PJM MRC/MC Briefs 10-26-17

Markets and Reliability Committee

Stopgap Balancing Ratio OK’d Despite Questions

WILMINGTON, Del. — PJM members approved a Tariff revision setting 78.5% as the balancing ratio to be used in calculating the default market seller offer cap (MSOC) for the 2021/22 Base Residual Auction next May.

PJM said the change was a stopgap measure required for next year’s BRA because there have been no penalty assessment hours (PAHs) since 2015. PAHs are one factor used to calculate MSOC for Capacity Performance resources. (See “Give me a B…,” PJM MRC/MC Briefs.)

The Tariff change passed with no opposition but 10 abstentions.

default market seller offer cap pjm — Greiner | © *RTO Insider*

The MSOC is the product of the net cost of new entry (CONE) and the average of the balancing ratios for the three years preceding the delivery year. PJM proposed using 78.5% because it was used for the 2020/21 BRA earlier this year.

“I’m not sure how you got here,” said Gary Greiner of PSEG Energy Resources & Trade. “I do know 78.5 is not the right number.”

Susan Bruce of the PJM Industrial Customers Coalition agreed that the stopgap number was not correct. “I think there’s something to be said for the fact that there have been no performance assessment hours. That should be telling us something, but that’s part of a larger conversation,” she said.

default market seller offer cap — Tyler | © *RTO Insider*

The Independent Market Monitor’s Catherine Tyler also criticized the number as incorrect. She said PJM should instead rely on its avoidable cost rates, which she said is “already well defined in the Tariff.”

With one abstention, members also approved a problem statement and issue charge to develop a long-term solution. The issue was assigned to the Market Implementation Committee with a target of developing a solution in time for the 2022/23 BRA.

Bruce asked that PJM make clear in its FERC filing that the 78.5% balancing ratio is “not to be precedential in any fashion.”

DER Subcommittee Charter Sent Back to MIC

The MRC postponed voting on a draft charter to transfer all work on distributed energy resources into a subcommittee because of a disagreement over a proposed amendment by FirstEnergy.

The charter would create the Distributed Energy Resources Subcommittee, reporting to the MRC. It arose from concerns that the current problem statement and issue charge on DER is overly narrow and inhibited discussions that should include markets, operations and planning implications. The talks had been taking place in special sessions of the MIC.

FirstEnergy sought to add an amendment saying “Market rules must respect the distribution system and state/local jurisdictional agency standards and protocols to ensure safety and reliability. Rules should adhere to all pertinent jurisdictions and respect the relevant electric retail regulatory authority (RERRA).” (See “Amendment on DER Charter Sparks Debate,” PJM MRC/MC Briefs.)

MRC Secretary Dave Anders said that some stakeholders thought the amendment had been considered in the draft that came out of the MIC-DER group and others did not. The MIC did not formally vote on the measure.

As a result, the charter will be returned to the MIC, which will vote on versions with and without the amendment, with the winner brought to an MRC vote next month.

MRC OKs Sharing Generator Data for Restoration Planning

Members approved Operating Agreement revisions governing PJM’s sharing of restoration planning generator data with transmission owners. (See “TOs to Receive Confidential Generation Data for System Restoration,” PJM Operating Committee Briefs: Sept. 12, 2017.)

The changes will allow PJM to provide confidential generator data for any unit:

that is or will be modeled in TO energy management system; and
that is or will be identified in a TO restoration plan.

The second reference to “or will be” was added as a correction between the first read and Thursday’s vote. The corrected version was endorsed with no objections or abstentions.

PJM Consulting with Chinese on Real-Time Market

PJM REV Market Monitor market seller — Daugherty | © *RTO Insider*

PJM Chief Financial Officer and MRC Chair Suzanne Daugherty informed members that the RTO’s consulting subsidiary, PJM Technologies, has signed a contract to help the Chinese province of Zhejiang develop a real-time energy market.

Daugherty declined to share financial details of the contract but said it will involve three to four full-time equivalent PJM staffers for 18 months. The province, south of Shanghai, has a load equal to almost half of PJM’s.

For security, the PJM employees will be working on dedicated computers separate from the RTO’s network, Daugherty said.

IRM, Manuals Endorsed

The Markets and Reliability Committee unanimously approved the 2017 installed reserve margin (IRM) study results. (See “IRM Reductions,” PJM PC/TEAC Briefs: Sept. 14, 2017.)

