Who Decides? Panel Highlights Blurred Jurisdiction on Tx

By Rory D. Sweeney

COLUMBUS, Ohio — PJM’s Craig Glazer opened a panel on controlling transmission project costs at last week’s annual meeting of the Organization of PJM States Inc. with a tongue-in-cheek game show: “Who Does What?”

The series of multiple-choice questions he presented highlighted the lack of clear authority throughout the transmission-development process, with state regulators, RTOs and FERC all potentially playing a role.

Who decides which of three cost-capped transmission proposals — differing on what costs are covered and what are excluded — is the best for ratepayers? Who enforces the cost cap after an award?

“There are no clear answers,” said Glazer, PJM’s vice president of federal government policy. “This is about one of the fuzziest areas we’ve got.”

That set the stage for a dialogue on transmission planning that spanned two panels and more than three hours of discussion. The first panel tiptoed around the troubled Artificial Island project to debate the advantages and challenges of cost caps. (See PJM Board Halts Artificial Island Project, Orders Staff Analysis.)

The second panel focused on FERC’s recent decision to investigate how supplemental projects are awarded. It pitted incumbent transmission owners against independent transmission developers and the customers who pay to use their networks in debating how receptive TOs should be to outside opinions on how to manage their assets. (See FERC Orders PJM TOs to Change Rules on Supplemental Projects.)

FERC Policy Statement?

opsi panel transmission projects — Segner | © *RTO Insider*

Sharon Segner of LS Power, who sat on both panels, outlined her argument in detail. She started by campaigning for FERC to issue a policy statement defining the elements of cost caps, contrasting it with nonbinding cost estimates.

It was a reprise of arguments the company made in comments filed earlier this month following a FERC technical conference on Order 1000 (AD16-18). (See Five Years Later, FERC Takes Another Look at Order 1000.)

Segner said cost-containment proposals must be specific about what costs are covered and what are excluded, including legal caveats. And those promises must be incorporated into the designated entity agreement and rate case to ensure enforceability, she said.

“A PowerPoint proposal, in our view, is not a cost-containment proposal. It has to be clear, and the legal language has to be clear as well,” she said. “The selection process should fairly and truly weight the cost-containment proposal.”

Cost Caps Impractical

Moskowitz | © RTO Insider — Moskowitz | © *RTO Insider*

Jodi Moskowitz of Public Service Enterprise Group said cost caps make sense in theory but can be challenging in implementation. First, she said, the 45 days PJM has given bidders to respond to solicitations is not enough time to develop accurate cost estimates.

She also raised the issue of permitting delays, citing the Susquehanna-Roseland reliability project that PSEG built with PPL. It took four years to win National Park Service approval for a crossing through the Delaware Water Gap National Recreation Area even though it was completely within an existing right of way, she said.

“The challenges associated with these large, linear projects is intense,” she said, noting that “the cheapest project may not provide the overall best value to customers.”

She pointed out that FERC, in its acceptance of PJM’s Order 1000 compliance filing, rejected a cost-cap proposal, noting that many of the issues involved with project development are out of the developer’s control.

“Competitive transmission — we struggle with that term,” she added, questioning whether competitive developers’ designs are equal to her company’s standards. “We only have one grid.”

Risk Premium

qkfkropfryuugyoftru8_full_joshua-burkholder-transource — Burkholder | © *RTO Insider*

Josh Burkholder of Transource Energy, a joint venture of American Electric Power and Great Plains Energy, said proposals that offer both guaranteed cost caps and significant cost savings are “too good to be true.”

“This has me scratching my head, because if risks are truly transferring [from customers to the developer], you would expect there to be an associated risk premium.”

In response to that pressure, his company attempted to share the cost risks with its construction vendors, equipment manufacturers and companies acquiring rights of way.

“That process has been very, very challenging,” he said. “There are risks that our suppliers are just flat-out not interested in taking. They have plenty of work that they can do without assuming a lot of new risks.”

| © RTO Insider — Weishaar | © *RTO Insider*

Including its risk premium in its Artificial Island bid made it uncompetitive, he said.

Attorney Robert Weishaar, who represents the PJM Industrial Customer Coalition, said Order 1000 “has yet to deliver tangible benefits.”

“We think FERC needs to redouble its efforts to provide clear directions to RTOs on how … to fully implement Order 1000 and deliver on its promises,” he said.

Weishaar also said FERC should eliminate rate incentives — such as those for RTO participation and independent transmission companies — in Order 1000 projects. “This is competition,” he said. “There are no regulatory incentives in competition.”

