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March 10, 2017

NYPSC Adopts ‘Value Stack’ Rate Structure for DER

By Michael Kuser and Rich Heidorn Jr.

The New York Public Service Commission on Thursday adopted a new “value stack” pricing mechanism for solar and other distributed energy resources, along with two other orders to transition utilities into “distributed system platforms” and align their incentives with DER providers.

The Value of Distributed Energy Resources order approved March 9 (Case 15-E-0751) begins the transition away from net energy metering and toward an approach that aggregates specific value components. The number of those components will be raised over time to increase the granularity and accuracy of the valuation.

“This order achieves a major milestone in the Reforming the Energy Vision (REV) initiative by beginning the actual transition to a distributed, transactive and integrated electric system,” the commission wrote.

It would replace existing DER business models based on net energy metering, which the commission called “inaccurate mechanisms of the past that operate as blunt instruments to obscure value and are incapable of taking into account locational, environmental and temporal values of projects.”

“By failing to accurately reflect the values provided by and to the DER they compensate, these mechanisms will neither encourage the high level of DER development necessary for developing a clean, distributed grid nor incentivize the location, design and operation of DER in a way that maximizes overall value to all utility customers,” it said.

Continuing NEM, which can overcompensate distributed resources by transferring their share of fixed costs to other customers, would prevent wide-scale DER deployment “as the inherent subsidies reach a level that is oppressive to non-participants,” the order said.

NYPSC value stack rate structure DER — | *New York Public Service Commission Staff Report on Value of DER Proceeding, Oct. 2016*

“The system obeys not the law of contracts, but the laws of physics,” said PSC Chair Audrey Zibelman, in her final commission meeting. “Following those, that’s how you’ll get the best outcome. DER, rather than being a problem, can be a solution to where we want to get to, which is a clean energy future.”

Transition Period

The order initiates a transition period with a VDER Phase One tariff in which projects currently in “advanced stages of development” will receive NEM compensation, but for only their first 20 years.

“While Phase One NEM contains inefficiencies similar to NEM as a compensation methodology, the term limitation will offer some incentives for developers and customers to consider the impacts of the location, design and operation of DER on the electric system,” the commission said.

| *New York Public Service Commission Staff Report on Value of DER Proceeding, Oct. 2016*

The order directs Department of Public Service staff to work with utilities and other stakeholders to develop the new value stack compensation “based on monetary crediting for net hourly injections,” which the commission hopes to act on as early as this summer.

Value stack compensation would include:

Energy value, based on the day-ahead hourly zonal LMPs, including losses;
Capacity value, based on retail capacity rates for intermittent technologies and the capacity tag approach for dispatchable technologies based on performance during the peak hour in the previous year;
Environmental value, based on the higher of the latest Clean Energy Standard Tier 1 renewable energy certificate procurement price or the federal government’s social cost of carbon; and
Demand reduction value and locational system relief value, based largely on utility marginal cost of service studies and performance during 10 peak hours.

Decision Draws Praise from Solar Advocates

Clean energy supporters and solar industry advocates hailed the decision.

“The order will provide a framework for more precisely valuing new clean energy while balancing the need for a predictable price,” said Anne Reynolds, director of the Alliance for Clean Energy New York. “This is the right approach and can serve to support the market for solar and other emerging clean technologies.”

In a blog post, Natural Resources Defense Council attorney Miles Farmer called the order “a bold experiment.”

“Rather than offsetting the retail rate, projects will generate credits according to an estimate of the value they provide to New York customers,” he wrote.

Sean Garren, a regional director for Vote Solar, a nonprofit solar advocacy organization, lauded the “consumer savings, local jobs and a healthier environment” implied in the decision. “While this order has yet to fully expand clean energy access to all New Yorkers, we look forward to doubling down on that commitment to make community solar work throughout the state,” he said.

Incentives for Utilities to Collaborate

The PSC also approved an order (Case 16-M-0411) on utilities’ transition to the distributed system platform combining planning and operations with enabling markets.

The order directs Central Hudson Gas & Electric, Consolidated Edison of New York, New York State Electric and Gas, Niagara Mohawk Power (National Grid), Orange and Rockland Utilities, and Rochester Gas & Electric to submit filings by Oct. 1 documenting that they have completed their analyses of the hosting capacity for all circuits at and above 12 kV and implemented Phase 1 of their online portal for DER developers seeking to access the grid.

The companies also were ordered to submit filings within 60 days describing how the “suitability criteria” — a framework for identifying distribution infrastructure projects most suitable for non-wires alternatives — will be incorporated into their planning procedures and applied to current capital plans.

It set a Dec. 31, 2018, deadline for documenting that each utility has deployed at least two energy storage projects at separate distribution substations or feeders.

Tammy Mitchell, PSC chief for electric distribution systems, said, “The phased approach is right but too slow. This order directs hosting utilities to provide the hosting capacity data needed to manage the variable DER inputs.”

“Today the advanced energy economy industry is worth $200 billion in the U.S.,” Zibelman said. “This order points in the right direction, gives utilities the right incentives, and gives investors the transparency and data they need to put money at risk.”

Helping Utilities See DERs as Customers

In its third and last vote on its regular agenda, the PSC approved an order (Case 16-M-0429) for an interconnection earnings adjustment mechanism, which aims to change the way utilities earn revenues.

The order requires the utilities to build on their previous filings with additional proposals within 60 days on customer service surveys and other metrics that will determine their future compensation.

“This is a good start to change the business model so that DER providers are customers of the utility, which want to attract them and not see them as competitors,” said Zibelman. “Utilities should look at DERs as customers and see how they can exceed customer expectations.”

Department of Public Service Deputy Director Michael Worden said the order “addresses the market in four categories: system efficiency, energy efficiency, consumer engagement and interconnection.”

