Page 1328 – RTO Insider

April 28, 2017

Avangrid Q1 Net Income up 13% on NY, Conn. Rate Hikes

By Michael Kuser

Rate increases in New York and Connecticut helped Avangrid boost first quarter earnings by 13%.

The company, which benefited from increases for New York State Electric and Gas and Rochester Gas & Electric in New York, and United Illuminating in Connecticut, on Tuesday reported consolidated net income of $239 million ($0.77/share), compared with $212 million ($0.69/share) for the same period in 2016. Operating revenues were up 5.2% to $1.76 billion from $1.67 billion.

Rochester Gas & Electric Substation | *Avangrid*

CEO James P. Torgerson told analysts on a conference call that the company is “on track” to meet its target of 8 to 10% compound annual earnings growth through 2020. Company officials also talked about prospects for the company’s renewable generation business and gave a status report on other federal and state regulatory issues.

The company has “no expectations” of seeking a rate increase in 2017 for Central Maine Power, Torgerson said. Gov. Paul LePage has said high electric rates are hindering business, even though the state has the lowest industrial and residential energy prices in New England as of February, according to the Energy Information Administration. LePage claims, however, that Maine competes not with other states in New England, but with states like Michigan and Alabama, which have lower rates.

New York

On the slow progress in securing approval of NYSEG and RG&E’s combined proposal for advanced metering infrastructure, Torgerson noted that the New York Public Service Commission has only two out of five commission seats filled. As part of the state’s Reforming the Energy Vision initiative, the utilities are starting their AMI work by installing 20,000 smart meters in Ithaca.

avangrid renewables offshore wind farm — Avangrid’s Barton Wind Farm

Settlement talks on a request by multiple intervenors seeking to compel the utilities to institute a “collaborative process” on AMI issues have been slowed by the investigation into RG&E’s response to a freak wind storm on March 8, which left more than 30,000 households without power for days.

RG&E’s $145 million R.E. Ginna retirement transmission alternative project went in operation in the first quarter. The project upgraded transformers and other equipment at two substations, increasing the capacity for one 115-kV and three 345-kV underground lines.

Connecticut

Torgerson also said “timing is getting critical right now” on a decision by Connecticut lawmakers on whether or not to pay subsidies to Dominion Energy’s Millstone nuclear plant in Waterford. S.B. 106, which is pending in the legislature now, “would put more cost back on to the customer,” Torgerson said. “I think Dominion would say [it will] lower the cost, but I think it actually raises a little.”

“There’s been really no detailed information provided to be able to make a determination as to whether that plant truly needs to get a subsidy or not to continue to run and what kind of profitability it has,” added CFO Rich Nicholas. “I think that’s the biggest rub right now that’s going on with Millstone and Connecticut.” (See Millstone No Dead Weight for Dominion, Says Opponents’ Study.)

ROE Move Now Up to FERC

Torgerson and Nicholas both commented on the D.C. Circuit Court of Appeals’ April 18 ruling overturning FERC’s 2014 order setting the base return on equity for Central Maine and other New England transmission owners at 10.57%. The court said the commission failed to meet its burden of proof in declaring the previous 11.14% rate unjust and unreasonable. (See Court Rejects FERC ROE Order for New England.)

“We all know that the 11.14% was in the range of reasonableness that FERC had set out, so we’re waiting to see what FERC will decide to do,” Torgerson said. “Then if they get over that, then we’ll have to determine if setting the base ROE at the midpoint of the upper half of the range of reasonableness is just and reasonable in and of itself.”

Nicholas looked for a more long-term resolution: “I think that the hope would be that maybe as we get new commissioners [at FERC] … that maybe they revisit the whole process and see if they can find a process whereby you avoid this pancaking where we now have four different complaints on the same issue.”

Renewables Unit Continues Growth

Avangrid Renewables’ contribution to earnings per share increased by 41% in the first quarter from Q1 2016, rising to 26% of adjusted EPS. The company is looking to keep the growth momentum going with future projects, including by bidding on offshore wind projects in Massachusetts.

On April 25, Avangrid participated in the bidders conference for clean energy proposals in Massachusetts. Torgerson said that he hoped to leverage parent company Iberdrola’s experience — the company has about 1.3 GW of offshore wind in operation or under construction — to win a contract to supply some of the 1,600 MW of offshore wind being solicited by Massachusetts.

The notice of intent to bid is due in early May, with proposals due at the end of July. The selection will probably come by the end of January 2018, Torgerson said.

Avangrid offshore wind — North Carolina Offshore Wind Map | *BOEM*

“They are really encouraging proposals that would include generation able to commit to deliveries by the end of 2020,” he said. Torgerson said the Massachusetts clean energy projects “not only will benefit Massachusetts and help them reach some of their renewable targets but also … help consumers in Maine by lowering energy prices in Maine.”

In March, Avangrid Renewables won the Bureau of Ocean Energy Management’s auction for an offshore wind lease on 122,000 acres about 24 nautical miles off the coast of Kitty Hawk, N.C. It was one of the final accomplishments of Avangrid Renewables CEO Frank Burkhartsmeyer, who is resigning May 17 to become CFO of Oregon-based natural gas provider NW Natural. (See Avangrid Renewables CEO Steps Down to Take NW Natural Role.)

April 28, 2017

No 2nd Term for FERC’s Colette Honorable

By Michael Brooks

FERC Commissioner Colette Honorable announced Friday she will not seek a second term on the commission. Her current term expires June 30.

“After much prayer and consideration, I’ve decided not to pursue another term at the Federal Energy Regulatory Commission,” Honorable said in a statement. “I appreciate the strong bipartisan support I’ve enjoyed over the years and look forward to continuing this important work after leaving the commission.”

