VALLEY FORGE, Pa. — PJM won’t be offering market compensation to comply with FERC’s requirement that almost all resources provide primary frequency response (PFR), but the RTO is willing to give everyone a shot at recovering any upgrade costs to provide it.
RTO staff unveiled their newest proposal on the issue at a meeting of the Primary Frequency Response Senior Task Force (PFRSTF) on Wednesday. The idea generated some stakeholder interest but also created plenty of concern in light of FERC’s recent ruling. (See FERC Finalizes Frequency Response Requirement.)
“In general, we’re going to disagree with all of this,” said Carl Johnson, representing the PJM Public Power Coalition. “We are not in favor of where PJM is going with this.”
Johnson said it would create a substantial cost to customers for something that should be baked into the cost of doing business. He said PJM would likely hear from the consumer advocates on the issue.
Staff said they couldn’t quantify the overall cost but would get back to stakeholders with estimates.
Applicable units could seek the cost recovery or include it in their capacity offers, but they couldn’t do both. Howard Haas of Monitoring Analytics, the Independent Market Monitor, outlined a situation in which units that sought the recovery could also clear the auction at a clearing price set by another unit’s bid that includes the upgrade costs.
“From our position, that would be double recovery,” he said.
The Monitor’s proposal argues that units already have opportunities to recover the cost through capacity or energy offers.
“I’ve got good news for you,” he said. “You’re already being compensated.”
CPower’s Bruce Campbell said he would have to review how distributed energy resources are handled in his company’s proposal.
PJM’s proposal also increased its proposed threshold for exempting units, from 10 MW to 20 MW, because the potential benefit from such small units might not outweigh the upgrade costs.
Brock Ondayko with American Electric Power disagreed with Haas on whether units could seek recovery. AEP’s proposal would allow units to petition FERC for recovery if they feel they need it and can justify the request. Ondayko said he would consider PJM’s one-time recovery proposal, but he also mentioned concerns about the cost to customers because provision of PFR isn’t a NERC requirement.
PJM’s Glen Boyle said PFR is a requirement for balancing authorities and therefore an “implicit” requirement for resources.
FirstEnergy’s Jim Benchek agreed with other members that PJM’s proposal seemed to be giving some BAs “a free pass.”
“Is this a solution looking for a problem?” he asked.
AEP’s proposal diverged from PJM’s on how performance would be evaluated. Both agreed that the calculation should be a quarterly pass/fail test on whether units provided at least half of the PFR they were expected to provide. AEP suggested a higher deviation and longer duration of frequency outside the deadband settings before performance could be evaluated.
“There should be something there that makes it possible to identify the unit response from the noise,” AEP’s Jim Fletcher said.
PJM’s Danielle Croop said staff would consider rolling that into their proposal.
“If we’re going to put that minimum of five or six events in there … we want to make sure that we’re still able to perform these evaluations on a quarterly basis and that it’s not that we’re sitting around waiting for events to happen,” she said.
Staff noted that in the 2017 operating year, there would have been 14 events that fit AEP’s standards, which wouldn’t allow for the six events per quarter that PJM planned to use for evaluation. AEP proposed evaluating five events each quarter because they would be “more meaningful,” Ondayko said.
AEP also suggested researching the importance of synchronous inertial response and preserving “what we have today because once it’s gone, it’s gone for good,” Fletcher said.
“If you look at interconnections that are losing their synchronous inertial response, like Texas, you’ll find that they have to resort to paying load resources to compensate for the fact that there isn’t enough primary frequency response anymore to cover that deficit, so the operation of the grid becomes more erratic … and the need for primary frequency response goes up, but there’s limited capability,” Ondayko said. “We recommend that this type of concept be considered in the future, at least recognizing the issue of how it impacts restoration.”
MISO’s Energy Storage Task Force has been left wondering if it will help shape the RTO’s response to FERC’s sweeping storage participation order issued last month.
The task force has yet to learn its role in working with MISO staff to craft market rules to comply with Order 841, which directs RTOs and ISOs to remove barriers preventing storage from participating in energy, capacity and ancillary service markets. RTOs will be given 270 days from publication in the Federal Register to file revised tariff language with FERC outlining a participation model and another year to implement the changes.
“Frankly, we don’t know how this will affect the task force,” task force Chair John Fernandes said during a March 1 meeting. He added that MISO’s Steering Committee would have to issue a directive for the task force to begin specifically considering Order 841 compliance. Until then, the group will continue to examine what MISO rules might need to be revised or added to enable storage to participate in markets. (See MISO Staff, Stakeholders Envision Expanded Storage Participation.) Wisconsin Public Service’s Chris Plante pointed out that MISO doesn’t necessarily run compliance filings by stakeholders before they are filed with FERC.
The RTO says it will use stakeholder input on the compliance filing, although it’s not yet clear how extensively stakeholders or the task force will guide the process.
“MISO is actively working on the Order 841 compliance filing though it has not yet appeared in the Federal Register,” spokesman Mark Brown said. “While the compliance obligation lies with MISO, MISO intends to leverage its stakeholder groups to get input from stakeholders as it works through the issues as identified in the filing. This includes the Energy Storage Task Force and other stakeholder subcommittees.”