Depending on how they perform against targets in those categories, said Worden, the PSC will either “reward them with a carrot, or show the stick.”

Zibelman’s Swan Song

Thursday’s meeting marked the end of Zibelman’s more than three-year tenure, as she has accepted an offer to lead the operator of Australia’s largest gas and electricity markets. (See NY REV Won’t Lose Momentum, Departing Zibelman Says.)

Gov. Andrew Cuomo on March 8 appointed Commissioner Gregg C. Sayre as interim chair. The only other commissioner is Diane X. Burman.

Zibelman’s departure, the recent retirement of Commissioner Patricia Acampora and a two-year-long vacancy means the commission now has three openings for new members.

March 9, 2017

Pipeline Foes Like Hobbled FERC Just the Way it is

By Michael Brooks

FERC’s loss of its quorum has members of Congress and the natural gas industry feeling anxious, but anti-fracking activists said Wednesday they will oppose any nominations to the commission in order to keep it paralyzed.

Ted Glick, a founder of Beyond Extreme Energy, said his group and more than 130 others were inspired to act when Chairman Norman Bay resigned Feb. 3 after President Trump named Cheryl LaFleur acting chair. Bay’s departure left the commission with only two members, one short of the minimum needed to approve natural gas pipeline projects.

The commission approved seven natural gas pipelines worth 7 Bcfd before Bay left this year, according to the U.S. Energy Information Administration. The commission approved 17.6 Bcfd of capacity last year.

Besides lobbying senators to vote against nominees, the activists’ efforts will include nonviolent civil disobedience, which his group has used to disrupt the commission’s open meetings, Glick said during a news teleconference. (See Meet the People Making Life for FERC a Little More Difficult this Week.)

ferc fracking pipeline foes — In a March 2016 protest outside FERC headquarters, Beyond Extreme Energy and other activists ate pancakes with the last syrup from Megan Holleran’s maple trees, which were cut down for a pipeline in New Milford, Pa. Holleran, “Gasland” filmmaker Josh Fox and five others were arrested. | *Beyond Extreme Energy*

Beyond Extreme Energy and its allies see FERC as a rogue agency that ignores communities’ input on pipeline projects and is cozy with the industry that it is supposed to regulate. Their opposition is nonpartisan, with the activists yesterday lambasting Democrats for their failure to rein the commission in.

“The appointment of one new commissioner could put that agency back in business and able to inflict incredible and irreparable harm on communities and our environment,” said Maya van Rossum, leader of the Delaware Riverkeeper Network.

Preventing the restoration of FERC’s quorum is virtually impossible, however. Republicans control the Senate 52-48, and Democrats can no longer filibuster the president’s nominations except for the Supreme Court.

“The best outcome right now for the communities being abused by these pipeline projects and these pipeline companies and by FERC is to prevent” a quorum, and give Congress “the breathing room” to holding hearings “investigating the abuses that are happening at the hands of FERC, identifying the needed reforms and putting in place those reforms before a quorum is restored,” van Rossum said. “We get that’s a heavy lift. We totally get that.”

Joining Glick and van Rossum on the call was Todd Larsen, executive co-director of Green America; Josh Fox, director of the Oscar-nominated documentary “Gasland;” and Maggie Henry, a former organic farmer. (See Organic Farmer Turned Fracking Protester.)

“It’s not just that we will oppose the FERC nominees,” Fox said. “Citizens all across this nation are gathering to build protest camps like the one at Dakota Access, and you will see a state of protest against fossil fuel infrastructure unlike anything we’ve ever seen in the United States of America.”

Cantwell, Dems Urge ‘Nonpartisanship’

Sen. Maria Cantwell (D-Wash.), ranking member of the Senate Energy and Natural Resources Committee, has other ideas.

She and 15 other Democrats wrote Trump on Wednesday urging him to respect the commission’s tradition of nonpartisanship, noting that less than 2% of the orders issued in 2016 included a dissenting opinion. “We hope that your nominees will be prepared to continue this tradition, and we intend to review them through that lens during the confirmation process,” the senators wrote.

They also said that both Republican and Democratic presidents have nominated people recommended by the Senate leader of the party that does not hold the presidency — Senate Minority Leader Chuck Schumer (D-N.Y.). “We expect you will honor this long-standing practice in nominating individuals to serve on the commission,” the senators said.

March 8, 2017

CAISO Seeks Reliability Designations for Calpine Peakers

By Robert Mullin

CAISO wants to use an out-of-market measure to keep two Northern California gas-fired peaking plants operating after their long-term contracts expire in December.

The ISO is seeking to designate Calpine’s Yuba City and Feather River plants as reliability-must-run resources after identifying that both 47-MW peakers will be needed to support local grid reliability after they fall off their current contracts with Pacific Gas and Electric, which manages the service territory where the plants are located.

caiso rmr calpine — CAISO is seeking to provide Calpine’s Yuba City and Feather River peaking plants with reliability must-run designations next year after the December 2017 expiration of their contracts with Pacific Gas and Electric. | *Yuba City photo source Calpine*

The issue arose last November when Calpine notified CAISO that expiring operating agreements would require the company to shut down four of its combustion turbine peakers.

Calpine asked CAISO to study whether loss of the units would cause grid reliability problems. The company said that its capital outlay and resource planning requirements required that it learn of any reliability need for the plants before this fall, when the ISO would release its 2018 resource adequacy assessment. Such a determination would make the plants eligible for longer-term resource adequacy payments under CAISO’s capacity procurement mechanism (CPM).

“On that basis, we did do the review that was requested and concluded that there is a reliability need for two of the four generators,” Neil Millar, CAISO executive director of infrastructure development, said during a March 7 call to discuss the issue. Two plants farther to the south, King City and Wolfskill, failed to make the cut.