The IRM dropped nearly 1 percentage point, from 16.6% to 15.8%, for delivery year 2021/22, thanks largely to an anticipated fleet-wide EFORd (equivalent forced outage rate – demand) reduction from 6.59% to 5.89%. EFORd measures the probability a generator will fail completely or in part when needed.

The reduced EFORd is the result of 7,150 MW in planned retirements with a 14.56% weighted average EFORd, and the anticipated entry of 16,980 MW of new generation with a 4.42% EFORd.

The IRM will be 16.1% for 2018/19 and 15.9% for 2019/20.

The MRC also endorsed the following proposed manual changes with one abstention and no objections:

Manual 11: Energy & Ancillary Services. Revisions, which also include changes to the OA and Tariff, were developed to address capping of intraday offers. The current rule offer caps units that fail the three-pivotal-supplier test, but prohibits reapplying the cap during the unit’s day-ahead commitment or minimum run time. The changes would re-evaluate capped units when offers are updated. The changes would also apply to self-scheduled resources. (See “Debate Continues on Intraday Offers,” PJM Market Implementation Committee Briefs: Oct. 11, 2017.)
Manual 14B: Regional Transmission Planning Process. Revisions developed to add information related to contingency definitions.
Manual 19: Load Forecasting and Analysis. Clarifies when load drop estimates are produced and includes updates from a periodic review of the manual. (See “Cleared PRD Forces Manual Revisions,” PJM PC/TEAC Briefs: Sept. 14, 2017.)

Members Committee

The Members Committee unanimously approved the IRM study results, the Tariff changes for the balancing ratio, and changes to Manuals 11, 14B and 19 approved earlier by the MRC. (See descriptions in MRC briefs above.)

The committee also approved Tariff and Operating Agreement revisions to clarify definitions, as recommended by the Governing Document Enhancement & Clarification Subcommittee.

— Rich Heidorn Jr.

October 31, 2017

Unanswered Questions Force Special PJM Session on OVEC Integration

By Rich Heidorn Jr.

WILMINGTON, Del. — PJM will hold a special meeting from 3 to 5 p.m. Nov. 7 to address stakeholder concerns over how the proposed integration of the Ohio Valley Electric Corp. into the RTO would affect existing members.

RTO officials agreed to schedule the meeting after being unable to quell stakeholder concerns during a presentation by OVEC’s Scott Cunningham at Thursday’s Markets and Reliability Committee meeting.

Stakeholders expressed apprehension over the future of OVEC’s generation and costs of potential upgrades to its double-circuit 345-kV transmission network, most of which dates to the 1950s.

OVEC, which is headquartered in Piketon, Ohio, owns 2,200 MW of generation capacity but will have no load after a U.S. Department of Energy contract ends sometime before 2023. The company was created in 1952 to service roughly 2,000 MW of load from a uranium enrichment plant near Piketon operated by the defunct Atomic Energy Commission.

Ohio Valley Electric Corp OVEC PJM — Clifty Creek Power Plant Complex | *Crowezr*

The company’s two coal-fired generating plants — the 1.1-GW Kyger Creek in Cheshire, Ohio, and 1.3-GW Clifty Creek in Madison, Ind. — are already pseudo-tied into PJM, and its eight “sponsors” can sell their portions of the output into the RTO’s markets. The generation would become internal to PJM following membership, eliminating the pseudo-ties.

MRC Chair Suzanne Daugherty said PJM had conducted operational and planning studies to ensure the integration would not harm reliability. General Manager of System Planning Paul McGlynn said testing also ensured the generation is deliverable.

But Steve Lieberman of American Municipal Power said stakeholders have not seen any analysis on the financial implications of adding OVEC. “There’s just a lot of things we don’t understand,” he said.

Six of OVEC’s eight sponsors — American Electric Power, Buckeye Power, Duke Energy, FirstEnergy/Allegheny Power, Wolverine Power Cooperative and Dayton Power and Light — are PJM members. Another sponsor, Vectren, is a MISO member. The final sponsor, PPL’s LG&E and KU Energy, does not belong to an RTO.

Cunningham said there had been “very little incentive” for OVEC to join PJM in the past because of the sponsors’ “different philosophy” and split between RTOs.

“All that has changed over the years,” he said. “For a small entity like ours, we have struggled with meeting compliance obligations.”

Direct Energy’s Marji Philips said the addition of OVEC’s 2,200 MW of 1950s vintage coal-fired generation is “very significant,” coming at a time when FERC is considering Energy Secretary Rick Perry’s proposal to grant coal plants cost-of-service rates. (Philips said PJM officials later informed her that 90% of OVEC’s power already flows into PJM, with 10% flowing to LG&E/KU.)

