Page 1555 – RTO Insider

April 29, 2015

UPDATE: Incoming PJM CEO Ott Expects Challenges from an Industry in Transition

By Suzanne Herel

Incoming PJM President and CEO Andy Ott said Wednesday that the biggest issues facing the RTO are a “substantial swap” in fuel from coal to natural gas, increasing gas-electric coordination and the rise of distributed energy.

“We have an industry in transition,” Ott said. “We’re seeing a tremendous amount of coal resources retiring.”

Managing that evolution, he said, will be a major focus when he assumes the top spot this fall, as Terry Boston steps into a coaching role and retires on Dec. 31 after eight years running the RTO. (See PJM CEO Boston to Retire.)

Boston concurred: “We have seen the largest and fastest fuel change in the history of the world,” he said. “It took a lot longer to go from wood to coal than to go from coal to natural gas.”

Ott, an 18-year PJM veteran who currently holds the role of executive vice president of markets, was named Boston’s successor Wednesday. They spoke in an afternoon press conference.

Cost Allocation Challenges

The changing industry poses another challenge, Ott said: cost allocation of new transmission projects and operational changes.

“As we look at some of the impacts of those changes on the power system operation, one of the things we saw with the polar vortex, for example, was a very big, big shift in the cost or the price of reserves — we call it market uplift. One of the challenges the stakeholders face is dealing with some of these very difficult issues of cost allocation brought on by these changes.” (See FERC OKs $1,800 Offer Cap in PJM.)

The issue likely will be addressed in market rules and Tariff provisions, he said.

Boston also identified demand response as an industry concern waiting to be resolved by the Supreme Court. (See FERC Files EPSA DR Appeal with Supreme Court.)

“One of the challenges Andy may have is if the DR goes from wholesale market to retail control, how do we involve the 14 public service commissions’ stake in planning what DR will be in the future?”

Ott was thought to be one of two likely in-house candidates. Both he and Executive Vice President for Operations Mike Kormos frequently represent PJM before the Federal Energy Regulatory Commission and in industry forums.

“Andy is recognized internationally as a power industry leader and expert,” said PJM Board Chairman Howard Schneider. “The board and I are confident that Andy will ensure the continued collaboration, trust and exceptional performance for which PJM is known and that he shares our commitment to reliable grid operations, fair and efficient wholesale markets and robust transmission planning.”

Core Mission Unchanged

Said Ott: “I can assure everyone that our core mission will be unchanged and that we will maintain open communications and the collaborative, productive relationships with members and stakeholders which are crucial to PJM’s success.

“One of the strengths that Terry has fostered here at PJM is our industry leadership and our collaboration with stakeholders and states and FERC. I will promote that type of collaboration and continue it as we move forward.” (See Retiring PJM CEO Boston Lauded for Efficiency Improvements, Management Style.)

Ott called PJM an industry leader in innovating technical systems and a competitive market environment. “We will continue to lead there,” he said.

Boston said the men would make a decision sometime in the early fall as to when Ott officially will take the helm, but it likely will be in October or November.

“Andy has a lot of roadwork to do with all the commissioners and the CEOs of the major companies we serve,” Boston said.

Asked to look back on the highlights of his tenure, Boston noted the replacement of about 26,000 MW of coal for natural gas, experiencing three “one-in-100-year” weather events and advancing billions of dollars in projects to storm-harden the grid.

Ott has extensive experience in energy market restructuring. Prior to joining PJM, he worked for GPU Inc. in transmission planning and operations.

Currently, he provides executive oversight of the PJM Market Operations, Market Strategy, Member Training, State Relations, Customer Relations and Performance Compliance divisions. He was responsible for implementing the PJM wholesale electricity markets.

He is a board member of both PJM Technologies and PJM Environmental Information Services. He also serves on the board of directors of the Association of Power Exchanges and chairs the CIGRE (International Council on Large Electric Systems) Study Committee C5 on Electricity Markets and Regulation.

He received his bachelor’s in electrical engineering from Pennsylvania State University and his master’s in applied statistics from Villanova University. Ott is an Institute of Electrical and Electronics Engineers fellow.

As for what’s next for Boston, the native Tennessean said he and his wife, Brenda, intend to move into their son Brian’s condo in Hawaii for the winter after he graduates with a doctorate in geophysics from the University of Hawaii.

Boston is also looking to serve on a couple of boards of directors, potentially a utility and a high-tech company, he said, noting that he wrote his graduate thesis on the optimization of energy storage.

April 28, 2015

Michigan OKs Wisconsin Energy-Integrys Merger

By Chris O’Malley

Michigan regulators on Thursday approved Wisconsin Energy Corp.’s $9.1 billion acquisition of Illinois-based Integrys Energy — with the condition that the merged companies continue to operate the Presque Isle Power Plant in Michigan’s Upper Peninsula.

