Below is a summary of the issues scheduled to be brought to a vote at the Markets and Reliability Committee on Thursday. Each item is listed by agenda number, description and projected time of discussion, followed by a summary of the issue and links to prior coverage in RTO Insider.
RTO Insider will be in Wilmington covering the discussions and votes. See next Tuesday’s newsletter for a full report.
2. PJM Manuals (9:10-9:40)
Members will be asked to endorse the following manual changes:
Manual 02: Transmission Service Request — Changes aim to clarify and more accurately describe the Available Transfer Capability (ATC) processes and the Initial Study process for long-term firm transmission service requests. They include a grammatical cleanup; updated references to the Joint Operating Agreement; and links to the deliverability analysis in Manual14A and Manual 14B.
Manual 14A: Generation and Transmission Interconnection Process — Adds Feasibility Study data form and Impact Study data form.
Manual 14B: PJM Regional Transmission Planning Process — Updated to reflect existing long-term deliverability analysis procedures and cleanup language regarding voltage drop analyses, generator deliverability analyses, load deliverability analyses and cost allocation.
Manual 40: Training and Certifications Requirements — Revisions resulting from the annual review required by North American Electric Reliability Corp. standard PER-005-2; includes a new section on training of operations support personnel.
The Federal Energy Regulatory Commission approved PJM’s request to retain 2,000 MW of capacity in yesterday’s third Incremental Auction for 2015/16 but rejected its request to purchase capacity outside of the Reliability Pricing Model, calling it “unreasonably vague and ill-defined” (ER15-738).
PJM had requested the one-time waiver on rules that would otherwise require it to release 2,000 MW of capacity, saying it feared that it might run short due to retirements of coal-fired generation.
“The release of approximately 2,000 MW of committed capacity could yield a reserve margin below the established installed capacity needed to assure reliable service to loads,” the commission said. “Moreover, given PJM’s reliance on committed capacity resources, the poor performance of generating capacity resources last year and the expected high level of generation retirements, absent granting the waiver, PJM would face increased risks of being unable to serve load.”
The commission, however, rebuffed PJM’s request for permission to obtain additional capacity outside of its auctions.
“Capacity procured under the proposed Tariff provision would be in addition to the 2,000 MW procured at competitive prices under the waiver, and PJM has not provided just and reasonable Tariff provisions that specify the criteria for determining how much additional capacity it requires, nor how to determine whether those contracts are at just and reasonable prices,” the commission ruled.
It said PJM could refile its request with more specifics to address the shortcomings in the initial filing.
When Terry Boston took the helm of PJM seven years ago, the RTO was in turmoil, its reputation as the model for running competitive deregulated electricity markets in the balance.
Top management was battling allegations by PJM’s electricity price watchdog that the system was allowing generators to inflate rates. Amid the clash, Chief Operating Officer Audrey Zibelman and Chief Executive Officer Phil Harris abruptly resigned within months of each other, leaving the RTO rudderless.
In stepped the former executive vice president for the Tennessee Valley Authority, who early on in the deregulation of the market had focused on the importance of reliable transmission when the conversation — and profits — had drifted toward the generators.
“Terry brought PJM through a difficult period,” said Joe Bowring, the employee who challenged PJM’s credibility under former management and is now Independent Market Monitor for the RTO. “When he first got to PJM, he actively reached out to the Market Monitor unit, which we appreciated very much. He listened to us and all market participants.”
Now, North America’s largest power grid operator finds itself at the edge of another major change as Boston, 64, prepares to retire by the end of the year.
“I’ve been working in the utility industry for 43 years. It’s been a wonderful and rewarding career, but all good things must come to an end,” Boston told RTO Insider. “I am looking forward to spending more time visiting our kids, helping out our daughter Rachel with her career as an actress and getting out on our boat, which I haven’t been on in two years.
“I will continue on several boards and industry/professional groups. Most recently I’m involved with the Bipartisan Policy Center on energy policy and grid security and the National Academy of Engineering working on energy and the environment and improved analytics for the power system. I hope to remain engaged with the industry at a somewhat less demanding pace than working half days — that’s 12 hours per day,” Boston said.
Encouraging Team-Building
Boston is widely regarded by those who have worked with him during his time at PJM as a forward-thinking, approachable leader, a straight-shooter who strives for consensus and encourages team-building. The Tennessee native also enlivens meetings with his quirky sense of humor: To invoke the feel of a “fireside chat” at PJM’s General Session in February 2014, he propped up a tablet showing a video of a burning yule log on the stage.
“He’s been a real positive player in terms of a stable presence at PJM, with the vision of trying to see where it’s going. Particularly in the last year they’ve been very helpful in, No. 1, admitting they didn’t take gas-electric [coordination] as seriously as they should have, and No. 2, doing something about it,” said Federal Energy Regulatory Commissioner Philip Moeller. “He’s a great guy — he’ll be missed. But he deserves a lot of accolades as he winds it down.”
Sonny Popowsky, a former Pennsylvania state consumer advocate, sat with Boston on the board of the North American Electric Reliability Corp.
“He came in to PJM at a time of some turmoil with what direction we were headed and what the role of the markets was in terms of maintaining reliability,” Popowsky said. “When he came from TVA, he came with a strong background that focused on engineering and reliability. But he also came with an openness to the kind of market solutions that PJM is famous for. He’s been able to combine that really well.
“I think he’s just added a real level of stability and openness,” he said.
A Vocal Proponent of Consensus
Boston has publicly expressed his frustration with the number of Section 206 filings — used when stakeholders fail to reach consensus — submitted to FERC last year, including the request to raise the price-based energy offer cap from $1,000 to $1,800.