Fernandes said FERC’s order defines storage as resources that can inject into the grid, making them eligible for make-whole payments and qualification as capacity resources.
“FERC was clear that they don’t want to change market rules to accommodate storage, but they want it to be able to participate,” Fernandes said. “The idea of this order is to allow storage to participate in markets considering their operating characteristics.”
Energy Storage Association Vice President of Policy Jason Burwen said his organization is still reviewing the order to determine which storage directives are firm and which might allow more latitude.
Invenergy’s Grand Ridge Battery Storage Facility | BYD
MISO Director of Market Engineering Kim Sperry reminded stakeholders that there’s a 30-day window to ask FERC for clarification on the order.
Fernandes said it’s unlikely FERC’s rule will become effective within 90 days without delays.
“The effective date in the Federal Register assumes that all six markets say, ‘great,’ and have zero questions. The odds of that happening are between zero and zero,” Fernandes said.
He said that while Order 841 did not address storage acting as transmission, the task force will nevertheless continue to discuss MISO valuing “storage-as-wires.”
“We are going to have to go outside the bounds of Order 841 to talk about storage as transmission,” he said.
Dave Johnston, a staffer with the Indiana Utility Regulatory Commission, said he was troubled the order seems to allow distributed assets into the wholesale market, seemingly over the heads of state regulators.
“This may impede on state law,” Johnston said.
“I don’t think your concern is overblown,” Fernandes said. “I think FERC very firmly planted its flag and said the wholesale market is our sandbox.”
However, Fernandes said he didn’t think FERC intended to trample state jurisdiction. Indianapolis Power and Light’s Lin Franks said she thought FERC was simply trying to include distributed assets within the definition of storage resources.
“I think, to me, FERC did exactly what it’s supposed to do; it provided an endpoint and left it up to the RTOs how to get there, recognizing how unique each of these markets are,” Fernandes said.
FERC has ordered a technical conference for April 10-11 on whether it should treat aggregated distributed energy resources the same as it directed for storage in Order 841. (See FERC Rules to Boost Storage Role in Markets.)
IPL Complaint
Some stakeholders asked if the Order 841 compliance filing would affect the outcome of IPL’s FERC complaint against MISO’s restrictive storage participation rules, which prompted the RTO to propose revising its Tariff to include a stored energy resource type II to facilitate participation (ER17-1376). (See MISO Rules Must Bend for Storage, Stakeholders Say.) MISO planned for the new resource to be in use while it waited for a more comprehensive FERC storage rule, and some stakeholders are wondering if the filing would now become inconsequential.
MISO legal staff at the meeting said FERC must decide between accepting, accepting in part or rejecting its Tariff filing, or rendering the filing moot in favor of waiting for its Order 841 compliance filing.
FERC last week accepted MISO’s plan to allocate Michigan ratepayers $24.6 million in refunds for overcharges stemming from RTO-ordered system support resource agreements imposed on a Wisconsin Electric Power Co. coal-fired plant.
The commission directed MISO to execute the reallocation — which includes interest — over a 10-month period beginning Feb. 28 (ER14-2952-005).
FERC ruled in late October that WEPCo overcharged ratepayers on Michigan’s Upper Peninsula by almost $23 million for agreements that kept the 344-MW Presque Isle coal plant in Marquette, Mich., running in 2014 and early 2015 for reliability purposes. The commission directed MISO to calculate the refunds over the RTO’s objections that it did not provide clear guidance on how to do that. (See $23 Million Owed to Ratepayers in Presque Isle SSR Case.)
Presque Isle power plant | WEPCo
Now, Constellation Energy Group owes the largest share of SSR costs at $13.6 million, followed by Cloverland Electric Cooperative ($6.3 million), Upper Peninsula Power Co. ($4.9 million) and the city of Escanaba ($1.1 million). WPPI Energy is owed $3 million from Michigan LSEs. MISO redacted the monthly refund report in a public version of its filing because it would reveal “insight into monthly load patterns,” according to the RTO.
MISO had proposed to invoice the resettlements as a lump sum on Dec. 19, instead of over the original 14-month timeline. FERC determined that a 10-month distribution was more appropriate because it corresponded with the established April 3, 2014, refund effective date through the Jan. 31, 2015, termination of Presque Isle’s second SSR agreement.
AUSTIN, Texas — Infocast’s annual ERCOT Market Summit once again drew ISO staff, market participants and others for panel discussions on market reform, grid resiliency, resource adequacy, transmission constraints, wholesale price volatility, and integrating utility-scale solar power and battery storage.
Participants Caution Against Market Changes Before Summer
Some of ERCOT’s more vocal members urged caution as the market approaches a summer with projected record demand but with almost 8 GW less in generation after a wave of retirements and delays in planned projects.
The Public Utility Commission of Texas is considering withdrawing reliability unit commitments (RUCs) and reliability-must-run capacity from the operating reserve demand curve (ORDC), a real-time price adder that reflects the value of available reserves and is intended to incentivize resources to produce more energy and reserves. PUC staff said this would ensure that scarcity pricing is accurate and reflective of market dynamics. (See “Commissioners Delay Action on Removing RUCs from ORDC,” Texas PUC Briefs: Feb. 15, 2018.)