The approval of the Michigan Public Service Commission comes less than a month after the Federal Energy Regulatory Commission granted its OK (EC14-126).

The deal also requires the approval of state regulators in Illinois, Minnesota and Wisconsin.

Gov. Rick Snyder and other Michigan officials initially opposed the merger, in part because Wisconsin Energy had agreed to keep Presque Isle open under a system support resource agreement with MISO.

The aging generating plant had lost its major mine customers, and keeping it open under an SSR would have resulted in hefty rate increases for Upper Peninsula customers. Presque Isle recently wooed back former mine customers.

In exchange for approving the merger, the Michigan Public Service Commission won a commitment from Wisconsin Energy not to enter into a Presque Isle SSR with MISO before the end of 2019 or a new “clean energy” plant goes into service in the Upper Peninsula.

Wisconsin Energy also agreed to continue making any capital investments needed to continue operations of Presque Isle until the end of 2019 or the new plant begins commercial operations. The plant could retire earlier if Wisconsin Energy’s WEPCo subsidiary and the mines served by Presque Isle come to an agreement.

Other terms include a pledge by Wisconsin Electric not to increase retail rates for Michigan customers as a result of special contracts between Wisconsin Electric and mines in the area.

It appears the biggest hurdle for Wisconsin Energy and Integrys to clear is in Wisconsin, where consumer groups have demanded that the Milwaukee-based utility provide guarantees of monetary savings from the merger.

Among those groups insisting on concessions are the Wisconsin Paper Council, Wisconsin Industrial Energy Group and retail customer group Citizens Utility Board, reports the Milwaukee Journal Sentinel.

Wisconsin Energy is the parent of electric utility We Energies. Integrys owns Wisconsin Public Service Corp. and Michigan Gas Utilities Corp

April 28, 2015June 15, 2023

Company Briefs

Regulators in Maryland and D.C., the last holdouts to Exelon’s proposed $6.8 billion acquisition of Pepco Holdings Inc., have completed evidentiary hearings and are expected to rule on the deal by May 8 and May 13, respectively. Approval would create the Mid-Atlantic’s largest electric and gas utility.

Opposition in D.C. continues to mount, with two more of the District’s Advisory Neighborhood Commissions last week signing resolutions against the merger, tipping the resistance among those 40 groups to more than half. None of the ANCs have come out in support of the takeover, despite being approached by Exelon. The District’s Office of People’s Counsel and three members of the D.C. Council also oppose the deal. (See Deadline Looms in Exelon-Pepco Deal.)

Meanwhile, Exelon has pulled its advertising supporting the merger in Maryland and D.C., prompting some to wonder if that means the company has concluded the acquisition is a done deal. “The decision to discontinue ads in Maryland and D.C. is completely unrelated to any anticipated action the Maryland PSC may or may not take in coming weeks with regard to the merger,” Exelon spokesman Paul Adams said. “The ads have run for several weeks, and we believe they have been effective in educating people about the benefits of the merger.”

More: The Sentinel

Half of U.S. Fracking Companies Will be Gone By End of Year

The slumping price of U.S. oil and gas will halve the number of hydraulic fracturing companies, according to an industry executive’s prediction. Rob Fulks with Weatherford International, one of the larger fracking-service companies, predicts that the number of fracking companies will fall from 41 to just 20 by the end of the year, either through acquisitions or closures.

Speaking at the IHS Cera Week conference in Houston, Fulks said low energy prices are causing a decline in demand for drilling services. Some consolidation moves are already apparent, he said, pointing at Halliburton Co.’s acquisition of Baker Hughes Inc. in a $34.6 billion deal announced in November.

More: Bloomberg News

Dominion Backing Away From Offshore Wind Pilot Program

Unexpectedly high costs have Dominion Virginia Power rethinking its offshore wind pilot program.

The company obtained the permits, did the site test work, drew up plans and sent out bid requests. It figured it would cost about $230 million to erect two wind turbines off Virginia Beach. But the bids came back at between $375 million and $400 million. Now, a Dominion spokesman said the pilot program is on hold, while the company and its partners research other ways of building the project.

More: Virginian-Pilot

Alliant Taking Steps to Prevent More Eagle Deaths

A month after an eagle was electrocuted on one of its power lines, Alliant Energy is installing equipment aimed at preventing more avian injuries. In March, the body of a dead eagle was found beneath one of its lines near the town of Harper, Iowa.

While birds can perch on one charged wire without risk, Alliant is installing plastic insulation on some wires to decrease the likelihood of a bird contacting two charged wires at once. Work crews are also installing triangular plastic devices on the crossarms to discourage birds from perching.