“Our ability to govern ourselves in the stakeholder process depends in large part on compromise,” he told the Markets and Reliability Committee at its year-end meeting. He opened the first MRC meeting of 2015 with another plea for consensus. The year ahead will hold a number of challenges, he said, especially as the RTO faces “the fastest fuel change in industry history” from coal-fired plants to natural gas.
In announcing Boston’s plans for retirement last week, Board of Managers Chairman Howard Schneider said on behalf of the group, “Terry’s deep knowledge of the electricity industry, strong business ethics and ability to forge strong relationships with PJM’s stakeholders have been instrumental in the success of PJM.”
During Boston’s tenure, PJM increased its billings from $30.6 billion in 2007 to more than $42 billion in 2014 while the RTO’s membership grew from 500 to more than 900 companies.
In 2008, Boston implemented “perfect dispatch,” a metric denoting the lowest production cost possible while maintaining reliability, which the company uses as a baseline to analyze and improve dispatch efficiency. According to PJM, the process has saved a cumulative $842 million — three times the cost of PJM’s annual operating budget.
At TVA, Boston ran the storm center for 20 years, and while at NERC he sat on the steering committee that investigated the 2003 Northeast blackout.
“I’m proud that PJM and our members met three one-in-100-year weather events in the last four years — and the polar vortex was not one of them,” Boston said. “They were the hottest day of record in 2011, followed by the derechos and Hurricane Sandy in 2012. In addition, we’ve met back-to-back all-time winter peaks in January 2014 and February 2015.”
Who Will Take Boston’s Place?
Andy Ott
As for who will take the top spot, PJM says a “rigorous succession process” has been underway. “Candidates to succeed Boston will be considered on demonstrated leadership abilities, industry expertise and reputation, as well as commitment to electric system reliability and fair, efficient electric markets,” it said in a press release.
Among potential in-house candidates are Executive Vice President for Operations Mike Kormos and Executive Vice President for Markets Andy Ott, who frequently represent PJM before FERC and in industry forums. With higher titles, but lower public profiles, are Chief Financial Officer Suzanne Daugherty and General Counsel Vince Duane, both of whom hold the rank of senior vice president.
During a break at FERC’s technical conference on the Environmental Protection Agency’s proposed carbon rule last week, Kormos told RTO Insider that he was “absolutely” interested in the job.
His colleagues on the executive team did not respond to requests for comment on their interest in the position.
While the Board of Managers has identified no candidates, stakeholders are firm in the type of person they’d like to see assume the role.
“Somebody similar, with not only the ability to have a vision but to also manage a diverse set of stakeholders that range from, obviously, members of PJM to state commissions and state governments and FERC,” Moeller said. “It’s a lot of relationships to manage, and so you’ve got to have the right personality as well.”
Popowsky suggested that the board choose someone ideologically open, as he said Boston has been.
“Someone who says, ‘What’s the best combination of markets and regulation to produce the paramount goal of a reliable electric system that’s affordable to the folks who depend on it?’” he said.
Mike Kormos
Boston said his successor will face a number of challenges.
“Certainly, dealing with the largest and most rapid fuel shift in history has many downstream impacts. I believe it’s manageable, but it will take a lot of work to get through it,” Boston said. “The future of demand response and renewables, the introduction of new technologies and new consumer-use patterns, grid security and the growing complexity of the business all are challenges that I expect will keep my successor and the entire PJM team very busy.”
College Classmate-Turned-Sweetheart, Family Life
Boston has served on numerous industry boards and is the immediate past president of the GO15 international association of large grid operators. Last year, he was elected to the National Academy of Engineering.
He holds a bachelor’s degree in engineering from Tennessee Technological University and a master’s degree in engineering administration from the University of Tennessee.
It was at Tennessee Tech that Boston met his wife-to-be, Brenda, when they shared an organic chemistry class. The couple have three children: Rachel, a prolific actor who most recently played Ingrid Beauchamp in the TV series “Witches of East End;” Andrew, who earned a master’s in business administration from Harvard and now is an investor with Founders Circle Capital in San Francisco; and Brian, a graduate student at the University of Hawaii, where he is earning his doctorate in geophysics.
“Andrew was a world-class rower for Harvard and Oxford,” Boston said. Andrew worked on and sold a high-tech startup to a London company before going to Harvard.
“Brian, our youngest, will be the first Ph.D. in the family when he graduates this year from the University of Hawaii in geophysics. Last year, he worked on a Japanese research ship to collect data from the deepest research hole ever drilled through two tectonic plates to better understand the Fukushima earthquake zone off the coast of Japan.
“The kids were always busy with school and sports. They learned a strong work ethic and found that hard work pays off,” Boston said.
ISO-NE asked the Federal Energy Regulatory Commission last week to reverse its order directing a market-based solution for the next winter reliability program.
The RTO said that mandating a market-based solution now, instead of in three years as it originally contemplated, is premature. “The options for developing a market-based solution in the context of existing obligations are, at best, potentially less effective than the winter reliability programs and, at worst, less effective, inefficient, controversial and expensive to implement,” ISO-NE wrote in a Feb. 19 filing (ER14-2407-003).
ISO-NE’s Pay-for-Performance program is set to debut in late 2018. The RTO has relied on out-of-market solutions to ensure reliability over the past two winters and said it needed the interim time to develop more permanent fixes.
However, power generators in New England argued that the most recent FERC order accepting the temporary fix meant that a market-based solution should be in place for the 2015-2016 season (ER14-2407). FERC agreed in a clarification of that order issued on Jan. 20. (See FERC Orders Market-Based Reliability Program Next Winter in ISO-NE.)