PJM’s internal “kick-off” discussion on integration was held June 6, according to spokesman Ray Dotter — nearly four months before Perry announced the proposed rulemaking.

Philips noted that the generators have been the subject of proceedings before the Public Utilities Commission of Ohio seeking to put them into the rate base. In March, for example, Duke Ohio asked PUCO to bill ratepayers for the costs of its 200-MW share of the plants, warning that “premature closing of the OVEC generating plants would have an immediate adverse impact on the communities in which these plants are located” (17-0872-EL-RDR).

“We do not anticipate them retiring any time soon,” said Cunningham, who said they had received “considerable” investments in environmental upgrades. “Those [subsidy requests] were made by the sponsors. We have never acknowledged that they were not economic.”

Delaware Public Service Commission staffer John Farber asked PJM for an estimated cost per mile for upgrading OVEC’s 345-kV transmission.

Vice President of Planning Steve Herling was reluctant to offer a number, saying “it would really depend” on the nature of the upgrade.

“Is it safe to assume it would be substantial?” persisted Farber, attending his last meeting before retirement. (See related story, Delaware PSC’s Farber Retires — Again.)

“I’m not jumping into that one,” Herling demurred.

October 30, 2017

AEP Falls Short of Q3 Expectations, Remains Optimistic

By Tom Kleckner

American Electric Power on Thursday said the mildest weather conditions since 1992 led its third-quarter sales to fall 12.8% from a year ago, down to $4.1 billion.

The Columbus, Ohio-based company reported a quarterly profit of $544.7 million, a vast improvement over last year’s loss of $765.8 million for the same period. A one-time $2.3 billion impairment charge in 2016 related to the value of competitive coal plants, wind farms and coal-related properties accounted for much of that loss. (See AEP Turns Away from Generation to Transmission, PPAs.)

But the company’s adjusted earnings per share of $1.10 missed the Zacks consensus estimate of $1.19. It was also down from $1.30/share — which excluded the impairment — a year ago. Its year-to-date earnings are $2.82/share, down from $3.25/share in 2016.

During an earnings call, CEO Nick Akins, a drummer in his spare time, drew inspiration from the progressive rock group Dream Theater’s song “Another Day” in reaffirming 2018’s guidance range of $3.75 to $3.95/share, built around a 5 to 7% growth rate. He recited the song’s lyrics to analysts: “Live another day, climb a little higher, find another reason to stay.”

“Because of our efforts to overcome the weather and other obstacles, we’ll finish out the year 2017, we’ll live for 2018, and continue on our path,” Akins said. “The fundamentals of our business plan remain secure, and we’re confident going into 2018.”

AEP narrowed its guidance range for 2017 to $3.55 to $3.68/share. Akins said the company will make up lost ground by “driving efficiency, eliminating expenses where practical and with negligible movement of expenses to 2018.” The company also expects to benefit from continued economic growth in its footprint.

Akins said AEP now has procedural schedules in the four state jurisdictions — Arkansas, Louisiana, Oklahoma and Texas — with regulatory oversight of the company’s proposed $4.5 billion Wind Catcher Energy Connection Project, a 2-GW wind farm in the Oklahoma Panhandle. Hearings will be held January in Oklahoma and Texas, February in Louisiana and March in Arkansas. The company has requested approvals by April 30.

“At this point, I should figuratively drop the microphone,” Akins said, “but we’ll let the facts — $4.5 billion invested, $7.6 billion in customer savings, substantial infrastructure development and great use of wind resources — speak for themselves.”

AEP also has $603 million in pending rate cases before five state regulatory commissions.

October 30, 2017

CPUC Bolsters Demand Response, Pans Resiliency NOPR

By Jason Fordney

SACRAMENTO, Calif. — California regulators voted Thursday to extend the life of a state demand response pilot project, saying they hope it could lead to a permanent program to help meet the state’s clean energy goals.

FERC CPUC Demand Response extended LMP — California PUC staff present their comments on the U.S. Department of Energy’s grid resiliency pricing rule proposal to the commission. | © *RTO Insider*

The California Public Utilities Commission heard from the public about several matters at the meeting, held across the street from the state capitol. The five commissioners were also predictably unified in their opposition to any possible FERC-proposed grid resiliency pricing rule as a result of the U.S. Department of Energy’s Notice of Proposed Rulemaking calling for financial support for nuclear and coal-fired power plants.

DRAM Extended

The PUC unanimously approved extending the Demand Response Auction Mechanism (DRAM) pilot program into 2018, against the recommendation of its administrative law judges.

