Eastern RTOs Express Confidence in Meeting Clean Power Plan Compliance

By Rich Heidorn Jr.

WASHINGTON — Representatives of PJM, ISO-NE and NYISO told the Federal Energy Regulatory Commission last week that they are prepared to implement their states’ plans for complying with the Environmental Protection Agency’s carbon emission rule but that the agency’s deadlines should be flexible to account for delays in building new gas pipelines and electric transmission.

PJM officials also told FERC in the third of four technical conferences on the Clean Power Plan that states that rebuff regional efforts to price CO₂ emissions could overwhelm the RTO’s economic dispatch software, undermining reliability.

That’s not an issue for New York and the six New England states, which are members of the Regional Greenhouse Gas Initiative (along with Maryland and Delaware in PJM). Officials of those states see RGGI’s cap-and-trade program as central to their states’ compliance.

Robert Ethier, vice president of market development for ISO-NE, said the RTO’s LMP energy market and forward capacity market, combined with RGGI, gives the region the tools it needs to comply “efficiently.”

RGGI the Right Tool

“RGGI seems like exactly the right mechanism to resolve this issue,” Ethier said.

Andy Ott, PJM’s executive vice president for markets, said the RTO’s regional dispatch can help reduce emissions either through an explicit carbon price or through run-time limitations on generators.

But Ott said PJM officials are concerned that if too many states choose run-time limits, it would result in “discontinuities” in the regional market that could threaten operating reliability.

“If a lot of states decide to put in physical limitations, it could actually create a situation where, more often than not, we can’t solve [dispatch] economically anymore, so then we have to go into … emergency dispatch. … That could affect reliability.”

Despite their concerns, RTO and state officials expressed far more confidence than state and utility officials from the Southeast, who also testified at the hearing. They also were more sanguine than several of the state officials who testified before a U.S. Senate hearing the same day. (See related stories, Debate over Cost, Impact of EPA Plan in Southeast and FERC Seeking Its Role on Carbon Rule ‘Safety Valve’.)

Flexibility on Deadlines

In addition to RGGI, New England will also depend increasingly on wind and Canadian hydropower to comply with the EPA rule, said Steve Rourke, ISO-NE’s vice present of planning. Of the 11,000 MW on the RTO’s generator interconnection queues, 42% is wind and virtually all of the remainder is gas.

Such a change in the generation mix will require a “significant transmission build out,” Rourke said. He noted the combined solicitation planned by Connecticut, Massachusetts and Rhode Island for more than 2,300 GWh of renewable energy annually and transmission to deliver it. (See New England States Combine on Clean Energy Procurement.)

The region’s best wind assets are in Maine and elsewhere in northern New England, many of them 100 miles from the existing transmission network, he said.

“We’re sort of far down the road toward meeting the requirements of the Clean Power Plan, but when you look forward there may be a few speed bumps in the road,” Rourke said.

Among those concerns, he said, are retirements of oil- and coal-fired generation, which will create a need for more gas pipeline and storage capacity. He also said the retirement of the Vermont Yankee nuclear plant raises questions about the viability of the region’s four remaining nuclear plants, which produce about one-quarter of its energy. “That’s a big question mark going forward,” he said.

Unrealistic Emission Rate

Rana Mukerji, NYISO’s senior vice president for market structures, said New York’s markets “are well structured to comply” with the rule but that EPA needs to provide the state “a more realistic emission rate.”

Mukerji said EPA’s proposed 549 lb/MWh rate is about half that of neighboring Pennsylvania (1,052 lb/MWh) and the limit on new combined-cycle gas turbines (1,000 lb/MWh).

That is not achievable in downstate New York, particularly New York City, which he said relies on dual fuel fossil units to meet needs on peak days. In 2012, Mukerji said, the city needed dual-fuel units for more than 14 peak days; EPA’s proposed rule envisions such units being called on only three times a year, he said.

March 5, 2015

Exelon ups Merger Offer in Maryland as AG Calls for Rejection – UPDATE

By Suzanne Herel

Maryland Attorney General Brian Frosh called on state regulators to reject Exelon’s acquisition of Pepco Holdings Inc., while the companies more than doubled their offer of ratepayer incentives.

Frosh told the Public Service Commission the $6.8 billion deal was unlikely to improve reliability and would harm competition.

