Page 1325 – RTO Insider

April 17, 2017

Gas, Solar, Efficiency Nudge Coal in Arizona Public Service IRP

By Robert Mullin

Arizona Public Service expects to meet its future energy needs through increased use of natural gas, solar and efficiency measures, while at the same time reducing its reliance on coal-fired generation, according to the company’s 15-year integrated resource plan.

The IRP filed with the Arizona Corporation Commission predicts the utility will face a deepening “duck curve” — such as that already witnessed in California — as households within its service territory ramp up adoption of non-curtailable rooftop solar resources.

Still, APS sees a continued, if reduced, role for its 1,146-MW Palo Verde nuclear plant located near Phoenix, which the company refers to as the country’s “largest carbon-free resource.”

Palo Verde Nuclear Generation Station | *APS*

The IRP calls for APS to rely on solar resources and energy efficiency to meet 50% of projected demand growth in its service territory by 2032, when the utility’s peak capacity requirements are expected to reach 13,000 MW, a 61% increase from the current 8,086 MW. The plan assumes that Arizona’s population will grow to more than 9 million from around 6.9 million today, adding 550,000 customers to the utility’s service area. The state’s Office of Economic Opportunity population projection falls short of APS’ 2032 estimate at just less than 8.8 million.

“We do have some concerns with [APS’s] numbers, but haven’t come to any conclusions yet,” Ken Wilson, an engineering fellow with Western Resource Advocates, told RTO Insider. Wilson noted that he’s participated in several preliminary workshops in which the utility presented its projections for load growth.

To achieve its goal of using renewables and efficiency to address half of that expected future growth, APS has proposed what it calls a “flexible resource portfolio,” that reduces carbon emissions through “select coal reductions,” more demand-side management and “a prudent level of energy storage,” while continuing to add renewables and operate Palo Verde.

Over the planning period, natural gas generation is expected to increase from 26% to 33% of the utility’s energy mix, while utility-scale renewables grow from 12% to 18%.

The utility also expects to offset peak load with an additional 979 MW of demand-side resources, which includes demand response and energy efficiency.

Coal-fired capacity would decline by 702 MW (42%) to 970 MW, accounting for 11% of the energy mix, down from 21% today. Output from Palo Verde is slated to hold steady, but the plant’s share of the mix would drop from 25% to 17%.

arizona public service gas solar coal — | *APS*

Market purchases are forecast to rise from 3% to 8% as the company retires coal and rolls off existing power contracts.

“APS will continue to pursue opportunities to increase operating efficiency and save customers money, such as participating in the CAISO Energy Imbalance Market and purchasing excess energy from short-term markets at low or negative (i.e., paid to take) prices,” the company said in a statement.

APS estimates that its CO₂ emissions and water consumption per unit of electricity will decline by 23% and 29%, respectively.

“Overall, our energy mix is increasingly cleaner, and we are adding more quick-starting power sources to integrate our growing solar energy resources and emerging technologies,” said Tammy McLeod, APS vice president of resource management.

Key among those technologies is energy storage, the deployment of which is expected to climb from 4 MW to 507 MW over the next 15 years.

The IRP points to the adoption of rooftop solar as “one of the single most defining factors in western energy markets today,” given its tendency to displace the output of other resources, create volatility in wholesale power prices and increase the need for fast-ramping natural gas plants and resources serving local load pockets.

APS expects rooftop installations within its territory to nearly double by 2032 to 4,998 MW, precipitating a deepening of a duck curve that could push “net loads” — the portion of system load served by non-variable resources — to as low as 500 MW, which will create ramping requirements of between 4,000 and 5,000 MW.

In response, the company plans to upgrade its operational flexibility, including the modernization of its Ocotillo Power Plant with five quick-start natural gas-fired units. APS also plans to invest in technologies that increase real-time visibility into the utility’s distribution system and implement a new Demand Response, Energy Storage, Load Management program to help residential customers manage energy use.

“Increasing renewable resources, energy efficiency and energy technologies, supported with highly responsive resources such as natural gas generation, will enable APS to deliver cleaner, reliable and reasonably priced electricity,” McLeod said.

April 17, 2017

SPP Z2 Panel Sees ILTCRs as Cure to ‘Mess of Complexity’

By Tom Kleckner

TULSA, Okla. — SPP’s Z2 Task Force last week conducted a series of votes to determine potential alternatives to the RTO’s cumbersome crediting system for transmission upgrades in time for a July deadline.

The group’s consensus is that incremental long-term congestion rights (ILTCRs) modeled after the RTO’s LTCR process and some modifications to the Z2 process are the best options for moving forward.

“We’re separating the must-haves from the nice-to-haves,” Kansas City Power & Light’s Denise Buffington, the task force’s chair, told the Markets and Operations Policy Committee on April 12.