“There were a lot of things that really led me to this decision to see the merit of continuing with this an additional year,” Commissioner Martha Guzman-Aceves said. The program has grown in terms of new participants, including low-income residents, “to levels that are really quite outstanding and different from the [investor-owned utility] programs.”

In the DRAM program, third-party sellers bid aggregated DR directly into the CAISO day-ahead energy market. Utilities acquire the capacity but do not receive revenues winning bidders might gain from the market. In the 2017 DRAM, third-party providers could bid in as both local and flexible resource adequacy, not just system resource adequacy.

Thursday’s decision requires Pacific Gas and Electric and Southern California Edison to procure $6 million of DR in their territories in a 2018 auction for 2019 delivery, while San Diego Gas & Electric must acquire $1.5 million. DR companies bid for the contracts on a pay-as-bid basis.

The program also created two new working groups: one to define new DR programs, and one to study barriers to DR.

Commissioner Liane Randolph said, “It is helpful for us to continue these pilot projects until the evaluation is complete, and we decide whether we are ready to adopt the DRAM as a permanent program.” By keeping the auctions going and modifying the guidelines, “we encourage market participants to continue to invest in this new type of DR,” she said.

Commissioner Carla Peterman said there are limited opportunities for DR.

“I do think it is important to continue our momentum in this area,” Peterman said. She noted the auction will use the same procurement guidelines as a permanent auction. “I think it will be a good opportunity to see how those guidelines work in practice,” she said.

Commission Encourages CCA, Direct Access DR

The commission’s decision also moves forward the process of enabling community choice aggregators (CCAs) and direct access (DA) providers to create DR programs to compete with those of IOUs.

California’s CCA program allows local governments to aggregate retail electric customers and secure electricity supply contracts to serve them, while the DA program allows some nonresidential customers — such as agricultural, commercial and industrial, and small business — to choose alternative electricity suppliers.

The decision allows CCAs and DA suppliers to file with the PUC to determine whether their DR programs are similar to those of utilities. The measure takes steps to implement the “Competitive Neutrality Cost Causation Principle,” which defines what constitutes a similar program and adopts a four-part process make a final determination. If a CCA or DA provider proves its case, competing utilities must cease cost recovery for DR from customers that sign up with the third-party programs.

Chairman Michael Picker said he supports the proposal, but he is concerned that by moving existing DR customers out of the rate base of regulated utilities into the rate base of the CCAs, “we are frustrating the second promise of the CCAs, which is that they will create competition. Here we are actually hindering competition.”

Picker added that it will be important to carefully analyze the applications for DR programs. “The practice has not always met the theory in CCA world; they have been uneven in actually expediting our drive for clean energy sources,” he said.

But he said he strongly support the continuation of the DRAM because it has created unique products, not just opportunities to arbitrage.

Strong Opposition to DOE NOPR

The commission also endorsed comments developed by staff in opposition to the DOE NOPR. Comments on the proposal were due to FERC on Oct. 23.

The approved comments state that “this rushed effort erodes trust in U.S. wholesale electric markets and undermines the role of the FERC as an independent body. If the energy crisis has taught us anything, it is that diversification of resources is critical for resiliency and reliability planning.”

Instead of narrowing the choice of resources that qualify as “resilient,” the PUC said there should be “a wide range” of tools to meet reliability needs, including energy storage, flexible demand and distributed energy technologies.

Picker said that while any such rule would have little immediate impact in California, it could in the long term, and it has aroused concern in neighboring states. He said it was a signal that the Trump administration does not “care to observe a series of long-held conventions on wholesale markets.” The parties creating the rule “don’t have their act together to actually come up with a reasonable argument” and “they have a prescription that is looking for a problem,” Picker said.

Commissioner Clifford Rechtschaffen said “this rule did what was otherwise unimaginable,” noting that it united petroleum, natural gas and renewable energy interests in opposition. “It is so beyond the pale,” he added, saying that PUC staff had devised a strong mix of legal and policy arguments against the rule.

October 30, 2017

Entergy Profits up as Company Continues Merchant Gen Exit

Entergy last week reported a third-quarter profit of $398.2 million ($2.21/share), up from $388.2 million ($2.16/share) a year ago.

“We now expect to finish the year in the top half of our utility, parent and other adjusted earnings guidance range,” CEO Leo Denault said in a statement.