Supplemental Projects

opsi transmission — Bradish | © *RTO Insider*

In the second panel, Exelon’s Gloria Godson and Bob Bradish of AEP passionately defended transmission owners’ authority to manage their assets without second-guessing.

“I have a good relationship with some of my neighbors. Some of them, I really don’t like the way that their doors look. I think that they should change their doors, but I have never gone over to my neighbor and said, ‘You know what? I’m going to take down your door and change it,’” Godson said. “You just don’t do that to someone else’s assets. It’s just not courteous. It’s not nice!”

“We have a set of standards,” Bradish added. “We’re certainly happy to sit and debate standards, but we don’t want someone’s opinion to substitute for 110 years of doing the work.”

He called suggestions from stakeholders on what specific components to use “not helpful.”

American Municipal Power’s Ed Tatum said the fact that his company is helping to foot the bill is what qualifies him to be part of the decision.

And he said that bill has jumped sharply in recent years. In the earlier panel, he had pointed to a transmission expansion in Jersey Central Power and Light’s territory whose costs ballooned from $22 million to $111 million once estimates had been more “fully refined,” according to the presentation at the Oct. 6 Transmission Expansion Advisory Committee meeting.

“We’re not asking to paint anybody’s door … but what we are concerned about is what’s being built and why. The reason is because we’re paying for it. If we’re paying for it … we should talk about it.”

Segner said her company is concerned the supplemental project process allows incumbent transmission owners to win projects that should be open to competition.

ira2mtraqs6j7iigrqay_full_-opsi-panel-6-ltor-craig-glazer-pjm — Left to right: Craig Glazer, PJM and fellow panelists Segner, Moskowitz, Burkholder and Weishaar | © *RTO Insider*

She also voiced concern that the Transmission Replacement Processes Senior Task Force — which has been assigned to develop rules and review processes for “end-of-life” projects — has a flawed mission and no means to repair it.

“The solution is not more PJM slides. It’s not prettier slides,” she said. “There needs to be fundamental reform in the local planning process, and that’s where the transparency needs to be.”

TEAC Restructuring

Earlier in the panel, PJM Vice President of Planning Steve Herling explained the RTO’s plans to restructure the TEAC to be more dynamic and communicative.

“We’re going to be putting more and more of the material out, essentially in kind of webcasts well in advance of the TEAC meeting,” he said. “Our goal is to have this material all available before we get to the TEAC or the sub-regional [Regional Transmission Expansion Plan] committees so that you can educate yourself about a particular problem, about a solution option that is out there and then engage in Q&A with PJM or with the transmission owners.”

PJM’s hopes to implement the changes by the beginning of the 2018 RTEP cycle, but enhancements will be rolled out as they are ready.

October 24, 2016

FERC Rejects Standards of Conduct Finding for PPL

By Rich Heidorn Jr.

FERC on Thursday rejected PPL’s request for a finding that it is no longer covered by the commission’s Standards of Conduct rules restricting communications between its transmission and marketing functions (TS16-2).

ferc standards of conduct ppl electric — The PPL Building in Allentown, PA | © Jzehnder1 – Dreamstime.com

FERC’s Standards of Conduct require transmission-function employees to operate independently from marketing staff to prevent preferential access to nonpublic transmission, customer or market information.

PPL contended that the rules should no longer apply to its PPL Electric Utilities subsidiary — a transmission owner and load-serving entity in PJM — because it spun off its competitive generation to Talen Energy last year. Thus, it said, it no longer conducts transmission transactions with an affiliate that engages in marketing functions.

But the commission ruled that PPL Electric continues to have a marketing function because it sells excess electricity in its role as provider of last resort for customers who don’t choose a competitive retail supplier.

“The fact that PPL Electric is a ‘price taker’ for the balancing sales to PJM is not relevant to the determination whether sales for resale in interstate commerce are jurisdictional activities under Section 205 of the Federal Power Act,” the commission said.

FERC said that the company could request a waiver from the standards by showing that it does not control its transmission system and has relinquished access to nonpublic transmission information.

But PPL spokesman Joe Nixon said the company will not seek a waiver. “Consequently, we will continue the training and other requirements imposed by FERC’s Standards of Conduct to wall off transmission function information from marketing functions,” he said.

FERC rejected PPL’s contention that its current operations were similar to those of Hudson Transmission Partners, which the commission exempted from the standards in a 2014 order.