Birdwatcher say hundreds of eagles congregate in the area, where there is a proliferation of hog farms.

More: The Gazette

Alevo Makes First Sale of 2-MW GridBank Battery System

Alevo Group says it signed its first sales contract on its 2-MW GridBank battery system. The company said it will sell three units to an unidentified buyer. In February, the company and Customized Energy Solutions announced they would provide 200 MWs of merchant storage capacity to regional transmission operators, half of it to PJM.

More: Charlotte Business Journal

RGGI Auctions Provided $2.9 Billion Returns

The nine states of the Regional Greenhouse Gas Initiative (RGGI) say they generated $2.9 billion in savings through 2013. A report by RGGI shows the CO2 allowances auctions provided lifetime energy bill savings to more than 3.7 million participating households and 17,800 businesses.

More than $1 billion in RGGI auction proceeds were invested in programs including energy efficiency, clean and renewable energy, greenhouse gas abatement and direct bill assistance. Energy efficiency continued to receive the largest share of investments.

Over their lifetime, the investments are projected to save more than 48.7 million BTU of fossil fuels and 11.5 million MWh of electricity, avoiding the release of about 10 million short tons of carbon pollution.

More: RGGI

TVA Shutting Coal Units, But Wants to Stay in Steam Business

TVAJohnsonvilleSourceTVA — Johnsonville Fossil Plant (Source TVA)

The Tennessee Valley Authority said it wants to install a heat recovery steam generator on one of the 20 gas-fired combustion turbines at the Johnsonville Fossil Plant in Tennessee to provide steam to an adjacent titanium dioxide manufacturer. TVA is retiring the coal-fired units at the Johnsonville plants by the end of 2017, but wants to continue selling steam to the factory. It has prepared a draft environmental study supporting the plan.

More: Chattanooga Times-Free Press

April 28, 2015June 15, 2023

Bid for Generator Price Flexibility Draws Debate Over 10% Adder

By Suzanne Herel and Rich Heidorn Jr.

WILMINGTON, Del. — Calpine won stakeholder approval for an initiative that could give generators more flexibility in pricing following an unusually lengthy debate before the Markets and Reliability Committee Thursday.

Dave Pratzon, representing Calpine, presented a problem statement and issue charge arguing that permitting generators to revise their offers hourly to reflect changes in gas prices would result in reduced risk premiums, benefiting consumers.

But some stakeholders questioned the scope of the problem statement, saying it should also include language calling for reconsideration of the 10% adder that generators are allowed to include in their cost-based offers. The adders provide a cushion against uncertainties, including fuel prices and heat rates that can vary with temperatures and plant loading. Hourly pricing would reduce the fuel price risk, they reason, reducing the need for the adder’s price cushion.

Walter Hall, representing the Maryland Public Service Commission, said the PSC would oppose the problem statement if it did not include a reconsideration of the adder. PJM and the Independent Market Monitor also backed inclusion of the adder in the problem statement.

Challenge Reaching Consensus?

“I don’t want to set this group up to fail,” said PJM Executive Vice President for Operations Mike Kormos, referring to the senior task force expected to be assigned to study the problem and recommend a solution. “It may be difficult to reach consensus without this issue. We think this is an important issue.”

“Clearly it’s related,” said Market Monitor Joe Bowring. “It doesn’t make any sense [to exclude it]. I think it’s avoiding something that’s really obvious.”

But Pratzon rejected Hall’s request to include the adder as a “friendly” amendment. Pratzon said he wanted to avoid “scope creep” and was not authorized by his client to broaden the initiative. He suggested the adder be addressed separately by the Cost Development Subcommittee.

Jason Cox of Dynegy came to Pratzon’s aid, saying, “I’m concerned that Calpine’s problem statement is being hijacked.”

“This issue is very narrow,” he added, saying hourly pricing would reduce the use of the adder. He said those concerned about the adder should propose their own problem statement.

The problem statement was approved by voice vote with two votes against it.

PJM Stands Alone

Pratzon introduced the proposal to the MRC in March, saying PJM is the only organized market in the U.S. that does not allow generators to vary their offers hourly. (See PJM May Consider Hourly Pricing for Generators.)

As approved, the initiative would also permit consideration of more flexible offers by energy storage and price-based demand side response. Market power protections were also added to the scope.

Pratzon said the issue gained urgency because the Federal Energy Regulatory Commission had declined earlier this month to change the start of the gas day, a blow to efforts to improve gas-electric coordination. (See related story, PJM Considering Change to DA Deadlines in Response to FERC Order on Gas Schedule.)