New England has experienced severe natural gas pipeline constraints as the region’s power market switches to gas for power generation. Recent retirements of the Vermont Yankee nuclear station and coal-fired plants have also tightened supplies. The RTO has encouraged the development of dual-fuel generators with fuel oil as a back-up.
ISO-NE said the program to ensure adequate fuel supplies has succeeded, as demonstrated in recent weeks as New England endures a prolonged cold spell.
It also said that power generators have not advanced any potential solutions in the January or February Markets Committee meetings and that the passage of time means that developing a market-based approach for next winter is infeasible.
ISO-NE wants to have the rehearing question resolved by June 1.
Earnings from U.S. operations were a bright spot for Spanish utility conglomerate Iberdrola SA, as the company coped with the effects of slashed government subsidies for renewable energy in its home country.
Iberdrola said 2014 profits fell to 2.33 billion euros ($2.66 billion), from 2.57 billion euros in the same period last year. The Spanish government’s cuts in renewable-power subsidies and distribution reduced earnings by 617 million euros, the company said.
U.S. earnings, however, grew. “Our U.S. businesses grew EBITDA by 7.2% over last year, which enabled us to contribute more than $1.6 billion (1.2 billion euros) of EBITDA to the [Iberdrola] Group’s strong performance,” said Bob Kump, chief corporate officer of Iberdrola USA.
Subsidiary Iberdrola USA is the parent of New York State Electric & Gas, Rochester Gas & Electric, Central Maine Power and other natural gas units in Maine and New Hampshire, with a combined customer base of about 3 million.
Iberdrola officials pointed to a rate case in Maine that raised distribution rates by $24.3 million. Looking ahead, the company said it is on schedule and within budget for the Maine Power Reliability Program (MPRP), a $1.4 billion upgrade that includes 40 substations and 440 miles of transmission lines with links between Maine and New Brunswick, Canada.
The company is also due to file a rate case in the RG&E territory, which will positively affect earnings, it said. Other transmission investments are expected to pay dividends in the coming years.
“In New York now we’re already involved in two projects, transmission projects, to inject electricity into New York City,” CEO Ignacio Galan told analysts in the earnings call.
Through NYSEG and RG&E, Iberdrola is a partner in New York Transco, a joint venture designed to bring upstate power generation to the New York City area. It is also a partner in the Champlain Hudson Power Express project, which would ship hydropower from Quebec. (See NYISO Supports TO Exemptions to BSM Rules.)
DNREC Taking Public Comment on Controversial Refinery Water Permit
A plan by the Delaware City Refinery to upgrade its cooling water intake and discharge will be the subject of a public comment session on March 24.
The Department of Natural Resources and Environmental Control in December said it had reached a draft agreement with refinery owner PBF Energy that calls for the company to spend up to $10 million to reduce aquatic life deaths at its water intakes. Environmentalists, however, have called for measures to force the company to build a more expensive cooling tower system for the refinery to recycle cooling water, rather than the current method of drawing and discharging water directly from the Delaware River.
Lawmakers Introduce Bill to ‘Fix’ RPS, Set New Standards
Illinois lawmakers have introduced a bill that would increase the state’s renewable portfolio standard to 35% by 2030. The current standard calls for 25% of the state’s energy to be generated by renewable sources by 2025.
The bill, sponsored by state Sen. Don Harmon and Rep. Elaine Nekritz, directs the Illinois Power Agency to develop a long-term plan for renewables. The bill also provides guarantees that utilities will support residential and community solar installations, and encourages construction of utility-scale solar to be built on brownfields.
The legislation also directs the state Environmental Protection Agency to develop market-based strategies to reduce carbon emissions in the state.
House Committee Passes Bill Limiting Payments for Solar, Wind
A House committee last week passed a bill that would establish a fixed rate that utilities pay residential renewable energy owners, drawing protests from advocates.
The bill, HB 1320, would set a fixed rate that utilities would have to pay for electricity that small-scale solar and wind generators feed back to the grid. Opponents of the bill say they are worried that it would reduce incentives for small solar producers and that it could allow utilities to unfairly profit from reselling the power to other customers on their systems.
“For the last 10 years of my career, I’ve been working hard to develop a solar energy market in southern Indiana,” said Brad Morton, an Evansville resident and owner of Morton Solar. “HB 1320 takes away any little bit of economic incentive for rooftop solar and puts it right into the pockets of the utility companies.”
Utilities Board Turns Down Request for Separate Clean Line Hearing
The Utilities Board turned down a request from Clean Line Energy Partners to hold a special hearing to examine eminent domain issues associated with the company’s planned 500-mile Rock Island Line transmission project.
The commission, which needs to grant eminent domain rights as part of its approval process, said a separate hearing on eminent domain would inconvenience property owners along the transmission line’s route while providing a benefit to the company.
The company said the $2 billion project is going forward. The line would run from northwestern Iowa to Illinois. The project has already received approval from the Illinois Commerce Commission and the Federal Energy Regulatory Commission.
Public Utilities Board Denies Manitoba Hydro’s Rate Hike
The Public Utilities Board rejected Manitoba Hydro’s application for a 3.95% rate hike that would have gone into effect April 1.
It was good news for those who think the company’s rate hike requests are too frequent. “We are pleased the PUB has taken the side of Manitobans who pay the bills,” said Hydro critic Ralph Eichler. “We see Hydro as an asset owned by all Manitobans that must be managed thoughtfully and it appears the PUB agrees with us on this.”
