MILWAUKEE — MISO’s Board of Directors will generally be limited to three three-year terms, while the board chairman will be allowed to hold the gavel for a maximum of five years, under rule changes approved amid much gnashing of teeth last week.
The three-term limit comes with a caveat: Directors may petition for a waiver allowing a single additional term upon the determinations by the board and the Corporate Governance & Strategic Planning Committee “that a director’s continued service is necessary to retain his or her skills or expertise, to maintain geographic or other diversity of the board, or is otherwise in the best interest of” MISO.
The board rejected setting an age limit, accepting the Corporate Governance Committee’s position that “directors should be evaluated on their knowledge, skills and engagement, rather than an arbitrary limitation based on age.”
The five-year maximum for the chairman is up from the current two-year limit. That would allow Walsh, who was elected to a second one-year term for 2016, a longer tenure.
The board tabled action on a proposal to expand the Nominating Committee — currently three directors and two stakeholders — to add more stakeholder representatives. It will consider the expansion again in October, when they said they would have the benefit of the stakeholder governance discussions. (See related story, MISO Straw Man: Eliminate 10 of 27 Committees.)
The term limits vote was unanimous, although Director Mike Evans expressed misgivings, saying the board was getting sufficient turnover without the rule. “At some time in the future I’m going to say, ‘Why in the blazes did we do that?’” he said.
Director Paul Feldman objected to the fourth-term waiver, saying it was inconsistent with term limits and could create a “nasty dynamic” among board members. “Everyone is replaceable,” he said.
Director Thomas Rainwater said he supported the term limit, citing research suggesting directors are no longer independent after about 11 years.
But Director Mike Curran joined Evans in expressing unease, recalling a discussion with Howard Schneider, who has chaired PJM’s Board of Managers since its formation as an independent panel in 1997. “‘Why are you guys doing this to yourself?’” Curran said Schneider asked him after hearing that MISO was considering limits.
“A four-[term] limit would clear the decks at PJM,” joked Feldman.
The PJM board’s action was announced at the RTO’s Annual Meeting in Atlantic City, N.J., without any explanation — let alone the public debate that the MISO board engaged in before voting. Unlike MISO, PJM’s board does not meet in public.
Five small, rural utilities — hailing from places like Yazoo City, Miss. (population: 11,000) — have won the right to continue their fight against 24 of MISO’s large transmission-owning members, whom the utilities contend are earning too much.
The Federal Energy Regulatory Commission on Thursday set the utilities’ complaint for a hearing under section 206 of the Federal Power Act (EL15-45).
Commissioners said they would leave to the discretion of the Chief Administrative Law Judge whether it would be appropriate to consolidate the case with a similar complaint MISO industrial customers filed against MISO TOs that is set for an August hearing (EL14-12). (See ROE Talks Between MISO Industrials, TOs Collapse.)
This latest case was filed last February by Arkansas Electric Cooperative Corp., Mississippi Delta Energy Agency, the Clarksdale Public Utilities Commission, the Public Service Commission of Yazoo City and Hoosier Energy Rural Electric Cooperative.
The five argue that the TOs’ base return on equity (12.38%, except American Transmission Co. with an ROE of 12.2%) should be no higher than 8.67%. The complainants cited a recent Court of Appeals ruling that found that a complainant need only demonstrate that the existing rate is unjust and unreasonable and do not have to prove the reasonableness of a suggested replacement rate.
TOs Not Persuasive
The MISO TOs argued that the consultant for the five utilities used flawed data and failed to consider other relevant capital models.
But FERC in its June 18 decision said the complainants had used appropriate data and conducted the proper cash flow analysis in making their case.
The commission also rejected the TOs’ request that it dismiss the complaint because their base ROEs fall within the commission’s “zone of reasonableness.”
“The commission has previously rejected the contention that every ROE within the zone of reasonableness is necessarily just and reasonable, and we do so again here.”