AEP’s Richard Ross (left), KCP&L’s Denise Buffington (right) make their cases over AEP’s Bruce Rew. | © *RTO Insider*

Under Attachment Z2 of the RTO’s Tariff, members are assigned financial credits and obligations for sponsored upgrades. The task force is trying to simplify the process — which resulted in eight years of incorrectly applied credits — while still meeting FERC requirements.

It hasn’t been easy.

“It’s a mess of complexity,” SPP’s Charles Locke said, referring to three different funding mechanisms for the Z2 process: base plan, directly assigned costs and point-to-point clawbacks under various Tariff schedules.

“I’m not interested in coming to another meeting with more data and more proposals, and [having] another discussion on why we don’t like the process,” Buffington said, keeping the group on task during its meeting before the MOPC session.

SPP’s Charles Cates, Midwest Regulatory Consulting’s Dennis Reed listen to the discussion. | © *RTO Insider*

After “spirited discussion,” as Buffington described it to the MOPC, the task force approved:

Replacing the existing Z2 process with ILTCRs for all three upgrade types (sponsored, transmission service and generator interconnections). Doing so would require a secondary market to trade the ILTCRs and make them fully transferable, following examples set by MISO, PJM and other RTOs. Staff proposed using a modified ILTCR process for generator interconnection upgrades and the existing process for the other two upgrades but said it would need further study and software changes costing hundreds of thousands to implement all three categories.
A rate allocation similar to the Tariff’s schedules 11 and 13 for all three categories, with a limited roll-in of the facilities’ cost, depending on the extent to which it is used for subsequent transmission service. The proposal is focused on compensating service-upgrade sponsors, but it could be used for the other two categories.
Consideration of a standard credit payment rate that would put point-to-point payment obligations on par with network obligations.
Eliminating credits for short-term transmission service by decoupling a short-term transfer tool from the credit stacking system. Short-term impacts will no longer be “stacked” to determine when a creditable upgrade becomes reverse creditable. Staff assumes “fairly minimal” changes with this option and said it could take as little as two months to implement.
Eliminating credits for non-capacity upgrades.

The task force has scheduled two additional meetings to make a final decision and put together a final recommendation for the MOPC and Board of Directors meetings in July.

April 17, 2017

FERC: Gas Continued to Dominate in 2016

By Michael Brooks

Record warmth, combined with one of the largest increases in pipeline capacity in U.S. history, led to record-low gas prices last year, FERC said in its annual State of the Markets Report, released Thursday.

The 2015-2016 winter was the warmest on record for the continental U.S., with temperatures nearly 5 degrees above the 20th century average, according to the National Oceanic and Atmospheric Administration.

“Above average temperatures in the 2015-2016 winter limited natural gas demand during the first three months of the year, leading to robust storage inventories at the start of the 2016 injection season in April and reduced demand for storage injections through the summer,” FERC said. “Prices fell to record lows in the first half of 2016, before climbing thorough the second half of the year driven by steady domestic demand, rising exports and a drop in production.”

ferc state of the markets report natural gas — | *FERC State of the Markets 2016*

Henry Hub prices averaged $2.48/MMBtu, the lowest in 20 years and a 5% decrease from 2015. While prices fell across the country in 2016, the Northeast saw the most dramatic decreases, with New York City prices falling 42%. The region, however, saw a spike in prices last month. (See related story, Gas, LMPs Rebound in NY, New England in March.)

The low prices are made even more notable by the fall in supply. Gas production fell 2.5% last year, averaging 72.3 Bcfd, as overall domestic demand only rose 1% to 75.6 Bcfd. This was the first year-over-year drop in production since 2005, FERC said. However, the commission expects that production will rebound this year, “driven by a projected 26% increase in oil and gas exploration and production investment,” it said.

Prices will also remain low this year, the report said, because of the amount of new pipeline capacity. 2016 saw 7.1 Bcf go into service, and more projects are expected this year, with three into Mexico. Exports to the country grew 24% to 3.6 Bcfd, marking the sixth year in a row they have increased.

Storage withdrawals at the beginning of the year totaled 1.8 Tcf, the lowest in four years, and as a result, inventories stood at 2.5 Tcf in April, a record high. Inventories set another record at the end of the injection season as well, with 4.047 Tcf in storage in November.

Because winter 2016/17 was not quite as warm as 2015/16, gas demand from residential and commercial increased by 12% in December, compared to the same month in 2015. However, this winter made headlines for its brevity, with February 2017 being the second-warmest February on record. Last month, the Energy Information Administration reported the first-ever gas injection in February.

Gas Overtakes Coal; Renewables Continue Gains

While gas demand from the residential and commercial sectors fell 5.1%, this was partially offset by a 4% increase from power generators. 2016 was a landmark: While gas’ growth slowed (demand increased by 17% in 2015), it became the primary source of electricity generation nationally in 2016, the first time ever on an annual basis, according to EIA data. Gas generated 34% of U.S. electricity, compared to 30% from coal.

