State Briefs

Kent County Gears up for Fight Against Wind Project

The Kent County Commission and area residents are preparing for a fight against the proposed Mills Branch Wind Project that would include up to 35 towering turbines on farms in the Eastern Shore county.

The Eastern Shore Land Conservancy, the Kent County Farm Bureau, the Queen Anne’s Conservation Association and a group called Keep Kent Scenic organized a standing-room-only meeting at the Kennedyville fire house last week to brief opponents. “We are not unfriendly to green industries,” said Bill Graham, an organizer of Keep Kent Scenic. “We are definitely pro-green energy. We just feel that certain energy sources — like 500-foot-tall turbines — don’t comply with Kent County zoning and the comprehensive plan.”

Apex Clean Energy has approached property owners and is gathering data, but it has yet to submit an application with the Public Service Commission for a Certificate of Public Convenience. Although it doesn’t have the power to block the project, the opinion of the three-member County Commission, composed of the county’s legislators and executive, has to be taken into consideration by the PSC when the regulatory agency reviews the project.

More: Easton Star-Democrat

MASSACHUSETTS

Berkshire Gas Pipeline Under Fire at DPU Hearing

Several hundred residents in Western Massachusetts and state and local officials attended a Department of Public Utilities hearing to blast a plan for local utilities to tap into a controversial gas pipeline expansion. Berkshire Gas, along with Columbia Gas and National Grid, are seeking DPU approval to purchase natural gas carried through the proposed Kinder Morgan pipeline, extending from New York state across Massachusetts to Dracut.

Berkshire Gas has said it will not accept new customers or expand natural gas delivery services to existing customers until the pipeline has been completed. The project would take three and a half years to build if Federal Energy Regulatory Commission permits are obtained.

More: Berkshire Eagle

NEW HAMPSHIRE

Eversource Starts ‘New Hampshire First’ Jobs Program

Eversource Energy has launched a “New Hampshire first” initiative to partner with local contractors and electrical workers’ unions to help construct and maintain proposed energy projects throughout the state.

Eversource has three major projects that are planned to begin in 2016 that represent a more than $2 billion investment in the state’s electrical grid, the company said. The most notable and controversial project is Northern Pass, a proposed $1.4 billion transmission line to deliver hydroelectric power from Quebec to New England.

Eversource anticipates the projects will create almost 2,000 jobs in the state.

More: Union Leader

NEW JERSEY

Controversial Pinelands Gas Pipeline Proposal Reappears Before BPU

A proposal to run a natural gas pipeline through the Pinelands that was blocked by the Pinelands Commission last year has reappeared, this time before the Board of Public Utilities. South Jersey Gas wants to construct the pipeline to deliver Marcellus Shale gas to the B.L. England generating station, which needs to switch from coal to natural gas or shut down.

The new proposal, which moves the pipeline connection point outside the protected Pinelands and restricts the line from adding any other natural gas customers, would go to the Pinelands Commission for consideration if it is approved by the BPU. The new proposal, amended as a “private development” project, would only need staff approval.

The Pinelands Commission deadlocked 7-7 in a January 2014 vote. But since then, Gov. Chris Christie named new members to the panel, a move seen by some environmentalists as a way to smooth the way for the project.

The company has said the project was amended to address concerns by environmentalists, but activists are already crying foul. “They’re trying to do an end around the Pinelands Commission,” said Doug O’Malley of Environment New Jersey. “This whole process has been extraordinary. The level of Christie administration influence is astonishing.”

More: Philly.com

NEW YORK

PSC Chair Zibelman Relinquishes Stock

Audrey Zibelman, chair of the Public Service Commission, is giving up her stock in Viridity Energy, the Philadelphia energy start-up she helped create and once led. Zibelman’s ownership of Viridity stock and her past professional connections to energy firms doing business in the state were the subject of a story published Tuesday by Capital New York.

Zibelman had previously disclosed her ownership of Viridity stock in state financial disclosure forms, where she valued the shares at more than $1,000. She told Capital New York that the shares had no “book value” and she received neither dividends nor any compensation from Viridity, which is privately held. She relinquished ownership of the shares for no compensation, her lawyer said.

Zibelman, a former PJM executive, left Viridity in 2013 to join the PSC. Viridity makes software that monitors energy usage for companies to help them reduce their energy costs. Zibelman was not required to give up her shares in Viridity under state law, but a letter to the company said she was surrendering them now “due to her current position.”

More: Times Union

NYPSC Reports Annual Service Quality Metrics

The Public Service Commission’s annual staff report found that most major electric and gas utilities in the state provided a satisfactory level of customer service in 2014.

All electric utilities met or exceeded the standards for performance on the measures of customer service with the exception of two utilities owned by National Grid. KeySpan Gas East will pay a negative revenue adjustment of $8.9 million while Niagara Mohawk will pay $2.54 million.

More: NYPSC

PSEG Long Island Seeks Bigger Bonus

PSEG Long Island is pressing the Long Island Power Authority for a bigger performance bonus in addition to its $45 million annual management fee.