Hudson Partners, which owns an 8-mile long transmission line connecting PJM and NYISO, has turned over control of the line to PJM. But unlike PPL, it does not participate in any energy markets and has not obtained authority to make wholesale sales of power, FERC said.

October 24, 2016

MISO Planning Advisory Committee Briefs

Wind advocates and other stakeholders predicted last week that MISO’s proposed changes to the interconnection queue process will face challenges before FERC.

The stakeholders made their comments at the Oct. 19 Planning Advisory Committee meeting, two days before MISO’s filing Friday.

Omar Martino, director of transmission strategies with EDF Renewable Energy, said the new three-phase queue could make the process even longer.

Great River Energy engineer Michael Steckelberg said the three-phase approach guarantees “built-in restudies.”

Tim Aliff, MISO’s director of reliability planning, said the majority of stakeholders preferred the three-phase queue over a shorter, two-phase queue.

Rhonda Peters, a consultant to Wind on the Wires, said more discussion could have resolved some of her clients’ concerns, such as the timing of the site control deposit. The deposit is required at the queue’s second decision point, roughly 200 days into the queue, and becomes nonrefundable if interconnection customers cannot provide a site map and proof of land-use agreements for the project area.

Aliff noted that the deposit was reduced to $100,000 from the proposed $1 million, but he said MISO would not consider wind advocates’ request to delay the deposit until projects enter the definitive planning phase.

He also said it was an exaggeration that MISO’s entire wind industry opposed the deposit timing — an unexpected response to a claim no one at the meeting had made.

Interconnection Process Task Force Chair Randy Oye pointed out that MISO worked for more than a year on the new rules.

“I think we really worked hard to address the issues,” Oye said. “Site control was a late issue; it came up late.”

Aliff said that while the proposed 460-day queue sounds long, MISO is only now getting to siting projects proposed in August 2015. “We’re already a year behind on the current process,” Aliff said.

MISO Proposes Joint Functional Control Agreement

MISO plans to file a joint functional control agreement with FERC to codify the process that would be used should it award a competitive transmission project to multiple entities in separate RTOs.

The agreement would be signed by all developers and makes clear that MISO will “maintain undivided functional control of all competitive transmission facilities associated with … project[s] once they are placed into service.”

“One RTO couldn’t do 60% of congestion management while the other does 40% control of congestion management,” explained Brian Pedersen, MISO’s senior manager of competitive transmission.

Once accepted by FERC, Pedersen said similar language will be included in MISO’s Tariff. He also said he would return in November to present any adjustments to the agreement based on stakeholder comments. MISO is eyeing a finalized agreement by February or March and said it would be filed with FERC in either the second or third quarter of 2017.

Duff-Coleman Selection Near; MISO Contemplates Rule Changes

Pedersen said MISO is close to selecting a developer for the Duff-Coleman 345-kV project, its first competitive transmission project. (See 11 Developers Vie for MISO Duff-Coleman Project.)

He said after the project is awarded, he would continue to return to the PAC with project status reports and updated cost estimates. Beyond that, he said MISO would take time in the first few months of 2017 to identify possible improvements to the competitive developer selection process.

“Even though there might not be a competitive project in 2017, there’s a lot to contemplate,” Pedersen said.

After MISO announces the Duff-Coleman winner, Pedersen said he expects there are going to be 10 developers “wanting to know why they weren’t chosen.”

“In January and February, what we’re contemplating is having one-on-one meetings with the 10 entities that were not selected,” Pedersen said.

MISO is already considering changes in the minimum project requirements for competitive transmission projects. The RTO announced at Oct. 18’s Planning Subcommittee meeting that the second version of Business Practices Manual 029, which governs the requirements, will move to the PAC for approval. MISO principal adviser Matt Tackett said the BPM language will be presented and reviewed at the Nov. 16 PAC meeting. He said he anticipates final language by January with the revision implemented next spring.

“I think the general thought among stakeholders was that it was a good starting point,” Tackett said of the first version of BPM 029, which was used for Duff-Coleman. The revision includes a more detailed set of ratings that projects must meet. (See “MISO Releases Minimum Requirements for Competitive Tx Projects,” MISO Planning Subcommittee Briefs.)

PAC Could Hold IPSAC Vote Outside of Interregional Meetings

Eric Thoms at the MISO Planning Advisory Committee — Thoms | © *RTO Insider*

Eric Thoms, MISO manager of planning coordination and strategy, revisited the PAC to soften his stance on whether the committee sectors’ in the MISO-SPP Interregional Planning Stakeholder Advisory Committee (IPSAC) can take place outside of the interregional meetings.