Honorable at an EBA event in 2016 | © *RTO Insider*

Honorable was nominated by President Barack Obama in August 2014 to fill the remainder of former Commissioner John Norris’ term. The Senate unanimously confirmed the former Arkansas Public Service Commission chairman in December 2014. (See Senate Confirms Honorable to FERC.)

Neither Honorable nor FERC said when she would leave the commission. “We have nothing more than her statement,” a FERC spokeswoman said.

Honorable could serve until her successor is confirmed or the end of the current Congressional session, whichever comes first.

In the past, some commissioners have stayed on past their terms’ expiration dates, saying they would wait until a replacement is named.

But Commissioner Tony Clark left at the end of September last year after his term expired in June without any nomination being submitted. And the commission has been without a quorum since February, when Chairman Norman Bay resigned after President Trump named Cheryl LaFleur acting chair.

Honorable had been interviewed on E&ETV’s “OnPoint” web show April 24 and gave no hint of her impending decision. She also said the commission was “hopeful that any day, any week we will hear who the nominees will be” and that she had no insight into when they would be announced.

Stakeholders and members of Congress have grown increasingly agitated that the president has not submitted any nominations to the Senate.

Honorable’s chances of being reappointed diminished with Trump’s election. Although the commission has not traditionally been marked by partisan divisions, the president gets to appoint members of his party to three of the five seats and pick the chairmanship. (See CPP, FERC’s Bay, Honorable Among Losers in Trump Win.)

Since Republicans Philip Moeller and Clark left, the five-member panel had been all Democrats: Honorable, Bay (whose term ran through June 2018) and LaFleur (June 2019).

Although Bay’s departure left an opening for a second Democrat, FERC insiders had not expected Honorable to remain.

April 28, 2017

DC Circuit Puts Hold on CPP, MATS Challenges

By Michael Brooks and Rich Heidorn Jr.

The D.C. Circuit Court of Appeals granted the Trump administration’s requests to hold in abeyance lawsuits challenging EPA’s Clean Power Plan and Mercury and Air Toxics Standards, small but important victories for the president — just before his 100th day in office — as he tries to reverse the Obama administration’s regulations on fossil fuel-fired power plants.

The orders also come just before a march in D.C. protesting President Trump’s policies on climate change.

The administration filed its requests on the CPP and MATS cases — along with several others regarding numerous lawsuits concerning Obama-era environmental regulations — shortly after Trump signed an executive order at EPA headquarters last month directing agencies to review all existing regulations “that potentially burden the development or use of domestically produced energy resources.” (See Trump Order Begins Perilous Attempt to Undo Clean Power Plan.)

The court on Friday ordered the suit against the CPP, filed by 26 states , to be paused for 60 days, with EPA required to file a status report in 30 days.

Stay

Implementation of the CPP was stayed by the Supreme Court in February 2016, shortly after the states filed their challenge, and the D.C. Circuit heard more than seven hours of oral arguments in September. The stay was a surprise to many and came without explanation, but it’s likely the Supreme Court wanted to avoid what happened with MATS.

The court in June 2015 found that rule illegal because EPA had not considered its costs. But because the rule, first proposed in March 2011, had not been stayed during the years of litigation, companies had been making investments and closing power plants in order to comply by the April 2015 effective date.

Instead of voiding the rule, the Supreme Court remanded the case back to the D.C. Circuit, which ordered EPA to rewrite the rule with a proper cost-benefit analysis. The court’s Thursday order suspended the case until further notice. EPA is required to file a status report in 90 days.

The holds give the administration more time to figure out how to revise — or potentially rescind — the rules. It is unclear how it intends to do this. But in the case of the CPP, the order does stave off the court from potentially upholding the rule.

Chief Judge Merrick Garland did not participate in the order, as he had recused himself from cases while his nomination to the Supreme Court by President Obama was pending before the Senate.

EPA Request

EPA asked the court to delay action on the CPP challenge on March 28, the day Trump signed an executive order directing EPA Administrator Scott Pruitt to begin the lengthy process of undoing the rule.

“The Clean Power Plan is under close scrutiny by the EPA, and the prior positions taken by the agency with respect to the rule do not necessarily reflect its ultimate conclusions,” EPA said in its motion. “EPA should be afforded the opportunity to fully review the Clean Power Plan and respond to the president’s direction in a manner that is consistent with the terms of the executive order, the Clean Air Act and the agency’s inherent authority to reconsider past decisions. Deferral of further judicial proceedings is thus warranted.”

Environmental groups — including the Sierra Club, Environmental Defense Fund and Natural Resources Defense Council — filed a response April 5 contending that EPA’s request “would have the effect of improperly suspending the rule without review by any court, without any explanation and without mandatory administrative process.”

“The relief EPA seeks flouts the terms of the order by which the Supreme Court temporarily stayed enforcement of the rule. The Supreme Court did not invalidate the rule; consistent with the authority granted courts by the Administrative Procedure Act, it issued a stay pending a decision by this court and an opportunity for Supreme Court review. Now EPA wants the stay, but not the judicial review that formed the basis for it,” they wrote. “Granting EPA’s motion would effectively convert that temporary enforcement relief pending judicial review into a long-term suspension of the rule likely continuing for years, without any court having issued any decision on the rule’s merits.”

CPP’s Vulnerabilities

Based on the judges’ questions and comments during oral arguments in September, it appeared four of the five challenges — a Constitutional issue; a bill drafting error; EPA’s alleged failure to provide sufficient notice of changes between the original and final plan; and a claim that it relied on dubious assumptions on the growth of renewables — had little chance of prevailing. But the judges seemed to be seriously considering the argument that EPA overreached its authority by creating CO₂ emission limits that coal-fired generators can’t meet, forcing a “generation switch” to natural gas and renewables. (See Analysis: No Knock Out Blow for Clean Power Plan Foes in Court Arguments.)