But that would be a mistake, said Katie Coleman, legal counsel for Texas Industrial Energy Consumers. “Since 2012, we have spent a lot of time and effort designing the ORDC. We specifically discussed including RMR and RUC capacity. Ideally, the ORDC values should reflect the actual amount of reserves, which accurately reflects the likelihood of load shed. We did a bunch of other things instead, to try and put more money in the market,” she said, referring to RUC’s $1,500 price floor — “which is higher than any unit’s actual cost” — and pricing RMR at the $9,000/MWh cap.
“We’ve built this machine, and we’re about to have a summer where it’s tested. Let’s see how it goes, then come back, and see if there are areas that really need refinement.”
“Part of the problem the last five years is we have never really defined what we are solving for from a reliability point of view,” said Barksdale English, Austin Energy’s interim chief of staff. “What is important to us? Is it short-term interval-to-interval reliability? Is it long-term five-, 10- or 15-year reliability? Until we figure out what we are solving for, having proposed solutions sort of seems like having the cart before the horse.”
English jokingly referred to his “multiple personality disorder” as a generation-owning municipality competing in ERCOT’s wholesale market. “I can get really excited about $9,000/MWh for wholesale generation, but then — oh my gosh — what about my consumers? Then, my City Council gets mad at me because I’m paying too much money.”
Beth Garza, director of the ERCOT Independent Market Monitor, cautioned against blurring the difference between a load-shed event and a blackout. “That’s a very important difference. Those loads are being paid to provide a service,” she said.
“I fully expect many of those services will be called on this summer that have never been called on before. If those services are called on, they’ve been curtailed or are no longer consuming, but they’re being paid for providing a service,” Garza said.
“At what levels does ERCOT take emergency actions? When does load shed begin?” asked Strasburger & Price’s Mark Walker, before answering his own question (when operating reserves reach 1,000 MW). “Hitting the offer cap with only 2,000 MW of available capacity left is sensible. If you look at actual prices when RUC resources are deployed by ERCOT under pressure from load, congestion and intermittent resources swings, the prices today really don’t reflect that we’re in an emergency situation or a serious reliability condition.”
Role-playing Reveals Markets Concerns
In a discussion on how low power prices are affecting the strategies of plant owners in ERCOT, summit organizers asked the panelists to role-play the different aspects of generation investment.
Federal Power Co. CEO Steve Gilliland, filled his natural role as a developer, and Tom Rose, CEO of Clean Energy Technology Association, played the investor. That left Cratylus Advisors’ Mark Bruce, who represents Southern Cross Transmission in its bid to become the ISO’s first DC tie operator, to play the regulator.
Asked what kind of signals the ORDC was giving investors, Gilliland said, “It’s not giving signals big enough and substantial enough.”
“What drives the financier and developer is cash and cash flow,” he said. “I don’t believe that system is giving a clear enough signal for a long enough period of time that convinces me new generation is warranted. I don’t believe it will be allowed to be a significant enough number. It’s going to like moving the deck chairs around on the Titanic.”
“As the regulator, that statement scares me because that ship didn’t make it,” Bruce deadpanned. “The ORDC was not intended to be a substitute for scarcity pricing. It is a construct intended to correct the anomalies in pricing that result from out-of-market actions of the grid operator.
“I applaud the Texas commission for resisting the call to pad the ORDC,” Bruce continued. “That doesn’t help the fundamentals. We’ve had significant periods of time where the system is overbuilt, and the prices will be, and should be, in the dirt during those periods. And that’s the rub, a political rub. The economically optimal reserve margin is quite a bit smaller than the official, cushy planning reserve margin. We’re about to live in the gap between the two, and the political leadership of the state is going to have to decide whether to let the market speak. The economics will reveal in themselves, and then the politics will play catch-up.”
Rose, reminding the audience that he was playing the financier, said, “All this is fairly interesting. Existing generators are going to have a great Christmas this August, but I am going to hold off on new investment until we see how the summer works out.
“I don’t think anyone will argue we’re moving into unchartered waters. That excites me. It might be a risk to some, but it’s a reward to me. If there are involuntary disconnections or if prices go up or down, you’re going to see a governmental reaction,” Rose said. “Reliability the last 10 years has been taken for granted. I already hear people talking about reregulating the market. Mark and I know that’s not going to happen. As he said, ‘There is no Plan B.’”
Generators: ORDC Won’t Incent New Generation
Generation owners in ERCOT debated the effectiveness of the ORDC, one of several pricing mechanisms the ISO says will help respond to tightening reserve margins this summer. (See ERCOT: Tight Summer Margins No Cause for Alarm.)