Thoms said MISO is proposing holding its end of the IPSAC stakeholder vote through either conference call or email shortly after the IPSAC to give sectors time to huddle up on issues.

“A majority of the stakeholders did not support voting at the SPP-MISO IPSAC. I think people wanted sufficient time to discuss MISO’s own regional details,” Thoms said.

In August, Thoms said the PAC’s seven voting sectors should use MISO-SPP IPSAC meetings to decide the RTO’s nonbinding IPSAC vote on study approvals or whether potential interregional projects should proceed to regional review. (See “MISO to Give PAC More Consideration in Interregional Process; Stakeholders Wary of PAC Vote in IPSAC,” MISO Planning Advisory Committee Briefs.)

Thoms said MISO staff would advise the MISO-SPP Joint Planning Committee on the stakeholder preference to conduct voting outside of the IPSAC.

PAC Chair Bob McKee said voting changes should be memorialized in the committee’s charter.

Thoms added that stakeholders’ IPSAC confusion spawned in large part from FERC’s directives in the Northern Indiana Public Service Co. order (EL13-88), with stakeholders not knowing if they should attend the PAC or the MISO-PJM IPSAC to get the latest details. MISO said it noticed an increase in involvement by its stakeholders at recent MISO-PJM IPSACs.

Stakeholders also asked for increased notice, updates and follow-up on IPSAC items at the PAC and the ability for PAC sectors to present their positions in the IPSACs.

MISO said it is looking for “alternative opportunities to communicate interregional planning status,” including PAC presentations, newsletters and quarterly reports.

Long-Term Tx Study Scoped

MISO has finalized the scope of a study that will determine the RTO’s long-term transmission needs using futures from the 2017 Transmission Expansion Plan. The RTO said in addition to the MTEP 17 futures, the study will include “economic indicators” such as historically congested flowgates.

The first detailed study evaluation will take place in MISO’s Economic Planning Users Group on Nov. 11 at its Eagan, Minn., offices. (See “Long-Term Overlay Study Scoped; MISO Asks for More Responses,” MISO Planning Advisory Committee Briefs.)

Lynn Hecker, MISO manager of expansion planning, said she would revisit the PAC with five separate updates over 2017 until the study is wrapped up in December 2017.

— Amanda Durish Cook

October 24, 2016

FERC Sides with ISO-NE in Capacity Dispute with NYISO

By Michael Brooks

New resources that clear ISO-NE’s Forward Capacity Auction will be able to begin supplying capacity earlier than the usual three-year lead time under a package of Tariff revisions approved by FERC last week (ER16-2451, AD16-26).

The changes are intended to enhance liquidity in the RTO’s capacity market: Resources that are completed prior to the beginning of their commitment periods would not have to sit idle until then. Under the revisions, filed by ISO-NE in August, qualified resources could participate in the RTO’s reconfiguration auctions and begin supplying capacity as soon as four months after they clear the FCA. Imports would be allowed to begin as soon as one year after the FCA.

That last provision did not sit well with NYISO, which had asked FERC to delay the revisions by one year.

The ISO said it did not object to the revisions themselves, but it worried that they would negatively affect capacity prices in its own market because of a single power plant, Castleton Commodities International’s Roseton 1. The 1,242-MW dual-fuel generator, located 43 miles north of New York City in NYISO’s capacity import-constrained G-J locality, is committed to supply about half of its capacity to ISO-NE for the 2018/19 and 2019/20 periods. Under the revisions, Roseton would be able to supply capacity beginning next June for the 2017/18 delivery year.

NYISO said this could increase costs to New York consumers by as much as $341 million. Under current ISO rules, when a resource is committed to export capacity, it is treated as if it no longer exists when the ISO runs its own, one-year forward auction. If Roseton decides to participate in ISO-NE’s 2017/18 commitment period, NYISO would procure unnecessary replacement capacity, as Roseton would still be providing reliability services for the G-J zone, the ISO argued.

Market Monitor David Patton identified the problem in his 2015 State of the Market report, recommending that NYISO act quickly to recognize the reliability value of generators in import-constrained zones to avoid a rise in capacity prices. NYISO is currently hammering out Tariff changes and hoped to file them so they were in place before the beginning of the 2018/19 period.

FERC, however, said it was “not persuaded that the potential behavior of New York suppliers provides a sufficient basis to reject ISO-NE’s filing in this case.”

“Deferring the effective date of an otherwise just and reasonable proposal would be inconsistent with the notice provision in Section 205 of the” Federal Power Act, it added.

