By Rich Heidorn Jr.

WASHINGTON — RTO officials acknowledged Wednesday that they are challenged by low power prices and a shifting generation mix but insisted they are up to the task, asking Congress not to abandon its support of wholesale markets.

“Although debate on various market rules is perfectly appropriate, we caution against the potential to add greater uncertainty to the markets by signaling some kind of wholesale retreat from the competitive market model that has been in place since the mid-1990s and has worked well to keep prices low and investment certain,” Craig Glazer, PJM’s vice president of federal government policy, told the House Energy and Commerce Committee’s Subcommittee on Energy.

“The markets are working very well,” agreed SPP CEO Nick Brown, who said his RTO provides net benefits of more than $1.7 billion annually — a benefit-cost ratio of 11:1, he said. MISO provided $3 billion in benefits last year and $18 billion over the last decade, said Chief Operations Officer Richard Doying.

Representatives from all six FERC-regulated RTOs and ISOs appeared along with an ERCOT executive at the nearly two-and-a-half hour hearing, the third in a series of fact-finding sessions that began last year with a letter to FERC and a hearing in September on the 1935 Federal Power Act. On July 18, the committee heard from stakeholders representing public power, independent power producers and integrated utilities. (See Public Power Takes PJM Gripes to Congress.)

A Republican committee aide, speaking on background, said the bipartisan hearings will resume after the August recess. Although some witnesses and committee members at last week’s hearing called for changes to the 1978 Public Utility Regulatory Policies Act, “consistently what we’ve heard is that there’s no immediate need” for changes in the FPA, the aide said.

The aide said, however, that the May 1-2 FERC technical conference on tensions between wholesale markets and out-of-market procurements and subsidies “got more attention [from House members] than any other technical conference in recent history.”

Criticism Nothing New

As at the technical conference and the July 18 House hearing, much of the focus was on PJM, NYISO and ISO-NE, the three eastern grid operators facing the most acute challenges from state policies.

PJM has perhaps the toughest challenge of the three grids in threading the needle between stakeholders pushing for supports for coal and nuclear “baseload” power and efforts to insulate the markets from price suppression. Unlike the single-state NYISO and the environmentally activist New England states, PJM’s footprint is particularly diverse, encompassing both consumer choice states and traditional, vertically integrated states; only some states have renewable portfolio standards; some states are coal producers, while others are heavily reliant on nuclear power.

But Glazer, a former Ohio utility regulator and PJM’s longtime voice in D.C., said the conflicts are nothing new for the RTO. “The PJM markets have weathered many challenges to the industry, ranging from the impact of EPA’s Mercury and Air Toxics rule on the coal fleet to the threats of cyberattacks on the grid itself. We are stronger as a result and are confident that innovative market-based solutions, which have been the hallmark of PJM since its inception, can continue to serve us well in addressing our new set of 21st century challenges.”

He appealed to his congressional inquisitors by holding up photos of new generation in several of the committee members’ districts.

On several occasions, he attempted to rebut criticism by public power providers who say their self-supply option has been eroded since the settlement that created PJM’s capacity construct. Lisa McAlister, senior vice president and general counsel of regulatory affairs for American Municipal Power, told the committee July 18 that PJM rule changes “have stripped away guaranteed clearing for self-supply.”

Glazer cited 1,375 MW of new generation or uprates to existing public power-owned generation since the inception of the capacity market. The RTO has added more than 46.5 GW of new generation over the same period.

He said confusion may have resulted from the July 7 D.C. Circuit Court of Appeals overturning portions of PJM’s minimum offer price rule. (See PJM MOPR Order Reversed; FERC Overstepped, Court Says.)

The order “did not overturn the specific agreed-to arrangement that PJM and its stakeholders worked out with public power entities,” Glazer said. “As a result, the right to self-supply in our capacity market and energy market has been negotiated with public power and fully honored by PJM and its stakeholders. To suggest otherwise is simply not consistent with those facts.”

“Absolutely, we have self-supply today,” Glazer reiterated in response to a question from Rep. John Shimkus (R-Ill.). “We have no intention of changing that.”