Pease Area Deficient

Under an RMR arrangement, CAISO has the right to call upon a generator to provide energy, black start services or voltage support to meet reliability needs. The ISO compensates the generator for keeping capacity available for dispatch, with costs allocated to benefitting load-serving entities.

“Without the 47 MW from Yuba City, we would be deficient” in the Pease local capacity requirements sub-area, Millar said.

The ISO performs an annual analysis to determine each local area’s minimum capacity requirement to meet reliability standards. Other generators can provide only 82 of the 100 MW required in Northern California’s Pease sub-area, leaving the Yuba City unit to make up the difference.

Feather River is not needed to supply capacity, but the plant does play a key role in controlling voltage in its surrounding region by absorbing reactive power from the system. Without the unit, 115-kV bus voltages in the area would rise to “significantly beyond” the upper limit of the normal range, CAISO has found.

“We will be looking at longer-term mitigation in that area in future transmission planning process cycles,” Millar said. “We’re working with PG&E, and also recognizing that this is a combination transmission and distribution issue.”

Millar pointed out that a one-year RMR designation would not prevent the plants from entering into longer arrangements with the ISO if the need is identified.

“Just because the units may be designated as reliability-must-run in the spring [of 2018], [that] doesn’t preclude them getting some longer-term resource adequacy contract that would obviate all or parts of the need for an RMR agreement,” he said.

Carrie Bentley, a consultant representing the Western Power Trading Forum, wondered why the two plants wouldn’t be covered under the ISO “risk-of-retirement” CPM.

“I understand that they can’t wait for the annual, but I thought that the risk of retirement didn’t have such timing issues,” Bentley said.

“It’s not totally within the ISO’s ability to direct that,” said Sidney Mannheim, CAISO assistant general counsel. “The CPM is voluntary on the part of the resource owner, where [with] the RMR authority, we literally have the Tariff authority to designate a resource as RMR.”

Impact on Local Capacity Requirements

Erica Brown, senior analyst with PG&E, asked about the impact of the RMR designations on local capacity requirements.

“So, going into our next [resource adequacy] year, if there’s an RMR resource [in a local area], would that subtract from the overall quantity that’s needed for the local area?” Brown asked.

Millar clarified that the Yuba City plant would count toward the area’s capacity requirement because the unit’s RMR designation would be based on a capacity need, while Feather River, which is needed for voltage support, would not.

Michele Kito, a regulatory analyst at the California Public Utilities Commission, asked about Calpine’s need to make investments in the peaking units to keep them online next year. “At what point would there be some independent engineering assessment that those long-term investments need to be made that would justify a long-term RMR agreement?” she asked.

Mannheim clarified that the RMR agreements would only run year-to-year, although they could ultimately cover a multiyear need.

“The RMR process does involve the responsible transmission owner and the PUC to review any proposed capital improvements,” Mannheim said. “That is the process we would undertake following any designation — and the PUC would be involved in that.”

CAISO plans to present the Yuba City and Feather River RMR designations for approval by the Board of Governors on March 16. Upon approval, Calpine would be expected to draw up a cost-of-service proposal, including any capital improvements, for review by PG&E, the ISO and the PUC.

March 8, 2017

Supreme Court Refuses to Hear ROFR Challenge

By Amanda Durish Cook

The U.S. Supreme Court announced March 6 it would not hear a challenge seeking to reinstate the federal right of first refusal in transmission construction, letting an appellate ruling sustaining FERC Order 1000 stand.

In April, the 7th U.S. Circuit Court of Appeals in Chicago upheld Order 1000’s removal of the federal ROFR in a challenge by Ameren and other MISO transmission owners (14‐2153). The case was combined with two challenges by LSP Transmission Holdings that contended FERC did not go far enough in injecting competition into transmission development (14‐2533, 15‐1316).

ROFR Ferc order 1000 supreme court — Laying the foundations for Ameren’s Three Rivers Transmission Line | *Plocher Construction*

The court ruled that FERC didn’t have to show the federal ROFR was against the public interest before scrapping it. (See Seventh Circuit Court Upholds FERC Order 1000 ROFR Provisions.)

Ameren filed a petition for certiorari with the Supreme Court in October. The company, with Northern Indiana Public Service Co. and Otter Tail Power, argued that the April ruling is at odds with the Mobile-Sierra doctrine, and said FERC should assume the ROFR is reasonable unless the commission proves it is contrary to the public interest. The companies warned that failing to reverse the 7th Circuit’s ruling would allow FERC to ignore the Mobile-Sierra presumption in the future.

FERC decided in 2011’s Order 1000 that federal ROFRs that give incumbent transmission owners first pass on new project construction were anti-competitive and should be removed from all FERC-approved tariffs. Order 1000 did not, however, pre-empt state or local ROFRs.

“The Mobile-Sierra doctrine is based on the assumption that sophisticated parties with competing interests and equal bargaining power will usually reach a compromise that is reasonable and fair. The opposite is true when parties collude with one another to restrain competition and maintain a monopoly. … There is no reason to believe that a contract negotiated by parties with a shared interest in excluding third-party competition is similarly just and reasonable,” FERC wrote in a brief to the Supreme Court in February.

MISO still honors state and local rights of first refusal and can use a limited federal ROFR for certain grid reliability projects. The RTO does not have a competitive project scheduled in 2017 because the year’s lone market efficiency project — the $80.9 million Huntley-Wilmarth 345-kV line in Minnesota — is covered by the state’s ROFR. (See MISO Board Approves MTEP 16’s $2.7B in Tx Projects.)

March 8, 2017

NY Legislators Frustrated by Lack of Answers at ZEC Hearing

By Michael Kuser

ALBANY, N.Y. — A New York State Assembly hearing Monday to explore the Cuomo administration’s subsidies for upstate nuclear plants left lawmakers frustrated as the Public Service Commission and the New York State Energy Research and Development Authority declined to attend and Exelon sent no senior executive with knowledge of the subsidy negotiations.