RTO Insider’s Tom Kleckner moderates a panel on ERCOT wholesale price volatility during Infocast’s ERCOT Market Summit. Panelists include (l-r) Skylar Resources’ Gerald Balboa, Citigroup’s Yashar Barut, ERCOT’s Kenan Ögelman and Engie Resources’ Andrew Elliott. | Infocast
“The ORDC, which is a scarcity pricing mechanism, is absolutely working as designed,” said Dynegy’s Bob Helton during a panel discussion on resource adequacy. “The question is, is it getting us to where we want to be, which is reliability equilibrium and economic equilibrium?”
The Lower Colorado River Authority’s Randa Stephenson said the ORDC should not be seen as a signal for additional generation development. Continued growth in wind generation is expected to pick up much of the slack for recent retirements of baseload generation, and while 2018 futures are trading around $140/MWh, the market has already considered the plant closings by Vistra Energy and others. (See Vistra Energy to Close 2 More Coal Plants.)
“Is there enough scarcity to signal a generation buildout? No, not even a peaker,” Stephenson said. “If you look out into the future, the market knew Vistra was going to happen. Summer of 19, 20 prices didn’t move up that much. I don’t think the signals are out there to justify new build.”
Stephenson said demand response mechanisms are having a greater effect on the market.
“As a generation owner … ORDC is icing on the cake,” she said. “You see a lot of demand response looking at chasing those high-demand periods. You see a drop of 2,000 MW, and that takes away the scarcity prices you were anticipating.”
“ORDC was never introduced, never is and never will be a resource adequacy tool,” Helton said. “It’s for scarcity pricing, a poor man’s co-optimization. It does help with missing money and equilibrium in the market. The correct place for reserves to be is an economically optimal reserve margin. You will likely have load-shed events, but that’s the economical thing to do.”
Susan Pope, managing director of FTI Consulting’s economic practice, told attendees during her keynote address that she and her coauthor on a report recommending ERCOT market reforms believe that the state’s transmission planning policies have “materially” raised costs.
Pope said Texas’ Competitive Renewable Energy Zones (CREZ) initiatives, a $7 billion program that built 2,800 miles of new transmission to deliver West Texas wind energy to the state’s urban centers, was an out-of-market investment “not being made by at-risk investors who need to recover the full costs of their investment.”
CREZ was part of more than $10 billion in transmission investments that have been added to total system costs over the past five years, she said.
“ERCOT regional transmission planning favors transmission for reliability problems, using very conservative assumptions for new generation,” Pope said. “The analysis only includes resources that have committed to construction. Transmission investments will be identified and will pre-empt market-based generation solutions driven by energy-only prices, that could be alternatives to solving reliability problems.
“The over-investment in transmission is partly because of the long lead times to build transmission,” she said. “Those planning can end up with extremely expensive solutions to solve reliability. Continuing to build this transmission reduces energy prices because it resolves all the congestion before it has a significant effect on prices.”
NRG Energy and Calpine commissioned Pope and William Hogan, research director of the Harvard Electricity Policy Group, to write a report assessing ERCOT’s energy-only design. The report asserts that subsidized renewable resources, socialized transmission costs and the lack of local scarcity pricing have “exposed areas where there is a need for adjustments” to ERCOT’s pricing rules. The Texas PUC held two workshops last year to discuss the report and other potential market reforms. (See ERCOT, Regulators Discuss Need for Pricing Rule Changes.)
During a discussion on transmission congestion constraints and how to address them, Brad Schwarz, Hunt Power’s director of system planning, described the CREZ initiative’s unintended consequences.
“CREZ was building transmission ahead of the generation, in the hopes the generation would come. It has happened,” Schwarz said. Then came the state’s oil and gas boom in recent years, he said.
“We would have been struggling to serve those loads without the CREZ,” Schwarz said. “We were able to serve more oil and gas load and bring more economic development to the state of Texas. You never really undervalue a transmission line. Once it’s out there, it finds value.”
Energy Storage Offers Solution to Congestion Issues
Kip Fox didn’t hide his disappointment over Texas regulators’ recent rejection of an American Electric Power request to connect a pair of utility-scale battery facilities to the ERCOT grid. AEP’s application ran into opposition from consumer organizations and market participants who argued that allowing the assets to be included in the regulatory base would harm competition. (See “Staff Opens Battery-Storage Rulemaking,” Texas PUC Briefs: Feb. 15, 2018.)
“We had an alternative to building a long distribution line. It was a $1.6 million solution to a $12 million problem,” said Fox, president of Electric Transmission Texas, a joint venture between AEP and Berkshire Hathaway Energy subsidiaries. “Unfortunately, since those [applications] were denied, without prejudice, we’re kind of back to square one.”
He said with batteries’ ability to provide frequency support and resolve overloading problems, “it makes more sense to run a battery eight to 10 times a year, rather than building a line.” Fox suggested Fluence Energy’s use of a portable battery in downtown Indianapolis presents a possible solution to congestion issues.
“We would like to move a battery around and solve that problem,” he said. “When the congestion is gone in five years because a transmission line hasn’t been built, we will have saved the ratepayers a lot of money.”
Tim Ash, Fluence’s market director for the eastern U.S., said other RTOs are wrestling with the same concerns over battery storage ownership and its effect on markets.