John Farber of the Delaware Public Service Commission and Ruth Price of the Delaware Public Advocate’s office pressed Pratzon for how the change to hourly pricing would benefit ratepayers.

Pratzon noted that a 50-cent per MMBtu difference in the price of gas translates to a difference of $3.50/MWh. With hourly generator offers, he said, the price will “be lower some hours, higher some hours. But overall it will be better.”

The Adder’s Role

Although the adder was not included in the problem statement, Kormos said it would be included in the educational portion of the task force’s work. “I’m finding it hard to understand how that couldn’t be permitted,” he said.

According to the Market Monitor, the adder was included in the definition of cost-based offers in 1999, based on the uncertainty of calculating the hourly operating costs of combustion turbines under changing ambient conditions. However, in docket (EL15-31) — in which PJM proposed limiting the adder to the $100 for offers exceeding $1,000/MWh — generators argued that the adder also provided protection against gas-price volatility.

April 28, 2015June 15, 2023

Cool Response to Proposed 7-Cent Fee on Virtual Transactions

By Rich Heidorn Jr.

A proposal to impose a temporary $0.07/MWh uplift charge on all netted virtual transactions received a cool response from PJM members Thursday — including a rebuff from the attorney for the Financial Marketers Coalition.

Noha Sidhom of Inertia Power proposed the charge as an interim response until the Federal Energy Regulatory Commission rules in the Section 206 proceeding it ordered in September to determine whether PJM is improperly treating up-to-congestion bids (UTCs) differently than increment offers (INCs) and decrement bids (DECs).

While INCs and DECs are charged uplift and subject to the financial-transmission-rights forfeiture rule, UTCs are exempt from both.

UTC trading volumes crashed after Sept. 8, the refund effective date set by FERC for any uplift assessments.

PJM reported last week that trading volumes for INCs, DECs and UTCs remained near the lowest levels ever, despite modest monthly increases over the last six months. Cleared UTC transactions were at less than one-third of their level in August, before the FERC order. Submitted UTC transactions have rebounded to 40% of the August level.

Reducing Uncertainty

Sidhom said the interim fixed fee could reduce uncertainty for virtual traders, encouraging them to increase trading volumes for the summer. She introduced a problem statement to consider the fee at Thursday’s Markets and Reliability Committee meeting.

The commission said it expected to rule in the 206 docket (EL14-37) within five months after it receives comments following a technical conference. But more than three months after the Jan. 7 conference, the commission has yet to issue a request for those comments. William Sauer, the Office of Energy Policy and Innovation staffer who chaired the conference, has since joined the staff of Commissioner Colette Honorable as a policy adviser. (See Stakeholder Process Under Attack at FERC Hearing on PJM Financial Trades.)

The proposal would apply the seven-cent fee to each UTC trade and to netted INCs/DECs — involving the same volume and same hour but different locations — with both the INC and DEC assessed the full fee. Un-netted INCs and DECs would continue to pay under current uplift rules.

Sidhom said the interim fixed fee would be a trial, allowing market participants and PJM “to see what virtual volumes will look like at a certain fee level,” information that could help determine an appropriate fee for the future.

The Energy Market Uplift Senior Task Force is considering nine proposals, three of which — an American Electric Power proposal and two PJM proposals — were selected by stakeholders for backcast analyses by PJM. Results of the analyses are scheduled to be discussed at the task force’s June 3rd meeting.

Sidhom said her proposal recognizes that there isn’t enough time to reach agreement on a long-term solution before the more volatile summer months. She said there is uncertainty regarding whether the task force will reach consensus and if any solution stakeholders agree on will win FERC approval. The task force is unlikely to send a proposal to the MRC before July or August, she said.

Sidhom said more trading volume would improve convergence between the day-ahead and real-time markets and result in better price formation and forecasting of congestion.

Market Monitor Joe Bowring repeated his long-standing position that there is no evidence that UTCs improve price convergence. Bowring also said the fees on virtual transactions should vary with the level of uplift.

‘Pretty Big Discount’

Susan Bruce, representing the PJM Industrial Customers Coalition, said seven cents “seems to be a pretty big discount,” noting that the average deviation rate is $2.10/MWh.

Sidhom said that the average deviation rate for the 12 months ending March 31 was actually $0.84/MWh. She said adding UTCs to the trades sharing in uplift would reduce the rate for other market participants.

“We saw [seven cents] as a good starting point,” Sidhom said. She said she was “not wedded to” the seven-cent fee but added, “If we start at a really high rate we’re back to the status quo.”

The AEP package proposes a $0.15/MWh fee for each cleared pair of UTCs.