Some observers say the administration may not succeed in killing the CPP, and that if it does, it will have little impact because the power industry’s decarbonization will continue without the rule.

At a panel discussion at the Energy Bar Association annual conference in April, David Doniger, director of the NRDC’s Climate and Clean Air program, said that most of the players in the electric industry have adjusted to the CPP’s goals and are unlikely to reduce decarbonization efforts because of Trump’s action.

“Whatever its noble objectives, it’s relatively irrelevant whether or not [the CPP is] enforced,” added panelist Ian C. Connor, global co-head of J.P. Morgan’s Power & Utility Group. “I have little doubt … that the industry will materially decarbonize and outstrip what the CPP is trying to do.” (See EBA Panel: CPP’s Demise not Certain — and it Doesn’t Matter.)

CPP Supporters: EPA Must Act on Carbon

New York Attorney General Eric T. Schneiderman tweeted in response to the court’s action Friday: “Despite today’s temporary pause in litigation, the facts remain the same: @EPA is still legally obligated to limit carbon pollution.”

“We are in a race against time to address the climate crisis,” EDF General Counsel Vickie Patton said. “The Supreme Court is clear that EPA has a duty to protect Americans from dangerous climate pollution under our nation’s clean air laws, and Environmental Defense Fund will take swift action to ensure that EPA carries out its responsibilities under the law. Climate progress and clean energy cannot be stopped by the litigation tactics of polluters.”

CPP Opponents: Good Riddance

William Yeatman, senior fellow at the Competitive Enterprise Institute, which opposes the CPP, said the action means one of two potential outcomes: “1) Either the rule is nixed because the EPA determines that it is precluded from issuing a climate rule for existing power plants because they are already regulated under the Clean Air Act’s hazardous air pollution program, or 2) the EPA significantly revises the rule to bring it ‘inside the fence line’ of electricity generating units, such that the agency no longer claims the authority to dictate to the states what their energy choices must be.

“Either way, the outcome will pardon the American economy from the ill-effects of the Clean Power Plan, which would have empowered the EPA to remake the electric industry,” Yeatman said.

Jeff Holmstead, a partner with the Bracewell law firm who headed the EPA’s Office of Air and Radiation from 2001 to 2005, called the news “important but not terribly surprising.”

“I don’t think the D.C. Circuit has ever gone ahead and decided on the legality of a rule when a new administration says it plans to rescind or revise it. The only question now is whether the case will be held in abeyance or remanded back to EPA. If the court had upheld the rule, it wouldn’t have prevented the new administration from revoking it, but it might have made this effort harder. At the very least, today’s ruling means that it will not take as long for the administration to undo the Clean Power Plan.”

April 27, 2017

PJM Asked to Explain Day-Ahead Commitment Assumptions

By Rory D. Sweeney

VALLEY FORGE, Pa. — Is PJM’s day-ahead auction more art or science?

That question was raised by several stakeholders at Tuesday’s special session of the Market Implementation Committee on price transparency, after the disclosure that PJM operators — rather than algorithms — make the final decision on which units clear the day-ahead auction.

PJM day-ahead auction — Scarpignato (right) and Adam Keech, PJM | © *RTO Insider*

PJM’s Mike Ward, who manages the day-ahead market operations, downplayed human involvement in the process, saying “most of the tweaking is on the edges.” But that didn’t satisfy Calpine’s David “Scarp” Scarpignato or Public Service Enterprise Group’s Gary Greiner, who questioned the subjectivity of the operators.

“I’m sure you’re doing things that ‘make sense,’ but when you get people making the decisions, I could adjust things differently around the edges than what you might,” Scarp said.

“We’ll run two, three, four more cases to keep adjusting it. We don’t just take it [once], that’s it and we approve it,” Ward said. “It’s hard to describe how we do it. … I judge [the benefit or harm] by the number of people calling and complaining.”

To avoid cutting into units’ profit, the operators compare LMPs to costs, Ward said, and consider many other factors, such as minimum or maximum runtimes.

“Are there rules for that or is it more art than science?” Greiner asked.

“We don’t want people to lose money,” Ward responded. He noted that the percentage of load bidding into the day-ahead auction has risen from 75% when he started to “close to 100%” today.

PJM’s Chris Callaghan explained the RTO’s commitment review process, which ensures system reliability by allowing reliability engineers to provide input for commitment decisions and review the final plan. Any additional units identified as necessary from that final reliability check are committed in the Reliability Assessment and Commitment run. Engineers look first at non-cost options, followed by gas-fired combustion turbines, then by steam-generation units to satisfy reliability at the least cost, he said.

Continuing the discussion on price formation, PJM’s Scott Benner explained the RTO’s current thinking on complying with FERC Order 831, issued in November. The order caps at $2,000/MWh all incremental offers allowed to set LMPs and requires validation of offers exceeding $1,000/MWh to “ensure that a resource’s cost-based incremental energy offer reasonably reflects that resource’s actual or expected costs.”

PJM plans to implement a process to address those requirements in November but must submit its compliance filing by May 8, Benner said. A third-party vendor will provide “near real-time” commodity prices to enable PJM to calculate theoretical cost-based offers and compare them with actual offers received.

“We should be able to understand their costs or at least their general spot market activity,” Benner said.

“We’d be checking to make sure if your offer was in accordance with your fuel-cost policy,” PJM’s Jeff Schmitt said.