“There’s a much, much bigger market for energy storage,” Ash said. “It solves a reliability issue, which occurs maybe 10 times a year. The economic benefits are there today. The question is how to get the rules to unlock those benefits.”
FERC last month directed RTOs and ISOs to allow energy storage resources full access to their markets, an order that does not apply to ERCOT (RM16-23). (See FERC Rules to Boost Storage Role in Markets.) Asked if FERC’s directive might influence the PUC, which regulates ERCOT, to follow suit, Fox said, “Hell, yeah!”
“I’ve seen many times where the commission defaults to where FERC opens up the rules,” Fox said. “I find those rules are sometimes a little behind, sometimes a little ahead. There will be some pressure at all levels of the [state] government.”
Jack Farley, CEO of Apex Compressed Air Energy Storage, pointed to a 2012 PUC order that allows energy storage resources in ERCOT to pay wholesale prices for recharging, with no retail or transmission or distribution fees. “The energy market averages 40,000 MW and the ancillary services market is about 5,000 MW. In terms of participating in ERCOT energy and ancillary service products, I don’t think there are barriers today for energy storage resources,” he said.
“We will see energy storage adopted early,” said a more optimistic John Bonnin, vice president of energy supply and market operations for San Antonio’s CPS Energy. “As the technology improves, we will see it displace other applications in other parts of the market. If we meet again in five years, every one of us around here will have some sort of storage on their system. We all have to get smarter about the effect all that capacity will have on pricing, fuel and dispatch. It’s going to be disruptive.”
Developers See Bright Future for Texas Solar
A panel of solar developers gave high marks to the Texas market, which could see up to 8 GW of solar growth over the next few years.
“Texas is attractive because of low pricing. Wind is the headline, but at the same time, if the load continues to grow, we can make the case that there’s a match there for solar too,” said Andrew Fay, origination manager for First Solar.
Shalini Ramanathan, vice president of origination for RES Americas, said price pressure “is the reason we’re seeing so much development in West Texas and with large projects. If we can be competitive, we can do more 20-MW projects in other parts of the state. I think there’s a bias to larger West Texas solar.”
Spivey Paup, Recurrent Energy’s development director, said even West Texas, with its oil and gas infrastructure, can pose challenges.
“But once you get out of the Permian Basin, that complication goes away,” Paup said, referring to Texas’ rich petroleum fields. “We need to find a balance between strong resources and development complications. Renewables and solar were born and bred in California, but we can blow them up to scale and send California packing.”
Charlie Hemmeline, executive director of the Texas Solar Power Association, said current rules have resulted in “steady interest” in sun-powered generation in the state.
“We’re not going to ask for new polices or mandates or incentives,” he said. “We want it to work the way Texas wants it to work. ‘Don’t do anything bad to us’ is the primary policy ask.”
EVs, With or Without Drivers, are Coming
During a discussion of changing perspectives among end-use customers, Rob Threlkeld, General Motors’ global manager for renewable energy, noted he had driven from Detroit to Lansing, Mich., without once touching the steering wheel of his Cadillac CT6, thanks to its Super Cruise semi-autonomous driver-assistance system. The car comes in a plug-in version in addition to four- and six-cylinder engine models.
“In a year, the driver will touch the steering wheel much less,” Threlkeld predicted.
He had a believer in Champion Energy Services CEO Michael Sullivan, who owns a Tesla. He said the more mainstream CT6, which starts at about $85,300, will be more broadly available and easier to purchase than the special-order Tesla models.
“When you order Tesla, it’s like ordering an Italian shoe from a cobbler in Milan,” he said.
Both Threlkeld and Sullivan agreed that electric vehicles pose a sea change for the electric industry.
“We have been working closely with a lot of utilities, especially those progressive ones that are really interested in this space. It’s load growth, and that interests them,” Threlkeld said.
“If the projections are right, my teenage kids will never drive an internal-combustion car,” Sullivan said. “If everybody’s driving an electric car, that’s a major change to the industry, especially if somebody can capture storage in a really dense way.”
In two orders issued on the same day last week, FERC both vacated and reinstated MISO’s entire resource adequacy construct, ultimately leaving the RTO’s current capacity auction format — and past auction results — undisturbed.
FERC’s two Feb. 28 decisions concurrently reversed its 2012 acceptance of MISO’s resource adequacy rules (ER11-4081) and accepted the RTO’s refiling of the rules (ER18-462).
To protect its market from “potential disruptions,” MISO in December pre-emptively refiled its entire resource adequacy construct in response to the D.C. Circuit of Appeals’ ruling that FERC overstepped its “passive and reactive” role when it prescribed revisions to PJM’s minimum offer price rule. MISO was concerned about the impact of that decision on some of the resource adequacy rules that had been guided by FERC’s recommendations. (See MISO Seeks FERC Reapproval to Keep RA Rules Intact.)
Following the PJM decision, the D.C. Circuit granted FERC a voluntary remand to once again consider MISO’s 2011 market revisions.
In the order on remand, FERC said in light of the court’s PJM decision, “the modifications set out in the [resource adequacy orders] could be considered to be major modifications to MISO’s 2011 filing. Accordingly, because we cannot find MISO’s 2011 filing to be just and reasonable without our modifications, we reverse the commission’s conditional acceptance of MISO 2011 filing, and we reject MISO’s 2011 filing in its entirety.”