Under contract terms with the state, PSEG is eligible for the bonus if it meets 20 different service metrics. PSEG last year met 19 of the 20. The company maintains that excess points earned in other categories should be applied to the one in which it fell short. The request would result in a bonus payment of $5.76 million — $288,417 more than the power authority believes it should pay.

The contract’s performance standards include average speed to answer phone calls, timely billing and customer satisfaction, among other measures. Under the contract, the maximum incentive payment is scheduled to increase next year to $8.7 million. PSEG’s management fee is also scheduled to increase to $73 million.

More: Newsday (subscription required)

NORTH CAROLINA

County Votes to Take Duke Coal Ash in Exchange for $19M

Chatham County officials voted 3-2 to accept a payment of nearly $19 million from Duke Energy to not oppose a landfill that will take coal ash from the utility, which is under political pressure to find a home for the estimated 150 million tons stored on 14 of its properties.

“I don’t think anyone is especially happy,” Commission Chairman Jim Crawford said. “This agreement gives the county a measure of control that it otherwise wouldn’t have.” The county says it might spend some of the proceeds on long-term insurance to protect itself from environmental problems caused by the coal ash after the landfill’s eventual closure.

The agreement will give the rural county south of Chapel Hill the right to demand groundwater sampling before and after the ash is moved to the landfill in Moncure. Duke has already agreed to pay another county $12 million to store ash at a second landfill site.

More: The News & Observer

NC WARN Sets up Test Case on State’s Solar Rules

Solar advocacy group NC WARN has built a 5.2-kW solar array on the roof of a Greensboro church and is selling the power back to the church at half the rate charged by the local utility to test the state’s laws prohibiting solar energy sales to anybody but the local utility.

The group wants the Utilities Commission to find the arrangement to be a public service, allowing the church to avoid the upfront solar installation costs. The organization’s executive director, Jim Warren, says his group will go to the courts if the NCUC denies its request.

Duke Energy spokesman Randy Wheeless said NC WARN’s attempt to win third-party status appears as though it “wants to get into the electric utility business but is asking the commission for a free pass to avoid the rules and regulation that come with being a utility.”

More: Charlotte Business Journal

NORTH DAKOTA

Regulators Deny Xcel’s Application to Charge Customers for Minn. Solar

The Public Service Commission denied Xcel Energy’s application to make state customers pay for the cost of solar projects mandated in neighboring Minnesota.

Xcel’s application for an advanced determination of prudence, or ADP, for 187 MW of solar from three Minnesota projects would have allowed some of the costs to be passed through to North Dakota customers. The projects were designed to meet a 2013 Minnesota renewable energy mandate.

The commission ruled that Xcel did not prove that the solar projects were cost effective and that North Dakota customers would benefit from them. “I don’t believe North Dakota customers should have to pay for the result of policies in a state that they didn’t have a say in passing,” PSC Chairwoman Julie Fedorchak said. Xcel included the costs in its rate cases for customers in Minnesota, North Dakota, South Dakota, Wisconsin and parts of Michigan.

More: Pioneer Press

PENNSYLVANIA

High Court Will Hear Appeal of Ruling that Kept PPL Records Secret

The state Supreme Court has agreed to hear an appeal of an open-records ruling that kept the details secret of a $60,000 fine paid by PPL Electric Utilities.

The Public Utility Commission fined PPL after a whistleblower complained that the utility diverted work crews to restore customers during a storm outage in 2011, forcing other customers to endure a longer outage. An appeals court upheld the PUC’s decision to reject a request by news media outlets to disclose details of the incident.

More: The Morning Call

RHODE ISLAND

Legislature Seeks to Rein in Increases

Legislation is moving forward that would remove a restriction preventing the Public Utilities Commission from taking into account how decoupled revenues from energy usage are affecting a utility’s cost of capital.

The bill, sponsored by state Sen. Susan Sosnowski, is aimed at National Grid and would allow possible lower costs of capital to be considered in determining the profits the company is allowed under the decoupling statute. Decoupling was approved by the legislature in 2010 to encourage more aggressive energy efficiency programs. If the bill is passed, it could come into play the next time National Grid proposes a rate increase. National Grid is not opposed to the change, according to a spokesman for the company.

The bill was among a flurry of legislation that was introduced this year after National Grid imposed hefty rate increases. Most of the retaliatory measures aimed at National Grid, such as proposals to cap rate increases, failed to make headway.

More: Providence Journal

VERMONT

Developer Increases Lake Cleanup Commitment

The developer of a transmission line that would be buried beneath the bottom of Lake Champlain said that it would pay $284 million to clean up the lake and to promote renewable energy in the state in exchange for an agreement from the Conservation Law Foundation to drop its opposition to the project.

TDI-New England plans to spend $1.2 billion to lay a 154-mile 1,000-MW power line from the Canadian border to the town of Ludlow by burying the cable at the bottom of Lake Champlain for most of its route. (See Lake Champlain Cable into New England Progresses.)

Previously, TDI had agreed to contribute more than $160 million to reduce the cable impact, which would stir up sediment and have minor effects on underwater life and human uses of the lake.