The U.S. added more than 27 GW of generating capacity in 2016, according to EIA. About a third of this were new natural gas plants, while about 10 GW of coal plants retired.

Most of the remaining additions were utility-scale renewable resources. The U.S. added 8.7 GW of wind and 7.7 GW of solar in 2016, according to EIA. The commission said renewables were buoyed by the extensions of the production and investment tax credits, as well as several increases in state renewable portfolio standards.

Additionally, despite the retirement of the 478-MW Fort Calhoun nuclear plant in October, the completion of Watts Bar Unit 2 that same month led to a slight net increase for nuclear capacity. FERC expects the increase to be short-lived, however, as numerous plants are expected to retire in the next few years. The fate of two under-construction plants in the Southeast are in doubt following the bankruptcy of Westinghouse Electric last month.

Net Metering Contributing to Low Electricity Demand, Prices

Thanks largely to cheap gas, power prices were down across most of the country, with PJM recording the lowest LMPs since the RTO’s formation in 1999. (See PJM Monitor Concerned About State Subsidies.) Like gas prices, New York and New England saw the biggest drop.

Total electricity sales fell 13% from 2015, even as the U.S. economy experienced steady growth. FERC attributed this to the warm winter and increased energy efficiency.

The commission also noted that net metering from rooftop solar is reducing demand for wholesale power. According to EIA, distributed solar capacity increased by 3.4 GW last year.

“Although net-metered projects largely participate in retail markets, their aggregate impact has begun to affect wholesale markets with large penetration of distributed solar projects,” FERC said. “These impacts can largely be seen as a functional reduction on demand from the RTO/ISO perspective, with subsequent shifting of system load curves.”

April 17, 2017

MISO IMM Recommends Tighter Rules for Constrained Areas

By Amanda Durish Cook

MISO’s Independent Market Monitor is again recommending the RTO expand mitigation measures on narrowly constrained areas by creating a new definition aimed at periods of temporary congestion.

At an April 13 Market Subcommittee meeting, Monitor staffer Michael Wander said the RTO should seek FERC permission to create dynamic narrowly constrained areas (NCAs) to address short-lived congestion and associated market power.

MISO currently has five NCAs with conduct thresholds — prices that indicate potential exercises of market power — that range between $22.31 and $100/MWh. NCAs are defined by FERC as chronically constrained where constraints that can limit competition bind for more than 500 hours annually. They can be defined in advance and are subject to tighter market mitigation thresholds than broad constrained areas.

MISO’s Independent Market Monitor is again recommending the RTO expand mitigation measures on narrowly constrained areas by creating a new definition aimed at periods of temporary congestion.

The Monitor says there are areas that do not meet the 500-hour trigger that also need to be covered by stricter thresholds, as they are “severely constrained areas with one or more pivotal suppliers.”

The dynamic NCA would be declared when conduct has occurred that would warrant mitigation on a non-NCA constraint, and that constraint has bound in 15% or more hours over at least five days. The new category, which would set a conduct threshold at $25/MWh, should only be used in “network conditions … that create substantial market power,” the Monitor said.

The Monitor first recommended creating dynamic NCAs in its 2012 State of the Market Report.

“We’re proposing to move on this as quickly as possible. I think we’ll propose Tariff language to stakeholders, and we have affidavits at the ready,” Wander said.

To create the category, MISO would have to expand its Module D mitigation provisions in the Tariff. Wander said moving the threshold will not require changes to the RTO’s automated mitigation procedures.

Dhiman Chatterjee, MISO director of market evaluation and design, said the RTO is “more or less on the same page” with the Monitor but needs time to review the recommendation.

Had the dynamic NCA definition been in place in 2015 and 2016, it would have been implemented 25 times for an average nine days each, Wander said. The impacts would have ranged from an average of $6.50/MWh to $424/MWh, with the highest price impact at $1,400/MWh. Wander said the simulation showed that dynamic NCAs would have occurred most frequently in MISO’s South and Central regions.

April 17, 2017

MISO, IMM Differ over Scarcity Pricing Changes

By Amanda Durish Cook

MISO’s Independent Market Monitor says the RTO isn’t going far enough in proposing changes to comply with FERC’s new energy offer cap rules.

MISO IMM value of lost load — Hansen | © *RTO Insider*

Chuck Hansen, MISO senior market engineer, told the April 13 Market Subcommittee meeting that the RTO will propose only “minimal” changes to its operating reserve demand curve (ORDC) in a filing planned for next month to comply with FERC Order 831, which requires the use of a $1,000/MWh soft cap and $2,000/MWh hard cap by winter 2017/18. MISO says the ORDC also must be changed because of new NERC reliability rules. (See MISO Contemplates Market Design Changes from FERC Offer Cap Rule.)

Monitor David Patton, however, told the committee that MISO should make broader changes, including an immediate increase in its maximum value of lost load (VoLL) calculation.