Manitoba Hydro may still apply for a rate hike later in the year, however.
Bill Would Stop Fees for Customers Who Don’t Want Smart Meters
Two Maryland lawmakers are filing bills that would prohibit utilities from charging customers who don’t want smart meters on their homes or businesses.
Currently, the Public Service Commission allows customers to opt out of the various smart meter programs in the state, but it allows utilities to charge those customers fees to pay for the manual reading of their meters. Pepco charges an upfront fee of $75 for not getting a smart meter and a monthly charge of $11 to $17. Baltimore Gas & Electric, Delmarva Power & Light and Southern Maryland Electric Cooperative also charge to opt out of the programs.
A bill sponsored by Sen. Nathaniel J. McFadden and Del. Glen Glass would stop the fees, and also require utilities to notify customers before smart meters are installed. Pepco indicated that it would fight the bill.
Report: Death of Cape Wind Project Shows States Need to Work Together
The death of the Cape Wind project is an illustration of everything wrong with U.S. wind energy policy, according to a report commissioned by the Clean Energy Group.
The $2.6 billion project off Cape Cod was becalmed last month when two utilities with power purchase agreements backed out after Cape Wind missed financing deadlines.
The report said that instead of securing approval by one state, future projects should get an entire region to support the projects. “While the Cape Wind project floundered amidst fierce local opposition, the project’s difficulties highlight a larger policy problem — it is difficult, if not impossible, for any single state to jumpstart the offshore wind industry,” the report states.
Supreme Court Orders Mississippi Power to Return Kemper-Related Rate Increase Money
The state Supreme Court has ordered Southern Co. subsidiary Mississippi Power to refund $271 million in rate increases that it said the Public Service Commission improperly imposed to pay for a costly power plant.
The court’s decision concerns the PSC’s decision to allow rate recovery of Mississippi Power’s over-budget Kemper County integrated gasification combined-cycle plant. The commission allowed Mississippi Power to collect $125 million for construction costs in 2013 and another $156 million in 2014. The 582-MW plant has been plagued by cost overruns and delays.
The PSC, according to the ruling, never found that the funds were “prudently incurred,” a requirement for recovery. It also found that the PSC erred in not giving proper notice to the public about the company’s request for recovery, and by keeping confidential related information. “The commission’s decision to govern in a cloak of secrecy and grant confidentiality to rate-impact information was arbitrary and capricious,” the ruling said.
The Public Service Commission wants more information from Clean Line Energy Partners about its proposed 700-mile Grain Belt Express transmission line project before it will consider approving it.
The PSC said new questions arose after a series of technical hearings in Jefferson City about the project, which would deliver electricity from Midwestern wind farms in the east.
Opponents seeking to thwart the project declared victory. The commission’s order for more information is “a very tall order and will take considerable time and funds to produce,” said a group called Block Grain Belt Express. “We interpret this as an extremely promising sign.”
Keystone Opponents Vow to Keep Fighting No Matter What Feds Do
Keystone XL pipeline opponents said they will continue to fight a change in state law that allowed former Gov. Dave Heineman to approve the pipeline’s route, bypassing the Public Service Commission.
A group called Bold Nebraska has filed suit in state court to overturn the law and to give the routing decision back to the PSC. Opponents are also pressuring lawmakers to overturn the law.
TransCanada, the company seeking to build the pipeline, said it was temporarily halting efforts to seek route approvals in Nebraska. That move came a week after a Nebraska district court judge issued a temporary injunction barring the company from invoking eminent domain along the northern Nebraska pipeline route.
Cuomo Calls to Boost Oil Spill Fund from $25 Million to $40 Million
A day after a train carrying crude oil derailed and burst into flames in West Virginia, Gov. Andrew Cuomo’s administration proposed raising New York’s soil spill fund from $25 million to $40 million and shifting its control from the state comptroller to the Department of Environmental Conservation.
The fund is used for immediate payment of cleanup costs and is financed by penalties paid by violators. Albany has become an important oil-train hub since the boom in Bakken crude.
Supreme Court Sides with Duke on 2 Challenges to Rate Hike
The state Supreme Court on Wednesday upheld the Utilities Commission’s approval of a 2013 Duke Energy Carolinas rate hike, turning away challenges by the state Attorney General and NC WARN, a solar advocacy group.
The rate increase was based partly upon a 10.2% return on equity that the commission allowed Duke. NC WARN had argued that the company’s allocation of costs discriminated against residential customers. In December, the court upheld the company’s 2012 rate case. Attorney General Roy Cooper, who is eyeing a 2016 gubernatorial bid, has challenged several Duke rate increases.
TransCanada Proposes Another Pipeline – This One to Send Oil into Canada
The company that wants to build the Keystone XL pipeline is now proposing a second pipeline — this one to deliver oil from the state into Canada.
TransCanada is proposing to build a $600 million pipeline to go from northwestern North Dakota to Saskatchewan. The Upland Pipeline will need approval from the U.S. State Department, the Public Service Commission and Canada’s National Energy Board.
Supreme Court Rules States have Exclusive Authority over Fracking
The state Supreme Court has ruled that states have “exclusive authority” over hydraulic fracturing, and that cities and counties cannot regulate or ban the practice.
The 4-3 vote held that the Department of Natural Resources in 2004 was given the power to license and regulate where the state’s wells can be drilled. The ruling was seen as a victory for oil and gas producers, who often faced local opposition.
“We have consistently held that a municipal-licensing ordinance conflicts with a state-licensing scheme if the local ordinance restricts an activity which a state license permits,” wrote Justice Judith L. French in the majority opinion.