Among other MISO TOs whom the five utilities have challenged in their ROE complaint are ALLETE, Entergy, ITC Midwest and Northern States Power.
New Methodology
FERC last year changed the way it sets rates for electric utilities, switching to a two-step discounted cash-flow methodology similar to what it uses for natural gas and oil pipelines.
A number of stakeholders have argued that the current financial market allows transmission companies to use more leverage while still maintaining an investment-grade bond rating.
MISO industrials argued that the capital structures of certain MISO TOs have unreasonably high levels of common equity and should be capped at 50% common equity. Last October, FERC rejected the industrials’ capital structure argument but granted a hearing on the base ROE.
New York won’t need to build too many new power plants for a while.
Demand served by the grid will remain essentially flat over the next decade, staying at about 160,000 GWh annually, according a new report by NYISO.
“Power Trends 2015” says energy efficiency and distributed energy resources will cut peak demand growth on New York’s bulk power system by more than 2,700 MW in 2025 (up from less than 500 MW now), while reducing annual energy usage by more than 14,000 GWh (from about 2,000 GWh). Based on current projections, about 8% of the projected demand of 174,000 GWh will be satisfied by efficiency and DER.
“Changing energy technologies have altered the conventional assumptions about economies of scale. Development of diverse smaller scale power supplies, including solar photovoltaics (PV) that are increasingly affordable to customers, have further challenged traditional models of centralized generation,” the report said.
“We can’t take a ‘one-size-fits-all’ approach to shaping the grid of the future. We need to bolster the strength and stability of the centralized grid while we foster the flexibility and resilience offered by distributed energy resources,” NYISO CEO Stephen G. Whitley said.
Distributed generation — solar PV and other behind-the-meter systems — is central to the Reforming the Energy Vision proceeding before the New York Public Service Commission that will transform the state’s energy landscape. (See New York PSC Bars Utility Ownership of Distributed Energy Resources.)
The report said that since the New York wholesale market started more than 15 years ago, more than 11,600 MW in new generation has been added, with more than 80% of that in the Hudson Valley, New York City and Long Island.
As a result, after years of shrinking, the state’s power surplus — capacity in excess of the state’s reliability requirements — grew to 2,300 MW in 2015, up from 1,900 MW last year. Demand response programs continue at about 1,100 MW.
NYISO credits the creation of a new capacity zone in the Lower Hudson Valley as incenting about 1,000 MW of generation resources returning to the market. (See New Yorkers Upset over NYISO Capacity Zone.)
“Capacity costs in New York are expected to be approximately $400 million lower in the coming year due to the increase in supply driven by the creation of the new zone,” the report said.
Natural gas price spikes during the winter of 2014 pushed average wholesale electric energy prices to $69.30/MWh last year, up from $59.13 in 2013.
PBF Energy, owner of refineries in Delaware, New Jersey and Ohio, is acquiring its first refinery on the Gulf Coast.
The company will pay $322 million for the 189,000-barrel-per-day Chalmette refinery near New Orleans. It purchased the refinery from Exxon Mobil and Petroleos de Venezuela S.A., the Venezuelan state-owned oil company.
PBF owns refineries in Delaware City, Del., Paulsboro, N.J., and Toledo, Ohio. It is involved in contentious negotiations with Delaware regulators over its permit to use Delaware River water for cooling operations at the Delaware City refinery.
SolarCity to Invest $200 Million in Solar Gardens in Minnesota
The country’s largest solar panel installer, SolarCity, will spend $200 million building 100 community solar gardens in Minnesota, offering their power to apartment dwellers, a segment of the population that has been left out of the rooftop solar market. SolarCity will team up with Sunrise Energy Ventures, which will market the output.
SolarCity is taking advantage of a 2013 law that authorized community-led solar projects for Xcel Energy’s 1.2 million customers. Other companies have gotten into the game in Minnesota, including SunEdison and SoCore Energy, but they have mainly focused on signing up corporate and institutional customers.