“Post-merger, Exelon will control service to 80% of the state’s ratepayers,” Frosh said. “Internal documents show that Exelon plans to operate its distribution utilities to protect the company’s massive, multi-billion dollar investment in unregulated generation (including its economically challenged nuclear plants) by seeking to control the pace of distributed energy resource penetration in retail service territories.”

Frosh said the deal would only benefit the companies’ shareholders and executives, not ratepayers.

At the same time, the Coalition for Utility Reform and the city of Gaithersburg asked the PSC to require Exelon to up its commitment to renewable energy, energy efficiency and distributed generation. The March 3 filing was made by the coalition’s counsel, energy attorney and Montgomery County Councilmember Roger Berliner, a long-time Pepco critic.

“If the commission chooses to allow one energy company to control 85% of the Maryland market, a company hostile to renewables, distributed energy and energy efficiency among other things, then the commission must insist on a precondition that the merged entity adopt the very best practices in the Pepco service territory as a ‘pilot’ for the rest of the state, practices that simultaneously address the threat to the public interest and are, at the same time, generally recognized as the cornerstone of utilities of the future,” the coalition said.

Increased Rate Credits

Exelon outlined its new offer in a filing March 3 with the PSC.

With Pepco’s agreement, Exelon boosted a reserve that will pay for benefits such as rate credits, energy efficiency and help for low-income customers from $40 million to $94.4 million.

The use of the fund would be at the discretion of the PSC, whose staff had recommended $167 million in credits. Maryland’s consumer advocate, the Office of People’s Counsel, has urged the PSC to turn down the original deal, calling the benefits Exelon offered “either non-existent or woefully deficient.”

Exelon also increased its commitment to reliability, saying performance will be measured on an annual basis beginning next year instead of by a three-year average from 2018 to 2020.

Exelon also said it will offer a one-time amnesty for qualifying low-income families, eliminating unpaid bills that are more than three years past due.

The acquisition would combine Exelon’s electric and gas utilities — Baltimore Gas and Electric, Commonwealth Edison and PECO — with PHI’s Atlantic City Electric, Delmarva Power & Light and PEPCO.

In addition to Maryland, the merger must be approved by regulators in D.C. and Delaware. (See DC Consumer Advocate Seeks Delay in Exelon-Pepco Proceedings.)

The staff of the Delaware PSC has approved the transaction, as has the New Jersey Board of Public Utilities, the Federal Energy Regulatory Commission and the Virginia State Corporation Commission.

Exelon hopes to close the deal in the second or third quarter of this year.

Environmentalists Say Most Marylanders Against Exelon-Pepco Merger

The Chesapeake Climate Action Network (CCAN) last week released the results of a poll it commissioned that shows 61% of Marylanders share the group’s opposition to Exelon’s acquisition of Pepco Holdings Inc.

The telephone poll, conducted by Annapolis-based research firm OpinionWorks, sampled 594 randomly selected registered Maryland voters from Feb. 26 through March 8. It shows only 22% expressing approval, with 17% unsure. It has a margin of error of ± 4%, according to OpinionWorks.

Opposition was strongest in Baltimore City, where 73% opposed the merger. CCAN noted that Baltimore ratepayers have seen four rate hikes in the three years since Exelon acquired Baltimore Gas and Electric.

The pollsters prefaced the question with a statement noting that the Maryland Energy Administration “is opposed to the merger, saying it would create a large monopoly that would be costly for consumers.”

“We now know that this merger is not only a bad deal for Marylanders, but a highly unpopular one as well,” CCAN Director Mike Tidwell said in a statement. “… This deal would harm ratepayers and harm our future ability to generate local, renewable energy.”

On March 3, CCAN and the Sierra Club filed a joint brief with the Maryland Public Service Commission opposing the merger.

Exelon spokesman Paul Elsberg called the poll “fundamentally flawed.”

“The poll was conducted for a group that opposes the merger, not for an unbiased organization. Many of the respondents are not even customers of BGE or Pepco Holdings utilities,” he said. “Testimony provided at community hearings and directly to the PSC shows that there is broad support for the merger in the community.”

— Ted Caddell

March 3, 2015June 15, 2023

MISO Stakeholders Call for Seasonal Resource Construct; Cool to Mandatory Capacity Market

By Rich Heidorn Jr.

NEW ORLEANS — MISO stakeholders last week indicated widespread support for moving to a seasonal measurement of resource adequacy, with supporters saying it would improve reliability and efficiency.