Jim Benchek of FirstEnergy said the interim proposal “seems like an end run around” the task force. “EMUSTF has been working on this for quite a while,” he said. “I’m not sure the timing on this is quite right.”

Sidhom said it was “very optimistic to think the task force will vote next month.”

Ruta Skucas, attorney for the Financial Marketers Coalition, said she was surprised to see the issue brought to the MRC. “We firmly believe it belongs in the EMU,” she said, using the shorthand name for the task force. She said afterward that the coalition is working on a similar proposal to be considered through the task force.

Sidhom, whose company is not a member of the coalition, said she was not trying to bypass the task force but seeking an interim fix for the summer while the panel completes its work on the issue.

Dominion Resource’s Louis Slade said the proposal was premature given that PJM is conducting the backcast analysis on AEP’s fixed fee proposal.

Only one other stakeholder, Stephanie Staska of Twin Cities Power, spoke in support of Sidhom’s proposal, asking how the market would react if FERC orders UTC traders to pay fees retroactive to September. “Every day that we’re not charging something is a day that liability grows larger,” she said.

In an interview after the meeting, Sidhom echoed that message, saying she was concerned that retroactive uplift charges could lead to defaults.

April 28, 2015

MISO: Nothing Amiss in High Illinois Capacity Prices

By Chris O’Malley

MISO told Illinois officials last week that the nine-fold price increase the state experienced in this month’s capacity auction was the result of market dynamics and not any improper conduct.

“The Independent Market Monitor reviewed the offers and determined that the final results were not impacted by physical or economic withholding and other conduct prohibited by MISO’s Tariff,” Kari A.E. Bennett, MISO’s senior corporate counsel, said in an April 24 response to a request for information from the office of Illinois Attorney General Lisa Madigan.

Madigan’s staff sent a letter April 17 to MISO Executive Vice President Richard Doying and Independent Market Monitor David Patton, asking seven questions about MISO’s third annual Planning Resources Auction, which saw Zone 4, comprising much of Illinois, clear at $150/MW-day, compared with $16.75 a year earlier. The results will boost revenues for Dynegy’s coal fleet and Exelon’s Clinton nuclear plant. (See Cornucopia of Capacity at MISO Auction.)

“This year’s auction resulted in capacity prices for central and southern Illinois that are nine times greater than last year and more than 40 times greater than other zones,” Cara Hendrickson, chief of the attorney general’s public interest division, said in the letter.

Citing the “substantial impact” on Illinois ratepayers, Hendrickson asked about MISO’s market design, including limits on imports into Zone 4.

MISO said Zone 4 imported 1,568 MW of lower-cost capacity from other zones, with the balance from resources within the zone. MISO said its annual local clearing requirement study determined that Zone 4 needed at least 85% of its capacity from resources within the zone in the 2015/16 planning year.

“The value is comparable to the average of all other zones (87%) and is lower than six other zones, which required local participation of 87% or higher,” Bennett wrote.

“Different results by location and by year can occur for multiple reasons, including the impact of commercial decisions market participants make leading up to the auction and available capacity offered into the auction,” she continued. “In Zone 4, higher priced local resources were needed to meet the local clearing requirement.

“Additionally, more capacity was procured through the auction rather than by direct contracts between parties as compared to last year. This resulted in more exposure to price-sensitive capacity offers in this year’s auction.”

Red Meat for Consumer Groups

Whatever the causes, the sheer size of the increase set off a firestorm among consumer interests in Illinois.

The Chicago-based Citizens Utility Board called for a federal investigation, saying Ameren customers in central and southern Illinois will see significant rate hikes. “CUB’s rough estimate is that this increase could force consumers on Ameren’s supply rate to pay up to $150 [in capacity charges] on their electric bills over the next year,” it said.

CUB Executive Director David Kolata said the results are another sign the electricity market “is not working for Illinois consumers,” given that the state has a surplus of electricity.

Exelon, Dynegy also Miffed

Ratepayer groups aren’t the only unhappy players.

The capacity providers accused of profiting from the auction, Exelon and Dynegy, are upset at Madigan’s office.

Dynegy said that Madigan’s team told an Illinois Senate hearing last week that the company could rake in more than $200 million as a result of the auction.

That’s far from the truth, said Dynegy spokesman Micah Hirschfield. He said that Dynegy cleared only 553 MW (excluding what it needs to cover retail load obligations), meaning it will collect about $30 million.

Exelon, likewise, said speculation that it would enjoy a $50 million windfall from the auction was off base.

The company said it bid its Clinton nuclear plant’s capacity into the auction the same way it has every year.

“We bid as a price taker, meaning we would accept the auction clearing price. Because we sold some of the plant’s capacity in retail and wholesale transactions before the auction, we realized about $13 million from the auction, not upwards of $50 million as some have speculated,” Exelon spokesman Paul Elsberg said a statement.