Developers are hoping to cash in on a 30% federal solar investment tax credit that expires in 2016. SolarCity’s plan is to build 100 MW of solar facilities in clusters of sites. Xcel is balking at this, saying that the law prohibits any facility from being more than 1 MW.
Murray Energy last week announced it had recalled 262 workers who had been laid off in March at its Monongalia County Coal subsidiary near Blacksville, W.Va.
CEO Robert Murray said the coal industry is still in “severe economic hardship” and said most of the blame for that can be laid at the doorstep of the Obama administration’s policies and a trend to switch from coal to natural gas by large generating companies.
FirstEnergy Moves to Keep Bruce Mansfield Plant Open
FirstEnergy is moving forward with a project to build a dewatering station for coal ash slurry produced at its Bruce Mansfield plant in Beaver County, Pa., in order to keep the massive coal-fired plant open.
The company is facing a Dec. 31, 2016, deadline to close its coal-ash slurry impoundment at the three-unit 2,714-MW plant. If the plant is to remain in operation, it needs to dewater the coal ash before it is disposed. FirstEnergy said it had been waiting for the PJM Base Residual Auction to see if there was a market for the plant’s future output, but the auction was delayed until August. Bruce Mansfield failed to clear the past two auctions.
FirstEnergy said it had to make a decision on the dewatering system now in order for it to be completed ahead of the deadline.
FirstEnergy Teams with 2 Companies to Re-open Manufacturing Plant
FirstEnergy and two nuclear waste storage companies are teaming up to re-open a Canonsburg, Pa., manufacturing facility that GE-Hitachi vacated last year.
FirstEnergy spent $1.3 million to upgrade the facility, which will serve as the base for maintenance and repair personnel serving the company’s nuclear and coal-fired generating units in the region. The workers will share the plant with the company’s new partners, Custom Nuclear Fabrication and Areva, who will use it to manufacture containers used to store spent nuclear fuel.
Dominion Applies for Rezoning for Controversial Tx Line
Dominion Virginia Power last week filed for a rezoning permit from James City County to construct a switching station as part of a controversial transmission line that crosses the James River. The county and other parties took Dominion to the state Supreme Court to establish that the county had permitting authority over the utility’s project.
Dominion argued unsuccessfully in the courts that the State Corporation Commission, and not the county, should have authority over siting decisions. It says the line is necessary for system reliability. The county and other parties have argued that the line will destroy scenic views along the river.
The county commission will consider the application and then host a public hearing on it before issuing any final decision. A hearing is scheduled for Aug. 5.
Sierra Club to Sue NJ’s DEP over PSEG’s Mercer Station
The Sierra Club says it will sue the New Jersey Department of Environmental Protection for allowing PSEG Fossil’s Mercer Generating Station to operate on expired permits and with an outdated cooling water system.
“For far too long, the DEP has allowed the Mercer Generating Station to pollute the river and kill more than 70 million fish and fish larvae per year,” said Jeff Tittel, Sierra Club’s state director. Doug O’Malley, director of Environment New Jersey, called on the company to upgrade its cooling system or shut down the plant. “If PSEG is unwilling to install modern cooling towers to stop this ecological damage, they should shut down this fossil fuel dinosaur,” he said.
PSEG wouldn’t comment on the pending litigation but said it has spent millions of dollars to reduce the plant’s impact on aquatic life. It said it is in the process of evaluating federal Clean Water Act regulations and will submit a renewed application.
Atlantic City Electric Working with NJ County on Lighting Project
Atlantic City Electric is replacing 900 street lights with light-emitting diode (LED) lamps to save Camden County, N.J., about $100,000/year in lighting costs. The LEDs are expected to last about 20 years, compared to five years for the existing high-pressure sodium lamps.
The U.S Department of Housing and Urban Development provided $800,000 for the project.
MISO should eliminate the right of transmission owners to dictate how interconnection customers pay for network upgrades, the Federal Energy Regulatory Commission ruled last week.