State Audit IDs Millions in Possible FirstEnergy Savings
A performance audit of FirstEnergy’s four utilities in the state identified ways to save nearly $20 million in one-time savings and a further $3.7 million annually.
The state audit made 28 recommendations. FirstEnergy has accepted 25 of them and is working to put new procedures in place by the end of 2019. The audit looked at 14 areas such as customer service, emergency preparedness and inventory management. The auditors said West Penn Power could save $8.4 million in inventory control improvements alone.
Public Service Department Asks for NRC Hearings on Yankee Plan
The Department of Public Service asked federal regulators to hold hearings on Entergy’s plan to cut back on emergency responsibilities now that its Vermont Yankee nuclear generating station has been permanently shut down.
The Nuclear Regulatory Commission said last week that it is setting up an Atomic Safety and Licensing Board panel to review the proposed changes. Entergy has said it wants to reduce its emergency responsibilities to reflect the plant’s lower risk profile.
The Public Service Commission issued a siting certificate to Moundsville Power for a 549-MW combined-cycle natural gas plant in Marshall County that will also be the first U.S. plant able to burn ethane.
The certificate allows Moundsville to seek financing for the $815 million project. When completed in early 2018, the plant will become a wholesale generator in the PJM market. In addition to helping offset carbon emissions from coal-fired plants, the Moundsville project will secure its natural gas and ethane from state sources.
Gov. Scott Walker named a former Madison Gas & Electric executive to head the state Department of Administration.
Scott Neitzel was named as the department’s new secretary a week after he abruptly resigned from a senior vice president position at MG&E. He is replacing Mike Huebsch, who is moving to the Public Service Commission.
Neitzel gave no reason for leaving MG&E, where he’d worked since 1997. He left behind a $315,180 salary. Before working at MG&E, he served a five-year term with the PSC.
WASHINGTON — Senior Environmental Protection Agency officials promised energy regulators and utility executives last week that the final carbon emission rule the agency issues this summer will protect reliability and not crush consumers.
But the message, delivered at the winter meetings of the National Association of Utility Regulatory Commissioners and a Federal Energy Regulatory Commission technical conference, left many in attendance skeptical. While officials said they will make changes to address concerns raised over the proposed rule issued last June, they offered few details.
EPA Administrator Gina McCarthy at NARUC’s 2015 Winter Meeting
EPA Administrator Gina McCarthy told a NARUC general session Tuesday that the agency has been taking critiques of the Clean Power Plan to heart. Referencing prior EPA rulemakings, McCarthy said “each and every time, we learned from the comment period.”
McCarthy acknowledged the frustration state and industry officials have expressed over the lack of certainty in the proposed rule, which seeks to reduce power plant emissions 30% by 2030. “We’ll try to be a lot more specific in the final rule so states can design their [compliance] plans with the certainty they’re looking for,” she said.
Later that day, Janet McCabe, acting assistant administrator for EPA’s Office of Air and Radiation, appeared on a NARUC panel discussion with FERC Commissioner Philip Moeller. McCabe and Moeller spoke after listening to utility regulators from states both supportive of the plan (California and Maryland) and those highly critical of it (Wisconsin, Wyoming, Arkansas and Texas).
McCabe also was the leadoff witness at FERC’s day-long technical conference on the reliability impacts of the plan Thursday.
The topics at the two forums included the “early cliff” of 2020 targets; states’ willingness to embrace regional and market compliance methods; how to craft a “reliability safety valve;” and the limitations of Order 1000.
In addition to McCabe, FERC heard from more than two dozen state regulators and industry and RTO officials — and about 10 protestors. The demonstrators, wearing red T-shirts and carrying signs, broke several times into chants of “Gas is dirty, wind and solar now,” before being escorted out by security.
McCabe Vague on Alternatives to Building Blocks
Many critics have challenged the assumptions in EPA’s four “building blocks” for achieving compliance: heat rate improvements, more natural gas generation, nuclear and renewables, and energy efficiency.
McCabe attempted to reassure FERC that there will be other ways to achieve EPA’s targets beyond the four spelled out in the agency’s proposed rule.
“A lot of attention has been zeroing on the four building blocks, and why they pose challenges and why EPA didn’t get that quite right,” McCabe said. “I think it’s important not to forget that there’s a range of other activities that states and utilities can engage in that will lead to reduced carbon.”
But, pressed by Moeller for details, the command she had displayed in reading a prepared statement was replaced with halting, vague sentences.
“A lot of the stakeholders and people in the industry are having good discussions about this. There are other ways to improve the efficiency of the system. One that’s been mentioned a number of times is transmission efficiencies and working on those areas …” she responded. “One of the significant uses of power in municipalities is water and wastewater. So efforts to be more efficient there can reduce the amount of power that’s needed. So we think there are a variety of things that can be done.”
Thursday’s “national overview” session was the first of four scheduled technical conferences on the EPA proposal’s impact on reliability and wholesale electricity markets.
FERC announced the conferences in response to a request from three Republican lawmakers, including Alaska Sen. Lisa Murkowski, chairman of the Energy and Natural Resources Committee. The Republicans said in a letter to FERC that EPA “lacks the mission and the expertise to determine what is necessary to maintain the reliability of the nation’s electric grid.”
Additional sessions are scheduled for Feb. 25 in Denver, March 11 in D.C. and March 31 in St. Louis (AD15-4).
The day-long technical conference included discussions on numerous aspects of EPA’s carbon emission rule. Below is a summary of several of them, along with links to the witnesses’ written testimony.