MISO currently assesses resource adequacy annually, based on meeting the summer peak. But in a “hot topic” discussion at last week’s Advisory Committee meeting, all sectors except the Power Marketers and Independent Power Producers indicated support in adopting, or at least studying, a change to allow seasonal products.

“Under the current annual construct, seasonal demand is unaccounted for, seasonal resource capability and availability (most notably gas) is not recognized and seasonal transmission differences are not taken into consideration,” Manitoba Hydro, representing the Coordinating Sector, said in its written comments.

Flexibility

“An annual construct may result in reliance on resources when they are unlikely to be available and may underestimate the risk of loss of load other than at summer peak,” the company continued. “In addition, lack of flexibility for load to procure capacity (or be forced to over-procure for all months of the year) to meet variable seasonal demand is simply less efficient and cost effective.”

The company called not for a summer-winter construct but one that used four seasons, which it said would align with commercial contracts, financial transmission rights auctions and quarterly data submittals to the North American Electric Reliability Corp.

Steve Dahlke of the Great Plains Institute, representing the Environmental sector, said a seasonal construct would add more “granularity,” capturing, for example, wind’s increased production in the winter.

“We’ve seen wind resources helping out during this winter’s events,” he said, noting that wind generation set an all-time record Jan. 8, the peak demand day for the RTO this winter. He said it would also capture demand response not available in the summer.

The Transmission Dependent Utilities said a seasonal construct is “the most significant improvement” MISO could make to improve resource adequacy and urged MISO to implement it as soon as the 2016/17 planning year.

“The concept of a seasonal construct has been raised in a number of different forums over the past few years; however, MISO’s commitment to explore and pursue a seasonal construct still remains unclear,” it said. “… Stakeholders in the Supply Adequacy Working Group (SAWG) are still waiting for MISO’s views on this topic after formal discussions related to a seasonal construct began in early 2014.”

No Immediate Help

The IPP sector, however, said that such a change would not help MISO address expected capacity shortages in MISO North and Central next year. It noted that MISO has indicated a transition to a seasonal product could not happen before the 2017/18 planning year.

The IPPs said they were reserving judgment on the concept and that no discussion should occur until MISO publishes a promised white paper examining potential risks and opportunities.

“The IPP sector remains concerned that MISO has already pre-committed publically to state regulators to moving to a seasonal resource adequacy construct and without a fully vetted stakeholder process,” it said. “Such a process could prove lengthy, as already demonstrated when the current resource adequacy construct evolved from a monthly to an annual process. The MISO stakeholder process and regulatory process at [the Federal Energy Regulatory Commission] took almost four years before changes were accepted.”

“I don’t think it’s a forgone conclusion that we should move to a seasonal construct,” Dynegy’s Mark Volpe, representing the IPPs, told the committee.

The Power Marketers, meanwhile, said the idea was a solution in search of a problem. “Resource adequacy must be achieved every day, so having less capacity committed to the footprint on any given day will only serve to reduce reliability,” they said. “Subsequently, the economic efficiency of the energy market will suffer by reducing the number of resources that are available to be committed on a day-ahead and real-time basis.”

Opposition to Mandatory Capacity Market

There was almost as much consensus among stakeholders in opposition to a move to a mandatory capacity market such as PJM’s.

“MISO is not PJM,” said Justin Joiner of Vectren. “The concerns there do not exist in MISO.”

Alcoa and other members of the End-Use Customers sector also rejected the idea, also noting the differences between MISO, PJM, NYISO and ISO-NE.

“There has been a vibrant bilateral capacity market in place within the MISO footprint that has allowed end-use customers in MISO that do have retail choice (as well as municipal and cooperative electric utilities) the ability to contract for capacity at fixed prices at least three years into the future at reasonable prices significantly lower than in these other ISOs and RTOs,” it said.

The Organization of MISO States said it opposed imposition of a downward sloping demand curve or a minimum offer price rule, or the elimination of fixed resource adequacy plans.

No ‘Missing Money’ Problem

“To the extent there is a ‘missing money problem’ in MISO it is negligible and addressing the supposed problem will provide little benefit to the vast majority of the footprint,” OMS wrote. “For the majority of MISO generation — traditional, vertically-integrated, state-regulated generation — there is no missing money problem.”

OMS also said it opposed a mandatory resource adequacy construct. “If the [Planning Resource Auction] were mandatory, it would be the sole arbiter of MISO capacity prices, not state and local regulators.”

The IPPs called for both a sloped demand curve and a three-year forward commitment, saying that without them the “reliability of the grid is threatened.”