Throughout the presentations, stakeholders and PJM staff recommended objectives for the group’s final product, many of which focused on providing deeper insight into how the RTO makes price-formation decisions.

April 26, 2017

DC Circuit Upholds FERC Ruling in PURPA Dispute

By Wayne Barber

The D.C. Circuit Court of Appeals on Tuesday declined to overturn a FERC decision requiring Portland General Electric to purchase the full output of an Oregon wind power project under the Public Utilities Regulatory Policies Act.

The three-judge panel also rejected a claim by PáTu Wind Farm that PGE was required to accept the wind producer’s power through dynamic scheduling.

The court dismissed the utility’s petition for lack of jurisdiction and denied PáTu’s argument on its merits.

PURPA ferc power purchase agreement — Pa’Tu Wind Farm Construction | *PaTu / White Construction Company*

The case centered on a 2015 FERC ruling in which the commission determined that PGE must purchase all of the six-turbine, 9-MW wind farm’s power under a power purchase agreement between the two parties set out under PURPA.

Because PáTu, located in rural Oregon, is not directly linked to PGE’s grid, it sells power to the utility under the state Public Utility Commission’s approved PPA for “off-system” generators.

In order to transmit power to PGE’s grid, PáTu obtains transmission services from the Wasco Electric Cooperative and the Bonneville Power Administration. Wasco wheels PáTu’s power to BPA, which in turn transmits the energy to PGE’s Troutdale substation, the PPA’s designated point of delivery.

“Before the ink had dried on the power purchase agreement, the parties locked in a dispute over the nature of Portland’s purchase obligation,” the court said.

Believing it had purchased a firm product, PGE required PáTu to set day-ahead schedules under which the wind farm committed to delivering whole blocks of energy for each hour of the day. If PáTu overscheduled its deliveries, PGE paid the favorable avoided cost rates for the power delivered and required the wind farm to make up the difference by buying firm power from BPA, which was compensated at the lower market rate because it was not generated by PáTu.

On the other hand, if PáTu underscheduled, PGE only accepted and paid for only scheduled deliveries, forcing the wind farm to dispose of the excess at less-favorable rates, the D.C. Circuit noted.

PáTu contended that PGE could only buy all of its variable output through “dynamic transfer” — or scheduling in real time. PGE countered that, under its PURPA agreement, the wind farm was a customer of the utility’s merchant arm, not a transmission customer, and was therefore ineligible for dynamic scheduling.

In December 2011, PáTu filed a complaint with the PUC. The regulator saw nothing in the PPA requiring PGE to utilize dynamic scheduling, concluding that the utility must purchase all power PáTu generates and delivers.

But drawing a distinction between power “produced” and power “delivered,” the PUC appeared to leave PGE free to refuse to purchase any power produced in excess of what PáTu scheduled.

PáTu appealed to the Oregon Court of Appeals, which affirmed the PUC’s decision without opinion. The wind farm owner then filed a complaint with FERC, arguing that PGE must buy all of its output, scheduled or not, and that dynamic scheduling was the only way to accomplish that result.

FERC concluded that the PPA and PURPA regulations required PGE “to accept PáTu’s entire net output … delivered to Portland,” the D.C. Circuit noted.

FERC rejected PáTu’s specific request for dynamic scheduling, explaining that it has never required a utility to use any particular method to carry out its purchase obligation. It nonetheless clarified that, contrary to what the PUC had suggested, PGE could not escape its PURPA obligation by imposing overly rigid scheduling requirements or by refusing to purchase all power that PáTu produces.

April 26, 2017

CAISO Considers Fast-Track Approval for 2 Tx Projects

By Robert Mullin

CAISO management is considering whether to approve two low-cost transmission upgrade projects using an accelerated procedure that bypasses the usual stakeholder process and the Board of Governors.

One project would entail landscaping changes needed to accommodate an uprate on the Pacific DC Intertie, Southern California’s direct link with hydroelectric generation coming out of the Pacific Northwest.

The other would employ cutting-edge technology to avert the temporary threat of summertime overloading on key transmission lines serving the San Diego area.

CAISO bylaws allow for ISO management to approve projects with capital costs less than $50 million on an expedited basis under conditions in which there is an “urgent” need for the project, coupled with a “high degree of certainty” those projects won’t conflict with other solutions being considered in the normal transmission planning process.

Another requirement is the accelerated timeline must be “driven by the ISO’s evaluation process or external circumstances,” according to CAISO. The process also comes with some obligations on the part of management, including requirements to allow stakeholders to review and comment on the project, followed by a briefing of the board.

The two projects under consideration could receive approval early next month, the ISO said.

External developments are driving the need for the proposed Pacific DC Intertie project, requested by Southern California Edison in response to upgrades performed by the Bonneville Power Administration at the line’s northern terminus at Celilo Station, near The Dalles Dam in Oregon.

caiso pacific dc intertie — Bonneville Power Administration upgrades at Celilo Station — the northern terminus of the Pacific DC Intertie — has prompted CAISO to seek expedited approval for improvements needed at the southern end of the line to allow Southern California to capture the benefits of an uprate. | © *RTO Insider*

BPA’s improvements have increased the line’s north-to-south transfer capability from 3,100 MW to 3,220 MW. To capture its estimated 60 MW share of the uprate, SoCalEd must pay for its portion of the costs to grade and recontour the land under the southern end of the line, which it owns jointly with the Los Angeles Department of Water and Power (LADWP).

Total costs are expected to come in at less than $1 million. CAISO considers the nudge in capacity to be “extremely cost effective” for SoCalEd — estimated at less than $10/kW.

“We do think it would be a waste not to capture the incremental benefits,” Neil Millar, the ISO’s executive director of infrastructure development, said during an April 25 call to discuss the projects.