“I’m disappointed that they chose not to attend,” said Assemblyman Jeffrey Dinowitz (D-Bronx), the head of the Committee on Corporations, Authorities and Commissions, who chaired the meeting. “It’s important to hear from PSC and the executive branch.”

cuomo administration zec hearing nuclear plants — Left to right on dais: Steve Englebright (D-Setauket); Jeffrey Dinowitz (D-Bronx); Brian Kavanagh (D-Manhattan); Fred W. Thiele, Jr. (D-Sag Harbor); Patricia Fahy (D-Albany); William A. Barclay (R-Pulaski); Philip A. Palmesano (R-Corning); and Peter D. Lopez (R-Schoharie). | © *RTO Insider*

Exelon, owner of all the nuclear plants set to receive the zero-emissions credits, sent five witnesses, most of them engineers, with the highest rank being a plant vice president. “Maybe you can take notes and send your answers later,” Dinowitz told them sarcastically.

Exelon also submitted testimony from Joe Dominguez, executive vice president of governmental and regulatory affairs and public policy, who said the company would spend $700 million on the plants because of the financial assurance provided by the ZECs. The ZECs would benefit Exelon’s R.E. Ginna, and Nine Mile Units 1 and 2 generators — and the James A. FitzPatrick plant it is purchasing from Entergy — for more than 12 years.

‘Staggering Increase’ in Pollution

“The closure of these plants would have resulted in a staggering increase in air pollution throughout New York because the electricity void created by the closures would have been filled by coal, oil and gas plants operating in and around New York,” Dominguez said.

The PSC said it was unable to attend because of scheduling problems.

“Unlike the 24 public hearings that the Public Service Commission held across the state in developing the Clean Energy Standard [CES], which were scheduled many weeks in advance, the Assembly only informed us of this hearing late last week, and so we were unable to attend due to scheduling conflicts,” PSC spokesman James Denn said in a statement. The Assembly issued the public notice for the hearing on Monday, Feb. 27.

Instead, the state agencies submitted written testimony from PSC Chair Audrey Zibelman, NYSERDA CEO John Rhodes and Richard Kauffman, Cuomo’s top energy adviser. The statement defended ZECs, part of the CES, which also requires that the state generate 50% of its electricity from renewable resources by 2030.

“Fossil fuel generators and anti-nuclear activists have attempted to mischaracterize the Clean Energy Standard as a bailout or a tax,” they wrote. “But … it is unquestionable that the Clean Energy Standard benefits all New Yorkers across the state and, moreover, charts the most responsible path forward on combating climate change and growing our clean energy economy. … Simply put, without the ZEC program, New Yorkers would pay more for dirtier power.”

$7.6 Billion Cost

Several New York City-area legislators have questioned the wisdom and process of last August’s decision by the PSC to approve the CES and ZECs.

The program distributes costs statewide; in its first two years, all New York energy consumers will pay an additional $965 million to keep the nuclear plants running. The costs may rise by as much as 10% in each successive two-year tranche, for a potential total of $7.6 billion.

cuomo zecs nuclear plants — Legislators were frustrated in their attempts to learn more about the Cuomo administration’s subsidies for nuclear plants as the PSC and NYSERDA declined to attend and Exelon sent no senior executive. | © *RTO Insider*

Dinowitz chaired the hearing in place of Energy Committee Chairwoman Amy Paulin, who was unable to attend. The other committees participating in the hearing were Environmental Conservation, chaired by Assemblyman Steve Englebright (D-Setauket), and Consumer Affairs and Protection, chaired by Assemblyman Brian Kavanagh (D-Manhattan).

Englebright said that he remembered when nuclear power was being touted as being “too cheap to meter, which doesn’t seem to be the case today.” Kavanagh said he was concerned whether the ZEC charges are fairly imposed and in a transparent manner.

Subsidies Too Generous to One Company?

Blair Horner, director of the New York Public Interest Research Group (NYPIRG), testified first and focused on “a public information gap, which seems like a deliberate strategy. A year ago, we were talking about a $100 million bailout of the upstate plants. Then, as soon as the Assembly went into recess, a significantly more expensive program appears. Is this democracy? It’s no surprise the executive branch chooses not to testify.”

Horner said that the state already has 800,000 electricity users who are 60 days or more in arrears on their electric bills and that the CES-related rate hikes would be a hardship for them. The Cuomo administration says the CES, including the ZECs, will add less than $2/month to the average residential customer’s bill.

Exelon expects the New York ZECs and a similar program in Illinois will add 17 cents/share to its 2017 earnings, 6% of its total profits, according to Crain’s Chicago Business.

“We view the CES charges as a tax being imposed by the wrong branch of government,” said Horner. “Even if you disagree with our view, at least the process should be changed to create a meaningful public process. It’s your duty as a co-equal branch of government. The beneficiary of this program is one company, and $7.6 billion seems overly generous to me. Hit the pause button.”

Assemblyman Will Barclay (R-Pulaski) responded that NYPIRG “seems more anti-nuke than pro-public. There were no complaints about zero-emissions credits for renewables.”

Legislature Should Set Energy Policy

Former Assemblyman Richard Brodsky, a longtime opponent of the Indian Point nuclear plant, testified as a private citizen and reminded lawmakers that the PSC was indeed “a legislative agency, not an offshoot of the executive.”

Brodsky urged the Assembly to reconsider the decision to spend an estimated $303,000 per job per year in subsidizing “decrepit” nuclear facilities. “They’re fixer-uppers, and it costs more to do that than to live in a new house,” he said.

The social cost of carbon used by federal agencies to value the climate impacts of rulemakings — and used to set New York’s ZEC values — was not meant as a policymaking tool and has massive limitations, Brodsky said. “I didn’t know the Constitution had a pause button — it’s time for the legislature to set energy policy. The ISO’s market clearing price is the most idiotic policy ever.”

