Page 1410 – RTO Insider

February 27, 2018

APPA Celebrates Recent Victories; Presses on Infrastructure

By Rich Heidorn Jr.

WASHINGTON — American Public Power Association CEO Sue Kelly has been railing for years against RTO capacity markets and stakeholder rules she says are skewed in favor of large transmission and generation owners.

APPA FERC Western RTO Sue Kelly — Kelly | © *RTO Insider*

This week, as 600 APPA members gathered at the historic Mayflower Hotel for their annual Legislative Rally, the group could celebrate recent policy victories on both fronts.

On Friday, FERC ordered a technical conference to consider whether PJM should move from a year-round to a seasonal capacity construct, indicating that the newly constituted commission is having second thoughts about the restrictive Capacity Performance rules FERC approved in 2015. (See FERC Rethinking PJM C apacity Performance Rules.) APPA had opp o sed CP as an overreaction to the 2014 polar vortex, saying PJM and market participants had largely addressed reliability problems through other measures.

FERC also backed public power’s position in a Feb. 15 ruling that PJM transmission owners’ processes for developing supplemental projects violate Order 890’s transparency and coordination requirements. (See FERC Orders Ne w Rules for Supplemental Tx Projects in PJM.)

In California, meanwhile, proponents of legislation that could enable CAISO’s growth into a Western RTO said the grid operator would not back mandatory capacity markets. (See Calif. Lawmakers Relaunch C AISO Regionalization.)

Kelly said, although APPA doesn’t lobby state government, it is pleased with the promise.

“Obviously, the California municipal utilities are an active and involved bunch,” Kelly said. “I will say that our members in the West have witnessed what went on in the East. It’s the old ‘Fool me once, shame on you. Fool me twice, shame on us.’”

A resolution approved by APPA’s Legislative & Resolutions Committee earlier Tuesday called for “consumer benefits and participatory multi-state governance” as essential ele m ents of a Western RTO.

The committee also approved resolutio n s on supplemental transmission, electric vehicles, disaster response, infrastructure investments, and the Public Utility Regulatory Policies Act of 1978.

After the votes, many of the attendees — including public utility executives, mayors, and council members for cities with municipal utilities — went off to the Capitol to lobby Congress on their concerns.

Fighting Privatization

It hasn’t all gone APPA’s way of late, of course. The group is fighting a rear-guard action to blo c k President Trump’s proposal to divest the transmission assets of the Tennessee Valley Authority, Southwestern Power Administration, Western Area Power Administration, and Bonneville Power Administration.

“We believe that the public power business model is a very strong one,” Kelly said.

APPA also is backing bipartisan legislation introduced in February to restore the ability of public power utilities to advance refund private activity bonds — a way of prepaying higher cost debt (H.R. 50 0 3). “While we were largely successful in the tax bill that just passed at the end of 2017 in protecting and maintaining municipal bond financing — for which we are most grateful to Congress, don’t get us wrong — our ability to advance refund was taken away as part of that legislation,” Kelly said.

APPA leaders also were to meet with all five FERC commissioners this week to press their longstanding concerns about RTO wholesale markets.

“We are quite concerned about wholesale market rules that would make wholesale prices more volatile and impede our ability to self-supply,” Kelly said. “And we would like to see RTOs stop overriding state and local decision making.”

State and local control also was the focus of APPA’s resolution on distributed energy resources. “What works in Arizona may not work in New Hampshire. So, we believe Congress should not seek to federalize rate design or tip the scale [in favor] of any particular resource over others,” Kelly said. “Allow those decisions to be made at the state and local level.”

APPA filed comments Monday supporting EPA’s Advanced Notice of Proposed Rulemaking on replacing the Clean Power Plan. It agrees that the Obama administration’s final rule went beyond its authority under the Clean Air Act.

“We don’t want [there to be] no regulation but we want regulations that comport with what’s allowed in Section 111, and that would be things within the fence line — not this fuel switching from coal to natural gas, natural gas to renewables,” said Desmarie Waterhouse, vice president of government relations.

And what about critics who say inside-the-fence-line regulations will have little impact on carbon emissions? Utilities “have been reducing their CO₂ emissions for quite a while and will continue to do so as they make resource decisions,” she responded. “The bottom line is a rule under the Clean Air Act needs to comport with the Clean Air Act, irrespective of how much it raises CO₂ emissions.”

Cybersecurity Partnership

APPA also would like to see a stronger partnership with the federal government on cybersecurity. APPA has used Department of Energy funding to conduct cybersecurity reviews of some systems and to develop a cybersecurity “maturity model” tailored to public power. Going forward, Kelly said, the group wants to make “sure we have sufficient security clearances to be able to act when there are threats, [being able to] vet employees working in sensitive positions” to ensure they aren’t on terrorist watch lists.

Supplemental Transmission Projects

APPA’s resolution on supplemental projects, which urged FERC to enforce the transmission planning process requirements of orders 890 and 1000, grew out of concerns in PJM. But rising transmission spending is an issue nationwide, Kelly said.

“There is no question we have members in a number of different regions that are concerned about rapidly increasing transmission revenue requirements,” she said. “Don’t get us wrong, we’re not against new transmission, and we realize that reinforcements and extensions — and maybe eventually new facilities — may be needed. But we want to make sure that they’re properly vetted through the process and, frankly, that our members have the opportunity to own some of that. Rather than just: ‘It’s my tinker toys and I’ll impose all this on you.’”