Downbeat Moeller Says Only 2 of 4 Building Blocks Work
Moeller on Thursday offered his harshest critique yet of EPA’s proposed carbon emission rule, saying that only two of the plan’s four “building blocks” are viable.
Moeller told the FERC technical conference that building block 1’s call for average heat rate improvements of 6% for coal steam electric generators is unrealistic and that states will be reluctant to adopt building block 4, which calls for improving demand-side energy efficiency to 1.5% annually, because of questions about how states will enforce such goals.
Building blocks 2 and 3 — dispatching natural gas combined-cycle units to up to a 70% capacity factor, and use of more zero- and low-emitting power sources — are also fraught with challenges, Moeller said.
“In the Midwest there’s already a lot of wind and a lot of transmission access. Can there be a lot more? Well, yeah, but basically the Midwest has got to get through to building block 2,” he told reporters during a break in the hearing.
“To go from what is a 24 to 28% capacity factor … now to something approaching 70[%] — I don’t see how the math lines up for peak demand for pipeline capacity in an area of the country that gets very, very cold. Is it doable? I hope so. But you go back to the fundamental problem I’ve been raising.”
That problem: finding new ways to fund pipeline expansions. While previous expansions have been backed by long-term contracts with local distribution companies, “the new customer base is power plants and the day-two market and they’re not likely to sign long-term firm contracts,” Moeller said. “So how do we get the financing for these new pipes?”
At the NARUC meetings, regulators from Wisconsin, Wyoming and Texas expressed similar concerns, with Wyoming Public Service Commission Chairman Alan Minier saying that none of the four methods would work for his state.
Regulators: ‘Bake in’ Reliability Safety Valve to Rule
Backers of a “reliability safety valve” said it should be explicitly included in the EPA rule to ensure it survives legal challenges.
FERC Chairman Cheryl LaFleur said she was aware of about four proposals, the most detailed of which she said was that of the ISO/RTO Council (IRC).
The IRC proposed that a safety valve be allowed to address reliability issues that were not previously identified or anticipated, or that arise or become fully identified during development or implementation of state plans. It would require independent verification by reliability authorities and be limited to issues that cannot be addressed by modifying a state plan in a way that would allow it to comply under its approved compliance schedule.
“We’ve got to write these processes into the final rule itself” to make it harder for courts to throw it out, said Craig Glazer, PJM vice president of federal government policy, representing the IRC. “If you write the reliability safety valve into the rule itself, it’s harder for a district court judge to find that you’ve violated the rule.”
John Moore, senior attorney for the Natural Resources Defense Council’s Sustainable FERC Project, said the rules for implementing the safety valve must be “fairly tight” to encourage states to first take advantage of the flexibility in the EPA rule.
With accurate reliability modeling, and proposer planning, “we think the reliability safety valve … will be needed a lot less than many say,” he said.
Carbon Price Adder: Rational and Cost Effective for Some, Political Poison for Others
Several witnesses, including those representing PJM and Exelon, called for implementing the rule through a carbon-price adder that would incorporate compliance into an RTO’s economic dispatch.
Kathleen Barrón, Exelon’s senior vice president of federal regulatory affairs and wholesale market policy, outlined a proposal that would have EPA set a nationwide price for carbon at a level high enough to reduce emissions to meet the Clean Power Plan’s goals. The plan is adopted from one suggested by Great River Energy, which serves 28 distribution cooperatives in Minnesota and Wisconsin.
States that opt-in would be considered in compliance under what Exelon calls a “Reliability Dispatch Safe Harbor.” Generators in those states would include the carbon fee as a variable operating cost.
The plan would boost the competitiveness of all low-carbon generators, including renewables and Exelon’s nuclear fleet, while allowing dispatch of high-emitting plants during times of high demand to ensure reliability.
States could require grid operators to return the collected carbon adders to electricity suppliers for refunds to consumers, mitigating compliance costs, Barrón said.
Exelon estimates the proposal could reduce states’ compliance costs by 75%, limiting retail rate increases to 2 to 5%.
PJM Executive Vice President for Operations Mike Kormos said a carbon price would be the simplest way for the RTO to help states achieve compliance. Although it would be more complicated, PJM could administer the system even with different states adopting different prices, he said.
“Absent an explicit price, it is unclear how an RTO would be able to allocate available run hours of units to when they are needed most,” Kormos said in his written testimony. “… Unit-specific environmental constraints could decrease price formation transparency as well as lead to congestion being transferred into uplift for which hedging is not possible.”
How would states react to such a proposal? Moeller wondered.
Maine Public Service Commissioner David Littell termed Exelon’s proposal a “very good one.” Maine is one of nine Northeast and Mid-Atlantic states in the Regional Greenhouse Gas Initiative, which administers a market-based cap-and-trade system. RGGI says it has reduced carbon emissions by 40% from 2005 levels.
But the idea is a non-starter in some other regions, such as the coal state of Kentucky. Public Service Commissioner James Gardner said complying with the Clean Power Plan will be much more difficult than meeting EPA’s Mercury and Air Toxics Standards (MATS) because the earlier rule didn’t require legislative approval.
“The key building block is the state and the state is a political entity,” said Gardner, who noted that the General Assembly has approved legislation that says the state can only include building block 1 (heat rate improvements) into its plan. “There’s no way Kentucky is going to approve a carbon price.”
Great River Energy Vice President Jon Brekke said stakeholders should push a market-based solution despite such opposition. “I think you can make a construct of the willing,” he said.
Relying on the market means you don’t have to choose winners among generation technologies in advance, he added. In contrast, EPA’s building-blocks approach treats renewables better than carbon capture and sequestration and nuclear fusion, two elusive technologies that Brekke said might become viable in the future.