Moreover, Exelon said the auction results were not sufficient to make the Clinton power station profitable. The utility is still pushing for the Illinois General Assembly to act on a so-called Low Carbon Portfolio Standard that would boost the competitiveness of the company’s nuclear plants.

Bluster or Substance?

Whether Madigan’s office is just fishing or will press further on the auction results is yet to be seen.

As for MISO, the RTO “looks forward to continuing the discussion with policymakers in Illinois to address any questions and concerns around the results of the Planning Resource Auction,” spokesman Andy Schonert said.

April 28, 2015

New England Governors Revise Energy Strategy

By William Opalka

New England governors last week backed away from their 2013 commitment to share the costs of new gas pipelines and electric transmission, announcing a revised regional energy strategy that gives individual states more flexibility.

A joint statement released after a summit on Thursday in Hartford, Conn., reaffirmed the governors’ commitment to regional cooperation in shifting to cleaner energy sources and expanding natural gas and electric infrastructure. However, the statement recognized the political realities of each state, all but abandoning a controversial effort to have ratepayers in all six states share in the cost of building natural gas pipelines.

“We recognize that each state may support addressing our regional energy challenge in different ways. These efforts must be done in partnership with state legislatures, and respecting the requirements of laws, regulatory proceedings, and opportunities for public participation that are unique to each individual state,” the governors said.

“It’s as if the governors had agreed on family-style meals [in 2013], but now everyone’s ordering a la carte,” The Hartford Courant observed.

New England pays the highest electric rates in the continental United States and is particularly vulnerable to price spikes in the winter. ISO-NE has created winter reliability programs to counter tight natural gas supplies, but its increasing reliance on oil-fired generation runs counter to the region’s environmental commitments, the governors said.

Vermont, New Hampshire Not Committed

In a companion document outlining short-term goals, states emphasized their project and policy preferences, with Vermont and New Hampshire pointedly not committing to sharing in new infrastructure spending.

“Vermont has not committed to share in the allocated costs of any regional gas infrastructure or electric transmission projects,” it said, but noted that the state could host transmission projects if they met its “legal criteria.”

New Hampshire noted it is a net energy exporter and said it “may host projects that meet its siting requirements and which provide benefits to the state’s residents and businesses, including our second largest industry, tourism.”

Proposed infrastructure projects are hot-button issues in both ends of New Hampshire. The Northern Pass transmission line would cut through the White Mountains to import 1,200 MW of Canadian hydropower. Part of Kinder Morgan’s proposed Northeast Energy Direct pipeline project was rerouted to existing rights-of-way in the southern end of the state to counter objections to a path in northeast Massachusetts.

Northeast Direct is one of two large-scale projects proposed to transport Marcellus Shale gas into New England from Pennsylvania. The other is a Spectra Energy project that would largely use existing rights-of-way and eventually connect with the Canadian Maritime provinces.

Connecticut Democratic Gov. Dannel Malloy, who hosted last week’s summit, also spearheaded the December 2013 meeting, which resulted in a statement that endorsed collective action. In it, the governors pledged “to advance a regional energy infrastructure initiative that diversifies our energy supply portfolio while ensuring that the benefits and costs of transmission and pipeline investments are shared appropriately among the New England States.”

The governors united behind a plan to provide a funding mechanism for natural gas pipeline expansions though a regional tax on utility bills. That plan fell apart last year when the Massachusetts legislature balked at a comprehensive package that former Democratic Gov. Deval Patrick wanted that would link gas infrastructure with a plan to expand transmission to import Canadian hydropower into the region.

Shift by New Mass. Gov.

Patrick’s successor, Republican Gov. Charlie Baker, said in a press conference after the summit that his administration supports new pipelines and transmission, a statement that The Boston Globe reported represented “a shift in tone” from Patrick’s emphasis on renewable energy.

Maine’s Republican Gov. Paul LePage, who also appeared at the press conference, praised Baker as “more collaborative and more open-minded” than Patrick, who he said was “held hostage by an ideology.”

Baker, who took office in January, said he has asked the state Department of Public Utilities to review all natural gas pipeline options. He indicated support for Spectra Energy’s plan to expand the Algonquin pipeline but would not say whether he supports Kinder Morgan’s more controversial plan, The Globe reported.

Still, some collaborative efforts continue. Earlier this year, Massachusetts, Connecticut and Rhode Island began a process that could result in joint purchases of clean energy. (See New England States Combine on Clean Energy Procurement.)