The New Orleans-based company affirmed its 2017 operational earnings guidance range of $6.80 to $7.40/share, and its utility, parent and other segment adjusted guidance range of $4.25 to $4.55/share. Operational earnings do not include non-routine expenses, such as the costs to close or sell the company’s merchant nuclear power plants.

Denault said Entergy will work with regulators to recover $85 million to $120 million in Hurricane Harvey restoration expenses, and that the company expects $3 million to $5 million in unbilled revenue for 2017.

entergy profits q3 — Palisades plant | *Entergy*

The CEO also said Entergy’s recent decision to extend a power purchase agreement with Consumers Energy regarding the Palisades nuclear plant does not mean the company is staying in the merchant nuclear business. (See Entergy Abandons Palisades PPA Termination.)

“Our strategy to exit the merchant business and become a pure-play utility remains unchanged,” Denault told analysts in an earnings call last Tuesday. “This decision to continue to operate the plant will preserve value for our owners while extending our exit from the merchant nuclear business by only a year.”

— Tom Kleckner

October 30, 2017

ERCOT Briefs

ERCOT last week approved the shutdown of two plants, including Luminant’s coal-fired Monticello facility in East Texas, that will take nearly 2 GW of antiquated generation out of service.

Staff approved Monticello’s retirement, effective Jan. 4, saying the plant is not necessary for reliability operations. The plants’ three units, dating back to the 1970s, have a combined capacity of 1,880 MW but found themselves frequently out of the market. Luminant announced the units’ proposed retirement Oct. 6. (See First Shoe to Drop? Vistra to Retire 3 Texas Coal Units.)

ERCOT Coal-Fired Generation Luminant Monticello — Luminant’s Monticello Power Plant | *Luminant*

The ISO also approved the indefinite mothballing of two gas units at the city of Garland’s Spencer plant, totaling 118 MW of capacity. The city filed notice with ERCOT on Oct. 4. The units began service in 1966 and 1973.

TAC Approves LDF Library Changes in Email Vote

ERCOT’s Technical Advisory Committee last week unanimously approved staff revisions to the ISO’s load distribution factor (LDF) library. The measure gathered 23 out of a possible 30 votes by email.

The vote was conducted after an Oct. 23 web informational session, which became necessary following revisions to account for a nodal protocol revision request (NPRR831).

Staff made changes related to private-use networks (PUNs), which are connected to the ERCOT grid and contain load that is typically netted with internal generation and not directly metered by the ISO. The change updates market systems to calculate a net load value for each PUN that will be included in the load zone price for all markets, when the load is a net consumer from the grid.

LDFs are used in congestion revenue rights and day-ahead market clearing activities, and developed using historical state estimator or supervisory control and data acquisition (SCADA). ERCOT staff added language to generate LDFs for PUN loads, which behave differently from non-PUN loads.

TAC’s October meeting, scheduled last Thursday, was canceled because of a lack of voting items.

— Tom Kleckner

October 30, 2017

FirstEnergy Selling Merchant Fleet Despite NOPR

By Rory D. Sweeney

FirstEnergy supports the U.S. Department of Energy’s call to financially support nuclear and coal-fired units, but that won’t stop the company from selling off its merchant generation fleet and retreating to the predictable returns of regulated assets.

FERC NOPR merchant generation FirstEnergy — FirstEnergy’s Akron, Ohio headquarters

CEO Chuck Jones last week said he is also “pleased” with signs of state-level support, including a resolution from the Pennsylvania legislature supporting the department’s proposal and the introduction of the Ohio Clean Energy Jobs bill to support nuclear units with zero-emissions credits (ZECs). But “whether these state or federal activities result in meaningful and timely support remains to be seen,” he said.

“We have no interest in maintaining generating assets that have commodity exposure, and we’re moving forward with exiting the commodity-exposed generation business,” Jones said during a call to discuss third-quarter earnings.

FirstEnergy reported earnings of $396 million ($0.89/share) on $3.7 billion in revenue, missing guidance by $80 million. However, operating earnings of 97 cents/share beat guidance by 10 cents. The results exceeded performance from the same quarter a year ago, when the company reported earnings of $380 million ($0.89/share) on revenue of $3.9 billion and non-GAAP earnings of 90 cents.

Company executives credited the success to “stronger-than-expected results” in its competitive and corporate segments, along with solid regulated performance that included distribution deliveries that were better than forecasted and higher transmission revenues.

The company increased its GAAP forecast for 2017 to a range of $2.02 to $2.42/share and non-GAAP to $3 to $3.10/share, which had been targeted at $2.70 to $3/share.