“Barring new information to the contrary, the ISO is interested in moving forward with approval” of the intertie project, CAISO has said. SoCalEd expects LADWP to complete the grading work in October.

The proposed San Diego area project is more technologically complex.

San Diego Gas & Electric is seeking to deploy advanced power flow devices on area transmission lines in order to reduce the utility’s local capacity requirements during the summer of 2018.

The utility is concerned that completion of the Sycamore-Penasquitos 230-kV transmission project — recently pushed back from early to late June 2018 — could meet with further delays. That would increase the risk next summer of overloading the Mission-Old Town 230-kV circuit — a pair of lines serving a populous load pocket in the city — under circumstances in which peak loads shift dramatically because of variability in behind-the-meter solar output. CAISO estimates that it could be forced to shed as much as 370 MW of load within 30 minutes of a line outage.

The risk is, in part, being precipitated by the retirement of the 950-MW natural gas-fired Encina power, which could be given an extended life to help mitigate the potential overload problem until the Sycamore-Penasquitos line is energized.

John Jontry, manager of Electric Transmission Grid Planning at SDG&E, noted that keeping Encina’s capacity in reserve would be a costly solution.

“The less generation we have to procure, the less we have to pay,” Jontry said.

The utility is instead proposing using a combination of a portion of Encina generation complemented by power flow control devices installed on the Mission-Old Town line that would, in an emergency, create up to 5 ohms of impedance on the line, forcing flows into other parts of the system.

“The devices push power away from the line to which they are connected,” said Andee McCoy, an executive with Smart Wires, the company that manufactures the equipment.

McCoy added that the “breadth” of the deployment could be correlated with the amount of Encina generation expected to be online next year.

Depending on the number deployed, estimated costs run from $6 million to $12 million, compared with $8 million to $10 million for a phase-shifting transformer and $20 million to $30 million to reconducutor the lines for what is effectively a temporary issue for the utility.

Jontry also lauded the fact that a “big chunk” of the capital costs are covering devices that could be redeployed to other areas when they’re no longer needed for the Mission-Old Town line.

“We’re kind of breaking new ground here because it’s a new way of looking at utility infrastructure,” Jontry said.

CAISO will present the proposed upgrades during the board’s May 1 meeting and will take stakeholder comments until May 2.

April 25, 2017

PJM Capacity Task Force Debates the Value of Price Transparency

By Rory D. Sweeney

WILMINGTON, Del. — What’s a megawatt really worth?

That question is at the base of the current debate about PJM’s capacity market construct, which last week shifted to whether there is a willingness to consider moving away from centralized markets.

At Friday’s meeting of the Capacity Construct/Public Policy Senior Task Force, the coalition of cooperatives and municipal power authorities that initiated the task force’s creation presented an alternative perspective on the objectives of a resource adequacy construct.

The task force was approved in January after the coalition pushed for months to revisit PJM’s controversial Capacity Performance construct. It began meeting in March. (See PJM Capacity Task Force Considering 60+ ‘Design Concepts’.)

Is the Market the Problem?

Navigant economist Cliff Hamal, representing American Municipal Power, offered a critique of a presentation that PJM’s economist Hung-po Chao gave at the task force’s first meeting in March. Hamal argued that PJM’s centralized capacity market is itself the problem.

Left to right: John Farber of Delaware PSC staff, Steve Lieberman and Ed Tatum of American Municipal Power listen as Cliff Hamal (far right), an economist with Navigant, presents his analysis on the purpose of PJM’s capacity market. | © *RTO Insider*

“My goal was to try to ask the question whether the objective of this task force [should be] to maintain … what I believe to be an imperfect, problematic centralized auction and deal with state actions, or consider much broader options that have the potential to do it cleaner,” he said.

He argued that the task force’s objectives should allow consideration of market options based on long-term bilateral contracts that attract least-cost financing and have the potential to provide adequate supplies at a lower cost.

Other stakeholders questioned Hamal’s perspective, saying that eliminating the market would reduce variety and the ability to accurately price various options, potentially harming market participants.

“The buyer that enters into the long-term contract now has a liability that the rating agencies insist get shown on their books, such that by entering into this long-term contract, it increases the amount of debt that the rating agency sees and potentially results in a downgrade of the entity’s debt ratings because it’s incurring more debt,” said a representative of a generation owner that is actively building combined cycle plants. “You’re not looking at the other side of the equation for the buyer in that it increases the rate associated with all of his borrowing, and that’s a huge deterrent.”

Mike Borgatti of Gabel Associates argued the proposal limited the ability to shop for alternatives. He gave an example of buying wind production for $300/MWh when the capacity auction clearing price was $100/MWh.

“The difference there is that I know I could have bought other capacity for $100, but I liked this flavor of capacity better, so I overpaid for it,” he said. “The market has functioned correctly, and the price signal out there informed my transaction. If the price signal doesn’t exist out there, I don’t know if $300’s a good deal or a bad deal.”

Chocolate vs. Vanilla

Borgatti attempted to make the same point with a less esoteric product: ice cream.

“Look, chocolate’s over here; it’s available in the market for $3/gallon. I’m a vanilla guy, so I’m gonna go over here and I’m going to procure vanilla at a premium price because I love vanilla. That transaction is totally legitimate; I did what I wanted to … I love my vanilla. I’m sitting on my couch in my underwear having a great time,” he said. “I think it’s hard to think about a market that doesn’t have any price transparency. … It’s very difficult to know [if another construct would be better] because you got rid of the price that you would benchmark it against.”