Order 1000, said APPA General Counsel Delia Patterson, “hasn’t panned out to be what it was originally purported to be. There’s room for growth in Order 1000 in terms of actually having an impact on the industry.”

As for PURPA, Kelly said, the group seeks “modest revisions to ensure that the provisions are not abused and that we’re not required to buy power that we do not need at prices that are above market.”

February 27, 2018

Wildfire Costs Ignite Worry at CPUC, Legislature

By Jason Fordney

SACRAMENTO, Calif. – California regulators and lawmakers are sounding the alarm over a possible decline in the financial and credit health of utilities stemming from wildfire risk and liability.

During an informational hearing Monday, State Assembly members expressed concern over the finances of the state’s investor-owned utilities due to their potential liability for a series of devastating wildfires in 2017.

wildfire cost recovery cpuc — The Assembly Utilities and Energy Committee met on Monday to discuss wildfire risk | © *RTO Insider*

Utilities and Energy Committee Vice-Chair Jim Patterson (R) repeatedly asked California Public Utilities Commission (CPUC) President Michael Picker if he would describe the event as a “crisis,” but Picker declined to use that term.

“I think we are headed toward bankruptcy for IOUs,” Patterson said. “I really think this is a crisis and needs a crisis approach to it. I think we need to engage on this seriously.”

“I see a continuum of constraints on utilities,” Picker said, adding that declining credit ratings and financial health will affect their ability to invest in renewables and electric vehicles and to obtain insurance. “Certainly, they are going to find it harder to borrow.”

In response to Patterson’s question about what steps the state is taking in response, Picker said: “I assume that is one of the reasons we are having this conversation here today.”

wildfire cost recovery — CPUC President Michael Picker and CPUC Safety Division Director Elizaveta Maleshenko | © *RTO Insider*

Pacific Gas and Electric CEO Geisha Williams has been outspoken about the issue of recovering costs related to wildfires. (See Edison International Presses Wildfire Cost Recovery.)

The third prong of that effort appeared to be underway Monday, with discussions at the hearing indicating that utilities have been in contact with lawmakers and are mobilizing a strong effort on the liability and cost recovery issue.

Picker asked the legislature for more guidance on the principle of “inverse condemnation,” the legal provision utilities use to recover wildfire costs. The principle states that “the costs of a public improvement benefiting the community should be spread among those benefited rather than allocated to a single member of the community.”

Picker told RTO Insider that CPUC’s interpretation of inverse condemnation could lead to lengthy litigation, while the legislature can take quicker action.

Utility executives have criticized CPUC’s decision to deny San Diego Gas and Electric $379 million in cost recovery stemming from 2007 fires, rejecting the utility’s inverse condemnation argument. (See Wildfires Color California PUC Utility Decisions.)

And the money at stake in that proceeding does not include additional potential liability for billions of dollars of costs from devastating fires that raged across California in 2017, the causes of which are still under state investigation.

Fitch Ratings on Monday downgraded PG&E to BBB+ and placed it on negative credit watch, while also putting Edison International subsidiary Southern California Edison on credit watch based on wildfire risks. In addition, utilities are facing multiple civil lawsuits over the fires, and analysts are also scrutinizing the credit ratings of California cities and localities, according to press reports.

Utilities and Energy Committee Chairman Chris Holden (D) told Picker he plans another conversation on inverse condemnation, as well as discussions on “new legislation that gives you new direction on what the good, the bad and the ugly of what that represents.”

“This will not be the first and last discussion we will have on this topic,” Holden said, later adding that, “we are all trying to get our arms around the issue and how it has so many different components to it.”

Holden said that when the legislative session ended last year, “this was not necessarily the topic I thought was going to take up all the energy for us.” He is also leading a separate effort to spearhead the regionalization of CAISO. (See Calif. Lawmakers Relaunch CAISO Regionalization.)

Speaking at the hearing, CPUC Director of Safety Elizaveta Malashenko said preparedness and rapid response are keys to preventing disasters. Utilities are using new data collection technologies and practices to prevent fires, for example by proactively de-energizing lines for risk reduction, a program CPUC approved for SDG&E.

“When you are talking about wildfires, you are talking about a race against time,” Malashenko said. The CPUC has increased its information sharing with the California Department of Forestry and Fire Protection, she said, and is investigating utility involvement in the 2017 fires. “It has been a very fruitful relationship,” with Cal Fire better preparing for and responding to fires, she said.

February 27, 2018

NY Task Force Takes on Carbon Pricing Mechanics

By Michael Kuser

How should New York set carbon prices — and who should be tasked with doing it?

Those were questions the state’s Integrating Public Policy Task Force (IPPTF) began to tackle Monday in “Track 3” of the group’s effort to integrate carbon pricing into NYISO’s wholesale electricity market.

The group also touched on issues related to “Track 4,” which covers the specific interactions of carbon pricing with other state and regional programs, such as the renewable energy credit (REC) and zero emissions credit (ZEC) programs, as well as the Regional Greenhouse Gas Initiative (RGGI).

The effort to price carbon into the state’s wholesale electricity market is a joint effort by NYISO and the state’s Department of Public Service (DPS) (17-01821).

Integrating Public Policy Task Force Carbon Pricing — in real 2017 terms. | *UK Dept. for Business, Energy & Industrial Strategy*

On pricing, stakeholders at the IPPTF debated whether to use a nominal value of $1/ton or $40/ton in their calculations for a carbon charge — or whether the debate was a waste of time given that the state’s Public Service Commission (PSC) would ultimately decide the number.