Not ‘Decrepit’

Exelon sent five witnesses to the hearing: Joseph Pacher, site vice president at the Ginna plant; James Vaughn, senior engineering manager at Nine Mile Point; Adam E. King, radiation protection supervisor at FitzPatrick; John Scalzo, engineer; and James Melville, senior radiation safety operator at FitzPatrick.

Pacher said that, far from being decrepit, “all three stations are performing better than when new,” citing their capacity factors of more than 90%. “Preserving nuclear plants upstate is good sense. These plants could be run safely for decades.”

Dinowitz asked about the costs of operating each plant, but none of the witnesses could answer. Vaughn said that the “$7.6 billion is an estimate, and keep in mind that without natural gas prices so depressed, we wouldn’t need any subsidy at all. It’s not to line our pockets but to keep the plants profitable. The ZEC program establishes a floor price, so if gas prices go up we’ll take less in subsidies.”

Englebright said, “ZEC is supposed to be a transition program, not preserve the status quo. When did Exelon first think they would need a subsidy?”

2015, Pacher replied, which was when the company began negotiating a reliability support services agreement at Ginna, which FERC approved in March 2016.

Kavanagh asked if the upstate plants were safer than Indian Point, which is slated to close by 2022 under an agreement between the Cuomo administration and plant owner Entergy. Cuomo has long sought the plant’s closure because of its proximity to New York City. (See related story, NYISO, PSC: No Worries on Replacing Indian Point Capacity.)

“We don’t operate Indian Point, so I don’t want to say,” Pacher responded. “There’s public perception of aging, decrepit nuclear plants upstate, but people who take tours are always impressed with our facilities.”

Kavanagh asked if the Ginna reactor wasn’t the same design as that at the Fukushima Daiichi plant in Japan, which failed when it was flooded by a tsunami in March 2011. Pacher admitted the similar designs but said it was the Japanese plant’s location on the Pacific Ocean that was its biggest vulnerability. “The worst thing for Fukushima was its location, but examining their experience did lead us to re-evaluate our event amelioration strategies,” he said.

Exelon says its nuclear plants, with a total capacity of 3,350 MW, employ 2,600 full-time workers and pay more than $45 million in annual property taxes and $144 million in “direct and secondary state tax revenues.”

Court Challenge

The PSC in December rejected 17 petitions to reconsider its CES decision, though it agreed to investigate a few instances concerning “eligibility issues” for some resources. (See NYPSC Rejects Challenge to Clean Energy Standard, Nuke Subsidy.)

In a separate action, a group of energy companies and trade groups in October filed a suit in U.S. District Court for the Southern District of New York, claiming the ZECs intrude on FERC’s jurisdiction over interstate electricity transactions. The suit asks the court to find the ZECs invalid and order the PSC to withdraw them from the CES.

March 7, 2017

Trump Casts Shadow over Growing Mexican Market

By Tom Kleckner

AUSTIN, Texas — When Diego Villarreal looks north across the Rio Grande toward Texas, he sees a deregulated energy market that looks very much like his country’s.

trump ercot market summit mexican market mexican energy market — Mexico Ministry of Energy’s Diego Villarreal | © *RTO Insider*

That stands to reason: Mexico has borrowed the best elements of competitive markets from around the globe and learned from U.S. “success stories” — including ERCOT.

In less than four years, Mexico’s electricity sector has been transformed from a state-run monopoly into a burgeoning marketplace where energy, capacity, financial transmission rights and clean-energy certificates are traded in day-ahead, real-time and capacity markets.

Villarreal, the deputy managing director of electric industry coordination for Mexico’s Ministry of Energy, takes understandable pride in the transformation.

“Where we are right now … that basically took Texas about 10 years,” he said during last week’s Infocast ERCOT Market Summit. “We have been working nonstop to get it where it is in only three and a half years. Yes, there are some elements missing, but keep in mind, it’s only been three and a half years.”

Key to the market’s reform, Villarreal told his audience, was the concept that Mexico “is not an isolated island,” but part of a regional market where “integration can lead to lower prices and more generation” — all of which could be quickly disrupted if the Trump administration continues to insist on building a large physical wall, or “larga barrera física,” along the border.

“It goes without saying that integrating with the United States … is, and was, an essential assumption of the reform,” Villarreal said. “But recent political changes have put that into question.”

Mexico already has five DC ties with the U.S. — three across the Texas border and two with California — with a total capacity of 1,086 MW. Another eight interconnections provide an additional 788 MW of capacity of emergency power.

trump ercot market summit mexican market — Mexico-US interconnections are in two main regions: Baja California / California and Tamaulipas-Coahuila / Texas. There are 5 interconnections (1086 MW) in permanent operation; and 8 interconnections (788 MW) for emergency backup. | *Mexico Ministry of Energy*

Mexico’s natural gas market is just as integrated, with more than a dozen pipelines connecting with the U.S.

Noting that he is not part of Mexico’s negotiating team with the U.S., Villarreal told RTO Insider, “The idea is to find a way for both countries to keep on having a positive relationship with respect to energy trade. The underlying assumption is this will still happen.”

But Villarreal also thinks there’s now a “wild card”: Changes to the free-trade agreement between the two countries could result in “strange consequences” — such as a “very onerous” process for permitting gas exports south of the border.

The Comisión Federal de Electricidad (CFE), the government electricity monopoly, has been broken up into seven generating subsidiaries, which bid into the day-ahead market along with several international generators. Those independent producers include Spain’s Iberdrola and Global Power Generation and several new Mexican companies, and could potentially include American generators.

“Some very large [American companies] that you’re very well aware of … will be transacting in the market very soon,” Villarreal promised. He pointed out that LMPs in Mexico are double those in ERCOT, which averaged $24.62/MWh last year, and said a “very healthy price differential” has been driving flow from Texas across DC ties that are “half-used” during summer’s high demand.