“Your position seems to favor long-term contracts as a way to attract cheaper capital, but a potential result could be long-term contracts with cheaper capital but underlying resources that are much higher cost than other resources that would compete down the road,” Direct Energy’s Jeff Whitehead said. “If I take a 20-year position on a power plant that has a certain cost, 10 years from now, there might be another power plant technology available that’s much cheaper, so while I might get a cheaper cost of capital, I might actually get a more expensive overall solution.”

Hamal acknowledged there are tradeoffs, but he emphasized that the task force is establishing objectives at this point, not choosing among alternatives.

The remainder of the meeting attempted to distill some of the 71 objectives proposed for “a well-functioning capacity construct” into categories, but that effort fell apart as stakeholders felt the nuance of certain proposals was being lost. Dave Anders, who is facilitating the task force for PJM, decided to abandon that effort and instead include all of them into a poll to measure stakeholders’ interest in each proposed objective. PJM will be sending the poll out to all stakeholders signed up to receive notifications about the task force.

The task force also worked on developing a list of public policy initiatives states might make and plans to complete it at the next meeting, Anders said. Work will then begin on determining how to balance the state activities against PJM’s current capacity construct.

Jennifer Chen of the Natural Resources Defense Council gave a presentation on subsidies to add context to the public-policies list.

The task force has a target of the end of the year to determine if any changes to the capacity market should be made.

April 25, 2017

1 Project Recommended for MISO-SPP Coordinated Plan

By Amanda Durish Cook

Just one project from MISO and SPP’s coordinated system plan study will move forward for individual votes on regional review, officials told the Interregional Planning Stakeholder Advisory Committee meeting Monday.

The project will loop one Split Rock-Lawrence 115-kV circuit into Sioux Falls to relieve congestion on the Lawrence–Sioux Falls 115-kV line in South Dakota, on the tie line shared between the Western Area Power Administration and MISO’s Xcel territory.

Final results showed costs of $5.2 million and a 4.42 benefit-cost ratio. MISO would pay 81% of the cost and SPP the remaining 19% based on benefit estimates for the first 20 years of the congestion-relieving project.

The project faces an obstacle course of approvals before construction can begin. MISO is conducting a project vote among Planning Advisory Committee voting sectors at a special meeting on April 27 for its portion of the IPSAC vote. SPP’s IPSAC vote will occur at its Seams Steering Committee teleconference on May 3. If both RTOs approve, the project moves into a SPP-MISO Joint Planning Committee vote and then into an IPSAC review conducted via email. If the project passes all review and votes, it will face an approval process before each of the RTOs’ board of directors.

The RTOs hope the approval process concludes in October, said Adam Bell, SPP’s interregional coordinator.

MISO and SPP considered seven potential interregional projects during last year’s coordinated system plan, and in earlier estimates, the South Dakota project fell just short of the $5 million interregional project threshold in the RTOs’ joint operating agreement. Earlier estimates also showed a more even cost split between the RTOs. (See MISO-SPP Coordinated Study Yields 1 Possible Project – For Now.) Bell said recently approved generator interconnect projects in MISO’s queue shifted more of the project’s cost to MISO, as the projects will benefit from congestion relief and increased transmission ratings.

Bell said project construction is complicated by the fact that the project is a tie-line, not wholly located in either footprint, and each RTO’s portion of the construction will be handled independently. MISO staff said how the RTOs ultimately decide to split construction on the small project could be used to define an improved process for projects that cover ground in both footprints going forward.

Bell also said that some interregional projects under consideration failed because of the $5 million cost threshold, which he said the RTOs are open to changing.

Another possible interregional project was revealed on April 19, but the $153.7 million candidate — the Lacygne-Blackberry 345-kV line, 345/161-kV transformer and Blackberry-Asbury 161-kV line in Kansas — graded out with a scant 1.03 benefit-cost ratio. MISO would be allocated 5% of the cost and the remaining 95% paid by SPP.

MISO SPP coordinated system plan — Lopez | © *RTO Insider*

Davey Lopez, MISO adviser of planning coordination and strategy, said the project barely passed the required 1.0 benefit-cost ratio and the minimum 5% regional benefit thresholds in the joint operating agreement. “Any increase in cost would likely drop the benefit-cost ratio below 1, and SPP is investigating other, much cheaper solutions,” Lopez said at an April 19 MISO PAC meeting.

The project failed to win recommendation from either RTO during the interregional meeting.

April 25, 2017

Overheard at the GCPA 2017 Spring Conference

HOUSTON —The Gulf Coast Power Association’s 2017 Spring Conference last week attracted around 400 attendees for discussions on energy storage, ERCOT transmission policies, the future of energy policy under President Trump and the changing generation mix in the U.S. and Alberta, Canada. Here’s some of what we heard.

NRG’s Gutierrez Offers Solutions for ERCOT Market

NRG Energy CEO Mauricio Gutierrez | © *RTO Insider*

NRG Energy CEO Mauricio Gutierrez delivered the opening keynote address, professing the company’s passion and commitment to ERCOT and the desire for a structure “that is sustainable and provides the benefits of competition to businesses and consumers here in Texas.”

Gutierrez said he was concerned about price formation in the ERCOT market, the growth of renewables and what he called the preference for transmission over market solutions in the planning process. “There’s a lack of balance in transmission planning policy, which undermines wholesale prices and which will eventually overwhelm the competitive retail market and consumers,” he said.

Gutierrez’s solutions? Improve the operating reserve demand curve’s price signal with a locational component; include marginal losses in ERCOT prices; minimize the use of out-of-market actions; address mitigation rules for reliability-must-run units; and balance transmission investment with market-based solutions.

“When you mitigate RMR units, you’re suppressing prices exactly when it’s not supposed to. It interferes with the market’s ability to meet reliability needs,” Gutierrez said.