Representing New York City, Couch White attorney Kevin Lang suggested participants examine different sources for a social cost of carbon, both international and national.

“If we’re trying to get something that is valid through time, not just through two or three years, but over a longer time period, hopefully we can look at what the different sources are and come up with something that is a little bit more rational and perhaps a little more stable or less volatile than politically influenced numbers,” Lang said.

Ben Carron, National Grid’s senior analyst for regulatory strategy and integrated analytics, said the price should be based on the cost of abating emissions, since abatement is the goal of the public policy.

“Doing a locational analysis would also be appropriate because in order to get an abatement cost, obviously it will cost different amounts to build renewable generation than to abate carbon in different areas, like upstate,” Carron said.

Carron said his company could envision “something like a renewable net [cost of new entry] with a renewable demand curve that sets the cost of carbon in a given area, which would not only provide a more efficient price, a locational cost of carbon abatement but also provide the price signal for transmission build that would be necessary to truly evaluate whether or not it was an efficient investment.”

Marc Montalvo, of the DPS Utility Intervention Unit, said it makes sense for stakeholders to “seed our thought process” with various sources related to social cost of carbon, but that the price would ultimately come down to “the minimum charge that achieves the [Clean Energy Standard] objectives. … and analytically we should be trying to determine what that number is.”

New York City Deputy Director for Infrastructure Susanne DesRoches said, “Those goals and objectives from the CES need to be clearly defined as to what the carbon charge is trying to solve for. You can look at other models and look at what their goals are, what they were trying to solve for, and how those structures supported that end goal, but without a clear understanding of what this effort is trying to solve for, I think it will be difficult to put a number on the cost of carbon.”

Warren Myers, DPS chief of regulatory economics, said the PSC would be setting the price of carbon in another forum.

“So, debating abatement versus damage costs, I don’t think is that relevant here [and is] only [relevant] to the extent that it influences the straw level of carbon pricing we use for our modeling efforts,” Myers said, adding that the PSC is at least likely to “listen to our arguments about abatement costs.”

REC, ZEC, and RGGI

Speaking about how pricing carbon might interact with other state and regional programs such as REC, ZEC, and RGGI, Power Supply Long Island Director of Wholesale Market Policy David Clarke, asked whether RGGI impacts would diminish the effect of carbon pricing in New York.

“We would need to reduce the RGGI targets to reflect the impact of the carbon pricing as well as CES … otherwise, RGGI itself would see a lower price, absent a ratcheting down of the RGGI requirements,” Clarke said. “Other folks outside of New York would be able to emit more, taking back some or all of the requirements. This is one where you need to think through this and make sure we don’t have the takebacks associated with not reflecting any carbon pricing in the RGGI requirements.”

Representing a coalition of large industrial, commercial, and institutional energy customers, Couch White attorney Michael Mager said, “From a consumer perspective it’s a clear windfall on double payments. Despite arguments by some parties, including us, the commission time and time again has gone ahead and forced customers to bear the brunt of 20-year fixed contracts, where we are paying for carbon-free emissions under contract.”

One of the main purposes of the PSC moving to competitive electricity markets is to shift the risk of generation ownership from consumers to developers and owners, who willingly choose those risks, he said.

“There will be risks, there always will be, but lately one by one a lot of these risks are being shifted back onto consumers, despite the original intent,” Mager said.

If the RGGI system shifts all New York’s carbon reductions to the other RGGI states “and there’s essentially zero or hardly any carbon reduction from this, then whatever the price tag is, it’s probably too high,” Mager said.

Myers said one stakeholder concern is that “we add through policies, regulations, and government an externality price to the wholesale market … if the development community doesn’t know if they can trust this policy to hang around for more than a year or two, you could be kidding yourself on not paying twice even with future contracts.”

IPPTF Co-Chair Nicole Bouchez, NYISO market design specialist, said the group would next meet to discuss Track 3 on April 16 and Track 4 on May 14, with the goal of delivering recommendations by October.

Bouchez also noted that there would be no IPPTF meeting March 5 but that the task force would next reconvene at NYISO headquarters on March 12.

February 27, 2018

PJM: Cold Snap Uplift Shows Need for Pricing Changes

By Rich Heidorn Jr.

PJM said Monday that its generation fleet performed much better in this New Year’s cold snap than during the 2014 polar vortex, but that high uplift costs during the event signal the need for its proposed pricing rule changes.

The RTO’s report on the Dec. 28, 2017, to Jan. 7, 2018, cold snap noted that temperatures were higher and customer demand lower than in 2014, although it did record its sixth highest winter peak on Jan. 5, when demand hit 137,522 MW in the 6-7 p.m. hour.

PJM reported a maximum of only 23,751 MW of forced outages during the 2017-18 cold snap, a little more than half the 40,200 MW lost at the peak of the 2014 polar vortex. | *PJM*

It reported a maximum of only 23,751 MW of forced outages (12.1% of total capacity) on Jan. 5, a little more than half the 40,200 MW lost on Jan. 7, 2014 (22% of capacity). The report echoed the message CEO Andy Ott delivered to a Congressional hearing in January. (See FERC, RTOs: Grid Performed Better in Jan. Cold Snap vs. 2014.)