More: Boston Globe

WISCONSIN

Board Softens Stance on Employees’ Work on Climate Issues

A state board that banned its nine employees from working on climate change issues after discovering that its executive secretary served on a global warming task force years ago has relaxed its stance after receiving intense public backlash.

The Board of Commissioners of Public Lands, a three-member body, voted 2-1 for the ban after learning about the climate change work of Tia Nelson, the board’s executive secretary and the daughter of Earth Day founder Gaylord Nelson.

Last week, Democratic Secretary of State Doug La Follette, who had cast the only dissenting vote on the ban, proposed relaxing the restrictions ban to prohibit staff only from advocating for global warming policy changes. “It is sensible for our staff to talk about climate change when appropriate,” La Follette said. “It’s just logical. We don’t want our staff to be advocating. We don’t want them on the stump.”

More: Associated Press

June 23, 2015

Central Hudson Gets Rate Hike, OK on REV Project

By William Opalka

New York regulators approved Central Hudson Gas & Electric’s three-year rate plan in an order that also says one demonstration project the company filed in the state’s program to revamp the utility industry shows promise.

The New York Public Service Commission on Wednesday approved a joint proposal by the company, PSC staff and stakeholders that will increase electric rates by $43.4 million through 2017 (14-E-0318). The company had initially proposed a one-year plan with a $40.1 million increase.

Much of the commission’s discussion Wednesday focused on the state’s Reforming the Energy Vision. Utilities have been ordered to file demonstration projects by July 1, but Central Hudson jump-started the process by proposing six projects in a proceeding that ran parallel to its rate case that started last July. The proceedings are on separate regulatory tracks, however. (See Central Hudson Case Provides Early Test of NY REV.)

‘Non-Wires’ DR Plan

PSC staff said a “non-wires alternative” proposed by Central Hudson and its stakeholders in a status report filed in May met the criteria to move forward. The alternative is a demand response proposal in three congested areas of the service territory. The company was given 30 days to file additional details on proposed cost recovery and incentive mechanisms.

The other five demonstration projects either lacked specificity or didn’t meet the criteria needed to define a workable business plan with other private sector partners, according to the PSC. (See New York PSC Bars Utility Ownership of Distributed Energy Resources.)

The PSC said a net customer benefit would have to be shown for approval, including “forgoing the capital investment associated with a traditional [transmission and distribution] solution.” To expedite implementation, the order defers cost recovery until Central Hudson’s next rate case — no sooner than June 2018.

That prompted concerns from Commissioner Diane Burman. “Is the rate case driving the policy, or is policy’s generic proceeding driving the rate case?” she asked.

Burman also complained that commission staff were driving the demonstration project approvals. “I really think that it’s an inappropriate delegation of authority for me to give up the review of that,” she said.

Chairman Audrey Zibelman said she understood the concern. But after “long conversations … I know staff ended up feeling this is the right process and I’m comfortable with it,” she said.

Rate Case

Distribution rates for Central Hudson have not changed since 2012. Its last rate case was approved in 2010, and the PSC’s 2013 approval of its acquisition by Canadian holding company Fortis included a two-year rate freeze that expires on July 1.

The rate order calls for graduated increases over the next three years beginning July 1:

In 2015, electric rates will increase $2.3 million, or 38 cents/month, for the average residential customer, a 0.3% increase based on the total bill.
In 2016, rates will increase $17 million, up 3.4% or $3.86/month.
In 2017, rates will go up $24.1 million, up 4.8% or $5.58/month.

The impact is softened over the three years by the use of $27 million in customer credits that Fortis provided during the 2013 takeover.

Other provisions include the shift from bimonthly to monthly billing and the creation of a “major storm reserve” — Central Hudson is the only New York utility without one. The fixed monthly service charge of $24 will not change. The company had sought a $5 increase.

Central Hudson is also allowed a 9% return on equity.

June 23, 2015

FERC Rejects Wind Generators’ Complaints on SPP Interconnection Rules

By Tom Kleckner

The Federal Energy Regulatory Commission last week denied wind generators’ rehearing request on its June 2014 order concerning SPP’s revisions to the RTO’s generator interconnection procedures.

FERC also conditionally accepted SPP’s compliance filing as a result of the June 2014 order, subject to a further compliance filing (ER14-781).

2009, 2013 Changes

SPP first revised its interconnection process in 2009, shifting it from a “first-come, first-served” approach to a “first-ready, first-served” approach. The changes streamlined the study process by including a fast-track approach for customers that met specific milestones and reduced the impact of suspended projects on other projects. They also sought to steer speculative projects into a preliminary interconnection queue and discourage them from entering the final queue by increasing deposits and requiring project readiness milestones.

In December 2013, the RTO proposed changing the way the interconnection queue priority was determined and revising milestones to execute a generator interconnection agreement (GIA). SPP also proposed requiring an interconnection customer to provide a deposit, upon execution of an interconnection agreement, of 20% of the interconnection facilities and network upgrade costs, or convert the previously provided financial milestone of $4,000/MW, whichever was greater.