“I tend to be transparent when it comes to the ERCOT market and very forthcoming,” he said. “I always like to polarize the conversation, because it brings out the essence of the issue. The more open and transparent we have that conversation, the quicker we’ll get to the right answer. We cannot afford to keep dancing around.”

Unwinding Environmental Regulations Won’t Be Easy

Jeff Holmstead, a partner with the Bracewell law firm who headed the EPA’s Office of Air and Radiation from 2001 to 2005, opened a panel discussion on Trump’s first 100 days as president by taking the audience back to the morning after his November election, joking: “You probably woke up to a surprise. Who would have thought California would legalize recreational marijuana?”

GCPA spring conference ercot energy storage — Attendees gather for the Gulf Coast Power Assocation’s 2017 Spring Conference in Houston | © *RTO Insider*

Sempra Energy’s vice president of federal government affairs, Maryam Sabbaghian Brown, was more serious. “It’s been made clear, and the president has made clear, that reforming the Clean Power Plan is a top priority. This administration is very focused on delivering on that campaign promise,” she said.

But it won’t be easy, said Brown, who served as an energy and environment adviser to House Speakers John Boehner and Paul Ryan. “There are the delays we’re seeing in nominations for second- and third-tier executives for the agencies that do a lot of the work involved in unwinding these rules,” Brown said. “There needs to be a recognition that there will be a lot of time involved in doing this work. It doesn’t happen with a simple wave of the wand for mechanical and legal reasons.”

“The big challenge is getting through the years and years of regulatory processes,” said Clean Line Energy President Mike Skelly, whose company is working to secure approvals of five different high-voltage transmission lines across multiple states. “We’ve gotten there with one project, and we’re close to the finish line with another. I cannot overstate the difficulty of multistate approvals. Every day is a mad dash.”

Clean Line Energy President Mike Skelly, Sempra Energy Vice President of federal government affairs Maryam Sabbaghian Brown, during a panel discussion | © *RTO Insider*

Skelly agreed with the Trump administration’s push for a $1 trillion infrastructure bill, which may include some public-private partnerships.

“Energy … doesn’t carry the public price tag that water, bridges and highways do. Those are direct expenditures,” said Skelly, an unsuccessful Democratic congressional candidate in 2008. “I think Democrats will get behind it. In the sense you need a bipartisan vote on infrastructure, transmission may fit in. It’s not a huge universe type of project.”

“First, you have to recognize the unifying nature of energy and environmental policy within the Republican Congress,” Brown said. “Health care and tax reform are taking up the greater part of the oxygen in Washington, D.C. It’s difficult to get consensus on those issues within the Republican conference, but energy and environmental policy presents a real contrast to those issues in that it is a unifier for their conference, and it can also be a bipartisan issue. I think there’s a real opportunity to advance policies that support the energy business.”

Skelly was less optimistic about the tax credits for wind and solar energy, which are due to begin phasing out this year. (See Solar to Shine Under ITC Extension.)

“We’ve been in many discussions with the leadership and others in Congress and the administration, and it’s like, ‘A deal is a deal. You guys agreed to phase these out.’ You never know, but you feel like the decision’s been made.”

Addressing FERC, which is one commissioner short of a quorum and also has Colette Honorable facing the end of her term this summer, Brown said the commission will likely defer more responsibility to the states and grid operators.

“We’re still waiting for the formal FERC nominations, but it seems as though the new commissioners are not coming in with a preconceived federal agenda as we saw with the [George W.] Bush and Obama administrations,” she said. “It will be perhaps more reactive, and give a lot of deference for the states to do what they want to do. That’s not to say we won’t see involvement from the federal government, but the states and ISOs are going to continue to lead in their spaces.”

Canadian ISO Takes on Environmental Challenges

Alberta Electric System Operator CEO David Erickson described his own challenges with governmental change in Canada and the resulting effect on the ISO’s market, which is home to the country’s oil sands production. AESO has been operating an energy-only market, under a right-leaning, business-friendly Progressive Conservative party government that has controlled the province for decades.

When the New Democratic Party took control following the 2015 elections, Erickson said AESO — which relied on coal for 62% of its power production last year — was forced to determine how to phase out coal-fired generation by 2030.

“The new government wanted to do something in a more aggressive way. It wanted to do things quicker,” he said. “We came to the conclusion an energy-only market was not sustainable unchanged. There was too much investment needed in thermal power plants, too big of an influx of renewables that push down the price and impair that [thermal] investment.”

AESO is now transitioning to a capacity market to ensure reliability and price stability. It supports the government’s Climate Leadership Plan.

“We’ll replace two-thirds [of coal energy] with wind and [the remainder] with natural gas,” Erickson said. “That’s our only choice. We did not want power to be a business disincentive for the province or start losing business to other states because of power issues.”

Desires of Consumers, Commercial Customers Changing Generation Mix

As part of a panel discussing how consumers can drive changes in wholesale and retail power markets, Chris Hendrix, director of markets and compliance for Wal-Mart Stores, agreed that renewable power is squeezing out conventional power sources.

“Why are the large corporations doing it?” he asked. “It really comes down to they’re getting pressured by investors, owners, customers and employees, or a combination of those, to green up their footprint. Instead of greenwashing it, they’re going out and buying green power.”

Mothership CEO Maura Yates | © *RTO Insider*

Maura Yates, co-CEO of Mothership Energy Group, a group of women-owned energy solutions companies, agreed. “They’re being driven to procure for a number of reasons,” she said. “It’s now a value stream for the corporation. We’re seeing loads influence the power market. It’s a really telling thing that loads today are buying based on subjective and objective values.”