Mexico’s forecasted load growth can serve as a buffer for ERCOT’s oversupply and aggressive wind program, Villarreal noted.

“It’s money lying on the floor,” he said. “Someone has to pick it up. It’s going to go away as people come into the market.”

Gas trade between the two countries is much more mature, and Mexico is a natural sink for the U.S., Villarreal said, noting that his country’s supplies are rapidly being depleted and are bedeviled by high quantities of nitrogen. As the Mexican gas market goes, so goes the electricity market: Half of the country’s generation capacity (68 GW) comes from combined cycle plants.

“If the USA no longer considers Mexico a free trade partner [under the North American Free Trade Agreement], then exports will require a public-interest review … and then an environmental review,” Singer said. “Getting a permit to export gas to Mexico today is a very simple process. Representing the Mexican government, if we can’t get that gas, it will really be problematic for the system. But it’s also really problematic for Texas.”

But Villarreal prefers a more optimistic outlook.

“I think the underlying assumption is that the gas trade between Mexico and the U.S. will continue to flourish,” he said. “No investment on the gas infrastructure has been stopped. Nobody is saying, ‘Oh, don’t build that pipeline.’ On the power side, we’re working under the assumption that gas will not stop flowing from the U.S. into Mexico.”

March 6, 2017

MISO, PJM Propose Solution to Pseudo-Tie Congestion Problem

By Amanda Durish Cook

MISO and PJM staff broke their silence Tuesday on ongoing efforts to solve the RTOs’ pseudo-tie congestion double-counting problem.

At a Feb. 28 MISO-PJM Joint and Common Market Initiative meeting, Kevin Vannoy, MISO director of forward operations planning, said the RTOs would solve the double counting of congestion for pseudo-tied resources in the near term by providing congestion rebates, while they would develop a way to allow pseudo-ties in the day-ahead scheduling process by 2018.

The fix may also be applied to pseudo-ties between MISO and SPP.

“MISO now has over 5,000 MW of pseudo-ties in and out [to PJM and SPP] that could be subjected to this congestion overlap,” Vannoy said.

MISO and PJM said they hope to roll out the first phase of the changes by June 1. They will include accounting for market flows in market-to-market settlements so attaining balancing authorities have enough revenue to issue refunds. The congestion overlap will be addressed by allowing attaining BAs to provide congestion rebates for generators.

Beginning in June 2018, the RTOs plan to have Tariff and joint operating agreement changes in place that let pseudo-ties schedule and settle in the source BA’s day-ahead market. The day-ahead coordination will take significantly more work than the near-term rebate plan.

“Right now, the day-ahead markets in MISO and PJM might not be aligned,” Vannoy said, adding that each RTO is only aware of the other’s constraints in real time.

MISO and PJM officials acknowledged that creating a rebate process by June 1 is ambitious. “This is a very aggressive timeline. For something to be in place by June, we have to work on Tariffs and JOAs,” Vannoy said. He asked for stakeholder comments by March 7.

Both MISO and PJM staff said they could convene a special meeting to discuss the proposal before the next scheduled Joint and Common Market meetup in May.

SPP Also?

The process could also be applied to MISO and SPP’s pseudo-tied generation and load. Unlike MISO and SPP, MISO and PJM don’t share any pseudo-tied load; all pseudo-ties are generation-based. Vannoy said the proposed rules could apply to MISO and SPP’s pseudo-tied generation and load “to the extent that we can get to a solution.”

Solution to FERC Complaints

Vannoy said MISO and PJM will also discuss the proposed solutions with two municipal power agencies and a generator that have filed complaints with FERC over the double counting to “explore resolution outside FERC.”

In November, both RTOs declined to publicly discuss the double-counting issue until the complaints were resolved. (See PJM, MISO Go Quiet on Pseudo-Ties; Reach Interface Pricing Accord.)

Tilton Energy, the owner of a 180-MW natural gas generator in Eastern Illinois, filed a complaint in August arguing that MISO is violating its Tariff by assessing congestion and scheduling fees on Tilton’s pseudo-tied transactions that have already been assessed by PJM (EL16-108).

In a late December complaint, the Northern Illinois Municipal Power Agency asked for a “full evidentiary proceeding involving PJM, MISO and the numerous pseudo-tying entities being harmed by the implementation of MISO-PJM pseudo-ties” (EL17-31).

And in January, American Municipal Power asked FERC to stop PJM from collecting charges from generators pseudo-tied out of the MISO balancing authority area where congestion charges were already assessed (EL17-37).

MISO Assistant General Counsel Michael Kessler has said FERC might combine the complaints.

Asked whether the RTOs would share with stakeholders details of their discussions with the plaintiffs, MISO Managing Assistant General Counsel Erin Murphy said the current meeting’s discussion might solve the complaints.

“I can’t say that there won’t be separate discussions,” she added.

Generator Skeptical

Tilton representative Elena deLaunay asked why PJM would be the appropriate side of the double count to be refunded, saying that MISO’s congestion charges were more inappropriate for PJM-based Tilton. She asked why PJM should have to provide refunds when its congestion is in the market the generator is being settled in, is created through the market-to-market process and flows through the make-whole calculation.

“We are being dispatched into price signals on the MISO side that we can’t follow as a PJM resource,” deLaunay said.

She also said the long-term solution to solve congestion double counting may be flawed: “Forcing us to speculate on which market we will be dispatched in [day-ahead or real-time] can create additional risk rather than mitigating it.”

Vannoy said the rebate will be based on physical transmission usage charges, and not on a pseudo-tie transaction basis. He also said MISO already provides congestion rebates through financial transmission rights, so he didn’t see it as “appropriate” that the RTO would only charge once and offer rebates twice.