April 28, 2015June 15, 2023

Stakeholders Share Ideas on Fixing Interregional Process

By Chris O’Malley

MISO on Wednesday got an earful of stakeholder suggestions about how to spur interregional transmission projects at the seams with PJM and SPP.

They range from adopting common evaluation criteria to removing barriers for lower voltage projects to creating a new category for interregional projects.

One thing most agreed on during a “hot topics” discussion of the Advisory Committee is that the current process is not working.

Of the roughly $15.5 billion in transmission projects at MISO from 2008 to 2014, “We’ve had zero spent on interregional projects,” Kip Fox, director of asset strategy and grid development at American Electric Power, told the committee. “If this isn’t pretty clear evidence that the process is broken, I don’t know what it would be.”

“The current interregional transmission planning process has failed to meet [its] objectives and has not resulted in identifying a single interregional transmission project for approval,” agreed the Independent Power Producer sector.

Despite 12 years of joint meetings, MISO and PJM have been unable or unwilling to eliminate obstacles to cross-border projects. In February, the Federal Energy Regulatory Commission increased pressure on the two RTOs, saying it was considering taking action “to improve the efficiency of operations” at the RTOs’ seam. (See Impatient FERC Hints at Action on PJM-MISO Seams Disputes.) MISO also is working to resolve disputes with SPP.

“Even though we’ve made some progress, there still are challenges we need to work through,” acknowledged Jesse Moser, manager of strategic infrastructure at MISO.

Re-Evaluate Benefit-Cost Ratio

FERC’s Order 1000 requires interregional transmission planning but does not mandate that border-spanning projects be built.

“RTOs view compliance with Order 1000 as regularly scheduled meetings to facilitate discussion and data exchange. No plan or project is required,” said the Transmission Developer sector. “… Since 2012, over 121 project solutions along the MISO seams have been identified and summarily rejected.”

The transmission developers say MISO customers have paid more than $100 million in congestion, market-to-market costs and higher LMPs over the past four years due to inadequate transmission.

Interregional projects involving MISO and PJM must navigate three separate processes: MISO Transmission Expansion Planning regional criteria, PJM Regional Transmission Expansion Planning criteria and the cross-border process under the MISO-PJM Joint Operating Agreement.

One impediment to interregional projects, according to the developers and IPP sectors, is MISO’s requirement that interregional projects clear a 1.25 benefit-to-cost hurdle to win approval.

Both sectors say the 25% return on investment should be re-evaluated, and either lowered or broadened to capture more benefits.

“First, a project must meet the interregional criteria of providing a 25% return on investment based on a simulated adjusted production cost with perfect unit dispatch and no transmission outages,” said the developers. “Second, a project that passes the interregional criteria must now pass the regional criteria under the MTEP process using a different set of economic and powerflow models.”

MISO Director Eugene Zeltmann said he wondered whether the current ratio is detrimental to the process. But if the ratio were changed, he asked, “Would that have a deleterious effect on consumers?”

The developers say the definition of benefits should be expanded to include savings on capacity spending due to reduced transmission losses and capacity margins; avoided or delayed reliability projects; reduced emissions; and increased transmission revenues.

Reduce Voltage

Another impediment, according to some stakeholders, is that MISO has no provision for regional cost allocation for projects on low voltage transmission. MISO’s market efficiency projects are limited to projects of at least 345 kV, a much higher threshold than that of other regions.

The transmission developers said that most transmission between MISO and its neighbors is less than 300 kV. “MISO appears to be discriminating against lower-voltage projects that resolve reliability and economic solutions by making the requirement that the host zone needs to pay for the upgrade, even though the upgrade may benefit multiple zones,” they said.

The IPPs suggested projects as low as 100 kV be eligible for cost-sharing. “The current criteria was developed years before MISO’s seams expanded in the southern region,” they said.

Unify Metrics

Several stakeholder groups complained that the lack of a common set of metrics for cross-border project selection also is to blame. The Transmission Owners sector said planning should be consistent across seams and between the regional and interregional processes. “Ideally, a single transmission system model would be used in order to provide the highest level of accurate and consistent analysis,” they said.

The Transmission Dependent Utilities sector said it would support a MISO suggestion to create a new interregional project category. “It is neither productive nor efficient to consider a large number of potential candidate projects under two or three futures scenarios for which there is no consensus among the participating RTOs,” it said.

Defending Regional Differences

But in their minority comments within the Transmission Developer sector, AEP and Exelon noted that FERC has recognized the validity of regional differences in planning criteria.

The companies say using concurrent studies with identical criteria is “untenable.”

Instead, they say each RTO could post its market efficiency needs and congested flowgates and then invite stakeholders to submit regional and interregional proposals that could address those issues “more efficiently and cost-effectively than any regional proposals the RTOs may already be considering.”