Asked whether the demand for customer choice might lead to further deregulation, Hendrix said the push to deregulate goes in ebbs and flows. “It looks like we’ll get it nationwide, then it falls apart,” he said. “Now you see California talking about full and open retail competition. A lot of it is driven not only by the large industrials, but retail customers who want to have a say in where their generation comes from.”

“Another reason is the transparency,” Yates said. “There is so much more transparency in the deregulated space than there is in the regulated space. That makes it so much easier to charge 20 cents/kWh” in the latter, she said.

Champion Energy Services CEO Mike Sullivan (left), Wal-Mart Stores’ Director of Markets & Compliance Chris Hendrix share a laugh | © *RTO Insider*

Mike Sullivan, CEO of Texas retailer Champion Energy Services, said no one should assume renewable energy and storage technologies will lead to migration away from the grid.

“If people knew what they wanted, that might expedite that,” he said. “But the fixed costs are there. You can’t fight city hall, and you damn sure can’t fight the utilities.”

Storage ‘Commercial Right Now’

A panel devoted to energy storage and related “technology enablers” agreed that as costs continue to come down, the industry will only become more familiar with storage devices and more open to their use.

“When you’re planning systems five years out, the culture makes it very hard to get planners to look at storage, because they’re very technical,” Electric Transmission Texas President Kip Fox said. “As they become more familiar with storage technology, we’re starting to see these applications for batteries rather than traditional transmission solutions.”

Tesla’s Andres Pacheco, AES Energy Storage’s Kiran Kumaraswamy | © *RTO Insider*

“This is very commercial right now,” argued Kiran Kumaraswamy, market development director for AES Energy Storage. “There’s no need to do research and development and promotion projects. It’s always cheaper than what you think the cost is. Even though we talk about storage in isolation, adding storage to the system helps you operate your facilities much more efficiently. We’re optimizing price patterns on the overall grid. That’s something AES has seen in every market we have entered, whether it’s PJM [or] the Chilean market.”

– Tom Kleckner

April 25, 2017

RTO CEOs Discuss Cybersecurity, Integrating Renewables

By Tom Kleckner

HOUSTON — The CEOs’ roundtable has become one of the top draws at the Gulf Coast Power Association’s Spring Conference, and this year was no different. Bill Magness (ERCOT) moderated an April 19 panel that included John Bear (MISO), Steve Berberich (CAISO), Nick Brown (SPP) and Brad Jones (NYISO). The five discussed the state of wholesale markets, grid operations, implementing federal and state statutes and regulations, and cybersecurity readiness.

GCPA spring conference cybersecurity — MISO CEO John Bear (left) and CAISO CEO Steve Berberich | © *RTO Insider*

“We have renewable portfolio standards by states, tax incentives for wind,” Bear said. “That has a big impact on our marginal costs, especially in Illinois, and that has put a lot of pressure on coal plants and nuclear plants there. Rather than talk about state issues and state subsidies, we’ve got to talk about all the issues together, because they’re colliding. They’re coming to a head.”

Berberich agreed, saying that as CAISO has installed more solar and wind capacity, it needs to find ways to harness their power. “If we don’t use a distributed generating asset in our market, we’re going to have to duplicate them on the central system, and they cost too much,” he said. “As a grid operator, I’m sure we can all agree storage is a valuable resource. It’s the most flexible resource you can get. We have to be concerned about all system costs, because I think system costs are one of these things that can stop decarbonization.”

Distributed generation also was on the mind of Jones, who said if ISOs and RTOs are going to accommodate those resources onto their systems, “We have to chart that path for the aggregators.

“We have to show them what type of generation we need. We have to show them how we price them and how we dispatch them. We have to show these providers how we’ll monitor their performance,” Jones said.

Among the challenges the CEOs share is forecasting variable resources.

“I’ve been fascinated with the success we’ve had in forecasting [wind energy],” Brown said. SPP has integrated 16 GW of wind into its footprint, with penetration levels exceeding 54%. “That success has come from the granular nature of the forecasting. We’re taking multiple data points in each counting. That amount of data is massive, but that’s just the tip. As many have postulated, solar will be the next wind. If you look at our footprint, the solar will be laid over the wind. The next question is, where will it go?”

Jones said NYISO has made progress on the challenge of quantifying rooftop solar. “We’re actually taking real-time data right now off of 10% of the rooftop panels statewide,” he said. “We’re rolling that through a forecasting tool, which looks at each [transmission] zone across the state. We’re having incredible results with that now.”

Asked about the Department of Energy’s recent announcement of a study on renewable energy’s effect on baseload generation, Berberich said, “I’d say it’s a short study. I could probably do it in about an hour.”

“Natural gas took the first bite out of coal and nuclear; that’s not going to change,” he continued. “When you inject zero-cost renewables, it’s going to crush capacity costs. So, there you go. There’s the report.”

Cybersecurity Concerns

Brown addressed the grid’s security, using the military’s drilling with live ammunition as an example.

“We talk about the grid being such a huge national resource and yet, in my view, we’re not really taking any steps to prevent [physical] attacks because of the money involved,” he said. “The concept in many of our states is there’s only so much spare equipment that meets that used-and-useful test. A utility is not going to get recovery on that, which kind of boggles my mind. We’re not, in my view, taking adequate steps to build the infrastructure to be able to respond.”

Community Choice Aggregation

Looking into the future, Berberich said Pacific Gas and Electric could be losing as much as 40% of its load to community choice aggregators, which draws into question the entire utility model. “These aggregators are generally communities, towns, cities and counties that want to procure their own energy and get out from under the incumbent utility,” he said. “Many of them are associated with cleaner, greener energy, but there’s the broader issue here of just choice. Should the utilities be in the retail business? Because all this load is coming off anyway.”