FERC initially ruled the filing deficient but conditionally accepted SPP’s subsequent compliance filing response in the June 2014 order.

SPP not Unclear

The American Wind Energy Association (AWEA), the Wind Coalition and E.ON asked FERC for clarification or rehearing of the order, arguing SPP did not make it clear as to what constituted harm to interconnection customers when a higher-queued customer withdrew from the queue and had its deposit refunded.

FERC rejected their assertion, saying the complainants had misconstrued the interconnection process and took SPP’s statements out of context.

FERC also denied rehearing over revisions allowing SPP to withhold refunds. The commission said the “costs would not have been incurred without the higher-queued interconnection customer’s request for the interconnection capacity.”

FERC also rejected rehearing regarding transmission network upgrades funded by interconnection customers whose interconnection agreements are subsequently terminated by SPP. FERC said its June 2014 order found that “[i]nterconnection customers who execute a GIA and provide an initial payment for construction are undertaking a significant business risk” should they not meet their obligations.

“We find that their request would defeat the purpose of protecting lower-queued customers from increased costs,” FERC said.

FERC denied E.ON’s separate rehearing requests regarding SPP’s establishment of queue priority at the interconnection facilities study queue stage, and payment of interest on deposits, saying they were beyond the scope of the proceeding.

June 23, 2015June 15, 2023

MISO to Reevaluate Metrics on Market Efficiency Tx Projects

By Rich Heidorn Jr.

MILWAUKEE — MISO will reevaluate the metrics used in evaluating market efficiency transmission projects because of concerns they are unduly conservative and preventing viable solutions to congestion, officials said last week.

MISO requires economic projects to clear a 1.25-1 benefit-cost ratio, based on an assumed 20-year lifespan rather than the actual life of 40 years or longer. In addition, projects are discounted based on transmission owners’ cost of capital (currently about 8%) rather than a “societal” discount rate of about 3%.

“So essentially we have three layers of conservatism,” Clair Moeller, executive vice president of transmission and technology, told the Board of Director’s System Planning Committee meeting.

The issue came up during a briefing on MISO’s North/Central market congestion planning study, which analyzed 48 proposed projects, only one of which — the Duff-Coleman 345-kV project to reduce congestion in southern Indiana — cleared the 1.25 threshold.

“It appears to me there’s clearly congestion in three or four key zones,” said Director Thomas Rainwater, noting the number of rejected projects clustered together on MISO’s North/Central map. “Something looks to be broken when one out of 48 projects gets approved. It just strikes me by looking at it visually: Is the criteria right?”

Cost Concerns

Moeller said the difficult hurdle was the result of stakeholders’ cost concerns. “When we first had the notion of cost allocation, the constituency was very interested in us being very conservative. So there are several things inside the business case parameters that we’re required to follow inside the Tariff that causes … the economics of the projects to be fairly modest.”

Moeller said it was time “to take a look at those business case parameters and see what the appetite is for relaxing some of those now that we’ve had a better track record and a better understanding of how to model these things.”

“We will be doing the reevaluation because it’s a good idea,” he added. “Whether we end up changing the business case is an open question.”

In an interview after the meeting, Moeller said the review of the metrics will likely begin this fall at the stakeholders’ Planning Advisory Committee.

General Counsel Steve Kozey noted that states could authorize any transmission that would reduce their constituents’ costs “as long as it doesn’t hurt” MISO reliability. The question is whether load wants to pay for the upgrades, he said.

The fact that congestion remains on the system “doesn’t mean that there are a lot of super obvious projects,” he said.

Committee Chairman Michael Evans — who was surprised at the end of the meeting with a carrot cake to celebrate his 70th birthday — asked staff to provide a list of projects that would clear the threshold using a more realistic 40-year lifespan.

Competitive Solicitations Coming

The Duff-Coleman project, which has a benefit-cost ratio of 3.6 to 12.9 depending on assumptions used, is expected to be one of the first tests of the competitive solicitation process for nonincumbent transmission developers under the Federal Energy Regulatory Commission’s Order 1000.

John Lawhorn, director of regional and economic studies, told the board there is also a “50-50” chance that staff will recommend opening a competitive window under Order 1000 for a project in MISO South. He did not identify the project.

Board Chairman Judy Walsh said she feared MISO’s role in evaluating competing proposals was a “slippery slope.”

Rainwater and Evans also expressed misgivings. “We have a common concern about wading into this river,” Evans said.

Moeller said MISO has had difficulty attracting top-tier engineering firms to conduct evaluations because they prefer to pursue more lucrative work with the developers themselves.

Joint Study with ERCOT

Moeller also said MISO and ERCOT expect to begin a joint study in about six months to evaluate the potential for HVDC facilities to address seams issues in the Houston area.

June 23, 2015

FERC Goes Electronic

Participants in evidentiary hearings will no longer have to provide paper copies of all exhibits introduced as evidence, under an order approved by the Federal Energy Regulatory Commission last week (RM15-5).