Jones said Ohio’s House Bill 381 was introduced earlier this month with terms that were “reduced” from FirstEnergy’s previous requests for nuclear price supports. But they’re “likely” enough to make plants “economically viable” when combined with the planned restructuring of First Energy Solutions (FES), the company’s competitive generation arm. He expects a final vote on the measure around the middle of the first quarter next year.

“We believe this effort is imperative for Ohio’s energy security,” he said.

Despite the price support discussions, the company remains focused on shedding FES, Jones said.

“A preferred outcome” would include agreement from FES’ creditors, he said, but Chapter 11 bankruptcy remains an option that hinges on several variables, including DOE’s proposal, FERC’s actions and discussions with creditors’ advisers.

“We recognize the varied interests of our stakeholders, but we’re also aware that some have an interest in floating rumors about our company,” he said in warning that he would not discuss the progress of negotiations.

The company is moving quickly to disgorge the assets. LS Power has agreed to pay $825 million in cash for 1,615 MW of capacity that includes four Pennsylvania gas-fired plants and interests in the Bath County Hydro and Buchanan gas-fired facilities in Virginia, which are owned by FirstEnergy’s Allegheny Energy Supply subsidiary. The transaction involving the four Pennsylvania gas plants is expected to close this year, while the sale of the interest in the Virginia facilities is expected to close in the first quarter of 2018.

Jones said the full deal, which added some assets but was still reduced by $100 million since it was announced earlier this year, was priced on “the existing market conditions.”

The company’s regulated Monongahela Power subsidiary in West Virginia “continues to work through the regulatory process” to take ownership of the 1,300-MW Pleasants plant and expects approval from the West Virginia Public Service Commission and FERC by early 2018, Jones said. Allegheny expects to receive $350 million in net proceeds after paying off all its remaining long-term debt.

October 30, 2017

MISO Clear to Adopt One-Time Interconnection Study Fee

FERC last week approved a MISO proposal to charge interconnection customers subject to quarterly operating limit studies $10,000 as a deposit (ER17-568).

MISO interconnection study — | © *RTO Insider*

MISO had estimated that its annual cost of quarterly operating limit studies for an interconnection customer was about $2,500, which it had been collecting yearly. The change allows the RTO to charge a single $10,000 fee to cover four years and refund any remaining amount when the customer is no longer subject to quarterly operating limits. MISO said the new collection schedule will be more efficient for interconnection administrators.

FERC accepted the Tariff revisions effective Feb. 15, 2017, on the condition that MISO clarify that the $10,000 study deposit is a one-time fee and not due every quarter.

MISO created quarterly operating limits almost a decade ago to allow for the limited operation of some generators based on seasonal studies.

— Amanda Durish Cook

October 30, 2017

Lively OMS Discussion Probes Common Grid Beliefs

By Amanda Durish Cook

CHICAGO — State regulators, their staff and utility executives proved reluctant to be pinned down on predictions about the future of the grid during a spirited question-and-answer session at the annual meeting of the Organization of MISO States (OMS) last week.

OMS MISO organization of miso states — Deora | © *RTO Insider*

Tanuj Deora, chief content officer of clean energy facilitator Smart Electric Power Alliance, posed a series of questions to scrutinize attendees’ core assumptions about the power grid during the Oct. 27 meeting.

“We have an agreement that the power grid is the foundation of our modern civilization, yes?” he asked the audience rhetorically. “Well, there are a number of folks pushing back at that.”

Deora said he’s encountered people who are convinced that the power grid will become a stranded asset. Just a smattering of hands went up in the audience when he asked if any of them believed that people would altogether defect from the grid in the future.

A Future of Low Load Growth

Deora pointed out that recent trends demonstrate that economic growth no longer drives power consumption. “I think most people are planning on a world where we don’t have a lot of load growth,” he said.

Some in the audience noted that electricity demand could spike over the next five to 10 years as more consumers adopt electric vehicles, similar to past spikes when refrigerators and air conditioning started to become commonplace. Deora also pointed out that electricity could increasingly displace natural gas for water and space heating as gas suppliers realize that may be more feasible to meet state emission-reduction targets.

Other audience members noted that if President Trump succeeds in a reviving American manufacturing, companies won’t return to now-vacant energy-devouring factories, but instead design energy-efficient spaces.

Wisconsin Public Service Commission staffer Randy Pilo added that, after multiple years of growth, a recession will loom sooner or later.

A Gray Area

Deora was met with no audience agreement when asked if regulators should continue to plan the grid on the assumption that generation should follow load with no reserve inventory.