MISO’s Step-Based Curve

MISO’s current ORDC is step-based, dropping sharply from a $3,500/MWh maximum VoLL when less than 4% of the requirement level has cleared, to $1,100/MWh when more than 4% of the requirement clears. It then drops vertically to $200/MWh when 96% or more of the requirement is satisfied.

Under MISO’s proposal, the new curve would begin at $3,300/MWh, dropping to $2,100/MWh when the RTO clears 8% of its requirement level, reflective of “extreme scarcity conditions,” Hansen said. At 89%, the level falls to $1,100, remaining there until 96% or more of the requirement is cleared, when the curve flattens at $200.

Even as the top of the ORDC inches toward the maximum VoLL — currently the $3,500/MWh limit set in 2005 — Hansen said MISO won’t recommend VoLL changes in its FERC filing. He acknowledged, however, that the maximum will have to be redone in the “near future.”

“We’re going to move forward with [refreshing the VoLL] subject to budget limits. We’ve got a lot of things going on right now, but assessing VoLL is not a trivial matter,” MISO Executive Director of Market Design Jeff Bladen said.

MISO’s deadline for filing the proposed changes is May 8. “We should be able to achieve that if everything goes as planned,” Hansen said.

Order 831 caps incremental energy offers at the higher of $1,000/MWh or a resource’s cost-based energy offer, with $2,000/MWh being the maximum bid. (See New FERC Rule Will Double RTO Offer Caps.)

MISO said its proposal won the broadest support from stakeholders of four options considered.

Patton Seeks Increase in VoLL

But Patton is recommending the RTO make immediate changes to its VoLL limit and change its ORDC calculation to a sloped curve that he contends would better price shortages. Patton said a VoLL cap of $9,000/MWh is reasonable based on past studies. The Monitor would set a VoLL of $1,000/MWh to reflect the demand curves for spinning reserves and regulation, and high marginal energy costs resulting from congestion.

He pointed to PJM, which currently prices shortages as high as $6,000/MWh (based on the sum of the shortage pricing and capacity performance settlements). If MISO does not increase its VoLL, Patton said, it will result in inefficient imports and exports with PJM when both markets are tight.

Patton says MISO’s proposal fails to address problems with the current curve, which he says overstates the reliability risks for small shortages and understates them for more severe ones. “The steep portion of the ORDC is based on inaccurate loss-of-load estimates” that incorrectly model the loss of only one unit at a time and do not accurately capture wind forecast errors, Patton said.

The Monitor said the curve should reflect the expected VoLL through a calculation of the probability of losing load multiplied by the net value of lost load, resulting in a smoother, more “economic” curve than MISO’s current step-based pricing.

FERC Guidance Needed

Patton said it would be “helpful” if FERC would offer guidance for creating operating demand curves. “They’re set in crude, step-wise curves,” he said. An economic curve will reflect the value of reliability and “allow prices to rise efficiently as operating reserve shortages increase.”

Patton maintains that the current curve’s steep jump between $1,100/MWh and $200/MWh results in “volatile pricing” by offline resources that set prices in extended locational marginal pricing. “The shortage pricing under the economic ORDC will track the escalating risk of losing load,” Patton said. “In the range where most shortages occur, the economic ORDC is sometimes higher and sometimes lower than the current curve so it should not substantially increase consumer costs for these shortages.”

Bladen said there’s “almost certainly improvements to be made” to the ORDC, but MISO first must perform its own studies and move the issue through the stakeholder process before it proposes further improvements.

April 17, 2017

MISO Resource Adequacy Subcommittee Briefs

MISO stakeholders will decide in an email vote whether it’s worth debating the cost allocation for holders of firm transmission service reservations of more than 1,000 MW between MISO Midwest and South.

The Load-Serving Entities sector presented a motion to the Resource Adequacy Subcommittee on Wednesday asking that MISO drop the issue, which is an outgrowth of the RTO’s settlement over the use of SPP’s transmission for North-South transfers. The LSEs said changing the cost allocation of payments to SPP would not provide significant benefits to MISO.

Kevin Murray, representing the Coalition of MISO Customers, asked that a vote on the motion be tabled until FERC acts on the uncontested settlement for cost allocation among MISO members filed in August (ER14-1736, et al.), but stakeholders overwhelmingly rejected tabling the motion, 36-2. In the settlement filing, MISO has proposed allocating a declining percentage of the costs to reimburse SPP through a load ratio calculation and an increasing amount through a flow-based benefits methodology.

Keith Berry of the Arkansas Public Service Commission pointed out FERC may not act for quite a while because the commission has been short of a quorum since former Chairman Norman Bay’s resignation in February. President Trump has not nominated any replacements to fill the commission’s three open seats.

After considerable debate, stakeholders agreed to decide the issue via email. Ballots are due April 19.

Some stakeholders said firm reservations undoubtedly diminished the 2016/17’s Planning Resource Auction’s transfer capability between the RTO’s Midwest and South regions from 1,000 MW to 876 MW, increasing clearing prices.