The commission said its administrative law judges recently adopted a practice requiring participants to file exhibits electronically. “Thus, it is no longer necessary or efficient to require all participants to provide the presiding judge and court reporter with paper copies of each exhibit introduced at the hearing,” the commission said. The order amends Rule 508 of the commission’s Rules of Practice and Procedure, which previously required participants provide one paper copy of each exhibit to the presiding officer and two paper copies to the court reporter.

June 23, 2015June 15, 2023

FERC Accepts ISO-NE Capacity Auction Results

By William Opalka

The Federal Energy Regulatory Commission on Thursday accepted the results of ISO-NE’s ninth Forward Capacity Auction in February, turning aside the protest of a utility workers union (ER15-1137).

The Utility Workers Union of America Local 464 had challenged the results, charging that the Brayton Point Power Station illegally withheld capacity from the auction in order to drive up prices. (See Union: Void ISO-NE Capacity Auction Results.) The union tried unsuccessfully to make a similar complaint stick last year with the results of FCA 8.

“We are not persuaded by Utility Workers Union’s allegations that market manipulation affected FCA 9, as the record is devoid of any evidence to that effect,” FERC wrote.

The 1517-MW Massachusetts generator is slated to close in 2017. Energy Capital Partners, the plant’s former owner, did not offer it in the last two capacity auctions in New England, covering the 2017-2018 and 2018-2019 capacity commitment periods. Brayton Point was sold last year to Dynegy, which said it would close the plant on the previously announced schedule. (See Dynegy Becomes New England Player Overnight.)

The commission also said that Brayton Point was already prohibited from participating in FCA 9 having announced its intention to retire. The RTO’s Tariff prohibits re-entry into the capacity market “at market rates in years when market-based treatment is likely to produce more revenue, thus inappropriately toggling between cost-based and market-based compensation.”

The plant is located in the Southeast Massachusetts/Rhode Island zone, which failed to meet its minimum resource requirement, triggering administrative pricing. (See Prices up One-Third in ISO-NE Capacity Auction.)

June 19, 2015

MISO Survey: No Shortfall Until 2020

MISO no longer faces a capacity shortfall next year, the RTO announced in releasing the results of its newest survey with the Organization of MISO States.

MISO said its newest results show a minimum 1.7-GW surplus for 2016 as a result of reduced load forecasts and an increase in resources committed to serving MISO load. The 2014 survey had projected a 2.3-GW shortfall next year.

The new survey predicts a regional surplus of 1.7 to 2.3 GW (representing reserve margins of 15.6 to 16.1%) for 2016, with sufficient zonal surpluses to offset zonal shortfalls through 2019. “Additional actions needed to ensure sufficient resources beyond 2019,” MISO said.

“The big change is in the increase of committed resources. There’s also a decrease in the reserve requirement as we continue to refine the calculations on exploiting the diversity of the footprint to minimize everybody’s obligation in reserves,” MISO Executive Vice President Clair Moeller said during a conference call with stakeholders Friday. “So going into 2016 we’re feeling very confident that we’re in good shape in terms of sufficient resources.”

The RTO said the survey projects an average annual load growth rate of 0.8% over the next five years, equal to the 2014 survey. However, because 2015 load forecasts were below previous projections, the growth was from a lower base level.

“At this point in time we see a shortage of physical machines to serve the load in 2020, premised on that 0.8% load forecast distributed across the footprint,” Moeller said. “So the question we’re trying to answer here is how tight will capacity supplies be in those out years so people can begin to make their decisions between purchase and build and demand-side management and whatever else they need to do to ensure they bring sufficient resources to the resource pool in these out years.”

The forecasts also benefited from a 0.6-GW reduction in reserve requirements.

While the region will have sufficient capacity through 2019, according to the survey, Zone 6 (Indiana and Kentucky) and Zone 7 (Lower Michigan) will have shortfalls next year.

Generation owners, load-serving entities and regulators have been working to mitigate those problems, Moeller said. “We still have confidence they’ll figure out how to do that.”

By 2020, the survey forecasts regional capacity ranging from a surplus of 0.5 GW to a shortage of as much as 1.8 GW.

The RTO released its survey at its Annual Meeting in Milwaukee on Wednesday. Moeller said the survey would be explained in detail at the Supply Adequacy Working Group’s July 9 meeting.

June 16, 2015June 15, 2023

What is Changing in PJM’s Proposal?

The Federal Energy Regulatory Commission required several significant changes in PJM’s Capacity Performance proposal. PJM must make the changes in a compliance filing due in 30 days.

Below is a summary of the changes required, followed by the relevant paragraph numbers from the order.