“PJM did not call a performance assessment interval, a 72-hour maintenance recall or any transient shortage intervals. … Even during peak demand, PJM had excess reserves and capacity,” the report said. “Many factors drove this improved performance. In addition to the milder weather, these include enhancements PJM and its member companies have put in place in the years since the polar vortex, such as increased investment in existing resources, improved performance incentives, enhanced winterization measures and increased gas-electric coordination.”

However, PJM’s operators dispatched many generators that did not set LMPs, resulting in average uplift charges of $4.3 million per day during the peak of the recent cold, 11 times the normal average of $389,000 per day.

PJM Uplift Polar Vortex — PJM incurred $47 million in uplift during this year’s cold snap. Uplift averaged $4.3 million per day during the worst of the cold, with one day totaling almost $9 million. | *PJM*

“On these days when the system is under additional stress, the actions the operators take to ensure that reliability is maintained are often not reflected in the transparent clearing prices. This problem, clearly evidenced by the cold weather experience, highlights the need for PJM and its stakeholders to evaluate reforms to address this issue in a timely manner,” PJM said. “These reforms include enhancing the manner in which reserves are procured and priced so that all operator actions are included in price signals and enhancements to the calculation of locational marginal pricing.”

PJM said it received cost-based energy offers exceeding $1,000/MWh between Jan. 3 and Jan. 7, but that “due to system conditions,” the resources did not receive day-ahead awards or run times during each of the operating days.

In December, PJM won stakeholder endorsement for creation of the Energy Price Formation Senior Task Force, which is considering rule changes to ensure prices accurately reflect the cost of serving load and minimize the need for uplift. The task force is scheduled to hold its fourth meeting March 5.

The report said PJM needs to continue improving its gas-electric coordination “to include improved contingency modeling and improved information sharing with local distribution companies.”

“Another area of fuel security that needs additional analysis, and potentially additional tools for operators and owners, is tracking and transportation of fuel oil supplies. While oil is typically a backup resource, PJM resources used more oil during the cold snap, which stressed some resources and supplies,” the RTO said.

February 27, 2018

Calif. Lawmakers Relaunch CAISO Regionalization

By Jason Fordney

A key California lawmaker is seeking comment this week on a revived effort to regionalize CAISO and create a multistate Western RTO, an effort that has sputtered over the last two years.

CAISO FERC Regionalization Western RTO — Holden | © *RTO Insider*

State Assemblymember Chris Holden (D), chair of the Utilities and Energy Committee, is taking public comment through Wednesday on proposed amendments to AB 813, which would authorize CAISO’s Board of Governors to develop a governance proposal for an RTO that would eventually allow California to relinquish its direct oversight of the grid operator.

The bill stipulates that the plan would then be submitted to the California Energy Commission, which — along with the California Air Resources Board — would review the proposal and also take public comment. If the CEC determines the proposal complies with the law, and if one or more transmission owners signs an agreement to join the new RTO, CAISO would be authorized to implement the new governance structure.

“Composition of the new board would not trigger until CEC approval and an agreement with at least one new balancing authority to join,” committee staffer Kellie Smith told RTO Insider in an email.

The proposal would provide for the establishment of a Western States Committee with three representatives from each state with TOs in the new RTO to provide input. According to the bill’s language, states would preserve their authority over member balancing authority areas, including procurement policy, resource planning and generation, and transmission siting within their states.

Holden led a similar effort last year, but it stalled along with separate legislation that would establish a 100% zero-carbon energy requirement for utilities in the state. (See CAISO Regionalization, 100% Clean Energy Bills Stall.)

While some industry interests favor regionalization to create a wider market for power generation, California labor unions have expressed concerns that the effort could export jobs to other states, and some state officials also worry about losing control over the state’s aggressive renewable and climate change policies.

Regionalization has been a longstanding goal of Gov. Jerry Brown, who is serving out his last year as governor ahead of this November’s elections. Two years ago, he put the effort on hold because of unresolved questions from critics both inside and outside California. (See California Lawmakers Take Up CAISO Expansion.)

The new amendments also stipulate that a Western RTO “not endorse, organize or operate a centralized capacity market in California for the forward procurement of electrical generating capacity that requires capacity to clear at a market clearing price in order to count for resource adequacy purposes.” It also calls for equitable transmission cost allocation rules, creation of an independent market monitor and voluntary participation by TOs.

“The ISO has thoroughly studied the benefits a regional grid has to offer and looks forward to providing any information to the Legislature, including Assemblyman Holden, as the measure moves forward,” CAISO told RTO Insider. “A regional approach is critical to supporting renewables, as energy leaders and environmentalists have noted about European experience, where many nations there leverage low-carbon resources through a single, coordinated grid.”

Changes Across the West

The restart of the regionalization effort comes amid several developments that could reshape the wholesale electricity industry in the West. Since late last year, CAISO has kicked off efforts to expand its day-ahead market across the Western Energy Imbalance Market (EIM) and depart Peak Reliability to become its own reliability coordinator (RC) — as well as offer reliability services across the region. (See CAISO to Depart Peak Reliability, Become RC.)

On Monday, the Bonneville Power Administration and Western Area Power Administration separately announced they have signed nonbinding notices signaling their intent to depart Peak Reliability by the end of 2019. BPA said it is exploring receiving RC services from CAISO, while WAPA is considering SPP’s RC services for its Upper Great Plains West and Western Area Colorado Missouri balancing areas, and SPP and CAISO for its Western Area Lower Colorado area.