Stricter Rules Coming

Both PJM and MISO are also focused on introducing stricter pseudo-tie rules.

Vannoy said MISO’s more stringent pseudo-tie process will be filed with FERC in the “near term,” despite staff putting the proposal on hold to better explain it to its stakeholders. (See “RTO Delays Filing Pseudo-Tie Proposal,” MISO Advisory Committee Briefs.)

pseudo-tie congestion pjm miso — Horger | © *RTO Insider*

Tim Horger, manager of interregional coordination at PJM, said his RTO will soon file its own more stringent pseudo-tie rules with FERC as well. Last month, stakeholders approved more stringent rules for new pseudo-tie applications but declined to endorse them for existing pseudo-tied units. PJM announced last week that it is going to file the new rules for FERC approval for both new and existing pseudo-ties. (See PJM to Tighten Pseudo-Tie Rules Despite Stakeholder Pushback.) A first-ever PJM pseudo-tie pro-forma agreement, however, was postponed last week after stakeholder concerns.

PJM and MISO pseudo-tied 2,061 MW of transfers for the 2016/17 planning year, compared with 156 MW during the previous year.

The increased pseudo-ties have produced more congestion and brought more attention to pricing discrepancies along the border between the RTOs, which can result in revenue imbalances between RTOs and increased uplift payments in addition to the double counting of congestion. The RTOs last year said MISO would use data from December 2016 to begin an analysis of pseudo-tie congestion in mid-2017.

The RTOs will also adopt a new common interface definition beginning June 1, moving from about 1,800 nodes inside PJM to a common interface consisting of 10 nodes close to the seam. Beibei Li, of MISO’s market evaluation and design team, said the change will reduce congestion overlap.

“We’re moving from a fairly large interface definition to something closer to the seam,” Li said.

A MISO 2016 study shows the new common interface definition affects real-time and day-ahead prices by less than $5/MWh in almost all cases, she added. The interface definition change is meant to eliminate overlapping congestion pricing incentives.

“The price incentive on June 1 shouldn’t differentiate all that much,” Li said.

The RTOs have made 23 successful day-ahead firm-flow entitlement exchanges since the exchange process began in January 2016. None of PJM’s 15 requests or MISO’s eight have been refused by the other RTO. (See “Regions Begin FFE Exchanges,” MISO/PJM Joint and Common Market Meeting Briefs.)

March 6, 2017

ERCOT Sees Adequate Capacity for Spring, Summer

ERCOT’s latest seasonal assessment of resource adequacy (SARA) indicates ample generation for spring, with more than 82 GW of generation for an expected peak demand of 58 GW.

Nearly 1.5 GW of new gas-fired, wind and solar generation has become operational since the preliminary spring SARA was released in November.

spp ercot wind generation — Texas Wind Farm | *Target*

A preliminary summer SARA anticipates a new record peak of nearly 72.9 GW, with 81.6 GW of capacity. That would break the mark of 71.1 GW set last year on Aug. 11. ERCOT said it expects another 2.5 GW of new gas-fired and 1.6 GW of wind and solar generation to come online before the June-September season begins.

ERCOT Senior Meteorologist Chris Coleman is predicting another hotter-than-normal summer in Texas this year. He said during a media conference call last week that the state is coming off what may be its warmest winter on record, and he does not expect any significant changes in the “warming trend.”

Panda Power’s 758-MW Sherman combined cycle generator in Sherman, Texas, went online in 2014. | *Panda Power Funds*

“Eight or nine of the past summers have been hotter than normal,” he told the ERCOT Board of Directors in January. “That’s just been the trend. It would really be going out on a limb to forecast a mild summer for Texas this year.”

A final summer SARA will be released in May.

– Tom Kleckner

March 6, 2017

Behind-the-Meter Generation Complicating EIM Load Forecasting

By Robert Mullin

LAS VEGAS — Increased adoption of behind-the-meter generation is complicating short-term load forecasting across the Western Energy Imbalance Market (EIM), especially in the Arizona Public Service area.

The challenge is caused by the unpredictability of cloud cover, which can cause sharp and sudden drops in solar production.

Behind-the-meter generation load forecasting EIM — Motley | © *RTO Insider*

“In the past, cloud cover was always a variable that came in for load forecasting, but it was really interrelated to temperatures,” Amber Motley, CAISO manager of short-term load forecasting, said during a March 1 meeting of the EIM Governing Body at The Palazzo hotel.

The conventional understanding: Clouds would move over an area, causing temperatures to fall, which would in turn reduce system load.

“Now, when you get high penetration levels of rooftop solar, there is a point in time when clouds come over and your [net] load is going to increase instead of decrease” because of reduced output from rooftop solar, Motley said.

A Caveat

Motley offered one caveat to that assessment: When daily temperatures average about 80 degrees Fahrenheit, temperature is still the main driver of the load forecast.

Under those conditions, air-conditioning load still drives enough electricity consumption that a cloud system causing a 10-degree drop in temperatures is going to reduce load.

Further complicating matters is humidity, which causes air conditioners to work harder and support load even under cloud cover. The situation is especially problematic in summer when monsoon moisture is thrown into the mix.

“You really have a question to ask yourself: Is my load going to increase because I am losing the rooftop solar, or is it going to decrease because I have a 10-degree temperature drop?” Motely said. “And we’ve seen both situations happen.”

Motley called APS the “most challenging load-forecasting region” within the EIM.

“It has a combination of a significant amount of rooftop solar, which is a driving factor, combined with some of those strong monsoon days in the summertime,” she said.

APS began transacting in the EIM last October, after the summer solar and monsoon peaks. But CAISO began running EIM load forecasting models ahead of the go-live date, giving operations staff an indication of what to expect this summer.