Last month, some stakeholders questioned whether continuing the debate over the cost allocation was worth the effort. The 1,000-MW-plus usage of the transfer path is only relevant in the 2018/19 planning year, when firm reservations were granted in excess of 1,000 MW. (See “MISO Examines Single Year of MISO-SPP Settlement Allocation,” MISO Resource Adequacy Subcommittee Briefs.)

Any change would affect no more than 304 MW, because the potential TSRs over the North-South path for the year total 1,304 MW, the LSEs said.

MISO is currently in the fourth year of its settlement agreement with SPP over flows of more than 1,000 MW using SPP transmission to ferry energy between MISO Midwest and MISO South.

MISO Manager of Resource Adequacy Coordination Laura Rauch said the RTO and stakeholders have to reach a decision by November, filing either a cost allocation change or a notice explaining it would not pursue the issue. RASC Chair Chris Plante said the Regional Expansion Criteria and Benefits Working Group could be charged with working out the details if stakeholders decide to pursue a cost allocation change.

Next April, MISO stakeholders will tackle a related issue, deciding if and how to allocate costs to benefiting entities if the RTO raises the amount of capacity that can be transferred between the South and Midwest sub-regions to more than 1,000 MW in capacity auctions after April 2018.

MISO Still Tweaking OMS-MISO Survey Format

MISO is still tinkering with the format of its annual resource adequacy survey with the Organization of MISO States.

The RTO is proposing a “floating” format in which committed retirements and additions with signed interconnection agreements are left out of the bar graphs and the survey instead focuses on the range of possibilities from planned additions and potential retirements.

miso resource adequacy subcommittee cost allocation — 2016 OMS-MISO Survey results with 35% DPP projects in floating format | *MISO*

“People tend to gravitate toward the low end of the range. We’re really not trying to point people to the low end of the range or the high end of the range,” RASC Chair Shawn McFarlane said.

Survey results are expected in June. MISO plans to add a 35% share of projects in the definitive planning phase of the interconnection queue into survey results, although stakeholders have said the completion estimate is too low. (See Differences Persist over OMS-MISO Survey Improvements.) Incorporating the 35% calculation would have shifted 2016 results from a possible 15.9 to 17.4% planning reserve margin range to 15.9 to 19.1%. MISO requires a 15.2% reserve margin.

Rauch said MISO will continue to work on the survey format even after results are released in late spring. “We have had it evolve over the years with incremental changes,” said Rauch, pointing out that the RTO now focuses on the first five years of survey, rather than the full 10 years. It also shares data for each local resource zone while reporting inter-zonal transfers.

Stakeholders asked if MISO considers other variables, including external resources and wind at full capacity. Rauch said the RTO does consider transfers from other balancing authorities when calculating survey results.

— Amanda Durish Cook

April 14, 2017

UPDATE: All Zones at $1.50/MW-day in 5th MISO Capacity Auction

By Amanda Durish Cook

All 135 GW worth of capacity procured across 10 local resource zones in MISO’s fifth annual Planning Resource Auction cleared at $1.50/MW-day, a vast departure from the regional disparities of the last two years, when prices rose as high as $150.

MISO said the results for planning year 2017/18, which begins June 1, are reflective of new supply and lower demand in the Midwest.

“The 2017-18 auction results reflect a net regional increase in supply compared to last year’s results,” said Richard Doying, MISO executive vice president of operations. “Even as the generation fleet continues to evolve, the level of available resources positions the region well for reliable operations in the coming year.”

Because there were no binding constraints between the zones, all zones’ prices were set by an offer submitted by a resource in Zone 1, which encompasses parts of Wisconsin, Minnesota and the Dakotas, Doying said.

The year’s “uneventful” results were a function of more supply and less demand, and the lack of constraints. “When you combine those two, you get lower prices and uniform prices. … It doesn’t take much to have a significant impact on the clearing results,” he said during an April 14 press conference.

Doying also said results weren’t surprising given that even a small uptick in supply or a small reduction in demand can drop prices.

Capacity Needs Drop by 730 MW

MISO experienced an overall 730-MW decrease in capacity requirements, resulting from a roughly 1,000-MW decrease in MISO Midwest’s requirement and an approximate 300-MW increase in MISO South, indicative of regional economies, Doying said.

At an April 14 stakeholder conference, energy attorney Valerie Green of Michael Best & Friedrich asked if MISO had an explanation for the decline in load. MISO Manager of Resource Adequacy John Harmon said economic slowdowns were consistent across zones that experienced load declines.

Doying said this year’s offers included more demand, energy efficiency, solar and wind resources than the 2016/17 planning year auction. Auction results were reviewed and certified by MISO’s Market Monitor; no mitigation was required.