“Our balancing authorities cover an expansive area in the West. Each has unique circumstances and requirements that we will respect when seeking the best possible RC for our operations and our customers,” WAPA Administrator Mark A. Gabriel said in a statement. “As we explore the best path forward for each of our BAs, the reliability of the grid will remain our top priority.”

Peak Reliability and PJM have also announced an effort to create a new western energy market, an effort the companies say will not be an RTO. (See Peak, PJM Pitch ‘Marketplace for the West’.) Peak has been the provider of RC services in much of the West since 2014.

February 27, 2018

FERC Endorses Previously OK’d PJM Aggregation Rules

By Rory D. Sweeney

FERC has given an unconditional thumbs-up to resource-aggregation rules for PJM that staff conditionally approved last year when the commission lacked a quorum (ER17-367).

The order officially approves rule changes PJM filed in November 2016 to allow seasonal resources to aggregate across locational delivery area borders, along with methodology changes to better account for demand response and wind performance in the winter. The new rules were implemented in time for last year’s Base Residual Auction, the first requiring all resources meet tougher Capacity Performance standards. (See PJM Outlines Aggregation Rules for Upcoming Capacity Auction.)

The commissioners affirmed staff’s decision without any changes, dismissing multiple protests. Throughout the order, the commission acknowledged that other strategies could work but that there were no compelling arguments for why PJM’s plan failed the “just and reasonable” standard.

The RTO argued to relax the rules prohibiting seasonal resources from aggregating across LDAs because they inhibit “what otherwise would be considered logical pairings” of resources that perform much better in one season compared to others, such as solar in the summer and wind in the winter. The rules model the aggregated resource in the lowest common tier of the LDA hierarchy, which could be RTO-wide; the resource would receive the corresponding LMP as compensation.

PJM FERC aggregation rules CIRS — PJM’s example for how it will aggregate seasonal resources in different LDAs. FERC has unconditionally approved PJM’s plan. | *PJM*

Opponents argued that the changes would interfere with accounting for a variety of factors, including reliability, resource adequacy and compensation. FERC denied all the protests, agreeing with PJM that the resources will remain responsible for actions in their individual LDAs, such as paying penalties during penalty-assessment intervals. The order approves PJM’s creation of a new mechanism called “RPM aggregation,” along with defining summer- and winter-only resources that submit offers for only half of the year.

Winter CIRs

FERC also approved PJM’s plan for modifying how it calculates winter-period capacity interconnection rights (CIRs) and dismissed multiple protests, allowing wind resources to put substantially more onto the grid. The commission agreed that the previous methodology, which relied on resources’ performance in the summer, grossly understated wind’s potential in the winter production, typically granting them the rights to inject just 13% of their nameplate capacity regardless of actual production.

Opponents argued that the changes will give resources rights to use more infrastructure than they paid for, but the commission agreed with PJM’s guarantee to prevent infringement on other resources’ available system capabilities as well as overwhelming the system’s existing topology.

PJM also sought to eliminate rules that limited how DR resources measured performance in the winter. The approved changes allow curtailment service providers to specify either a seasonal load cap resources are willing to commit if called upon or a firm amount of demand the resources are willing to drop in each season if dispatched by PJM.

“Specifically, PJM states that stakeholders are concerned that customers with winter load that reduce their load prior to PJM dispatch may not be recognized by PJM as having performed consistent with the Capacity Performance rules,” the order explains. “PJM … will ensure that customers with winter load consume electricity at a lower level when dispatched by PJM for an emergency or pre-emergency load management event, and that customers without winter load will not receive credit under the Capacity Performance rules for a load reduction just because they do not have load in the winter.”

February 27, 2018

PJM Markets and Reliability Committee Briefs: Feb. 22, 2018

WILMINGTON, Del. — Stakeholders remain reticent to cede too much command and control to PJM, voting at last week’s Markets and Reliability Committee meeting to defer a vote on revisions to Manual 14D because they felt the requirements for generation owners to submit ownership-transfer information were too strict.

PJM MRC Markets and Reliability Committee — Pratzon | © *RTO Insider*

GT Power Group’s Dave Pratzon said the changes could make it impossible for generators to meet PJM’s deadlines. (See “Owner Transfer Rules Revision,” PJM Operating Committee Briefs: Dec. 12, 2017.)

“The problem the generator owners have when they’re negotiating these deals is primarily timing. The timing set forth by PJM is not necessarily viable,” he said. “Certain information PJM needs may not have been negotiated in time to meet PJM’s deadline.”

Deals often need to be more fluid than PJM’s deadlines allow. “We feel the manual also needs to recognize commercial realities,” he said. He said one of his clients supplied him with a “page-long list” of issues and asked for more time to negotiate language changes before an endorsement vote.

PJM staff said there is a clause that allows staff to waive the requirements for more flexibility, but that the final five-day deadline can’t be adjusted.

“For those five days, we need to be sure that we have our units where they need to be in our system,” PJM’s Rebecca Stadelmeyer said.

However, Pratzon was not alone.

“We have similar concerns about the commercial reality,” EDP Renewables’ John Brodbeck said.

“The way it’s written right now, it looks like if [PJM doesn’t] feel like it, you won’t have to [provide the waiver],” Calpine’s David “Scarp” Scarpignato said.

Members subsequently agreed by acclamation to defer the vote. It will go back to the Operating Committee for reconsideration.