“MISO neither has an efficient capacity market, nor has enough capacity to meet reserve requirements,” they said. “This is not a coincidence.”

March 3, 2015

New York PSC Bars Utility Ownership of Distributed Energy Resources

By William Opalka and Rich Heidorn Jr.

New York’s overhaul of the electric industry, which seeks increased reliance on distributed energy resources, will largely bar utility ownership of those assets.

The state Public Service Commission on Thursday took another step in its Reforming the Energy Vision process with a 133-page order establishing a “policy framework” for the development of markets for distributed energy resources (14-M-0101).

The framework envisions utilities serving a central role in the transition as distributed system platform (DSP) providers, responsible for integrated system planning and grid and market operations.

In most cases, however, utilities will be barred from owning distributed energy resources (DER): demand response, distributed generation, distributed storage and end-use energy efficiency.

The planning function will be reflected in the utilities’ distributed system implementation plan (DSIP), a multi-year forecast proposing capital and operating expenditures to serve the DSP functions and provide third parties the system information they need to plan for market participation. The first plans will be due Dec. 15 from Central Hudson Gas & Electric, Consolidated Edison of New York, Orange & Rockland Utilities, Rochester Gas & Electric, New York State Electric and Gas and Niagara Mohawk Power. (See related story, Timeline for New York’s ‘Reforming the Energy Vision’.)

Grid Integration

From their place between NYISO wholesale markets and market participants and end-users, the utilities will integrate distributed resources by balancing supply and demand-side resources through real-time load and network monitoring, enhanced fault detection, automated feeder and line switching, and automated voltage and reactive power control.

“It is anticipated that over time, DSPs will increasingly rely on [distributed resources] to maintain reliable system operations during both ‘blue sky’ days and significant system events,” the order said.

Markets

The plan envisions procurement evolving from a near-term approach based on requests for proposals and load-modifying tariffs to “a more sophisticated auction approach.”

Although there will be room for geographically unique products, there will be a standard market platform for the entire state to ensure efficiency for providers and multi-site customers. “This requirement extends beyond the ‘common look and feel’ of customer orientation, into the technical protocols and market rules to which aggregators and service providers must conform,” the PSC said.

NYISO could accept demand reduction bids directly from DER providers, dispatching demand-side reductions in competition with supply-side resources, or accept bids from a utility acting as an “aggregator of aggregators.” Alternatively, utilities could use contracted DER to modify its load shape when it bids into the wholesale market to serve its load.

“Demand is becoming an integral resource in the operation of the grid and we have to change regulation to do that,” PSC Chair Audrey Zibelman said at the commission meeting.

Utility Ownership

To address market power concerns, the commission said that utility ownership of distributed resources “will be the exception rather than the rule.”

“Because of their incumbent advantages, even the potential for utility ownership risks discouraging potential investment from competitive providers,” the order said. “Markets will thrive best where there is both the perception and the reality of a level playing field, and that is best accomplished by restricting the ability of utilities to participate.”

The commission said utility ownership would be permitted under three exceptions:

Energy storage integrated into distribution systems. “Storage technologies integrated into grid architecture can be used for reliability and to enable the optimal deployment of other distributed resources, and we agree with staff that this application of storage technology should be permitted without the need for a market power analysis. REV will support a greater understanding of how storage strategically used on the grid can support greater penetration of intermittent renewable resources without compromise to system reliability. It will be advantageous for utilities to gain this experience and, as part of their DSIP plans and rate plans, utilities should develop information on optimal locations and levels of storage either on the system or behind the customer’s meter.”
Projects enabling low- or moderate-income residential customers to benefit from DER where markets are not likely to satisfy the need. “This potential is particularly acute in the case of rental customers that cannot control improvements to premises.”
Demonstration projects. “We recognize that demonstration partnerships with utilities and third parties can accelerate market understanding and the development of sustainable business models. In limited circumstances, utility investment and ownership of assets to support such demonstrations is warranted.”

“In the limited situation that utilities will be allowed to own DER as a regulated asset, they will be restricted to recovery of their actual costs,” the commission said.

Consumer Protections, Energy Efficiency

To increase penetration of energy efficiency, utilities will also be required to expand their programs — currently based on direct rebates and subsidies — to include third-party companies. “The state’s greenhouse gas reduction goals demand that we achieve significantly more efficiency than is practical to achieve through current ratepayer-funded direct subsidy programs,” the commission said.