The commission instituted a section 206 proceeding, saying MISO must either change its pro forma generator interconnection agreement (GIA) or explain why it shouldn’t (ER14-2464-002, et al.).
FERC said article 11.3 of MISO’s pro forma GIA appears unjust and unreasonable because it allows transmission owners to fund upgrades in a way that forces interconnection customers to pay them for costs other than the return of and on the capital costs.
The commission suggested MISO amend the GIA and related agreements to state that transmission owners may only choose to provide the initial funding for network upgrades if the interconnection customer agrees. Otherwise, the facilities would be solely funded by the customer.
If the customer agrees to the transmission owner providing the initial funding, FERC said, MISO’s rules must result in calculation of a revenue requirement that is just and reasonable, the commission said.
The ruling came in response to a request by Otter Tail Power that MISO be forced to extend the unilateral initial funding election in MISO’s pro forma GIA to its pro forma facilities construction agreement. Otter Tail sought the change regarding the 150-MW Border Winds wind farm in North Dakota.
Expanded retail-level demand response programs will take effect as soon as July 1 in targeted areas of upstate New York under measures approved by the New York Public Service Commission on Wednesday (14-E-0423).
The PSC ordered the five distribution utilities outside of New York City to offer dynamic load management to customers. Payments would be made to customers who reduce load during “called demand response events,” when load is expected to reach its peak.
The programs are mandated to be available everywhere by July 2016, with implementation plans due in January. DR is already available in the Consolidated Edison service territory.
The PSC acknowledged that the “accelerated program rollout” created technical challenges that would limit availability. Priority areas were established that offered the greatest benefits at the lowest costs, based on factors including system stress and local distribution constraints, the PSC said.
For this summer, the plan is generally limited to more densely populated areas around upstate cities, such as Buffalo. New York State Electric & Gas and Rochester Gas & Electric did not designate areas but were ordered to do so by July 1.
Commissioner Diane Burman dissented in part, saying the commission was moving too fast and that she preferred the rollout a year from now, when utilities were able to offer the service system-wide.
“Are we doing this to rush it, and at the end of the day we’re not going to be successful? And we’ve mandated something, rather than carefully analyzing it,” Burman said.
Noting that the program is already expected to be modified for 2016, she said the fast track will merely cause customer confusion and waste resources.
Chairman Audrey Zibelman referred to her own experience as a system operator and DR provider in the private sector as CEO of Viridity Energy. She said discussions with market players indicate they are anxious to get the program operating. She also cited the potential ill will created with customers when a product is promoted or promised, only to be rescinded at the last minute.
Dynamic load management is considered a key component of the state’s Reforming the Energy Vision effort to revamp the electric industry in New York.
“Consolidated Edison had implemented and developed distribution-level DR programs in response to commission directives and was deriving substantial benefits from those programs. Based on this existing experience, it was determined that distribution-level DR programs are proven ‘no regrets’ cost-effective programs, for which immediate implementation was appropriate,” the order says.
The plan was devised after a December 2014 order by the commission that directed upstate utilities to devise distribution level DR for this summer using Consolidated Edison as a model. Three types of programs were devised: a peak shaving program to be called on a day-ahead basis when forecasted load approaches the summer peak; the ability to call on local distribution resources to address reliability concerns in specific electrical or geographic areas; and a direct load control program allowing customers devices that can be controlled remotely by the utility.
According to the PSC, the typical residential customer supplying their own specialized thermostat would receive a one-time bonus ranging from $30 to $100, as well as an annual performance payment ranging from $20 to $50 for allowing the utility to control the thermostat during demand response events.
The other three utilities affected by the order are Central Hudson Gas & Electric, Niagara Mohawk and Orange & Rockland Utilities.
MISO officials on Thursday unveiled an eye-opening starting point for a redesign of the stakeholder process, with a straw man proposal to reduce by more than one-third the number of committees from the RTO’s arguably Byzantine structure.