Overlapping Congestion

Members also deferred endorsement of a joint plant from PJM and MISO to address overlapping congestion charges for pseudo-tied resources. The decision came after PJM’s Tim Horger confirmed that consideration of the proposed Tariff and Operating Agreement (OA) changes could wait until next month’s meeting and still meet staff’s timeline.

“Ideally, we would file by the end of March,” Horger said.

PJM and MISO have been working to remove repetitive congestion charges and have developed a two-phase plan to eliminate them. These changes encompass the second phase. (See MISO, PJM Pursue Pseudo-Tie Double-Charge Relief.)

Carl Johnson, who represents the PJM Public Power Coalition, asked for clarification on a concern that certain market-to-market payments could simply be canceled under the rule. Horger said the payments are automatically created based on the pseudo-ties in the system and that he wasn’t aware of any concerns on that issue.

Johnson said he would research the topic further, and American Municipal Power’s Steve Lieberman asked if the endorsement vote could be delayed to address the question. To make the requested timeline, stakeholders must vote on the changes at both the MRC and Members Committee meetings next month.

OVEC Integration Set

Staff announced that the Ohio Valley Electric Corp.’s Board of Directors voted to change its date for integration into PJM from March 1 to June 1. (See FERC OKs OVEC Move to PJM.)

Staff also announced later in the day the cancellation of proposed transitional auction revenue rights for OVEC’s two coal-fired power plants. OVEC’s integration adds 705 miles of 345-kV transmission lines and 2,200 MW of capacity to PJM’s footprint.

Advocates Push Beyond FERC Order

Staff and transmission owners disagreed with customer representatives on how much change FERC recently ordered to PJM’s process for supplemental transmission projects. (See FERC Orders New Rules for Supplemental Tx Projects in PJM.)

PJM’s Steve Herling said the commission’s instructions call for more detailed delineation of how stakeholders can engage as TOs develop their supplemental projects.

“The bottom line is there’s a very short clock on the compliance filing,” he said, but the orders “seem to be relatively straightforward.”

Greg Poulos, executive director of the Consumer Advocates of the PJM States, said the order’s language “really raised a lot of alarms for me” and appeared to demand much more drastic changes.

“I’m reading this as FERC saying we’re going to tell you what to do because you’re not going in the right direction,” he said. “I was really hoping to see PJM do more than just the minimal amount that FERC orders transmission owners to do going forward.”

“Most of my read of the order was just to be more clear about” details and expanding access by adding more meetings, Herling said. “That’s the part that I think is going to be really straightforward to implement.”

“My reading of that is that the process has failed. And I don’t know that putting some more meetings in there addresses that,” Poulos responded.

Stakeholders agreed to further discuss the order’s implications at next month’s Planning Committee meeting.

Stakeholders Approve Variety of Actions

Stakeholders endorsed by acclamation several manual revisions and other operational changes:

Manual 2: Transmission Service Request. Revisions developed in conjunction with revisions endorsed at last month’s meeting to amend the process for analyzing transmission service requests. The changes come after a FERC judge criticized PJM’s current procedures. (See FERC Judge Faults PJM, TOs on Transmission Upgrade Process.)
Manual 11: Energy & Ancillary Services. Clarifies the energy offer verification process for demand-side bids, including caps on price-sensitive demand bids and eliminating certain restrictions on bids from curtailment service providers for pre-emergency and emergency demand response.
Manual 18: PJM Capacity Market. Revisions developed to adhere to a FERC compliance filing on rules for pseudo-tie requirements and a transition period for existing pseudo-ties.
A draft charter for the Summer-Only Demand Response Senior Task Force. The task force, which was developed to consider ways to take advantage of excess summer-only resources, has met several times. (See Stakeholders Seek Load Discussion in PJM DR Task Force.)
Members agreed to sunset the Underperformance Risk Management Senior Task Force (URMSTF) and the Regulation Market Issues Senior Task Force (RMISTF). The URMSTF developed proposals on underperformance risk management, which failed to receive MRC stakeholder endorsement, and changes to external Capacity Performance requirements, which was endorsed. The RMISTF resulted in implementation of a new regulation signal, along with a package of regulation procedure and requirement changes. (See PJM Regulation Compensation Changes Cleared over Opposition.)

— Rory D. Sweeney

February 27, 2018

Former CPUC Member Fined for Lobbying Violations

By Jason Fordney

A former California utilities regulator and political insider has been fined after state investigators determined that she failed to register as a lobbyist for ride-sharing company Lyft and San Gabriel Valley Water Co., an investor-owned public water utility.

CPUC ISO-NE RTO Insider transformers — Kennedy | *Linkedin*

In a 5-0 decision Feb. 15, the California Fair Political Practices Commission fined former California Public Utilities Commissioner Susan P. Kennedy $32,000 for failing to register as a lobbyist and file quarterly reports from late 2012 to early 2014, when she worked to influence the commission on behalf of the two companies.

Kennedy was chief of staff for former Gov. Arnold Schwarzenegger, deputy chief of staff and cabinet secretary for former Gov. Gray Davis, and previously communications director for U.S. Sen. Dianne Feinstein. She served on the CPUC from 2003 to 2006 and now helms energy storage company Advanced Microgrid Solutions, which was not named in the matter.

At a Feb. 15 meeting in Sacramento, FPPC Chair Joann Remke congratulated her enforcement staff for the investigation, saying lobbying cases are “difficult to prove” and are “few and far between.”

“And I know this was a long investigation and a good outcome,” Remke said.