High Error Rates

So far, even outside the summer months, short-term load forecasts for the APS area are recording relatively high error rates compared with other EIM balancing areas (see chart). In November, the region’s hour-ahead forecast error rates reached nearly 2%, falling to 1.5% the following month. NV Energy has had similarly high error rates in the summer because of the prevalence of dust storms — a phenomenon that affects Arizona as well. The error calculations represent the average deviation between hour-ahead forecasted load and actual load.

The ISO’s goal is to keep error rates below 1%, Motley said, adding that such accuracy is not always attainable in some regions.

“If you have more rooftop solar, your accuracy is going to be worse because you now have another characteristic behind the scene that is influencing it,” Motley said.

She pointed out that short-term load forecasting is an important component for market optimization and reliability. It also is used as a key input for dispatch operation functions such as unit commitment, economic dispatch, fuel scheduling and generation and transmission maintenance.

EIM Governing Body member John Prescott wondered if there was a “nexus” between load forecasting errors and the high number of flexible ramping test failures observed in the EIM late last year — particularly in APS. (See EIM Sees Sharp Increase in Flexible Ramping Test Failures.)

“There are several factors that play into that and we have to isolate each one to see what’s driving it,” said Justin Thompson, director of resource operations and trading at APS. “But load forecast is one piece of it. Also, how well have [we] forecasted wind? … How well [have] we forecast the solar output?”

Phoenix Baseline?

Alyssa Koslow, a regulatory analyst at Salt River Project, said she had heard CAISO was using Phoenix as the baseline for forecasting for Arizona, despite the fact that APS’s territory extends into high-elevation areas.

Motley clarified that the ISO’s approach to forecasting is more comprehensive than that.

“We have multiple temperature stations within Arizona, and [the load forecast] is always driven by the temperature station that’s closest to where your load pattern moves the most,” Motley said. “So we work with all of the EIM entities on which station in which area moves the most for your load and then we incorporate that into the design.”

“One of the problems with models is ‘garbage in, garbage out,’” said Clay MacArthur of Deseret Power. “There’s a lot of behind-the-meter generation going on. How do you aggregate” the capacity?

Motley responded that the ISO takes a bottom-up approach that starts with the zip code and capacity for every interconnection on the distribution system. That information lays the foundations for system load forecasts for individual areas.

“And then we forecast the irradiance — which is essentially the amount of sunlight that’s going to come from the atmosphere to the roof for that resource — and we put that into the forecast as its own variable,” Motley said.

Neural Net

That last point is important for CAISO’s “neural net” forecasting method, which relies on the dynamic interplay between “highly interconnected processing elements” — the data fed into the model. As Motley explained, the neural net is modeled on the human brain and can synthesize copious amounts of information and “learn” to weight the importance of certain factors over others in their predictive processing.

“Storing the information by technology type is very important so that the neural net can have the correct connections,” Motely said. If that information gets “blended in with the rest of the model,” then the neural net has a difficult time distinguishing whether it was a change in temperature or solar output that caused load to move up or down.

CAISO continues to seek ways to improve its load-forecasting model, Motely said. Future improvements could include having EIM participants share their own load forecasts to provide comparisons, as well as having them provide balancing area information about demand response, hydroelectric behavior, rooftop solar and irrigation patterns.

“Can we fix everything? No, it’s forecasting — it’s good job security,” Motley joked. “But are there some things that we can fix? Yes, there are some things.”

March 6, 2017

CenterPoint Mulling Midstream Stake, Sees Q4 Earnings Shortfall

By Tom Kleckner

CenterPoint Energy said it is continuing to evaluate an offer for its ownership share in Enable Midstream Partners, and it expects to “clarify” its position in the third quarter.

The Texas company has a 55.4% stake in the gas gathering and processing venture with Oklahoma City-based OGE Energy. CenterPoint is considering an offer to purchase its share, but it could also spin off the business or continue to manage its position.

“If we determine that neither a sale nor a spin would fulfill our criteria, our third path will be to maintain our stake in Enable and continue to support efforts to reduce exposure to commodity price influences,” CenterPoint CEO Scott Prochazka said.

OGE made a second offer for CenterPoint’s stake on Feb. 15 under its right of first offer (ROFO), along with an unnamed partner. CenterPoint, which rejected OGE’s first offer in September, has until June 15 to make a final decision.

Prochazka said CenterPoint is continuing its “dialogue with interested parties” and it will “evaluate OGE’s recent offer made pursuant to the ROFO terms of our partnership agreement.”

“While the process is taking longer than originally anticipated, we expect to clarify which path we are on by the second-quarter earnings call,” he said.

Prochazka’s comments came during a Feb. 28 conference call with financial analysts following the company’s fourth-quarter earnings announcement.

Q4 Earnings Fall Short

CenterPoint fell short of analysts’ expectations, reporting fourth-quarter net income of $101 million ($0.23/share), compared to 2015’s fourth-quarter loss of $509 million (-$1.18/share). Zack’s consensus estimate was 29 cents/share.

The 2015 results included impairment charges totaling $984 million from its midstream investments. The company attributed the turnaround to rate increases and customer growth in its electric and gas utility businesses.

For the year, the company reported net income of $432 million ($1/share), compared to 2015’s loss of $692 million ($1.61/share).

CenterPoint reiterated its 2017 guidance of $1.25 to $1.33/share.

The company’s stock gained $1.99/share in the four days after the earnings announcement, ending the week at $27.90. CenterPoint shares have risen more than 13% since the beginning of the year — doubling the 6.4% increase in the Standard & Poor’s 500 index — and are up 43% in the last 12 months.

Executive Appointments

On March 1, the company announced three executive appointments: Scott Doyle as senior vice president of natural gas distribution; Joe Vortherms, as senior vice president of CenterPoint Energy Services; and Jason Ryan, vice president of regulatory and government affairs. Doyle and Vortherms will report to Prochazka. Ryan will report to General Counsel Dana O’Brien.