The presentation at the MISO Steering Committee, meeting in Milwaukee, was the formal kick-off to an initiative intended to improve a stakeholder process some consider to have become cumbersome. MISO recently issued a white paper that identified shortcomings.
Perhaps no better illustration of that was a flowchart presented at the meeting that shows 27 committees and subcommittees holding more than 550 meetings and generating more than 30,000 documents annually.
Eliminate 10 Committees?
The straw man proposal calls for a reduction in the number of committees to 17.
Michelle Bloodworth, MISO’s executive director of external and stakeholder affairs, said the goal is to improve efficiency, not simply to reduce the number of committees.
“Certainly there are fewer boxes on the chart versus our existing structure,” she said. “When we felt like an issue was discussed in two committees, or even three or four, we tried to take a stab at looking where it made sense to combine some of these issues. … Again, we are going to ask for your feedback.”
She didn’t have to wait long.
“[I’m] really curious to hear about the combination of the Reliability [Subcommittee] and the Market [Subcommittee],” said Bob McKee, chair of the Planning Advisory Committee and manager of regulatory relations and policy for American Transmission Co.
The straw man flowchart does not include the current Market Subcommittee. It does include a Confidential Reliability Subcommittee as part of a newly created Operations Committee.
“Because those are two charges, separate and distinct charges, that MISO has … more details on that would be needed,” McKee added.
McKee was involved in the last effort to revise the stakeholder process eight years ago.
“This isn’t just about an org chart. It’s about execution. So whatever proposal you guys come up with, execution can’t be left off the table,” he said.
Industry Challenges Bolster Need for Change
MISO launched the stakeholder process review after requests from stakeholders, Edison Electric Institute CEOs and the Organization of MISO States (OMS), which represents state regulators.
Bloodworth said she has heard complaints about the stakeholder process since she joined MISO earlier this year. “When I jumped in the door I don’t think I ever heard one comment from any of the stakeholders that this process was perfect, that it didn’t need to have changes, that there wasn’t frustration.”
She said improving the stakeholder process is imperative, especially in light of the challenges facing the industry, including environmental regulations, a changing generation mix and resource adequacy concerns.
In addition to complaints of overlapping responsibilities among committees and excessive meetings, stakeholders said they were concerned that meetings were overly focused on technical concerns rather than policy.
Just 5% of MISO’s 2014 agenda items addressed policy issues, according to MISO leaders involved in the redesign. That’s been frustrating to some stakeholders in policymaking capacities, including state regulators.
“They really want to have the forum and the opportunity to give their expertise and their insight, and probably not as good a use of their time [is] very detailed technical discussions when they can’t provide as much value to the discussion,” Bloodworth said.
She said MISO’s goal is to reduce the number of meetings and improve its prioritization on issues that are of most critical importance.
The redesign effort seemed a little nebulous to some, including Gary Mathis, senior director of electric policy at Madison Gas and Electric Co.
“I’m a little confused about the concern about not enough focus on the policy issues,” Mathis said, asking what high-level policy issues stakeholders felt did not receive enough attention.
Bloodworth replied that on the much-discussed topic of resource adequacy, some members said “they are frustrated that we’ve not come up with and addressed their problems that they’re having. … It’s really trying to prioritize.”
OMS Suggests a ‘Convocation’
Iowa Utilities Board Commissioner and OMS President Libby Jacobs compared MISO to an adolescent in its development. She said it seems like the right time to step back and reassess the stakeholder process put in place several years ago.
Jacobs emphasized that OMS was not attempting to hijack the MISO effort but to work “in tandem” with the RTO.
“We certainly are very appreciative of the sense of urgency that MISO has placed on the issue of stakeholder process this year,” she told the Board of Directors at their meeting earlier Thursday. “But we felt that maybe there was a step that was missing, and that was a formal convocation of the various stakeholder groups talking, maybe taking two or three representatives from each sector with a facilitated discussion — the facilitator would be a third party outside the stakeholder group — to help the stakeholders talk about priorities importance to them.”