The state’s Political Reform Act of 1974, the post-Watergate ballot measure that created the FPPC, requires lobbyists and lobbying firms to register with the Office of the Secretary of State and file quarterly reports on their clients, their clients’ interests and how much they were paid.

In the case of San Francisco-based Lyft, Kennedy was able to influence the CPUC beginning in 2012 to open a rulemaking over ride-sharing companies, according to the order. The commission was scrutinizing ride-sharing companies and had previously sent Lyft a cease-and-desist letter in August 2012 because it had not received operating authority.

The decision says Kennedy contacted then-CPUC President Michael Peevey, Executive Director Paul Clanon and other CPUC staff to convince them to work with ride-sharing companies rather than shut them down. The commission opened a rulemaking to address public safety issues and in September 2013 adopted regulations concerning liability insurance, driver licensing and background checks, driver training programs, vehicle inspections and data reporting.

“The efforts of Kennedy and Lyft were successful as the resulting rules and regulations adopted many of the suggestions and positions put forward by Kennedy and Lyft during the rulemaking process,” the decision says.

Kennedy also lobbied Peevey and current CPUC President Michael Picker in the first half of 2014 regarding San Gabriel, the FPPC said. The utility had a general rate case before the commission and was seeking to increase water rates, which were being fought by the city of Fontana and its school district.

“During these meetings, and through emails, Kennedy sought to influence the CPUC’s decision on cost recovery for the Sand Hill treatment plant in the general rate case,” the decision says. The commission sided with Fontana and denied the rate increase and cost recovery for the plant in May 2014 (Decision#15-11-028).

“The CPUC’s decision invalidated much of a settlement San Gabriel had with the CPUC’s Office of Ratepayer Advocate. Subsequently, the CPUC issued a decision on Nov. 24, 2015, that included a modified rate increase agreed upon by all parties,” the FPPC decision says. San Gabriel filed lobbying reports that listed other lobbyists but not Kennedy.

Under terms of the settlement with the FPPC, Kennedy agreed to register Susan P. Kennedy Inc. as a lobbying firm. She also filed reports detailing that she was paid $76,500 by Lyft and $125,000 by San Gabriel.

Kennedy was paid $201,500 by Lyft and San Gabriel Valley Water Company, the CFPPC said | *California Fair Political Practices Commission*

“While Kennedy maintains she did not intend to qualify as a lobbyist, given her experience and sophistication, she should have been aware at the time that her activity qualified as lobbying,” the decision says.

“Ms. Kennedy moved immediately once the discrepancy was identified to provide the necessary information requested by the FPPC. Integrity and character are hallmark principles in how Ms. Kennedy conducts herself in business, which is why she acted swiftly to resolve the matter,” Kennedy’s attorney James Harrison, of Remcho Johansen & Purcell, said in an email to RTO Insider.

FPPC spokesman Jay Wierenga told RTO Insider that the decision wraps up the commission’s investigation of Kennedy. “There is nothing more on our side regarding any investigation of Kennedy,” he said. “This case is complete.”

The CPUC did not immediately respond to a request for comment on the decision.

The FPPC information request to Kennedy that led to the recent fine also asked for communications between her and other CPUC members regarding the San Bruno gas pipeline explosion and legal, legislative or regulatory actions that might have resulted from them. But the Feb. 15 FPPC decision does not mention anything about the San Bruno communications.

The request had also asked for communications between Lyft and Manal Yamout, a partner with Kennedy in Advanced Microgrid Solutions and Caliber Strategies and a former top adviser to Schwarzenegger and Gov. Jerry Brown. The decision and fine handed down by the FPPC did not mention Yamout.

Attorney General Referral

At the FPPC’s Feb. 15 meeting, Chief of Enforcement Galena West noted that the state’s attorney general had referred the Kennedy investigation to her group. The attorney general’s office did not respond to a request for more information on what spurred the referral.

Pacific Gas and Electric in September disclosed new emails of discussions between Kennedy and former PG&E executive Brian Cherry that described “back-channel” communications between the utility and CPUC members regarding the 2010 San Bruno incident that killed eight people. (See Probe Reveals More CPUC-PG&E Contacts on Pipeline Blast.)

The disclosure of the old Kennedy emails and others came as the CPUC was poised to approve an $86 million settlement with PG&E over previously disclosed improper communications with it regarding the accident. The commission at its November meeting delayed a vote on the settlement until June. (See Besieged CPUC Denies SDG&E Wildfire Recovery.)

CPUC lobbying violations Susan Kennedy — The 2010 San Bruno fire.

In delaying the settlement, the CPUC said additional time was needed after parties to the settlement asked for a second phase of the proceeding to explore whether PG&E had engaged in any additional ex parte communications.

“Once a second phase is opened, time will be needed for the parties to address, and for the commission to decide, if PG&E committed any additional ex parte violations,” the CPUC said in the order delaying the vote.

The ex parte case is separate from the $1.6 billion fine, refund orders and gas system improvements the CPUC levied on PG&E for the fatal explosion and fire, record-keeping and safety violations.

February 27, 2018

FERC Grants SPP Waiver to Resettle Z2 Credits

FERC last week granted SPP’s request to waive its one-year resettlement window so that the RTO can correctly bill transmission-upgrade customers for a month mistakenly omitted from invoices. The commission said SPP’s request satisfied its waiver criteria, and that the RTO had acted “in good faith” to calculate the corrected transmission revenue credits amounts and “ensure that customers’ bills are accurately resettled” (ER18-381).