Each RTO would determine what portion of its market efficiency issues is met by each of the interregional proposals. Cost apportionment would be in proportion to the benefits received by each RTO.

Backyard Projects First

MISO and PJM recently have been discussing “quick hit” flowgate projects on either side of the border that could relieve market-to-market congestion. The four low-voltage projects identified so far as most promising could generate congestion savings of more than $90 million, the RTOs said during the Interregional Planning Stakeholder Advisory Committee meeting April 14. (See Quick Hit List at PJM-MISO Seam Narrowed to 4 Projects from 39.)

April 28, 2015June 15, 2023

Cold Weather, Low Gas Prices Drive AEP Earnings

By Ted Caddell

Record cold weather and falling natural gas prices helped push American Electric Power’s first quarter earnings up 12%.

CEO Nicholas Akins said the first quarters of 2015 and 2014 were the “coldest and second-coldest winters, respectively, in our service territory during the past 35 years.”

The increased power demand, coupled with natural gas prices that dropped 43% over the first quarter of 2014, helped AEP show a profit of $629 million on revenue of $4.7 billion ($1.29/share), up from $560 million ($1.15/share) last year.

As a result of the fall in natural gas prices, AEP burned almost 15% less coal in the first quarter than a year ago.

The company also has benefited from power demand from shale oil and gas producers in the Marcellus and Utica fields.

Akins used the quarterly earnings conference call and the company’s annual meeting last week to express his continued frustration with PJM’s capacity market and repeat his call for regulatory changes in Ohio.

“It is clear that the Rube Goldberg capacity market of PJM cannot be depended upon to provide consistent revenue and price discovery to enable the long-term investment potential and maintenance of existing baseload generation. Ohio must regain control of its ability to define resources within the state,” he said.

Akins said that PJM’s capacity performance proposal “is a step in the right direction and should be a no-brainer to FERC.” (See FERC OKs PJM Request to Delay Capacity Auction.)

But he suggested AEP may not wait much longer for changes, renewing talk that the company will sell its merchant generation. It acknowledged in January that it had hired Goldman Sachs to investigate the sale of its merchant fleet in Ohio and Indiana. (See AEP Considering Sale of 8,000 MW in Ohio, Indiana.)

“Right now, there is no support for long-term investment in the state of Ohio, and we’re trying to get that fixed from an energy-policy perspective,” Akins told reporters following the company’s annual shareholder meeting Tuesday. The company failed in February in its bid to secure regulatory approval for a “guaranteed price” power purchase agreement for one of its coal-fired plants. It has another case pending for four more of its plants. (See “PUCO Rejects AEP’s Guaranteed Income Plan for Coal Plants” in State Briefs, March 2, 2015.)

Akins didn’t seem optimistic about the chances for winning regulatory changes. “At this point, looking at it, you would need to lean toward that direction [of selling the unregulated plants] because there clearly is volatility in that business, and it’s very difficult to invest,” he said.

April 28, 2015June 15, 2023

Another Cold Winter Helps Michigan Utilities in Q1

By Chris O’Malley

Extreme cold helped drive first-quarter earnings at two of Michigan’s largest gas-electric utilities, though neither DTE Energy nor CMS Energy enjoyed quite the bump it did during the polar vortex last year.

Moreover, operating revenue at DTE Energy fell 24% on losses in its energy trading business. DTE’s first-quarter earnings of $273 million ($1.53/share) compare to $326 million ($1.84/share) in the first quarter of 2014. Per-share earnings exceeded a $1.52 forecast by analysts polled by Thomson Reuters.

Operating revenue of $2.98 billion was down from $3.93 billion a year earlier and less than the $3.53 billion analysts had forecast.

In the first quarter, DTE’s energy trading unit lost $9 million, versus a profit of $42 million in early 2014. The company cited mark-to-market adjustments.

Operating earnings for DTE Electric were flat, at $136 million. DTE Gas earnings of $111 million were down 14%, from $129 million during the first quarter 2014 polar vortex.

During a conference call with analysts, DTE Energy executives held firm on full-year earnings-per-share estimates of $4.48 to $4.72.

“We’re off to a strong start across our portfolio of businesses,” Chief Financial Officer Peter Oleksiak said.

First-quarter net income of Jackson, Mich.-based CMS Energy fell nearly 1% to $202 million ($0.73/share). That compares with $204 million ($0.75/share) in the first quarter of 2014.

On a weather-normalized basis, however, earnings per share were 7% more than last year’s first quarter, CFO Tom Webb told analysts during a conference call.

CMS said it was holding to its 2015 earnings-per-share guidance of $1.86 to $1.89, in line with the company’s annual adjusted growth goal.