The commission said it will protect consumers by requiring certification of any DER provider that requests consumer data, or that furnishes services via DSP or other utility functions. “Warranty and disclosure requirements will also be considered,” the commission said.

The steps are consistent with the draft State Energy Plan, which calls for the use of markets and reformed regulatory techniques to improve system efficiency and customer empowerment and reduce carbon emissions, the PSC said.

“By requiring utilities to modernize their business models and meet evolving customer demands, New York is committed to forging a new path to develop a dynamic, customer-oriented power grid able to drive clean energy markets to scale,” Richard Kauffman, chairman of energy and finance for New York, said in a statement.

Two Tracks

The proceeding was separated into two tracks, with Track One focused on developing distributed resource markets, and Track Two on reforming utility ratemaking.

The PSC’s staff says that utility financial incentives should be structured “to reward utilities for the efficient development of DER on their systems in a manner that either makes them indifferent to ownership, or favors ownership by third parties.” Staff will provide a straw ratemaking proposal by June 1.

In related orders Thursday the PSC also:

Approved the first community choice aggregation pilot program in New York. It will allow Westchester County municipalities to issue solicitations for natural gas or electricity supplies for local residents and small businesses (14-M-0564).
Stayed its December decision that restricted how customers with multiple locations could participate in net metering programs and postponed its rule requiring utilities to file new tariffs to resolve concerns about how such customers are compensated. The ruling, which gives renewable energy developers and utilities more time to transition away from existing net metering rules, means solar projects already under way will be eligible to receive net metering credits (14-E-0151, 14-E-0422).

March 3, 2015June 15, 2023

Year 1 Judged a Success for MISO South; Gains Limited by SPP Dispute

By Rich Heidorn Jr.

NEW ORLEANS — MISO officials last week called Year One of MISO South a success but acknowledged room for improvement in crisis communications and unfulfilled potential because of the ongoing dispute with SPP.

MISO said ratepayers of Entergy and other utilities that joined MISO in December 2013 received $730 million to $954 million in net benefits in 2014, including at least $160 million from more efficient generator commitment and dispatch and at least $570 million from deferred generation investments made possible by the increased footprint diversity.

MISO had estimated the benefits for the Entergy companies alone at $524 million.

The expansion boosted MISO’s high-voltage transmission to almost 66,000 miles from 50,000 and its generation capacity to 177 GW from 133 GW.

Wayne Schug, vice president of strategy and business development, explained how MISO calculated its “value proposition” in a presentation to members last week.

The RTO said the entire footprint saw net benefits of $2.2 billion to $3.1 billion. Schug said the range reflects different assumptions that went into the calculations.

Load Shed, Tornado Highlight Need for Better Coordination

miso south — Entergy Arkansas’ Mayflower substation, one of the three major substations serving the Little Rock area, suffered heavy damage in the April 27, 2014 tornado. The 500-kV high-voltage yard lost all of its switches and breakers.

The southern expansion meant the RTO, accustomed to dealing with winter snow storms, also had to be prepared for extreme summer heat and hurricanes, said Todd Hillman, vice president of MISO South.

While the summer was mild and there were no severe hurricanes, officials said their emergency procedures were tested during several incidents.

On April 23, multiple forced outages led to post-contingent loading of more than 125% of system operating limits, with studies indicating 1,100 MW of load at risk for the next contingency.

MISO treated the situation as a temporary interconnection reliability operating limit (IROL) condition.

After redispatching generation, MISO directed Entergy to shed 150 MW of load. Entergy ultimately shed 163 MW for almost two and a half hours, avoiding a much larger load shed.

Hillman said the incident highlighted a need to improve crisis communication with state commissions. “We could do a much better job of coordinating with the states,” he said.

Four days later, on April 27, a tornado hit Northern Arkansas, cutting a half-mile-wide swath for about 80 miles with winds of more than 136 mph. Multiple 500-kV transmission lines were lost or damaged, and MISO ordered Entergy’s Arkansas Nuclear One offline.

Hillman said the incident demonstrated the need for better coordination with nuclear units following severe weather events.

Another management challenge for MISO is the much larger qualifying facilities in MISO South, with some behind-the-fence industrial generators as large as 1,500 MW.

SPP Dispute

Officials said the ongoing dispute with SPP had limited the benefits of the larger footprint.

“I really hope we can resolve” the SPP dispute, said Director Michael Curran, who said their neighbor could help improve East/West transmission. “If we continue to take hostages … or create toll roads, we’re really just undercutting the economic successes,” he said.