FERC rejected Xcel Energy’s contention that SPP had failed to show that there are no undesirable consequences. The commission noted SPP said it alerted stakeholders it needed to correct the settlements. “Therefore, stakeholders have been on notice of and expected the planned corrections,” FERC said.

SPP said the waiver would allow it to include September 2016 billable amounts under Attachment Z2 of its Tariff, which assigns financial credits and obligations for sponsored transmission upgrades. SPP said in November that it had inadvertently omitted resettled amounts from September 2016 in its November 2017 invoices, placing the month outside the Tariff’s resettlement requirements. (See SPP Invoices Lead to Confusion on Z2 Payments.)

— Tom Kleckner

February 27, 2018

OGE, CenterPoint, Entergy Results Up on Tax Cuts

By Tom Kleckner

The cut in federal corporate income taxes figured prominently in fourth quarter earnings reports by OGE Energy, CenterPoint Energy and Entergy last week. The Tax Cuts and Jobs Act of 2017, signed into law by President Trump in December, reduced corporate income taxes to 21% from 35%.

Tax Savings Result in Positive Earnings for OGE

OGE said last week that the tax legislation was a major factor as the company reported 2017 earnings of $619 million ($3.10/share), almost double the previous year’s performance of $338.2 million ($1.69/share).

For the quarter, OGE reported net income of $294.8 million ($1.48/share), compared to $57.9 million ($0.29/share) for the same period in 2016.

In a conference call with analysts, OGE CEO Sean Trauschke said $49.3 million in federal tax breaks contributed to much of the increase.

“For us, tax reform is a positive,” Trauschke said during the Feb. 22 call. “Tax reform will be beneficial to our customers and accretive to shareholders of OGE. We worked hard to maintain a strong financial position that gives us this flexibility and helps us weather financial challenges that may come.”

The tax savings will be a factor as OGE’s electric utility, Oklahoma Gas & Electric, works its way through current and planned rate cases before the Oklahoma Corporation Commission. The utility requested a $72 million increase last year to recover the installation of new gas units at its Mustang Energy Center but projects the tax benefits will be used to account for much of that increase.

OG&E also plans to file a rate case later this year to cover the cost of coal scrubbers at its Sooner plant. A third rate case will likely be filed in 2019 for smart grid upgrade costs.

“We delayed our [Sooner] filing from late December to ensure customers benefited from the lower tax rate,” Trauschke said.

OG&E reported a gross margin of $1.36 billion for the year, down $16 million from 2016, because of unfavorable weather that was partially offset by new customer growth. However, the utility’s net income was up $22 million to $306 million because of lower depreciation and amortization expenses and an increase in funds used during construction of the Mustang Energy Center and environmental compliance projects.

OGE stock gained $2.13/share following its Feb. 21 close to finish the week $32.95/share.

CenterPoint Energy Records $1.1B Tax Benefit

The corporate tax cuts resulted in a $1.1 billion benefit to CenterPoint, which reported year-end earnings on Feb. 22 of almost $1.8 billion ($4.13/share), up from $432 million ($1/share) for 2016. Excluding the tax benefit, earnings were $593 million ($1.37/share).

For the quarter, the Houston-based company reported a net income of nearly $1.3 billion ($2.99/share), compared to $101 million ($0.23/share) over the same period last year. Excluding the tax benefit, earnings were $141 million ($0.33/share).

OGE centerpoint energy entergy earnings q4 2017 — | *CenterPoint Energy*

The Public Utility Commission of Texas wants to bring CenterPoint in for a comprehensive rate case, which would be its first in eight years. The company recently filed terms of a settlement it reached with PUC staff and other parties, and has agreed to a base rate case that would be filed no later than April 2019.

CenterPoint shares gained $1.50 following the earnings announcement, finishing last week up 5.7% at $27.23/share.

Entergy Beats Expectations, as Losses Narrow

Entergy beat Wall Street expectations by reporting fourth-quarter operating earnings of $137.6 million ($0.76/share) on Feb. 23, almost double the Zacks Investment Research consensus estimate of 42 cents/share.

When adjusted for higher expenses for nuclear operations and the write-down of tax assets not subject to the ratemaking process, Entergy reported a GAAP earnings loss of $479.1 million (-$2.66/share). Still, that was a marked improvement from the loss of $1.77 billion (-$9.88/share) for the same period in 2016.

For the year, the New Orleans corporation reported earnings of $411.6 million ($2.28/share), compared to losses of $583.6 million (-$3.26/share) in 2016.

Entergy also initiated 2018 consolidated operational guidance of $6.25 to $6.85/share, assuming “balanced regulatory treatment for the recently enacted tax reform legislation,” the company said in a statement.

CEO Leo Denault told analysts Friday the impact of the tax changes will be discussed in rate filings the company plans in each of its jurisdictions this year. “On an ongoing basis, the lower tax rate means that customer bills will be lower than they otherwise would have been. That’s important to us as evidenced by the fact that our rates are among the lowest in the country,” Denault said. “We expect [that] point to be addressed in the normal course of those proceedings.”

The Louisiana Public Service Commission on Wednesday ordered its staff to report back by March 21 on a recommendation for flowing the tax savings to ratepayers.

“As we look ahead to the next three years, our success continues to be less dependent on strategic initiatives and more on our own operational execution,” Denault added.

Investors reacted by driving up Entergy’s share price 3.7% to $77.74.