The single clearing price is in stark contrast to the RTO’s last two PRAs. In the 2016/17 auction, MISO South cleared uniformly at $2.99/MW-day and almost all of MISO Midwest cleared at $72/MW-day, with Zone 1 the lone outlier at $19.72/MW-day. (See MISO’s 4th Capacity Auction Results in Disparity.) MISO said last year’s disparate results were a product of retirements and capacity exports. This year’s clearing price also represents a hundred-fold decrease from the $150/MW-day price in Illinois’ Zone 4 in the 2015/16 planning year auction.

MISO resource adequacy subcommittee capacity auction — | *MISO*

Illinois Clean Jobs Coalition spokesman Billy Weinberg said the 2017/18 auction results are evidence that market forces are favoring energy efficiency and more affordable renewables. “Now is the time to begin planning for new investments and jobs in Central and Southern Illinois in cleaner technologies like energy efficiency, wind and solar energy that grow cheaper by the day and improve public health,” he said.

MISO also said the prices were a result of the improved transfer capability between zones. MISO’s South-to-Midwest export constraint increased from 876 MW last year to 1,500 MW this year; the Midwest-to-South limit increased from 2,794 MW to 3,000 MW. (See MISO to Use Same Sub-Regional Limit Rules for 2017/18 PRA.)

This year, the RTO’s maximum offer using the cost of new entry ranged from $246/MW-day for Zone 10 in Mississippi to $265/MW-day for Zone 5 in eastern Missouri.

In March, MISO predicted that all local resource zones would have enough capacity to meet their individual clearing requirements, with 172 GW worth of total installed capacity easily meeting the RTO’s 135-GW planning reserve margin requirement. (See “Preliminary PRA Data Show Capacity Excess,” MISO Resource Adequacy Subcommittee Briefs.)

Harmon said auction results will be presented to stakeholders in a more detailed presentation at the May 10 Resource Adequacy Subcommittee meeting.

In a research note Friday, UBS Securities analysts Julien Dumoulin-Smith and Jerimiah Booream called the results “a material disappointment for MISO, sending prices back to their historic lows of 2012 and 2013. … This will prove difficult to shift out of given the impacts from [the Mercury and Air Toxics Standards] and other environmental regulations that drove the improvements in prior periods.”

UBS had predicted prices would clear no lower than $12/MW-day. The analysts said prices would have been closer to $10/MW-day based on the lower demand but that the offer curve was also “flatter” because of Illinois’ approval of zero-emission credits for Exelon’s Clinton nuclear plant, which left the company less concerned with maximizing its capacity revenue. “This was the decisive factor in holding prices lower,” they wrote.

Same Auction Process

The auction was unchanged from its usual format, despite MISO’s attempt at a redesign that would have bifurcated the capacity market by holding a forward auction for competitive load three years prior to the prompt PRA. In February, MISO abandoned the changes after a curt FERC rejection. (See MISO Won’t Seek Rehearing on Auction Redesign.)

Doying said MISO has “other priorities” than reviving the Competitive Retail Solution. He said the RTO will continue a discussion about resource adequacy in Michigan and Illinois.

Exelon’s decision to keep its Quad Cities nuclear plant operating — thanks to Illinois’ approval of zero-emission credits to provide the plant additional revenue — has eased some of MISO’s concern, Doying said.

External Zones, Seasonal Classification

That does not mean MISO is dropping plans to improve the PRA. While a possible two-season classification is on ice for the remainder of 2017, the RTO is currently navigating the stakeholder process on creating external capacity pricing zones.

“Industry forces continue to indicate significant shifts in the fleet,” Doying said. “MISO will continue to address seasonal and locational issues with our stakeholders while ensuring that market signals provide incentives for investment where and when they are needed.”

At an April 12 RASC meeting, MISO’s Laura Rauch asked stakeholders how different classes of external resources should be treated. She presented stakeholders with examples of pseudo-tied resources, border resources and coordinating owners such as Manitoba Hydro. She also asked about contracts signed before the formation of the MISO market in 1998 or FERC’s 2012 approval of the PRA construct.

“What is the best method to recognize the contracts of existing resources?” Rauch asked stakeholders.

MISO is also asking stakeholders what rules should dictate external zone pricing. The RTO has proposed that the external zone price be based on the sink of the external resource.

Last month, the Monitor suggested pricing be based on balancing authority boundaries, with resources connected to both sides of Midwest-North constraint receiving a blended price. (See “IMM Offers Own PRA External Zone Design,” MISO Resource Adequacy Subcommittee Briefs.) Rauch said MISO will use stakeholder input to draft Tariff language and address the Monitor’s proposal at the May RASC meeting. Rauch said MISO staff is still evaluating the proposal.

Illinois Municipal Electric Agency’s Rakesh Kothakapu said MISO needed to be careful with pricing, especially considering if external zones continue to be priced low while supply continues to tighten. “We don’t want to end up in a situation where we price them lower even when it has nothing to do with a constraint,” he said.