FERC at that time rejected MISO’s proposed mandatory auction requirement and minimum offer price rule and ordered the RTO to phase out grandmother agreement provisions after the 2014/15 auction. Taken together, the revisions “would likely be considered to result in an ‘entirely different rate design’ than both MISO’s proposal and MISO’s prior rate scheme,” FERC said, acknowledging it had exceeded its authority under the Federal Power Act, “notwithstanding that MISO consented to those revisions.”
No Auction Do-Overs
However, FERC found that rerunning the last five years of MISO’s Planning Resource Auction under the pre-2011 monthly auction rules would be infeasible and unnecessary.
“Such a remedy would be extremely complex, subject to controversy and further litigation, and cause significant disruptions and burdens,” the commission said. “It would be highly difficult, if not impossible, for the commission or MISO to reasonably provide retroactive relief, by rerunning the auction for the 2013/14 planning year through the present.”
The commission then addressed MISO’s refiling, determining that the RTO’s current auction format should remain unchanged.
MISO Independent Market Monitor David Patton used the refiling as an opportunity to again urge FERC to order the RTO to employ a sloped demand curve in its capacity auction in order to produce more efficient pricing. (See MISO Monitor to FERC: Order Sloped Demand Curve.)
But the commission said MISO’s vertical curve was just and reasonable, noting that 90% of load is served by vertically integrated utilities. It said that, at any rate, pricing takes a backseat to the main objective: maintaining reliability.
“We … disagree with the Market Monitor’s contention that a vertical demand curve leads to prices that are not just and reasonable by failing to recognize the diminishing marginal benefits of excess capacity. MISO’s resource adequacy construct was developed to ensure that [load-serving entities] in MISO acquired sufficient capacity each year to maintain the one-day-in-10-year reliability standard. Although certain constructs may value capacity beyond that amount, doing so is not essential to MISO’s construct fulfilling this principal objective,” the commission said.
MISO maintains that its vertical demand curve and its annual resource adequacy survey with the Organization of MISO States “combine to provide just and reasonable signals.”
MISO potential GW additions according to 2017 OMS MISO annual survey | MISO
The commission also dismissed several other protests from stakeholders, including complaints that supply offers above $25/MW-day (about 10% of MISO’s cost of new entry) are read as an attempt to exercise market power under current capacity auction rules and that LSEs participated in price suppression in the 2017/18 auction.
FERC instead said that 2017/18’s low clearing price of $1.50/MW-day should be taken as the simple effect of supply and demand in MISO.
“The low capacity prices, where they have arisen in MISO, accurately reflect MISO’s capacity surplus. The fact that prices have not signaled to independent generators a need to build, retrofit or even simply maintain existing resources is more indicative of a well-functioning capacity procurement construct than it is of an unjust and unreasonable construct,” the commission said.
PJM is experiencing an “unprecedented” switch from coal- to gas-fired generation while also managing the replacement of aging transmission infrastructure, staff concluded in the RTO’s annual transmission planning report.
The RTO received deactivation notices for 4,588 MW of generation in 2017, bringing the total since the end of 2011 to 34,967 MW. Deactivation requests in the eight years prior totaled 11,000 MW.
PJM greenlit $5.8 billion in transmission spending last year. That paid for 198 “baseline” projects to ensure compliance with NERC, regional and local transmission owner planning criteria, and 341 “network” projects to interconnect new generating stations. According to the RTO’s figures, that comes out to about $16 million per baseline project and about $8.6 million per network project.
On Feb. 14, PJM’s Board of Managers authorized another $397 million in transmission projects, dominated by TOs’ supplemental projects that are triggered by their own planning criteria. Transmission customers have complained about the uptick in such projects, which don’t require PJM board authorization but are included in the Regional Transmission Expansion Plan, because they believe TOs are using them to pad revenues. (See AMP Presses AEP, PSE&G on Transmission Projects.)
The recent approvals include two such efforts in the Public Service Electric and Gas and Dominion Energy territories. PSE&G plans to spend $115 million to construct a 230/69-kV substation with 69-kV ties to the Paramus and Dumont substations, and $98 million to convert the Kuller Road substation to 69/13 kV and construct a 69-kV network between the Kuller Road, Passaic, Paterson and Harvey stations. Dominion will replace existing infrastructure for a total of $50 million.
This chart shows how transmission projects approved over the past four years have transitioned from larger, “backbone”-type lines to smaller lines to address regional issues. | PJM
The remainder of the approvals consist of another Dominion project — $100 million to install three STATCOM dynamic reactive devices at two substations — and $29.5 million in spending spread across projects in the Baltimore Electric and Gas, PPL and Duke Energy Ohio/Kentucky territories.
Last month, FERC ordered PJM’s TOs to change their process for handling supplemental projects after finding the current approach does not comply with Order 890. TOs worked with PJM on the issue and last week proposed a plan to address the commission’s concerns (See related story, PJM, TOs Propose FERC Order 890 Compliance Plan.)