Carla Peterman of the California Public Utilities Commission said the cheaper cost of compliance under a market-based system will attract reluctant states. “Once you start demonstrating that there are benefits, others will join.”
Littell agreed. Responding to a question from FERC Commissioner Norman Bay, Littell said more will join such a system “once we get through the litigation period” — court challenges to EPA’s authority. “I’m not so pessimistic” on a carbon price, he said. “Utilities are the ultimate rational actors.”
2020/2030 Deadlines
One of the most controversial aspects of EPA’s proposal is its interim 2020 carbon-reduction goals.
Gerard Anderson, CEO of DTE Energy and representing the Edison Electric Institute, said it was no problem getting consensus among EEI members on the need for a longer timeline for compliance. The EPA plan, he said, is the “most fundamental transformation of our bulk power stem that we have ever undertaken.”
Anderson said the plan requires most states to implement 50% of their compliance by 2020 and 11 states, including Michigan, to achieve 75% of their goal by the interim deadline.
Anderson said compliance could mean shuttering of 85 coal-fired generators in MISO, including 12 DTE generators representing 40% of energy production and 30% of peak production. “The front end of this is compressed in a way that affects reliability,” he said.
Jay Morrison, vice president of regulatory affairs for the National Rural Electricity Cooperative Association, said his members are concerned about the “early cliff” of the 2020 interim goals, with some fearing they won’t be able to comply with the final targets by 2030.
Morrison asked FERC to “recognize that reliability and affordability are two sides of the same coin.” Policymakers will have failed, he said, if “we keep the lights on but consumers can’t afford to flip the switch.”
Susan Kelley, president of the American Public Power Association, agreed. “Removing the 2020 cliff would be a huge help, but it doesn’t solve all the problems.”
Alexandra Dunn, executive director of the Environmental Council of the States, said the compressed timelines could result in less efficient, state-by-state compliance. “I’ve had states say ‘I don’t have time to work across state lines. I will have to write a plan that’s just about my state.’”
The NRDC’s Moore insisted “the rule doesn’t have a 2020 cliff.”
“We strongly disagree with the idea that resources are all facing that deadline,” he said, noting EPA’s requirement that states meet average emission targets between 2020 and 2029.
He said the reliability modeling NERC and some regions have done failed to fully account for new replacement generation above the minimum levels specified in the building blocks.
Interregional Transmission
Several speakers touched on the subject of interregional transmission, which could help deliver wind power to load centers that require low-carbon generation.
“Don’t hold your breath on interregional transmission,” said Moeller, “because Order 1000 kind of punted on that.” The order requires transmission providers only to “consider” whether the needs identified in their local and regional transmission plans could be addressed most cost-effectively through joint projects with a neighboring region.
Rob Gramlich, the American Wind Energy Association’s senior vice president for government and public affairs, said the commission should reconsider Order 1000’s public policy provision, which he said didn’t anticipate the Clean Power Plan. The order requires transmission providers only to identify transmission needs driven by public policies, and potential solutions, in their plans.
NRDC’s Moore agreed, saying “we’ve seen almost no interregional projects getting built.”
NYISO must amend its Tariff to establish uniform rules for identifying and compensating reliability-must-run (RMR) generators, the Federal Energy Regulatory Commission ruled Thursday.
“Without such provisions, there is no assurance that generation resources will be treated on a not unduly discriminatory basis and have the opportunity to collect compensatory rates without a protracted proceeding,” FERC ruled.
FERC ordered the ISO to make a compliance filing within 120 days specifying the rates, terms and conditions for RMR service (EL15-37).
Noting that the ISO has been unable for nearly four years to win stakeholder consensus regarding compensation for RMR units, FERC said “the commission thus has no expectation of NYISO and its stakeholders addressing the matter on their own. Yet, the need for RMR service remains.”
FERC said the lack of uniform rules created uncertainty that could compromise system reliability. It ordered NYISO to include in its filing a process for determining which generation resources seeking to deactivate are needed for reliability; compensation for RMR service, including accelerated cost recovery for generators that require upgrades, retrofitting or other investments; and how RMR costs should be allocated.
The commission pointed to MISO’s process for considering alternatives to RMRs, such as generator construction or transmission upgrades, and to PJM’s cost allocation method.
RMR agreements should be of limited duration and not prolong out-of-market solutions, FERC added. In addition, the Tariff provisions must include rules to minimize incentives for generators to “toggle” between RMR compensation and market-based rates, FERC said.
“The commission appreciates that uneconomic units could become economic for a number of reasons, including changing market conditions and the need for and timing of capital investments,” FERC said. “However, the commission is concerned that any proposed provisions not provide an incentive for a generation resource to propose to deactivate earlier than it otherwise would have in expectation of being needed for reliability and, therefore, be able to receive more revenues under an RMR service agreement than by remaining in the market.”
The order was spurred by two coal-fired generating stations in western New York, Dunkirk Power and Cayuga Operating Co., which had been targeted by their owners for mothballing.
The New York Public Service Commission had determined the two plants were needed to maintain reliability.
Dunkirk is a 635-MW, four-unit coal-fired plant outside Buffalo that owner NRG Energy sought to close in 2012. More recently, it won PSC approval to repower the plant as a 475-MW gas-fired station.
Cayuga is a 306-MW coal-fired plant in Lansing, near Ithaca, that is owned by Upstate New York Power Producers. It, too, sought to close its plant in 2012 due to economic factors and expensive upgrades needed to bring it into environmental compliance.