A seasonal auction classification is beginning to look less certain.

“There’s a general thought that stakeholders aren’t as interested in a seasonal construct as they once were. The informal feedback I’m receiving is along those lines,” RASC Chair Chris Plante said.

In January, some stakeholders said the seasonality proposal had fallen out of favor after MISO revealed design specifics last year. (See MISO Plans Additional Capacity Auction Revamps for 2017.)

April 14, 2017

EIM Panel Backs Schmidt for 2nd Governing Body Term

By Robert Mullin

A Western Energy Imbalance Market (EIM) nominating committee made up of regional stakeholders is recommending that Kristine Schmidt be reappointed to the market’s Governing Body.

western energy imbalance market governing body — Schmidt | © *RTO Insider*

Schmidt was selected by the inaugural Governing Body last June after an extensive vetting process that included deliberations among five industry sectors: EIM entities, ISO participating transmission owners, power suppliers and marketers, publicly owned utilities, and state regulators. (See CAISO Board Appoints Western Energy Imbalance Market Governing Body.)

“The committee deliberated, as well as conducted outreach to its respective sectors, and reached consensus that it wished to renominate member Schmidt,” the nominating committee said in a memo to the Governing Body.

While Governing Body members are typically appointed for three years, the EIM’s charter calls for their terms to be staggered. Last year, a random selection process left Schmidt with what was essentially the short straw: a one-year stint slated to end this July. Schmidt’s fellow body members elected her to be the group’s chair during the group’s first meeting last August. (See EIM Governing Body Convenes First Meeting, Selects Leadership.)

“While quite grateful for this first one-year term … I firmly believe that given the forecasted EIM market and policy changes and the expansion opportunities, I have much more to offer the Western EIM and Governing Body to realize the mission of promoting, protecting and expanding the EIM,” Schmidt wrote in a Jan. 26 letter to the nominating committee.

Schmidt’s brief time on the Governing Body has seen the group perform myriad functions, including reviewing the EIM’s governance structure, initiating outreach to Western utility commissions and EIM members, participating in the self-evaluation of the Regional Issues Forum, and dealing with two CAISO initiatives in the group’s “advisory” capacity to the ISO’s Board of Governors.

In her letter, Schmidt noted that the body expects to rule on nine decisional matters this year. Most of those decisions are slated to land on the agenda starting in the third quarter.

“With a substantial workload pending for the latter half of 2017, I believe the experience and knowledge gained thus far will prove vital when deliberating over these decisional and advisory policies, as well as future polices in 2018 and beyond,” Schmidt wrote. Her fellow Governing Body members will vote on her reappointment during the group’s April 19 meeting.

Schmidt is currently president of Dallas-based Swan Consulting and has more than 30 years’ experience in the energy sector. She was formerly vice president at ITC Holdings and director at Xcel Energy. She has also worked as an adviser to former FERC Commissioner Nora Brownell.

April 14, 2017

Texas Commission Denies NextEra’s Bid for Oncor

By Tom Kleckner

The Texas Public Utility Commission on Thursday formally rejected NextEra Energy’s proposed acquisition of Oncor, unanimously approving an order denying the $18.7 billion deal.

The PUC telegraphed the decision during its previous open meeting March 30. All three commissioners made it evident then that they believed the risks posed by NextEra’s ownership outweighed the benefits. (See Texas PUC Puts Brakes on NextEra’s Oncor Acquisition.)

Little changed Thursday.

“NextEra Energy ownership of Oncor would subject the company and its ratepayers to significant new risks,” the PUC said in the order. “The tangible benefits to Texas ratepayers that are specific to the proposed transactions are minimal and would do little to compensate ratepayers for any of the additional risks imposed.

“When the commission weighs the additional risks and the lack of tangible benefits … the commission finds that the proposed transactions are not in the public interest.”

The commission noted NextEra’s proposal “is premised on the ability to link Oncor’s credit profile with that of NextEra Energy,” and that the Florida company objected to removing two protections from Oncor’s existing ring fence: restrictions on NextEra’s ability to appoint and replace members of Oncor’s board of directors, and the board’s ability to limit dividends or other “upstream distributions” from Oncor.

The PUC said those two ring-fence provisions had insulated Oncor from parent Energy Future Holdings’ bankruptcy. It said “a truly independent” board with control over decisions on capital expenditures and operating expenses is a “critical part of the ring fence.”

NextEra and Oncor declined to comment on the order and future steps, as they have done throughout the process.

NextEra proposed last summer to purchase Oncor in three transactions:

The approximately 80% interest indirectly held by EFH;
The 19.75% interest indirectly held by Texas Transmission Holdings Corp.; and
The 0.22% interest held by Oncor Management Investment.

The PUC considered all three transactions as one. It said NextEra’s “expansive and diversified structure” would subject Oncor to “new and potentially substantial risks.” It said NextEra would be refinancing current debt with new debt, making Oncor responsible for supporting 15% of $45 billion in consolidated obligations.