The PJM board has authorized $35.4 billion in transmission infrastructure spending since 1999. Baseline projects represent $27.9 billion of the total, with $7.2 billion authorized to interconnect 84,200 MW generation. Those figures include $181 million in cost overruns for 48 previously approved baseline projects and $540 million authorized for 336 network projects that were canceled after 257 generator interconnection requests were withdrawn, which reduced expenditures below authorized levels.
This chart shows how PJM expects the generation fleet to be transformed over the next five years. | PJM
But the numbers also provide some insight into development trends. PJM said the 2017 projects address market efficiency congestion and solve local reliability issues, and recent history shows a trend toward smaller lines rather than large, backbone-sized construction.
“Flat load growth, energy efficiency, generation shifts and aging infrastructure drivers — among others — continue to shift transmission need away from large-scale, cross-system backbone projects at 345 kV, 500 kV and 765 kV voltage levels,” the report states.
The generation interconnection queue is dominated by gas-fired facilities, and the deactivation list is littered with coal plants, but the fleet won’t be changing too much any time soon. PJM estimates that oil, wind, hydro and solar will all look about the same five years from now in 2023: slightly more than 10% of the total generation fleet.
Nuclear will drop slightly from somewhat less than 20% today to about 18% in 2023. Coal will also be down from around 31% today to about 28%. Gas increases significantly from roughly 40% today to more than 45%. PJM has said it can remain reliable with upward of 86% gas. (See PJM: Increased Gas Won’t Hurt Reliability, Too Much Solar Will.)
FERC on Wednesday accepted ISO-NE’s proposed new capacity bilateral transaction and a revised materiality threshold for determining whether a resource can satisfy its capacity supply obligation (CSO) (ER18-455).
The grid operator proposed the annual reconfiguration transaction (ART) to replace the capacity market’s existing bilateral contracting mechanism, the CSO bilateral. The RTO said the change was needed to accommodate its transition to marginal reliability impact-based demand curves (MRI), which are based on the expected improvement in reliability from adding incremental capacity.
The commission’s Feb. 28 order said that the ART will give resources looking to replace their CSO through a bilateral contract more flexibility. “The ART mechanism will accommodate even or uneven exchanges within the same zone or across constrained zone boundaries, even where exchanges previously were prohibited, while accounting for the actual net impact on reliability in a manner that does not disadvantage suppliers or consumers,” the commission said.
| Energyzt, ISO-NE
FERC also agreed to ISO-NE’s proposal to change how it determines when to submit demand bids in the third Annual Reconfiguration Auction (ARA) for resources that have a significant decrease in capacity. The RTO said its previous threshold — 20% of its CSO or 40 MW, whichever is lower — produced outcomes that focus on relatively small deficiencies and ignore relatively large deficiencies. For example, a 35-MW deficiency from a 100-MW resource would be subject to the RTO’s mandatory demand bid rule, while the same deficiency from a 200-MW resource would be exempt.
Under the new rules, the RTO will intervene when a resource’s capacity decreases by 10 MW, or 10% (but at least 2 MW), whichever is lower.
The commission dismissed FirstLight Power Resources’ request to eliminate the minimum 2-MW floor for the threshold. “We do not find any evidence that the proposed changes will result in undue discrimination among resources or compromise the integrity of the capacity markets, as FirstLight claims,” it said. The proposed thresholds “reasonably balance the impact on large and small resources, while reducing ISO-NE’s administrative burden.”
FERC also rejected a request from New England generators Exelon, CPV Towantic and NRG Power Marketing that the mandatory demand bid changes take effect in Forward Capacity Auction 9, rather than FCA 11.
| Energyzt, ISO-NE
Because it found the “proposal, including its implementation date, to be just and reasonable, we need not consider whether an alternative proposal is also just and reasonable,” the commission said.
There was no evidence that the new threshold will undermine the integrity of the capacity market, the commission said. “For all resources, regardless of the significant decrease threshold, the general obligations associated with having a CSO continue to apply.” The existing thresholds have not undermined the integrity of the capacity market or sent a signal that it is appropriate to intentionally overstate a resource’s capacity values, it said.
“We find it is reasonable to expect that the revised rules, which ISO-NE expects to affect a similar amount of capacity as the existing rules, likewise would not undermine the integrity of the market,” the commission said.
FERC last week rejected the New York Public Service Commission’s request to rehear a November 2017 decision granting NextEra Energy Transmission New York (NEET NY) a 50-basis-point adder for participating in NYISO.
The ISO in October selected the company’s Empire State Line proposal to address a need for new transmission in western New York.
Empire State Transmission Line | NextEra Energy Transmission
FERC’s Feb. 28 order dismissed the PSC’s argument that a participation adder — or membership incentive — was unnecessary because NYISO selected NextEra as part of its transmission planning process, leaving the company no choice but to turn over operational control of its transmission to the ISO (ER16-2719).
The federal commission countered that the incentive recognizes the consumer benefits, including reliability and cost benefits, that flow from ISO membership.