Review of Sell Offers: The commission approved PJM’s proposed mechanism for reviewing and rejecting sell offers but required it to remove the phrase “to the satisfaction of the Office of the Interconnection” from Attachment DD, saying it was “too ambiguous and allows PJM too much discretion.” (¶92)
Good Faith Representation: The commission rejected PJM’s proposal that resources submitting Capacity Performance offers make a good faith representation that it has, or will make, necessary investments to ensure it has the capability to provide energy when called upon. Knowingly false representations would have been subject to penalties. The commission said it did not believe the representation “would provide any added value in incenting resource performance.” It also said the scope of the requirement was “inappropriately vague” and could create a barrier to entry for new resources. (¶94-5)
External Resources: FERC said PJM must add a requirement that an external generation capacity resource must demonstrate that it meets – or will meet by the start of the delivery year – the criteria for an exception to the Capacity Import Limit in order to offer as a Capacity Performance resource. (¶97)
Demand Resources, Energy Efficiency, Storage, Intermittent Resources: PJM must clarify that capacity storage resources, intermittent resources, energy efficiency resources and demand resources may submit stand-alone Capacity Performance sell offers in a megawatt quantity consistent with their average expected output during peak-hour periods. (¶100)
Environmentally Limited Resources: PJM must clarify that it will permit aggregated offers from environmentally limited resources. (¶101)
Aggregation Across Locational Deliverability Areas: FERC rejected PJM’s proposal to allow resources in different locational deliverability areas to submit aggregated offers, saying the RTO had not demonstrated why Capacity Emergency Transfer Limits should not be taken into account. “We are not persuaded that aggregation will be feasible across locational deliverability areas in all circumstances or would be able to provide the required resource adequacy during emergency conditions,” the commission said. In addition, it said the proposal was inconsistent with the Capacity Performance design, noting that several Capacity Performance rate parameters (non-performance charge rate, performance bonus payment rate, stop-loss limits, and default offer caps) are LDA-specific. (¶103)
Monthly Stop-Loss: The commission agreed with PJM’s request to withdraw its original proposal that the monthly stop-loss limit on penalties equal 0.5 times annual net CONE, which the RTO said would allow under-performance without consequence once a resource has reached the limit, equivalent to 15 performance assessment hours in a month. PJM acknowledged in its response to FERC’s March 31 deficiency letter that most performance assessment hours are likely to occur during a few peak months of the year. The commission said the monthly stop-loss limit would “severely dilute” PJM’s performance incentives. (¶165)
Non-Performance Charges: FERC required two clarifications to the language in proposed section 10A(d) of the Tariff “to avoid ambiguity or misinterpretation.” It said the proposed wording, “limitations specified by such seller in the resource operating parameters,” could be misinterpreted to mean only those operating parameter limitations that are less flexible than a resource’s pre-determined parameter-limited schedule. That, it said, could allow less flexible resources to avoid non-performance charges more often than more flexible resources. “We find that a clarification is warranted to make clear what parameter limitations are at issue in this provision.”
It also required PJM to make clear that if a capacity resource is not scheduled by PJM due to any operating parameter limitations submitted in the resource’s offer, any undelivered megawatts will be counted as a performance shortfall. The same penalty would apply to a resource that was not scheduled because its market-based offer was higher than its cost-based offer. (¶167-173)
Net Energy Imports: FERC required a clarification to avoid any ambiguity regarding how PJM will assess the performance of external resources, saying it agreed with the Market Monitor that the RTO’s proposal does not specify how PJM will assess performance for energy imports and when emergency action hours only occur within individual zones or sub-zones. “If an emergency action is limited to a zone or sub-zone region, transmission into the affected region is likely restricted, so including a system-wide measure of net energy imports would likely distort the balancing ratio,” the commission said. It also agreed with Panda Power Funds and the Coalition of Generators and Project Finance Resources (Essential Power, Lakewood Cogeneration, Moxie Freedom, CPV Power Development, NextEra Energy, Invenergy Thermal Development and Brookfield Energy Marketing) that, as proposed, the balancing ratio could exceed 1, causing capacity resources’ expected performance during a performance assessment hour to exceed their full cleared unforced capacity quantity.
It required PJM to submit revisions clarifying: the definition of net energy imports; how it will apply the performance assessment calculation to external resources with and without a capacity commitment when an emergency action is triggered PJM-wide; and that a capacity resource’s expected performance for any performance assessment hour shall not exceed 100% of its cleared UCAP quantity. (¶175-178)
Fixed Resource Requirement Entities: FERC said PJM’s penalties rate could unduly penalize Fixed Resource Requirement (FRR) entities because the physical penalty option lacks an hourly charge rate relative to the additional capacity per megawatt of non-performance. It required that PJM propose a penalty rate for the physical payment option in terms of additional capacity per megawatt-hour of non-performance. It also required the RTO to allow FRRs to choose between the physical non-performance assessment option and the financial non-performance assessment option at the start of the delivery year, rather than when the FRR submits its first capacity plan. “We find that this delay will allow a Fixed Resource Requirement entity to make its decision on the best information available.” FERC also said PJM may apply the Capacity Performance rules to FRR entities only after the conclusion of the FRR plans to which they are currently obligated. (¶208-212)
Exemption for Planned Generation Resources: FERC rejected PJM’s proposal to exempt planned generation capacity resources from the capacity market must-offer requirement until they become operational. “We are not persuaded by PJM’s concerns that continuing to apply the must-offer requirement to planned resources that have cleared at least one RPM auction would act as a barrier to entry. In addition, we are concerned that by clearing an RPM auction with a planned resource but not following through on its construction in a timely manner, a seller could effectively withhold capacity and deter a new entrant from taking its place,” the commission said. It noted that PJM’s current rules allow resources not expected to become operational as planned to seek an exception to the must-offer requirement. (¶ 353-356)
Credit Requirements: FERC agreed with PJM that the risk of non-performance is higher for resources that do not exist at the time a seller submits an offer but said its proposal did not acknowledge changes in the risk as a resource transitions through the stages of development. It required PJM to modify the proposed credit requirements for planned resources and financed resources, as recommended by Panda Power Funds, to allow the security requirement to be reduced as the project nears its in-service date. FERC also required PJM to revise its credit requirements to recognize LDA-specific net CONE values in determining a market seller’s auction credit rate. (¶382-383)
Operating Parameters: The commission rejected, in part, PJM’s proposed revisions to rules on operating parameters. FERC said PJM’s existing rules allow capacity resources to submit energy market offers with inflexible operating parameters that do not reflect their actual capabilities. As a result, generators could offer excessive minimum run times, resulting in unjust make-whole payments at ratepayers’ expense, the commission said. But it called PJM’s proposed changes “overly restrictive,” saying the RTO’s proposals for capping the minimum start-up and notification times for all resources and for capping the minimum down time of storage resources did not take into account unit-specific constraints.
It also found fault with PJM’s proposal that offers reflect only physical constraints, saying it barred resources from reflecting in their offers contractual limits, such as gas pipeline requirements that generators take uniform delivery throughout the day, which could result in longer minimum run times. The commission said including such constraints in a supply offer is reasonable and not an exercise of market power, as PJM had contended in proposing that resources that do so be denied make-whole payments. “We see no reason to treat costs associated with resource physical constraints differently than costs associated with other types of actual constraints,” the commission said.
It ordered PJM to revise the rules to allow make-whole payments based on “actual constraints.” However, the commission rejected arguments that a resource’s inability to perform due to such limitations should be excused when calculating capacity payments. “The revisions that we direct here ensure that resources are appropriately compensated for their operation in the energy market; they do not excuse a resource from failing to fulfill its capacity obligation,” the commission said. “Providing such an exemption from non-performance charges would blunt the incentives for providing energy and reserves during the hours when they are most needed. … Accordingly, it is reasonable for a resource that fails to perform because of parameter limitations to receive less net capacity revenue than a performing resource.” (¶437-440)
Maximum Emergency Offers: The commission said PJM had failed to make a case that its current rules regarding maximum emergency offers are unjust and unreasonable, rejecting its proposed changes. PJM said the rules allow a generation capacity resource to submit an uneconomic offer price, removing itself from the day-ahead energy market until PJM has declared a maximum emergency. FERC acknowledged that the rules may allow a capacity resource to avoid honoring its capacity commitment. “However, we conclude that proper application of non-performance charges, rather than revision of the maximum emergency offer designation, is the appropriate method of eliminating this concern,” the commission said. PJM’s proposal could unintentionally reduce the number of resources available during emergency conditions if the resource’s alternative action is to take a forced outage, FERC said. “There is, therefore, value in allowing a Capacity Performance resource to offer capacity on an emergency-only basis when it is subject to environmental limitations, fuel limitations, or temporary emergency conditions, or when it can provide its capacity on a temporary basis only.” (¶476-479)