The commission ordered NYISO to make an informational filing by Nov. 4 addressing its progress in finalizing its Tariff revisions.

October 24, 2016

FERC OKs Natural Gas Index for CAISO

By Robert Mullin

FERC last week approved CAISO’s use of a natural gas price index included in temporary Tariff provisions the ISO implemented last spring in response to the closure of the Aliso Canyon storage facility (ER16-1649).

The ISO revised its index rules to ensure gas-fired generators in Southern California accurately reflect their fuel costs in the event that pipeline restrictions imposed following the loss of Aliso Canyon caused market volatility.

aliso canyon response plan ferc natural gas caiso — The California grid weathered the summer without supplies from the Aliso Canyon gas storage facility, but CAISO hopes to extend its gas restriction response plan for another year. | *California Office of Emergency Services*

Prior to the revision, the ISO Tariff required gas generators to base the fuel component of their day-ahead unit commitment costs on the previous day’s day-ahead gas index published by the Intercontinental Exchange (ICE).

The updated rule allows those generators to instead use a same-day index produced by ICE by 9 a.m. PT, just before the ISO’s day-ahead market run. ICE’s “official” same-day index is typically posted at 11:30 a.m.

CAISO reasoned that a shorter time lag between the publication of the index and the submission of day-ahead energy bids would reduce the likelihood that generators could lose money under unexpected tight supply conditions by gas price spikes revealed after the market run.

The commission’s June 1 order approving the Aliso Canyon response plan accepted the new index with the qualification that it must be shown to conform to FERC’s policy statement on natural gas price formation, which outlines standards for trade data reporting. (See FERC Approves CAISO’s Aliso Canyon Response Plan Ahead of Summer.)

In August, CAISO asked FERC to extend a previous waiver and allow it to continue using the new index provisions. While the ISO said it could not state that the index conformed with the policy statement, it noted that the volume-weighted average price ICE makes available before 9 a.m. is calculated in the same way as the official index published later in the morning.

In its decision last week, the commission agreed with the ISO’s assessment, pointing out that ICE is a FERC-approved index developer and that the new index meets the minimum threshold for trading volume.

“Based on CAISO’s representations that the volume-weighted average price is generated by ICE between 8:00 a.m. and 9:00 a.m. PT, we expect that the new index, which will include trades between 5:00 a.m. and at least 8:00 a.m. PT, will have sufficient activity to conform to the liquidity requirements of the policy statement,” the commission concluded.

Tariff provisions related to the Aliso Canyon response plan are set to expire at the end of November, but CAISO this month asked the commission to extend most the measures for an additional year. A decision on that request is pending. (See CAISO Seeks to Extend Aliso Canyon Gas Rules Through Winter.)

October 24, 2016

MISO Outlines Retirement Coordination with PJM

By Amanda Durish Cook

MISO and PJM will have 65 days to evaluate the impact of generator retirements under joint operating agreement language drafted to comply with a FERC directive.

The subject of a briefing at MISO’s Reliability Subcommittee meeting last week, the JOA language requires the RTOs to notify each other of retirements and exchange the most up-to-date modeling data.

The results of the retirement impact studies and possible transmission upgrades will also be shared. Projects in one RTO that have benefits or impacts in the neighboring RTO will be evaluated by the Joint Regional Planning Committee and the Interregional Planning Stakeholder Advisory Committee (IPSAC).

Alternatives to transmission upgrades will include market-to-market coordination to use external resources, as well as operating guides and procedures involving the adjacent RTO.

generator retirement coordination studies pjm miso — | *MISO*

In response to a complaint by Northern Indiana Public Service Co., FERC required the RTOs to file language coordinating their generator retirement studies and dispatch assumptions by Dec. 15, 2016 (EL 13-88).

The commission cited NIPSCO’s testimony that PJM used unrealistic dispatch assumptions in its study of the retirement of the Crawford and Fisk generating plants in the Commonwealth Edison territory, “which caused PJM to fail to identify required upgrades and masked potential problems within MISO, including overloads on NIPSCO’s system.” (See FERC Orders Changes to MISO-PJM Interregional Planning.)

Joe Reddoch of MISO’s System Support Resource Planning Group said MISO focused on appropriate communication between the RTOs and reviewed its existing retirement process to make sure it was still relevant.

Reddoch commented on the 65-day deadline for evaluating retirements.

“Currently, it’s more or less open-ended. We don’t necessarily have a deadline to get back to them with study results that would factor into their retirement studies,” Reddoch said.