MISO Board Chairman Judy Walsh said she and CEO John Bear attended SPP’s January board meeting at the invitation of SPP Chairman Jim Eckelberger and later dined with the SPP board at Eckelberger’s home. “I think that was a breakthrough of sorts in the relationship,” she said. “The boards have developed a common goal of greater communication and cooperation and working together to make the seams more efficient.”

She said MISO plans to return the invitation to SPP.

March 3, 2015June 15, 2023

Change Proposed in PJM Demand Response Modeling

PJM is proposing a change to the way it estimates demand response in its load deliverability analysis.

Current practice looks at the amount of DR that has cleared in the last Base Residual Auction to project DR available five years in the future.

But Tom Falin, PJM manager of resource planning, told the Markets and Reliability Committee on Thursday that a significant amount of DR that clears the auction is replaced by other resources before the delivery year arrives. In the 2014/15 year, 46.5% of the DR assumed to be available had been replaced by non-DR resources.

“Our conclusion was that the assumption we’ve been making now for several years does not seem to produce an accurate forecast of DR,” he said.

PJM proposes basing future forecasts on an average of the final amount of committed DR for the most recent three years. The average would be expressed as a percentage of the zone’s 50/50 summer peak forecast for application to future years’ demand.

The model will take into account committed DR that is obligated to respond in an emergency, not all registered DR, Falin said.

Members agreed that the proposal is an improvement over the current model but that it likely would need to be modified in the future.

The MRC and the Planning Committee will be asked to endorse the revisions at their March meetings.

March 3, 2015June 15, 2023

CEO Crane: Solar Puts NRG Ahead of the Curve

By Michael Brooks

nrg — NRG purchased rooftop solar installer Roof Diagnostics Solar in March 2014.

NRG Energy will continue to focus on its residential solar and renewable energy technology businesses, despite posting losses of $53 million and $163 million in those units respectively in 2014, company executives said in an earnings call Friday.

Those losses — and another $981 million in losses in the “corporate” segment, which includes international business and electric vehicle services — were offset by net income of more than $1 billion in NRG Business, the unit that primarily serves businesses and includes the company’s generation assets. Total net income for the company in 2014 was $134 million ($0.23/share), compared to a loss of $386 million in 2013.

CEO David Crane said the industry was undergoing a paradigm shift, and that the company’s investments in renewables now would pay off in the long run.

“Our industry is in the early but unmistakable stage of a technology-driven disruption of historic proportion,” Crane told investors Friday. “This disruption ultimately is going to end in a radically transformed energy industry where the winners are going to be those who offer their customers, whether they be commercial, industrial or individual customers, a seamless energy solution that is safer, cleaner, more reliable, more convenient and increasingly wireless.”

According to Kelcy Pegler Jr., president of NRG Home Solar, the company ended 2014 with 13,000 total residential solar customers, 9,000 of which were gained that year. NRG has a goal of adding 22,000 to 27,000 more by the end of 2015.

“It’s our view at NRG that traditional centralized energy service models are significantly at risk,” said Steve McBree, president of NRG Home, the parent of Home Solar. “We believe that the future eventually will belong to demand-driven decentralized models of service that empower individual consumers.”

Responding to an analyst’s question about upcoming Environmental Protection Agency regulations on carbon emissions from existing power plants, Crane said NRG was not worried. “As long as the rules imposed are imposed in a fair and reasonable way, tightening environmental regulations actually enhance us relative to our competition,” he said. According to its year-end earnings filing with the Securities and Exchange Commission, the company has a goal to reduce its carbon emissions 90% by 2050.

Q4 Results

The company posted a $119 million profit for the fourth quarter of 2014, after reporting a $297 million loss in the same period of 2013.

Analysts were less than thrilled, however. The quarterly earnings amounted to 21 cents per share, far less than the average estimate of analysts surveyed by Zacks Investment Research of 93 cents.

Zacks said NRG’s Goal Zero product, a portable solar panel used to charge mobile devices, would attract more customers and help it retain existing ones, but that the company’s reliance on weather conditions was concerning. During the call, Chief Operating Officer Mauricio Gutierrez said, “The recent cold front in the northeast once again proved the value of our diversified portfolio, where unlike gas generation, our coal and oil assets benefited from spikes in gas and power prices. Our strategy is to extend the life of our assets and maintain a cheap option in energy that can benefit from short-term dislocations in the market like the ones we experienced the past two winters.”