June 15, 2015June 15, 2023

Norman Bay’s Dissent: ‘Two Carrots and a Partial Stick’

The Federal Energy Regulatory Commission gave PJM virtually all it asked for in approving its Capacity Performance proposal. But Chairman Norman Bay’s dissent may provide ammunition for a potential challenge in federal court.

Bay predicted the proposal would not accomplish its stated goals, calling it “two carrots and a partial stick.”

One “carrot,” Bay said, allows resources to offer up to about .85 of the net cost of new entry (CONE) — or more if a resource can justify higher unit specific costs. The second carrot entitles resources that overperform a share of penalties collected from units that fail to perform.

Bay said the “stick” may provide insufficient deterrence because it is based on an estimate of 30 “performance assessment hours” — hours in which PJM declares emergency actions — annually. The 30-hour estimate is based on the number of such hours during delivery year 2013/14.

Bay said this is “overly generous” because PJM declared only seven and five performance assessment hours in 2011/12 and 2012/13 respectively — an average of 14 hours over the three-year period, or six hours if the “outlier” of 2013/14 is excluded.

If PJM declared 14 performance assessment hours in a capacity zone, a resource that failed to perform during each of those hours would be subject to a total non-performance charge of 14/30 times .85 net CONE, or .40 of net CONE for the delivery year, Bay said. That means non-performers could profit as long as the auction clearing price is larger than 0.40 net CONE.

“A rational profit-maximizing resource could simply seek a capacity award in the auction, fail to perform during each performance assessment hour and likely pay a penalty less than the carrot it has received,” Bay said.