Section 219 of the Federal Power Act provides for incentives to each transmitting utility or electric utility that joins an RTO/ISO, and incentive-based rate treatments benefit consumers by ensuring reliability and reducing the cost of delivered power, FERC said.
Empire State Transmission Line | NextEra Energy Transmission
“We consider an inducement for utilities to join, and remain in, transmission organizations to be entirely consistent with those purposes … and the best way to ensure those benefits are spread to as many consumers as possible is to provide an incentive that is widely available to member utilities … and is effective for the entire duration of a utility’s membership in the transmission organization,” FERC said.
FERC granted NEET NY’s request subject to the return on equity with the adder being within the zone of reasonableness, it noted.
SAN DIEGO — A joint effort between Peak Reliability and PJM offers Western industry players a chance to design their own market, one that will operate with more transparency than CAISO, PJM CEO Andy Ott said last week.
“The whole key here is the ability of the West to build up its own rules,” Ott said.
The CEO added that PJM’s expertise in coordinating markets and dealing with regional differences in the East will be a major asset in developing a Western market in partnership with Peak.
Having traveled west last week to attend a meeting of the Western Power Trading Forum, Ott sat down with RTO Insider to discuss the new Peak Reliability/PJM Connext market proposal. (See Peak Touts ‘Independent’ Western Market Plan.)
The partnership is galvanizing interest across the industry around a new Western market, but it comes amidst several other major recent developments shaking up the region.
Among them: competing efforts by CAISO to provide reliability coordinator (RC) services and extend its day-ahead capability into the Energy Imbalance Market (EIM). (See CAISO Plan Extends Day-Ahead Market to EIM.)
PJM’s executive spoke frankly about the shortcomings he sees in CAISO, including what he characterized as a relatively closed-door process for addressing market issues, compared with the more stakeholder-driven approach he envisions for the Peak market.
In California, “they have a discussion about a specific issue they are going to change, then they go in a room and make a decision, and they come out and they have a decision,” Ott said. “It’s not done that way everywhere.”
Ott touted PJM’s experience in operating a 13-state, multibillion-dollar energy market in the East. The RTO brings that experience to the effort, while Peak has the real-time reliability model of its territory already completed, he said.
Aside from the market proposals, Peak and CAISO are competing to provide NERC-certified RC services. Shortly after Peak and PJM announced their effort, CAISO dropped Peak as its RC and announced it would offer Western utilities RC services at a lower cost.
Peak CEO Marie Jordan, who also attended the WPTF event, noted that the only non-revocable notice of departure that the organization has received so far is from CAISO. Several Peak customers have announced they will leave, after CAISO issued its notice of withdrawal at the beginning of the year.
Late last month, the Bonneville Power Administration and Western Area Power Administration separately announced they have signed nonbinding notices signaling their intent to depart Peak by the end of 2019. BPA said it is exploring receiving RC services from CAISO, while WAPA is considering SPP and CAISO for some of its balancing authorities.
A business plan for the Peak Reliability/PJM Connext proposal is due at the end of March
Ott noted that the EIM was designed with the specific purpose of giving California a way to export renewable generation and get services back. The market benefits California customers, and he called outside regional participants “guests” in the market.
“I see the EIM, frankly, as a stopgap,” Ott said. “It was created to solve a problem.”
Ott said the business case for the market is being studied and is due to be issued March 30. Peak executives have publicly discussed the potential for the effort to evolve into a full RTO, something Ott says will depend on input from market participants.
“Our mindset is that if we put the PJM name on something, it’s not going to fail. We cannot afford to let it fail,” Ott said.
PJM and its transmission owners released a joint proposal last week to address FERC’s decision last month that the TOs are not in compliance with Order 890 (EL16-71, ER17-179).
The commission ruled that the TOs were failing to provide stakeholders with adequate notification, information and enough opportunities to engage on “supplemental” projects —transmission expansions or enhancements not required for compliance with reliability, operational performance or economic criteria. The projects are part of PJM’s Regional Transmission Expansion Plan but not subject to staff’s oversight and approval. (See FERC Orders New Rules for Supplemental Tx Projects in PJM.)
FERC ordered the TOs to define nine time-period minimums that were previously vague. In response, TOs have proposed there be a minimum of 25 days between meetings on the three parts of project planning: assumptions, needs and solutions. They also offered to post information to be discussed at that meeting 10 days ahead of time and allow 10 days after meetings to receive comments. Finally, they proposed a 10-day waiting period to consider written comments before incorporating their local transmission plans into the RTEP.
“The minimum time periods proposed are designed to complete the consideration of supplemental projects in time for the PJM board meeting to approve the Regional Transmission Expansion Plan in July and in subsequent RTEP approval cycles throughout the year,” PJM and the TOs wrote in the joint proposal.
PJM is giving stakeholders until March 9 to comment on the proposal. But some have already said they aren’t yet ready to sign off.
“We are carefully reviewing the filing with a view of the current planning process as well as the language in the order,” said American Municipal Power’s Ed Tatum, who has been a vocal critic of the process. “Absent discussion with the TOs, PJM and other stakeholders, it is difficult to determine if the time frames and process proposed will yield any improvement to the current process.”