March 3, 2015

DC Consumer Advocate Seeks Delay in Exelon-Pepco Proceedings

By Ted Caddell

D.C.’s consumer advocate asked the Public Service Commission last week for more time to respond to Exelon’s sweetened offer in its proposed $6.8 billion acquisition of Pepco Holdings Inc., saying Exelon’s Feb. 18 filing is a “procedural mess.” If granted, a final decision from the PSC could be delayed until fall.

Exelon submitted an updated filing with data responses and hundreds of pages of testimony shortly after announcing it would more than double the customer credits to D.C. ratepayers to $33.75 million. (See Exelon Sweetens the Deal for DC in Pepco Takeover.)

In a joint filing with the Apartment and Office Building Association of Metropolitan Washington on Wednesday, the Office of People’s Counsel complained that Exelon’s filing doesn’t point out the differences between it and its original submission. The OPC is asking to file its responses — due March 18 — in April, with a May 26 deadline for any supplemental testimony.

“Due process, fairness and the need for a clean evidentiary record must prevail over corporate expedience,” the OPC said.

Exelon has said it expects approval from the two remaining authorities it still needs, Maryland and the District, by the third quarter.

Exelon said last week that it will oppose the delay. “The six-week extension that the commission recently granted is more than adequate, and the request for additional time is unwarranted,” Exelon spokesman Paul Adams said.

The PSC has scheduled hearings for late April into June. If it grants the OPC request, hearings probably wouldn’t start until June, with a final decision from the PSC in September or October.

Antitrust Institute Weighs In

Also last week, the president of the American Antitrust Institute asked the U.S. Department of Justice to block the merger or impose mitigation measures.

“A merged Exelon-Pepco would possess an enhanced ability and pre-existing, powerful incentive to engage in vertical foreclosure and block entry by rivals,” wrote AAI President Diana Moss in a letter to Assistant Attorney General William J. Baer on Wednesday. “If unaddressed through antitrust remedies, the proposed merger stands not only to harm competition and consumers but also to reverse some of the gains from restructuring.”

Adams said the organization’s complaint was without merit. “These same allegations were already considered and rejected by the Federal Energy Regulatory Commission, which approved the merger.”

RTO Insider reported in December that the Justice Department was investigating the interconnection process in PJM’s MAAC sub-region as part of its anti-trust review of the acquisition. (See DOJ Probing Interconnection Process in Exelon-Pepco Merger.)

AAI says it advocates on behalf of consumers to “challenge abuses of concentrated economic power.”

Although the Exelon-Pepco deal has already gained the approval of regulators in Virginia, New Jersey and Delaware, “the state settlements that we have seen so far do not produce any additional remedies that give us the comfort level we need that a merged Exelon-Pepco would not be able to exercise their market powers,” Moss said in an interview.

If Exelon acquires Pepco, “you will now have a bigger transmission owner, sitting on a pretty substantial pile of generation,” she said. “The problem is, if you control the network, and you also own generation, you have the ability and the incentive to frustrate access by competing developers.”

March 3, 2015June 15, 2023

Ameren Earnings Up; Sees Tx Growth Despite ROE Case

By Chris O’Malley

Ameren reported a 30% jump in fourth-quarter earnings and said it expects future growth from new transmission projects, even as federal regulators consider lowering the rate of return on such investments.

The St. Louis-based company reported net income of $48 million ($0.20/share) compared with $37 million ($0.15/share) during the fourth quarter of 2013.

Electric revenues grew 19% to $360 million in Illinois, due in part to increasing residential and industrial demand, while falling 3% to $692 million in Missouri.

For the year, earnings soared to $586 million ($2.40/share) from $289 million ($1.18/share) in 2013, when the costs of the divestiture of its deregulated power generation unit crimped results.

On a continuing operations basis, net income in 2014 was $587 million ($2.40/share) versus $512 million ($2.10/share) in 2013.

“We delivered strong earnings growth in 2014,” Ameren CEO Warner Baxter told analysts during a Feb. 25 conference call. “I am pleased with the progress we made last year.”

Current Year Growth

Executives said they expect 2015 earnings to rise to between $2.45 and $2.65 per diluted share. Diluted earnings per share from continuing operations are expected to grow at a 7 to 10% compound annual rate.

Those estimates assume the Missouri Public Service Commission’s approval of the company’s request for a $190 million annual rate increase. A decision is expected by May.