Bay said the changes also will incent generators to raise auction clearing prices up to .85 of net CONE, because only prices above that level are subject to unit specific reviews.

“The temptation to exercise market power in the auction will be considerable. This would be less of a problem if one could count on the salutary benefits of competition. But, as PJM and the Market Monitor recognize, this market is structurally non-competitive. And the mitigation rules that are usually the safety net in such markets have largely been removed. Thus, the CPP creates the very real risk of the unmitigated exercise of market power up to .85 of net CONE.”

The commission majority ordered PJM to review the 30-hour metric annually to evaluate whether it remained appropriate. It also said that a penalty rate based on net CONE rather than energy prices or capacity clearing prices “is more likely to prevent non-performing resources from receiving positive net capacity revenues over the long run.”

Bay said the commission should have required a cost-benefit analysis before approving the proposal. “Given the potential multi-billion dollar cost … and the burden consumers will be asked to bear, any analysis, no matter how rudimentary, would have been helpful before concluding this proposal is just and reasonable.”

The commission said it did not need the “mathematical specificity of a cost-benefit analysis” to decide the case. “Rather, the commission considers the proposal in light of the currently effective tariff and comments in support and opposition to reach its determination,” it said.

Bay contended Capacity Performance’s cost may outweigh any benefits, citing PJM’s estimate that it would cost $1.4 billion to $4 billion annually. While PJM experienced uplift payments totaling $667 million in January and February 2014, uplift dropped to $105 million for the same months in 2015.

“One way of viewing the CPP is that it fixes a several hundred million dollar uplift problem in the energy market with a multi-billion dollar redesign of the capacity market,” Bay said.

June 15, 2015June 15, 2023

How PJM Capacity Performance Compares with ISO-NE’s Pay-for-Performance

PJM’s Capacity Performance plan approved by the Federal Energy Regulatory Commission borrows elements from ISO-NE’s Pay-for-Performance program. Below is a summary of some key differences between the two plans followed by the relevant paragraph numbers from the order.

Annual Stop-Loss Limit: PJM’s annual non-performance charge stop-loss limit is equal to 1.5 times the annual net cost of new entry (CONE) rather than the auction clearing price as in ISO-NE. The commission acknowledged that PJM’s stop-loss limit will likely be higher than ISO-NE’s but said it was reasonable. “An important element of PJM’s overall proposal is to put at risk full capacity auction revenues if a resource completely fails to perform during performance assessment hours. Because the proposed annual stop-loss limit is equal to the maximum clearing price allowed by PJM’s Variable Resource Requirement curve, it meets this criterion,” FERC said. “In addition, basing the limit on net CONE ensures that market participants will know their maximum risk exposure in assuming a Capacity Performance commitment and be in a position to formulate their sell offers accordingly.” (¶164)
Trigger for Performance Assessment Hours: PJM will use the declaration of Emergency Actions as the trigger for performance assessment hours. In contrast, ISO-NE’s trigger is a shortage of system 30-minute reserves, system 10-minute reserves or zonal 30-minute reserves. “While PJM’s proposed trigger is more expansive, to include certain warnings and pre-Emergency Actions, we find that PJM’s approach would accurately correspond with conditions and events during which the system is experiencing, or may reasonably expect to experience, a shortage of capacity,” the commission said. “We find that this approach will appropriately trigger performance assessment hours when performance is most critical to the PJM system.” (¶186)
Transition Mechanism: FERC said PJM’s transition mechanisms strike an appropriate balance between procuring too much or too little capacity able to qualify as a Capacity Performance resource. Although the commission approved ISO-NE’s proposal to acquire only its performance product in its next auction, “PJM has demonstrated that a phased-in approach is also just and reasonable,” FERC said. (¶256)
Withholding: The commission rejected the Market Monitor’s suggestion that PJM adopt ISO-NE’s use of resources’ installed capacity values to define required performance. The Monitor said PJM’s reliance on unforced capacity could result in withholding by allowing a supplier with a large portfolio to reduce its available capacity from some of its resources to result in a higher clearing price for the entire portfolio. Such suppliers also could reduce unforced capacity available from some of its resources as a hedge against unexpected outages on other units. The commission said “the likelihood of such a strategy is mitigated by a resource deliberately forgoing considerable energy revenue in the hopes that the withholding strategy and any additional performance payments during Emergency Actions would outweigh the forgone energy revenue.” It said the Monitor should work with PJM to devise an alternative mitigation mechanism if it finds evidence of such strategies. (¶358)
Application of Non-Performance Charges: The commission approved PJM’s proposed application of non-performance charges, although it said it was “more lenient” than that applied by ISO-NE. It noted that the “more significant” of PJM’s proposed revisions regards generator maintenance outages as opposed to planned outages. “We agree with PJM that a generator on a planned outage should not be expected to return to service within a time interval of less than 72 hours. We also find reasonable PJM’s proposal requiring a generator on a planned outage to provide PJM with an estimate of the amount of time it will require to return to service. This requirement presents no significant burden to the resource but will assist PJM in operating its system during tight conditions,” FERC said. (¶496)