“OMS does not have all the answers; we’re just happy to convene” the discussion, Jacobs added.
Feedback Sought
MISO is seeking stakeholder sector feedback. A workshop is likely in August with more formal discussion of stakeholder process proposals at the October meeting of the Advisory Committee.
PJM’s promotion of Andy Ott to replace retiring CEO Terry Boston has prompted a series of additional organizational changes and promotions effective July 8.
From left to right: Mike Bryson, Stu Bresler, Nora Swimm and Thomas O’Brien.
Ott, formerly executive vice president of markets, becomes CEO-elect.
Mike Kormos, formerly executive vice president of operations, was promoted to executive vice president and COO. His deputy, Mike Bryson, formerly executive director of system operations, will become vice president of operations.
Ott’s deputy Stu Bresler, formerly vice president of market operations, becomes senior vice president of market services.
“It was Andy’s chance to put his [stamp] on the organization,” Boston said of the changes in an interview on Monday at the Mid-Atlantic Conference of Regulatory Utilities Commissioners in Williamsburg, Va.
Boston said the changes were largely prompted by the desire “to get Stu Bresler in place to run the markets” as Ott takes on more travel. “I told [Ott], ‘You think you do a lot of traveling now, you haven’t seen anything yet.’”
PJM’s settlements unit, formerly overseen by Bresler, is moving to the RTO’s financial group to ensure more independence.
Bryson’s responsibilities will increase as Kormos takes on a new direct report in Denise Foster, vice president of state and member services, who formerly reported to Ott.
In addition, Nora Swimm was promoted to senior vice president of corporate client services, from vice president of human resources and corporate client services, and Thomas O’Brien was named vice president and chief information officer, from vice president of information and technology services.
Boston said Swimm is taking on responsibilities for physical security while O’Brien’s new title was to recognize the expansion of his role in recent years, in which he has served as CIO without the name and PJM has begun dealing with cyber threats.
VALLEY FORGE, PA. — The electric industry’s historic shift to natural gas will aid its compliance with federal regulators’ pending carbon emission rules and provide a boon for gas producers. But the shift won’t be accomplished, speakers said at the PJM Grid 20/20 symposium last week, without an answer to a difficult question: Who will bear the cost of building new pipelines to relieve constraints, and how will they be incented to take on the expense?
Outgoing PJM CEO Terry Boston expressed confidence in the future, saying, “This is the first time in my career I can say that energy independence for the United States of America is attainable.”
The gas and electric industries, he said “are connected at the hip.” There’s not a lot of room for error, he said, “between just-in-time and too-dang-late.” ISO-NE CEO Gordon van Welie who keynoted the conference, shared the challenges faced by New England, where natural gas’ share of electric production has ballooned from 15% in 2000 to 44% in 2014. The region adopted a Winter Reliability Program and Pay-for-Performance incentives to encourage upgrades and improvements to fuel reliability.
“Natural gas infrastructure has not kept pace with the tremendous growth in gas-fired generation,” van Welie said. “We don’t think response to Pay-for-Performance alone is going to result in investments in natural gas pipelines.”
Meanwhile, he said, “It’s not that our situation is getting better — it is getting worse.”
Speakers said the Federal Energy Regulatory Commission’s April order moving the timely nomination cycle deadline for scheduling gas transportation to 1 p.m. CT from 11:30 a.m. CT and adding a third intraday nomination cycle should improve coordination between the two industries. (See FERC Approves Final Rule on Gas-Electric Coordination.)
“The idea of adding more cycles, it can’t hurt,” said Joseph Kienle, director of Dominion Transmission. But, he said, “At the end of the day, if I’m in a winter situation and I’m fully subscribed, it doesn’t matter how many cycles you add.”
Andy Ott, who will become PJM’s CEO upon Boston’s retirement, said operational awareness of the natural gas industry has expanded from being a winter concern. PJM in May reconvened its gas “war room” to stay abreast of issues. “This is going to become a normal course of business,” he said. “It’s becoming an annual, year-round phenomenon for us.”