Ameren expects a higher average estimated rate base of $1.4 billion in 2015 compared to $900 million in 2014.

Transmission Potential

Transmission services revenues in 2014 increased to $33 million from $19 million in 2013.

Last fall, MISO industrial customers filed a complaint contending that the MISO transmission operators’ current base return on equity — 12.38% except for American Transmission Co. — is too high. Industrials argue the base ROE for TOs including Ameren should not exceed 9.15%.

Ameren said it has established a reserve for the potential ROE reduction. Although the amount wasn’t disclosed, the company assumed a scenario similar to what the Federal Energy Regulatory Commission set last June involving New England TOs — a 7.03 to 11.74% “zone of reasonableness.”

Ameren officials said the ROE decision may not come until 2016. Regardless, Baxter said the company sees “robust opportunities” in additional transmission projects. He noted that not only does Ameren’s territory sit on the seams of multiple RTOs but that there are a number of local reliability projects that could be explored.

“We see meaningful investment opportunities in the transmission businesses,” Baxter added.

The biggest current transmission project for Ameren and its Ameren Transmission Co. of Illinois subsidiary is the nearly 400-mile Illinois Rivers project, a 345-kV line crossing the Mississippi River that will head east to nearly the Indiana border. It’s estimated to cost about $1.4 billion.

Ameren is also eyeing about $1 billion in local reliability projects for completion by 2019.

March 3, 2015

PJM MRC/MC Briefs

Markets and Reliability Committee

PJM to Drop Fees for Tx Projects under $20M

WILMINGTON, Del. — PJM will not charge transmission developers fees on any projects estimated to cost less than $20 million under a revised proposal it plans to file with the Federal Energy Regulatory Commission.

FERC last month rejected an earlier proposal that would have assessed a $30,000 fee on all greenfield transmission proposals and transmission owner upgrades of $20 million or more.

The commission said the proposal was discriminatory because PJM failed to show that the costs of studying upgrades under $20 million would be different than the costs of studying greenfield projects with similar costs (ER15-639). (See FERC Rejects Fee on Greenfield Transmission Projects.)

“We think it makes most sense to refile the proposal … with the change that there would be no fees for any projects under $20 million, and that would eliminate the concern that FERC had raised,” Steve Herling, vice president of planning, told the Markets and Reliability Committee.

The committee will be asked to endorse the proposed revisions at its next meeting.

MRC Greenlights PJM/MISO Scheduling Product

The MRC on Thursday endorsed the creation of a new, optional Coordinated Transaction Scheduling product intended to reduce uneconomic power flows between PJM and MISO. There were two abstentions but no objections.

Under CTS, traders can submit “price differential” bids that clear when the price difference between MISO and PJM exceeds a threshold set by the bidder.

The product is expected to be implemented by November 2016, said Becky Carroll, PJM manager of real-time operations. PJM and MISO would evaluate traders’ bids individually, and the commonly cleared set would be the transactions that flow.

Thursday’s endorsement was just the start of several approvals of the Joint Operating Agreement. PJM and MISO also will be adding details of their forward-price projection methodology, and stakeholders will have to approve the accuracy of the pricing models.

The product is similar to the one launched Nov. 4 with NYISO. Of that initiative, Carroll said, “We’re definitely seeing more participation than we expected. We thought market participants would be slow in getting comfortable with the product.”

Unlike NYISO, MISO does not currently post look-ahead prices, but it expects to introduce a calculating mechanism by the end of 2015.

Manual Changes Approved

The MRC approved the following Thursday with no opposition:

Manual 02: Transmission Service Request — Changes 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 so that developers can more easily see data requirements.
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. Revisions make no changes to upgrades or cost allocations.
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.

Members Committee

TOs Propose Cost Allocation Change

PJM’s Transmission Owners are proposing a change to the way costs are allocated for reliability projects that are included in the Regional Transmission Expansion Plan due only to an individual Transmission Owner’s planning criteria.

The revision to Schedule 12 of the PJM Tariff, presented Thursday’s Members Committee meeting, clarifies that such costs will be allocated to the local Transmission Owner. If the project is required by regional criteria from PJM, it will be subject to regional cost allocation.

The change was recently announced by the Transmission Owners Agreement Administrative Committee.

Historically, the application of TO planning criteria has resulted in lower voltage projects. However, that has evolved to include criteria more stringent than required by PJM, due to aging infrastructure and storm hardening, which necessitate more significant investment.

— Suzanne Herel