“That is a sea change, because, gosh, the [Department of Energy] believes this with their measure of resiliency,” Deora said. He added that he believes the U.S. is on the verge of a “demand response renaissance.”

At least half of the audience agreed that economies of scale still favor central station generation, but generally hesitated when Deora asked whether that supply is best provided through the usual baseload, mid-priced peaker model.

“Come on, this was the first thing I learned as an intern,” Deora said, lightheartedly goading the audience.

Multiple audience members called out: “You can’t choose!” and “It’s gray area!”

“That worked really well when you could build a baseload plant and get energy value. … It’s turned on its head,” said Bruce Campbell, director of regulatory affairs at CPower Energy Management. He said once natural gas prices eventually rise, developers will migrate to yet another fuel type.

Deora ventured that it may be time to reconsider the economic model for power. “Usually when I bring up at conferences that we might need a rethink of power economics, the audience shudders and tells me it’s not time,” he said.

‘Sleepy Backwater’

Deora said that while some utilities are still focused on being a strict wires-only owner or operator, more are exploring how to optimize a distribution system platform or interconnect distributed energy resources — and are even open to owning their own portfolio of distributed resources.

Charles Goldman, a strategic adviser with the Lawrence Berkeley National Laboratory, said past predictions of the adoption of photovoltaic DER have proven too conservative. He said in his state of California, distributed solar is in clustered hot valley areas, wealthy coastal communities and tech-friendly Silicon Valley. Rooftop solar has significantly shifted the noon to 6 p.m. load curve.

“It’s all happened in the last four to seven years,” Goldman said.

“I realize in the Midwest, this is not a topical, front burner issue,” he said, but he noted that Minnesota is considering requiring its utilities to file distribution system plans, including DER forecasting.

“Distribution planning has been the sleepy backwater,” Goldman said.

He admitted that RTOs will have more difficulties forecasting and modeling future distributed resources than single-state ISOs.

Outgoing OMS President and Indiana Utility Regulatory Commissioner Angela Weber said regulators and OMS are uniquely positioned to steer the industry in rules surrounding DER.

“It’s the first time in OMS that I see the states leading on an issue.”

October 30, 2017March 20, 2024

Texas Regulators Seek More Details on Sempra Oncor Bid

By Tom Kleckner

AUSTIN, Texas — The Public Utility Commission of Texas on Thursday threw a bit of cold water on Sempra Energy’s proposed $9.45 billion acquisition of Oncor after issuing a preliminary order that calls for Sempra to prove it’s financially fit to own the state’s largest utility.

Whether that’s enough to short-circuit yet another bid — the third — for Oncor remains to be seen.

Commissioner Ken Anderson filed a memo last week asking for more information on Sempra’s debt, the transaction’s financing, Oncor’s governance structure, the effect of Sempra’s other projects on its credit rating and Sempra’s corporate relationship with Oncor (Docket 47675).

“These issues are important because Sempra creates uncertainty when it fails to produce details about how it will fund the transaction,” Anderson wrote. “The purchaser must be able to prove it has the financial strength and stability to complete the purchase on its own, without impairing itself or Oncor.”

Hunt Consolidated and NextEra Energy failed in previous acquisition attempts to meet the PUC’s ring-fencing measures. Sempra announced it would make a bid for Oncor in August. (See Sempra Outmuscles Berkshire for Oncor.)

Anderson said Sempra’s current application before the commission provides “very limited details” on how it will finance the transaction and manage “liabilities associated with its debt and far-flung operations.” He noted the company’s debt has risen from $5 billion in 2007 to about $18 billion, but that cash from operations increased slightly through 2009 and has remained relatively stable since.

“So far, it seems Sempra has not realized a proportional increase in cash flow from its projects,” Anderson wrote.

Anderson reminded Chair DeAnn Walker and fellow Commissioner Brandy Marty Marquez that the PUC’s goal is to “once and for all” help Oncor escape a “risky, debt-laden majority owner” and “move forward without the nagging specter of a financially troubled parent.”

Oncor parent Energy Future Holdings, which declared bankruptcy in 2014, has retained an 80% stake in the utility since going into Chapter 11.

“Our objective,” Anderson said, is to “ensure that Oncor is not being permitted to hop from one frying pan into another, or even just into a simmering pot.”

He added a list of additional issues to be considered in the preliminary order, which Walker and Marquez approved.

Spokesperson Amber Albrecht took exception to Anderson’s comments, saying Sempra is a “very strong, growing and conservatively financed company.”