While the circumstances of the plants were similar, FERC noted that different filings were made before it or the PSC with various financial incentives to keep the plants operating. The companies requested cost-based RMR proceedings before FERC be held in abeyance while they negotiated reliability support services agreements (RSSAs) with the host utilities under the guidance of the PSC.
FERC last week rejected Dunkirk’s 2012 filing of an unexecuted cost-of-service RMR agreement. FERC said no service was ever provided under the agreement and the time period covered by it has expired (ER12-2237).
FERC granted Cayuga’s request to withdraw an unexecuted 2012 cost-of-service RMR agreement (ER13-405). Cayuga said the agreement was moot now that it has reached an agreement on an RSSA with New York State Electric & Gas.
Another RSSA proceeding in New York is underway to avoid the closing of the R.E. Ginna nuclear station outside Rochester. Plant owner Exelon and local utility Rochester Gas & Electric were ordered by the PSC to reach financial terms. Negotiations concluded and the agreement was filed with FERC and state regulators earlier this month. (See Ginna Nuclear Plant Wins Contract to Keep Operating).
Former FirstEnergy CEO Anthony Alexander announced last week that he will retire and leave the company’s board of directors at the end of April, after only four months as the company’s executive chairman. The announcement came just before the company released its year-end earnings report, showing that it sustained a net loss in the fourth quarter of 2014.
Alexander, 63, stepped down as the company’s CEO on Jan. 1 and took the executive chairman title to serve as an advisor to new CEO Charles Jones, 59.
Jones began the company’s fourth-quarter earnings call last week by thanking Alexander.
“Tony guided our company through a dramatic expansion and navigated through one of the most challenging periods in the history of the utility industry,” Jones said. “We certainly wish him well as he begins this new chapter in his life and enjoys more time with his family.”
Alexander spent 43 years with FirstEnergy, beginning his career in the tax department of the company’s predecessor, Ohio Edison.
Another Lackluster Year
FirstEnergy reported a net loss of $306 million ($0.73/share) in the fourth quarter of 2014, compared to net income of $142 million ($0.34/share) for the same period in 2013. Profits for the year dropped 23.7% to $299 million ($0.71/share) from $392 million ($0.94/share), the company reported.
CFO Jim Pearson cited reduced margins on competitive operations and milder weather that drove down residential sales as two of the primary drivers for the drop.
The company’s operating earnings for 2014 were $2.56/share, on the low end of the range it projected a year ago. (See Reboot for FirstEnergy.)
Rate Cases, Rebound for Competitive Operations?
Jones (Source: FirstEnergy)
Despite the drop in earnings, Jones was optimistic about the company’s future.
The company is still in the midst of shifting focus from its unregulated FirstEnergy Solutions subsidiary to upgrading in regulated transmission and distribution, according to Jones.
“We continue to believe the initiatives that were put in place during 2014 laid the path for our future growth and success,” he said, citing pending rate filings. “The recent major storm events that have impacted FirstEnergy’s service territory have highlighted a need for hardening of our distribution systems.”
He also defended the company’s approach to its competitive business.
“I’ve been asked numerous times about the possibility of divesting this business,” Jones said of FES. “Frankly, at this point in time it doesn’t make sense, while we are at or hopefully near the bottom of the market, to sell these assets at the lowest value they will likely ever have. In addition, capacity market reforms and pending changes to the treatment of demand response are likely to provide near-term value for this business.”
UBS Reiterates Sell Rating
Some analysts are not so hopeful. Following the company’s earnings call, UBS Securities reiterated its sell rating on the company and lowered its projections for 2015 operating earnings to $2.53/share from $2.68.
UBS also said it was skeptical of Jones’ assertions that it would not unload its competitive business, saying Alexander’s departure means less board support for merchant operations.
“While there’s nothing to confirm our thoughts here yet, we suspect management could yet look to spin/sell the business later this year,” UBS said. “… We expect the writing will largely be on the wall well before November following the outcome of the Ohio [Electric Security Plan] and PJM capacity auction.”
MISO will have to adopt neighbor SPP’s cost allocation method for interregional transmission facilities addressing reliability needs, and both RTOs must revise their proposal for public policy projects, the Federal Energy Regulatory Commission said Thursday.
However, FERC’s Feb. 19 ruling (ER13-1937) accepted the RTOs’ proposal to use adjusted production costs in allocating the costs of interregional transmission facilities addressing economic needs.
MISO and SPP agreed on a number of revisions to their joint operating agreement to comply with Order 1000’s interregional planning requirements. But the RTOs could not agree on apportioning costs for reliability projects.
FERC rejected MISO’s proposal to use only adjusted production costs to evaluate interregional reliability upgrades, saying it must adopt SPP’s plan, which also incorporates avoided costs.
FERC said it agreed with SPP that “adjusted production cost only measures the generation and congestion cost to serve load and does not account for the quantifiable benefits of meeting public policy requirements or addressing reliability issues.”
SPP argued that MISO’s proposal disregarded the nature of the constraint and forced the use of a metric that is irrelevant for measuring the benefits associated with resolving a reliability constraint.
“We agree that SPP’s proposal to use a combination of avoided costs and adjusted production cost savings allocates the costs of interregional transmission facilities addressing reliability needs to SPP and MISO in a manner that is at least roughly commensurate with the estimated benefits of the interregional transmission facility while ensuring that [the RTOs] are not involuntarily allocated costs of these interregional transmission facilities from which they do not benefit,” FERC said.
FERC, however, also faulted SPP because it said it would use a metric “yet to be determined” for public policy projects.
MISO and SPP will have 60 days to file revisions with the commission.