Outgoing FERC Commissioner Philip Moeller encouraged attendees to be proactive in recommending solutions to the commission and its new chairman Norman Bay. “He’s got a bigger, steeper learning curve to tackle,” he said. “Keep that in mind because he’s the person who will lead the commission at least for the next one and a half years.”
Moeller said he has been impressed so far with Bay, who he said is trying to bring the commissioners into decision-making conversations earlier. He declined to comment on Bay’s lone dissent on PJM’s Capacity Performance proposal, citing a “99.99% chance of rehearing that order.”
“My main message to you is: Creative ideas are welcome. We need desperately to keep the momentum going on this issue,” he said.
FERC is good at dealing with singular issues, he said, but, “Sometimes being able to see out a little farther is a challenge the commission has.”
MILWAUKEE — MISO Independent Market Monitor David Patton on Wednesday called for tighter rules on wayward generators, more precise real-time pricing and a fix for Financial Transmission Rights funding shortfalls. He also engaged in a spirited debate with board members over his longstanding complaints about the RTO’s voluntary capacity market.
Patton outlined the proposals, contained in the Monitor’s 2014 State of the Market Report, during a presentation at the Markets Committee of the Board of Directors at MISO’s Annual Meeting in Milwaukee.
Board members’ repeated interjections ate up the clock and forced Patton to defer further discussion about some recommendations to a future Markets Committee meeting.
Five-Minute Pricing
One of Patton’s “high-priority” recommendations is to implement five-minute settlements for generators in the real-time market, something he raised three years ago.
“This is one area where we’re not leading, and it has real consequences,” Patton said after rattling off a list of positive metrics for MISO during 2014.
MISO dispatches the real-time market in five-minute intervals but settles based on hourly average prices. Patton said the inconsistency reduces the incentive for generators to follow dispatch signals and results in increased uplift.
“The response to our dispatch signal by a lot of our suppliers is pretty ragged and it affects us from a reliability standpoint and it affects us from an economic standpoint.”
Patton noted that SPP and NYISO both use five-minute settlements. MISO won’t be able to do so until it installs a new settlement system.
Todd Ramey, vice president of system operations and market services, said the system is expected to be installed next year, but it would be 2017 before members’ systems would be ready to accommodate the shorter pricing intervals. “The question mark is ultimately whether the membership says ‘please proceed with five-minute settlements.’”
He said the $28.6 million in increased generator revenue that the Monitor estimates would result from the change is “way less” than 1% of their overall revenues.
“From the market participant perspective, they’re trying to weigh … the changes they would need to make to accommodate five-minute settlements versus the additional revenue,” Ramey said.
Patton replied that a better comparison is the impact after accounting for fuel costs. “If you compare it against net revenue, it’s actually way more significant,” he said.
FTR Funding
Patton also offered a new recommendation for the longstanding problem of underfunding FTRs.
Shortfalls, but none of the surpluses, are allocated to FTR holders. MISO funded 96% of FTRs in 2014.
“We’ve created a financial instrument and created an unnecessary uncertainty about what that instrument is actually worth,” Patton said. “It lowers the prices of our FTRs, so we collect less revenue when we sell the FTRs, which hurts our transmission customers.”
Patton said shortfalls caused by transmission outages or derating should be allocated to those responsible for the diminished transmission capacity, as is done in NYISO. The current approach has provided incentives for some “relatively unseemly outages,” including some during the polar vortex last year that generated hundreds of millions of dollars in congestion, Patton said.
“You would wonder why [outages] were being scheduled at that time of the year in the northern part of our system.”
30-Minute Local Reserve Product
The Monitor also recommends that MISO introduce a 30-minute local reserve product, saying the RTO incurs high uplift costs in some areas to satisfy voltage and local reliability requirements beyond first contingencies.