But Glazer rejected public power’s call to abandon the capacity market and use bilateral contracts to fill most of its capacity needs, saying it would eliminate price transparency.

Glazer had an exchange with Rep. Morgan Griffith (R-Va.), who complained that coal-fired generation was “under severe assault.” Glazer said PJM’s proposal that FERC change its price formation rules “to better recognize the attributes that key generators — including those which have come to be labeled ‘baseload generation’ — bring to the grid” would provide financial help for struggling coal plants. He said the proposed changes would “ensure that all resources needed to serve load are able to set wholesale prices.”

But he rejected Griffith’s claim that stranded costs resulting from premature coal plant retirements were falling on ratepayers. “We moved to the markets to try to not put it all on the backs of the customer,” he said.

Ranking member Frank Pallone (D-N.J.) took PJM to task for what he called excessive transmission spending and a lack of transparency in the RTO’s Regional Transmission Expansion Plan. Glazer noted that the Transmission Expansion Advisory Committee meetings are open to the public and sought to distinguish PJM’s role from that of state siting authorities. “Maybe we need to do more to reach out,” he offered.

ISO-NE

ISO-NE CEO Gordon van Welie recalled his testimony before the committee in March 2013, when he cited the “serious operational challenges” facing New England because of its changing generation mix.

“As New England has increased its reliance on natural gas [since 2013], we have not seen a corresponding increase in the region’s natural gas transportation and storage infrastructure, which is currently stressed to meet demand for natural gas for both home heating and power generation during the coldest weeks of the year,” he said. “The shift from power plants with on-site fuel supply (e.g., oil, coal and nuclear) to plants relying on the natural gas transportation network to deliver fuel when needed has exposed the limitations of New England’s fuel infrastructure system and highlights the challenge of securing fuel in advance of power system demands.”

Van Welie said the RTO has concluded that the Pay-for-Performance capacity incentives developed in 2013 “may not be sufficient to ensure fuel security during the winter” because of opposition to siting dual-fuel facilities and tighter emission limits that restrict the amount of time generators can operate on oil. That, he said “is likely to create greater dependency” on LNG imports.

NYISO

NYISO CEO Brad Jones briefed members on the ISO’s proposed transmission expansions to connect upstate renewables to downstate loads and its plan to incorporate carbon prices in its energy market — a response to the zero-emission credits approved for three upstate nuclear plants. (See New York ZEC Suit Dismissed.)

The ISO said it expects to release The Brattle Group’s report on the carbon plan within two weeks. That, Jones said, will be the basis for discussions with market participants and state officials. He said the ISO hopes to implement the plan in the markets within three years.

ERCOT

Unlike the other grid operators, ERCOT is still seeing strong load growth, said Chief Operating Officer Cheryl Mele. After growing at 2% annually in recent years, ERCOT expects annual growth of 1.5% for the next five years.

One thing it does have in common with the other regions: Low energy prices are pinching the finances of thermal and nuclear units. “We also have seen that, for several years, investors and unit owners of every type of generation were watching to see if there would be federal environmental policies that would materially affect their investments or retirement strategies,” Mele said. “That conversation has since changed. Nevertheless, aside from regulatory concerns, ongoing changes in the generation resource mix and market dynamics may have major impacts on potential unit retirement decisions.”

CAISO

Keith Casey, CAISO’s vice president of market and infrastructure development, told the committee the effects of low power prices — which have sparked calls for nuclear and coal subsidies in the eastern markets — also have led “conventional” plants in California to request “backstop” contracts to maintain their financial viability. (See CAISO Stakeholders Question Risk-of-Retirement Initiative.)

Casey, too, defended the markets. “We have almost 20 years of operating experience and have evolved our markets since the Western Energy Crisis occurred 17 years ago,” he said. “Consequently, the California ISO’s electricity markets have matured significantly and are in far better shape now than they were then to serve electric demand in an efficient and reliable manner. Indeed, our success has encouraged other transmission providers in the West to join our real-time energy market and form the Western Energy Imbalance Market.”