He added that supplying such information would be more vital to PJM, which — unlike MISO — cannot force generators to stay online as must-run resources.

Reddoch said transmission projects the RTOs identify as a result of their analyses might not be detailed or polished.

“Each RTO would conduct a retirement analysis to determine the impacts to their system and possible transmission projects. We won’t necessarily have those projects defined,” he said.

Reddoch said MISO would look to PJM’s information to update its modeling information, but directly involving PJM staff in retirement decisions would be too complex. “They won’t necessarily be involved in study scope discussions,” he said.

In comments to MISO, NIPSCO said it was generally supportive of the proposed changes, but it asked the RTOs to devise a timeline for retirement studies that is similar to MISO’s multistep interconnection queue studies. MISO responded that an interconnection format isn’t feasible because its generator retirement studies are “conducted on an ad hoc basis,” and studies can vary.

NIPSCO also asked MISO for examples of how identified transmission projects become approved under the new process. MISO said the issue would be discussed at a future IPSAC meeting.

Reddoch asked for stakeholder input by Nov. 1 and said MISO would share final JOA language at the Nov. 15 Joint and Common Market meeting with PJM.

October 24, 2016

FERC Grants TransCanyon 9.8% ROE for CAISO Projects

FERC last week approved a settlement allowing independent transmission developer TransCanyon to collect a 9.8% base return on equity for any projects it builds under CAISO’s FERC Order 1000 competitive solicitation process (ER15-1682).

TransCanyon asked the commission last May for a 10.6% ROE if it were selected to build and operate a 115-mile, 500-kV transmission segment linking Southern California Edison’s Colorado River substation with Arizona Public Service’s Delaney substation. The commission set the request for hearing and settlement procedures in July 2015.

CAISO ultimately awarded the economically driven $300 million Delaney-Colorado River project to a joint venture between Abengoa and Starwood Energy.

transcanyon caiso — Delaney – Colorado River Project Map | *CAISO*

Still, last week’s order will enable TransCanyon to incorporate the 9.8% ROE into its transmission owner tariff’s formula rate template — the basis for calculating a yearly transmission revenue requirement to be included in the ISO’s transmission access charge.

Participants in the settlement were SoCalEd; the cities of Anaheim, Azusa, Banning, Colton, Pasadena, Riverside and Santa Clara; the California Department of Water Resources; the M-S-R Public Power Agency; and Modesto Irrigation District.

TransCanyon is a joint venture between Berkshire Hathaway Energy, which owns PacifiCorp and NV Energy, and Pinnacle West Capital’s Bright Canyon Energy. Arizona Public Service is Pinnacle’s primary subsidiary.

— Robert Mullin

October 24, 2016

Role, Value of Financial Trading Debated by OPSI Panel

By Rory D. Sweeney

COLUMBUS, Ohio — Three economists, two lawyers and an electrical engineer walk into a bar…

Actually, they appeared on stage here for the latest installment in PJM’s ongoing debate over the role and value of financial transactions.

Independent Market Monitor Joe Bowring and the Massachusetts Institute of Technology’s John Parsons, both economists, explained to the annual meeting of the Organization of PJM States Inc. why they are critical of PJM’s current system for auction revenue rights and financial transmission rights.

pjm opsi — Parsons, Philips | © *RTO Insider*

Parsons cited the Monitor’s finding that PJM load has lost out on $1.7 billion in unreturned congestion surpluses over the past five years. That total, an average of almost $335 million a year, represents the difference between what load paid for ARRs and FTRs and what was returned to it. (See Table 13-37 in the Monitor’s second-quarter State of the Market report.)

Harvard economist William Hogan, whose theories have provided the basis for the structure, said he’s not sure of Bowring’s math, but he said it fails to capture all the dynamics of the system.

Dynamic Efficiency

Hogan said ARRs and FTRs were not designed to return congestion revenue to load as Parsons and Bowring contend, but to solve the “dynamic efficiency” problem — a way to hedge congestion costs in recognition that physical transmission rights are impossible under an open access transmission system. “If you want to have open access and nondiscrimination [in an electricity transmission system], this is the only way to do it,” he said.

PJM’s system is designed so demand customers pay their LMPs and power generators are paid their own LMPs. Load overpays by design, and the surplus in those congestion payments is supposed to be returned to load customers through FTRs and their associated ARRs, Parsons and Bowring contend. ARRs are created when the rights to FTR payments are auctioned off to hedge against the variability of FTRs. It’s through these markets that the differences between customers’ congestion payments and the FTR/ARR offsets they receive are created.