The reliability requirements would be best addressed by quick-start gas turbines, which are in very short supply in MISO South, Patton said. As a result, slower-responding units are paid to be online even though they’re not economic.
Patton said the new product would provide incentive to invest in quick-start units. “When [the cost is] embedded in uplift, you’re not providing an investment signal,” he said.
Tighten Thresholds
Another recommendation, first made by the Monitor in 2012, is to tighten thresholds for uninstructed deviations by generators. Patton said MISO is “substantially more lenient” than other RTOs in setting the bandwidth for measuring compliance, using a tolerance band of 8% and four consecutive intervals.
Patton said generators not following dispatch are nonetheless receiving a “significant amount” of ancillary services and price volatility make-whole payments.
In addition, he said, the RTO is losing as much as 400 MW due to derates during peak conditions, “a meaningful portion of the headroom that we have to operate the system. This has some reliability implications and it has economic implications.
“We think it’s very important and there’s almost nothing that’s been accomplished in terms of moving this forward,” he said. He said referrals to the Federal Energy Regulatory Commission’s Office of Enforcement have improved performance somewhat.
Interface Pricing
Patton repeated his call for removing external congestion from interface prices, saying the current rules are resulting in inefficient imports and exports. Patton has previously called for a FERC technical conference to resolve MISO’s differences with its neighboring RTOs. (See Patton Asks FERC to Set Deadline on PJM-MISO Interface Pricing Dispute.)
“We’re seeing virtually no progress toward any consensus solution” with PJM, he said. “SPP is a little closer to understanding the issue than PJM.”
“We think it’s extremely important that MISO move forward unilaterally,” he added later.
Capacity Market
Patton drew pushback from some board members when he displayed a slide showing that generators’ net revenue in MISO is far below the estimated annual cost of a new combustion turbine or combined-cycle plant.
Left to right: Todd Ramey and Richard Doying, MISO; David Patton, Potomac Economics
“We’re not very close to motivating anybody to build anything in MISO,” he said. “For RTOs with functioning capacity markets, they would be meeting or exceeding the cost of new entry.”
Patton said that could be fixed by making several changes to the Planning Resource Auction for capacity, including adding seasonal capacity requirements and replacing the vertical demand curve with a sloped curve similar to that used in PJM.
Committee Chairman Michael Curran was unconvinced by Patton’s analysis. “As I’m struck by this chart, I’m thinking we still manage to get things built.
“One’s led to believe if you’re vertically integrated you have a monopolistic power, therefore you’re going to be able to exploit the poor state regulators and get really high prices … but in our market, MISO came through as the lowest cost market,” he said, citing an analysis from the ISO/RTO Council.
Patton responded that MISO has a “tremendous cost advantage” because of low-cost fuel.
“All of our [independent power producers] want to get out of MISO and … that causes our vertically integrated utilities to have to build resources that are more expensive than maintaining the existing resources that we have. And it also puts all that investment risk on the backs of regulated ratepayers instead of investors.
“MISO has been enjoying a capacity surplus for a long time,” he added. “When states have to build new generation … that’s when you’re going to see the costs appear.”
Board Chairman Judy Walsh also waded into the debate, saying Patton needed to provide more data regarding other regions’ costs. “This chart doesn’t do it,” she said.
Director Paul Feldman said the board had authorized Patton to share his proposed changes with state officials, who have been opposed to anything resembling PJM’s mandatory capacity market. “So you didn’t do a good [sales] job,” he said, prompting laughter.
Director Paul Bonavia was a bit more conciliatory. He said if Patton could convince the stakeholders that MISO could have a more robust capacity market without increasing overall costs, “that would change the dialog a lot.”
At the end of the meeting Curran thanked Patton for his independent analysis but couldn’t resist a little jab.
“You’re going to have a sloped demand curve on your tombstone.”
“Cause somebody’s going to kill me?” Patton responded, laughing nervously.
“No,” Curran said. “This is the Midwest. These are nice people.”