The commission approved the order before gathering in public Thursday, but brought it up briefly during the open meeting to substitute the word “difficulties” for “calamity” in a reference to how “a robust ring fence” protected Oncor’s ratepayers from the impact of EFH’s bankruptcy.

It was the second failed attempt to acquire Texas’ largest transmission and distribution service provider in less than a year. Dallas-based Hunt Consolidated withdrew its application with the PUC last May over requirements it found too onerous. (See Texas PUC Denies Rehearing on Oncor Sale, Ends Hunt Bid.)

Oncor has been ring fenced since 2007, when EFH, a collaboration of several private-equity firms, acquired TXU Corp. in a leveraged buyout. EFH, saddled by nearly $50 billion in debt when it bet wrong on high gas prices, declared Chapter 11 bankruptcy in 2014. It has since spun off its generation and retail electric service providers as Vistra Energy.

NextEra’s proposed acquisition was part of EFH’s eighth amended plan of reorganization, which was confirmed by a bankruptcy court in Delaware in February. That court has scheduled another hearing on the case Monday, where it and EFH’s creditors could look for another suitor for Oncor or divvy up a potential independent public offering.

NextEra shares fell briefly to $130.22 after the commission’s meeting opened, before recovering to close at $130.79. The company’s stock has gained more than $11/share since the year began.

April 14, 2017

Gas, LMPs Rebound in NY, New England in March

By Michael Kuser

A spike in natural gas costs pushed LMPs up in both NYISO and ISO-NE in March, though analysts say the rise may be short-lived.

NYISO on Wednesday reported locational-based marginal prices for March averaged $34.97/MWh, up from $30.95/MWh in February 2017 and a 69% jump from the $20.66/MWh in March 2016. Year-to-date costs averaged $37.81/MWh through March, up 23% from $30.68/MWh a year earlier.

In his April 12 Market Operations Report to the Business Issues Committee, Rana Mukerji, NYISO senior vice president for market structures, said natural gas prices in March were up 169% year-on-year, with prices at Transco Z6 NY averaging $3.49/MMBtu for March, up from $2.83/MMBtu in February. Mukerji said five days of cold weather boosted prices for the month.

ISO-NE said its average LMPs more than doubled in March from a year earlier as average natural gas prices rose 142%.

The RTO said the energy market totaled $382 million in March, up 74% from March 2016, ISO-NE Chief Operating Officer Vamsi Chadalavada told the New England Power Pool Participants Committee on April 7. Cold weather and higher gas prices March 11-14 caused day-ahead LMPs to jump to nearly $100/MWh during the period, with real-time prices spiking as high as $150/MWh as a storm hit the region with near-blizzard conditions March 14.

Blip or Trend?

Are the higher natural gas prices just a blip, or do they portend higher generator costs going forward? Jordan Grimes, director of power and gas with Morningstar, said that “market sentiment is relatively bearish on Henry Hub gas prices, but there are reasons to be bullish on Northeast prices, with the region facing coal retirement and capacity issues.”

The Iroquois pipeline delivers natural gas to western Connecticut from the Canada-New York border southeast of Ottowa, while the Algonquin pipeline carries Marcellus shale gas from Pennsylvania into Connecticut and Massachusetts. “Right now the market is rallying on that, and bullish on Marcellus translates into bullish downstream of Marcellus,” Grimes said.

About 1.0 Bcfd of new FERC jurisdictional pipeline capacity went into service last year in the Northeast, including the Transco Rock Springs expansion (192 MMcfd), the First ECA Midstream project (152 MMcfd) and the Algonquin Incremental Market Project (342 MMcfd), which began operation in the fall.

FERC State of the Markets Report

The March price spikes came following a year that brought record-low natural gas prices and near-record-low power prices, FERC reported in its 2016 State of the Markets report, released Thursday.

“Although natural gas production fell for the first time since 2005, flat demand due to above average winter temperatures at the start of the year and high natural gas storage inventories contributed to the low prices,” FERC said. “The low natural gas prices further incentivized gas-fired generation in 2016, and for the first time in history, natural gas’ share of total electricity generation output overtook coal’s on an annual basis.”

Henry Hub prices averaged $2.48/MMBtu, the lowest level in 20 years, FERC reported.

“Above average temperatures in the 2015-2016 winter limited natural gas demand during the first three months of the year, leading to robust storage inventories at the start of the 2016 injection season in April, and reduced demand for storage injections through the summer. Prices fell to record lows in the first half of 2016, before climbing thorough the second half of the year driven by steady domestic demand, rising exports and a drop in production.”

Although the highest in the country, gas prices in Boston were down one-third from 2015. New York City prices showed the largest decrease from 2015, dropping 42%.

U.S. gas production fell 2.5% to 72.3 Bcfd, the first annual drop since the burst in shale production began in 2005.