While some FTR buyers no doubt are speculators hoping to pay less than they’ll receive in congestion payments, Hogan said they are still providing fixed-price hedges to sellers looking for predictability. “The beneficiaries of the ultimate transmission congestion are the people on the load side, not the FTR holders.”

Parsons countered that the system is not “confronting honestly” how random and imprecise — or “stochastic,” as he put it — capacity can be on a transmission system. “The system is designed to kill two birds with one stone, but … have you ever seen anybody who can actually kill two birds with one stone?”

‘Fairy Tale’

“What you have right now is a fairy tale FTR system where rights are designed upfront, but you don’t know the right capacity of the system,” he continued. “You don’t have a product that actually reflects the true congestion and the true capacity under a point-to-point system. It would be better to step back and structure the system so that actually reflects the true congestion revenues and risks and the true capacity and risk.”

Bowring repeated his longstanding position that the benefits of financial trading to the market have not been proven — a statement that brought a scowl to the face of attorney Noha Sidhom of Inertia Power, a financial firm that trades FTRs.

The nodal concept using LMPs came about to address the inability to control the flow of electricity across the network, Bowring said. However, that’s the point when explicit point-to-point contract paths — the concept on which FTRs are based — became obsolete, he argued.

Stu Bresler, PJM senior vice president for operations and markets, acknowledged that FTRs were a design choice made in 1999, long before its full implications could be known.

“Joe’s correct that it was a simpler time back then,” said Bresler, the electrical engineer in the group. “The implementation of the monthly FTR auction was intended to give market participants the ability to have additional choices with what to do with their allocated rights.”

The economists’ theoretical debate was juxtaposed with real-world experience from Sidhom and attorney Marji Philips of Direct Energy, a load-serving entity that receives and sells FTRs.

‘Load Pays’

Philips said economists’ idyllic theories don’t account for the vagaries of PJM’s system. Despite all the modeling, market designs don’t account for everything, she said, and what’s left will undoubtedly follow the industry maxim that “load pays.” She cited FERC’s Sept. 15 order directing PJM to allocate balancing congestion to real-time load (EL16-6-001, ER16-121).

“There are causes of congestion that we don’t actually have pure cost causation [for], and the new FERC order says, ‘Well, let’s just stick it to real-time load because we don’t know where they’re coming from, and we think this should be a pure product.’ They have undermined the complete value of FTRs for load, which is to hedge our congestion risk,” she said. “What I love is that FERC says, ‘This is for load.’ Not a single load entity supported it.” (See Monitor Says FERC Erred in PJM FTR Ruling, Seeks Rehearing.)

Sidhom agreed that the market needs some tweaks, such as enhanced modeling, but insisted it provides an important service. She cited a MISO study that concluded optimizing wind into the RTO is saving consumers $316 million to $377 million annually — savings due in part, she said, to the work of financial traders. “Not bad for a 76 cents/MWh cost hedge,” she said. “I think that’s a great deal for consumers.”

“At the end of the day,” she added, “you need those FTR auctions to provide the appropriate pricing.”

October 24, 2016

Briefing on ISO-NE Study Focuses on Energy Revenues, Storage, RPS

By William Opalka

WESTBOROUGH, Mass. — ISO-NE’s latest briefing on its ongoing economic study focused on the shortfall of energy market revenues, prospects for storage and the ability to meet increased renewable portfolio standards.

Planners told the Planning Advisory Committee on Wednesday that uplift and capacity revenues will become increasingly important because energy market revenues will be insufficient to support any form of new generation in 2025 or 2030, the two time horizons in the draft study.

“Additional revenue from other sources will be needed to support new resources, as the energy market contribution isn’t sufficient to cover fixed costs,” said Michael Henderson, director of regional planning and coordination at ISO-NE.

iso-ne renewable clean energy — | *ISO-NE*

The economic study is simulating five scenarios related to the changing mix of the New England power fleet as the states move to decarbonize the power sector. (See 5 Resource Scenarios Presented to ISO-NE Planning Advisory Committee.)

In the simulations, energy market revenues are below annual carrying charges for all new generation resources, including wind, solar photovoltaic, natural gas combined cycle and combustion turbines. Units would recover some costs through energy market revenues plus uplift, the study says. Resources also would need “significant revenues” from the capacity market, Henderson added.

The study says the shortfall results because cheap gas-fired units typically set LMPs and higher-cost resources are rarely on the margin.