“We have investment-grade credit ratings at the holding company level, as well as at all of our operating subsidiaries, and our market capitalization over the past 10 years has grown to nearly $29 billion from about $15 billion,” she said.

Anderson allowed that while Sempra’s current credit ratings of Baa1 (Moody’s) and BBB+ (Standard & Poor’s) are investment grade, they are also “bottom tier.”

“The company is vulnerable to changing economic conditions and could face challenges if overall economic conditions decline or if Sempra continues to experience significant challenges,” Anderson said, pointing to the company’s $10 billion LNG export project in Louisiana and international holdings in South America.

Sempra has already revised its financing structure since its initial bid in an effort to appease intervenors in the previous attempts to acquire Oncor. (See Sempra Reworks Oncor Bid to Erase EFH Debt.)

The PUC has scheduled a Feb. 21-23, 2018, hearing on the proposed acquisition in Austin.

PUC Orders Refiling in NextEra Ownership Bid for Oncor

The commission also rejected NextEra’s bid to acquire a 19.75% interest in Oncor and directed the parties involved to refile an application that includes Oncor as an applicant.

Walker had suggested in a memo that the filing be dismissed, saying the state’s Public Utility Regulatory Act (PURA) requires the “statutorily specified entity” to submit the filing. Anderson and Marquez agreed.

NextEra and Texas Transmission Holdings Corp. (TTHC), which owns the 19.75%, filed a joint application with the PUC in July. However, staff in August ruled the application deficient, saying neither applicant is a public utility under state regulations and that the case should not proceed without Oncor’s involvement (Docket 47453).

Oncor intervened in the proceeding in September, telling the PUC that it was not “seeking commission approval of the proposed sale.”

In her memo, Walker referenced statutory language that “an electric utility or transmission and distribution utility must report to and obtain approval of the commission before closing any transaction in which … a controlling interest or operational control of the electric utility or transmission and distribution utility will be transferred.”

Noting that neither NextEra nor TTHC complies with the requirements, Walker wrote, “In this case, Oncor must file the relevant report regarding this proposed transaction.”

Walker said the refiling would allow the commission to determine whether the proposed transaction should close.

Vinson & Elkins’ Matt Henry, representing Oncor, promised action within a few weeks. He said the utility intended to consult with NextEra and TTHC to determine how to proceed with a final filing, and that it would have to talk with Oncor’s board as well.

Commission Rules Against SPS’ Right of First Refusal

The commission issued a final order that made official its earlier rejection of Southwestern Public Service’s exclusive right to build new regionally funded transmission facilities in its service territory (Docket 46901).

The PUC discussed the issue publicly in July, making it clear how it would rule. (See Texas Commission Rejects SPS ROFR Request.) SPS said at the time it would seek a rehearing and an appeal; spokesman Wes Reeves said Monday the company plans to file a motion for rehearing by Nov. 20.

The commission further concluded that transmission facilities serving the public cannot be constructed in Texas without first obtaining a certificate of convenience and necessity (CCN) from the commission.

“Such a right would be inconsistent with the commission’s authority to issue CCNs for transmission facilities, which is not limited to only utilities that have a certificated service area in which the facilities would be located,” the commission wrote.

Walker abstained from the order, as the proceeding occurred a month before she joined the commission.

SPP and SPS in February requested the PUC determine whether the utility has the exclusive right to construct and operate new, regionally funded transmission facilities in areas of Texas that lie within its certificated service area. (See SPS, SPP Ask Texas to Rule on Transmission Competition.)

SPS contended that as an incumbent utility operating outside ERCOT, PURA gave it a right of first refusal to build in the service area prescribed by the PUC. SPP claimed that no such right existed, giving the RTO the ability to solicit and designate transmission-only utilities to construct and operate new transmission facilities within SPS’ service area under FERC Order 1000.

The project in question, the 345-kV Potter-Tolk transmission line in the Texas Panhandle, was pulled from SPP’s 10-year planning assessment in April. SPP’s Board of Directors directed staff to conduct a congestion study in the area, due within a year. (See SPP Board Cancels Panhandle Line, Seeks New Congestion Study.)

ERCOT’s Budget, Admin Fee Approved

The commission formally approved ERCOT’s 2018/19 biennial budget, which will keep the ISO’s system administration fee flat at 55.5 cents/MWh for the next two years (Docket 38533). The fee was raised from 46.5 cents/MWh in 2015.

The ERCOT board approved the budget in June, setting operating expenses, projects and debt-service obligations at $222.3 million and $228.0 million for 2018 and 2019, respectively.