions. These problems result in inadequate revenues to ratepayers, but “you absolutely need the auction, because the auction is how you actually price the allocated rights.”

“It’s absolutely incorrect that the allocated FTRs are priced based on the auction,” Hildebrandt responded. “They’re allocated out, load-serving entities hold them and they get paid the congestion revenues.” Those who purchase FTRs through the auctions pay nearly half the price, and “the payout directly reduces the pot of congestion revenues that otherwise get fully refunded back to transmission ratepayers,” he said

REV CAISO FTRs Market Monitor — From left to right: Wesley Allen, Red Wolf Energy Trading; Eric Hildebrandt, CAISO Department of Market Monitoring; Max Minzer, Jenner & Block; and Vince Duane, PJM. (Obscured by Minzer is Noha Sidhom, CEO of TPC Energy.) | © *RTO Insider*

He also disputed that the problem was unique to CAISO, saying it exists in every RTO/ISO in the U.S., although he admitted it is more severe in California. In his letter to the subcommittee, Bowring said that PJM ratepayers have missed out on more than $1.7 billion in congestion revenues over the last seven planning cycles.

The hearing was the latest in the subcommittee’s “Powering America” series, which has included discussions on reliability in the wake of a severe hurricane season, consumer advocates in energy markets and the Public Utility Regulatory Policies Act. Several congressmembers at the hearing admitted they were unfamiliar with FTRs and other virtual transactions, asking for basic explanations of their role in electricity markets.

The panelists also included Red Wolf Energy Trading CEO Wesley Allen, PJM General Counsel Vince Duane, former FERC General Counsel Max Minzer and Chris Moser, senior vice president of operations with NRG Energy.

November 29, 2017

FERC Orders Hearing in SWEPCO Rate Dispute

By Tom Kleckner

FERC on Monday ordered settlement judge procedures for a dispute involving an American Electric Power subsidiary’s transmission rates (EL17-85).

In August, East Texas Electric Cooperative (ETEC) and Northeast Texas Electric Cooperative (NTEC) filed a joint complaint asking the commission to reduce Southwestern Electric Power Co.’s (SWEPCO) current base return on equity from 11.1% to 8.41% — a 269-basis-point reduction. In granting the co-ops’ request for a hearing on the issue, the commission set a refund effective date of Aug. 31, 2017.

FERC SWEPCO ROE — East Texas Electric Cooperative member Cherokee County Electric Cooperative transmission lines | *Cherokee County Electric Cooperative Association*

ETEC and NTEC buy power from SWEPCO under a revised supply agreement among the three parties, while NTEC and SWEPCO also have a separate agreement. The 11.1% base ROE in the contracts originated in a formula rate settlement filed by SWEPCO in 2001 for the NTEC contract, and the utility carried over that rate when it filed the ETEC-NTEC agreement in 2009.

The co-ops now contend that capital costs for electric utilities have declined significantly since the ROE was set in the initial agreement. As a result, their ratepayers are overcompensating SWEPCO by $2.43 million annually.

ETEC and NTEC filed testimony from independent consultant J. Bertram Solomon, who argued the 11.1% ROE rested on the commission’s previous one-stage discounted cash flow (DCF) methodology and outdated assumptions about utility debt costs. Updated financial data and the two-step DCF method adopted by FERC in 2015 produced a zone of reasonableness of 6.42 to 10.62% and a median of 8.41%, Solomon’s analysis showed.

SWEPCO asked the commission to dismiss the co-ops’ complaint, saying the 8.41% ROE falls 216 and 191 basis points below the ROEs the commission approved in previous cases involving ISO-NE and MISO, respectively. The utility requested FERC delay any proposed refund effective date by five months, if it set the complaint for hearing.

The commission said it found the co-ops’ DCF analysis to be “adequate” in establishing a sufficient case that SWEPCO’s cost of equity “may have declined significantly below the level of its existing 11.1% base ROE.” FERC said it was unpersuaded by SWEPCO’s arguments against the zone of reasonableness, and it rejected the utility’s request to delay refunds.

“We find no merit in [SWEPCO’s] assertions that the commission should delay any appropriate relief to [its] customers,” FERC said, “and we expressly decline to do.”

The commission said that barring a settlement agreement, it expects to issue a decision by Sept. 30, 2019.

ETEC separately filed complaints against SWEPCO and three other AEP subsidiaries in June, arguing the companies’ base ROE in SPP’s AEP West pricing zone should be reduced from 10.7% to 8.36%. FERC earlier this month established hearing and settlement judge procedures in that case (EL17-76). (See AEP Base ROE Complaints Ordered to Settlement.)

November 29, 2017

FERC Grants NYISO RMR Compliance Extension

FERC on Tuesday approved NYISO’s request for a 30-day extension for submitting additional reliability-must-run tariff revisions. The ISO must now file the changes no later than Jan. 16, 2018 (ER16-120).

FERC Approves NYISO Reliability-Must-Run Plan.)

The ISO said the additional time would enable it to develop compliance revisions that fully address the directives and allow New York stakeholders an opportunity to review any changes and provide feedback. It also said the extension would help it avoid disputes with stakeholders and obtain input from its Independent Market Monitor.

— Michael Kuser