Another factor is low- or no-cost resources. The region is experiencing little or no load growth as the states have made significant commitments to behind-the-meter solar resources and energy efficiency. Wind and PV that aren’t behind the meter are price takers.

Uplift would be highest in 2025 under scenario 2 — in which all additional capacity needs, including retirements, are met with new renewable and clean energy resources, including nuclear power — hitting almost $179 million assuming no transmission constraints.

The lowest uplift — $88 million — is under scenario 5, in which RPS requirements are met by resources interconnected to the system, under construction or approved as of April 1, 2016, with alternative compliance payments used to meet any remaining RPS requirements. Retired units would be replaced with combined cycle plants to meet installed capacity requirements.

In 2015, uplift payments to resources operated out of merit — typically to ensure power system reliability — totaled $119 million, 2% of the total energy payments of $5.9 billion, according to Internal Market Monitor’s 2015 Annual Markets Report.

Energy Storage

The study found that net revenues for energy storage increase along with more production by renewable resources.

Net revenues would be highest under the “RPS-plus scenario,” which assumes additional renewable and clean energy resources above existing RPS requirements. Annual net revenues — revenue from generation minus the cost of storing energy — are projected to total more than $12 million in 2025 under the scenario, assuming no transmission constraints.

By contrast, storage would show negative net revenues of $1.5 million under scenario 5.

Increasing RPS

The study finds that scenarios 1, 2 and 3 all can meet the projected growth in the new RPS target for 2025 (8,069 GWh) and 2030 (10,806 GWh), although scenario 1 barely meets the 2030 target under a constrained transmission system.

Meeting the RPS targets under scenarios 4 and 5 would require the addition of more renewable resources, imports, alternative compliance payments or reducing RPS targets by adding energy efficiency and behind-the-meter solar.

October 24, 2016

PJM Markets and Reliability and Members Committees Preview

Below is a summary of the issues scheduled to be brought to a vote at the Markets and Reliability and Members committees Thursday. Each item is listed by agenda number, description and projected time of discussion, followed by a summary of the issue and links to prior coverage in RTO Insider.

RTO Insider will be in Wilmington, Del., covering the discussions and votes. See next Tuesday’s newsletter for a full report.

Markets and Reliability Committee

2. PJM Manuals (9:10-9:20)

Members will be asked to endorse the following manual changes:

A. Manual 14A: Generation and Transmission Interconnection Process. Revisions, recommended by the Earlier Queue Submittal Task Force, include: changes to the assignment of queue priority; timing, including scheduling of deficiency reviews; criteria for inclusion in feasibility studies; and fee structures.

B. Manual 14C: Generation & Transmission Interconnection Facility Construction. Revisions set technical standards for Order 1000 projects.

3. Installed Reserve Margin Study Results (9:20-9:30)

Members will be asked to endorse the 2016 Installed Reserve Margin study results. (See “More Granularity Requested on Winter Reserve Targets,” PJM Planning Committee Briefs.)

4. Credit Subcommittee (9:30-9:40)

Members will be asked to endorse proposed clarifications to the credit policy in Tariff Attachment Q that reorganize provisions and make five minor changes to them, none of which affects credit requirements. (See “Attachment Q Modified; Credit Requirements Unaffected,” PJM Market Implementation Committee Briefs.)

5. PJM Capacity Problem Statement / Issue Charge (9:40-10:25)

Members will be asked to approve an updated problem statement and issue charge presented by Ed Tatum, on behalf of a coalition of cooperatives and municipal utilities, regarding PJM’s Reliability Pricing Model. (See Review of PJM Capacity Market Put on Hold.)

6. Market Implementation Committee Charter (10:25-10:30)

Members will be asked to approve the updated Market Implementation Committee charter, which removes references to working groups. (See “‘Working Groups’ Removed from MIC Charter,” PJM Market Implementation Committee Briefs.)

Members Committee

Consent Agenda (1:20-1:25)

Members will be asked to endorse:

B. Tariff revisions regarding the release of capacity in the third incremental auction for the 2017/18 delivery year in response to a FERC reporting directive (ER16-532) related to excess capacity procured in the Capacity Performance transition incremental auction. (See “Proposal Chosen for Capacity Release,” PJM Markets and Reliability and Members Committees Briefs.)

C. Operating Agreement and Tariff revisions developed by the Metering Task Force to close gaps in understanding between staff and members on metering rules. (See “No Objections to Metering Revisions,” PJM Markets and Reliability and Members Committees Briefs.)