The hedge fund twins accused of gaming up-to-congestion trades in PJM abruptly ended their public relations campaign against the Federal Energy Regulatory Commission last week, announcing they had taken down their website and would no longer talk to the media or at industry conferences.
Despite their earlier vow not to settle with FERC over the allegations, the move by Rich and Kevin Gates suggests that — after spending more than $1.5 million on lawyers and consultants fighting the investigation — they may be seeking to end hostilities.
Reached by phone Friday, Kevin Gates and Larry D. Gasteiger, acting director of FERC’s Office of Enforcement, both declined to comment.
Going on Offense
In March, after being the subject of a FERC investigation for more than three years without being charged, the brothers had decided to go on offense by launching a website on which they posted correspondence with FERC and opinions from energy experts that they said proved they were being unfairly hounded. The dispute became a case study for critics, including some former FERC officials, who say the agency has sought to punish legitimate, if opportunistic, trading.
The brothers hounded now-Commissioner Norman Bay, FERC’s former enforcement chief, through his Senate confirmation, spoke at industry conferences and won support from The Wall Street Journal editorial board.
In August, the day after Bay was sworn in as commissioner, FERC staff issued a notice of alleged violations accusing the brothers and their partners in the Powhatan Energy Fund of engaging in “manipulative” up-to-congestion trades in PJM in 2010. (See PJM UTC Case Likely Headed to Court After FERC Notice.)
FERC alleged that the brothers’ investment funds placed “millions of megawatt-hours of offsetting trades between the same two trading points, in the same volumes and the same hours” to capture line-loss refunds without facing any risk from the underlying trades.
Although FERC’s confidential preliminary findings challenged $4.7 million in profits the investors made between February and August 2010, the notice cited only trades made after June 1.
The Gates brothers said their trades were legal until the loophole they exploited was closed later in 2010. They vowed to fight the allegations and said they had rejected a previous settlement offer from FERC.
With the facts not in dispute, the case would have turned on legal interpretations: Were Gates’ trades riskless, and thus improper, “wash” trades, as FERC contends, or permissible “spread” trades? Did FERC provide proper notice that seeking profits through the line-loss rebates alone was improper? And if FERC thought it had a strong case, why did it wait nearly four years to bring it?
If there is no settlement, the next major step would likely be a commission vote on whether to issue an order to show cause. (On Oct. 6, the Gates brothers filed a motion seeking to force Bay to recuse himself from the case.)
William M. McSwain, attorney for the brothers, told RTO Insider in August that if the commission decided to proceed, the case would end up in a U.S. District Court where he said the merits would be reviewed by a “neutral decision maker.”
Based on last week’s disarmament, however, it appears the brothers may never get their day in court.
One company that engaged in similar trades, Oceanside Power, agreed to settle the charges against it by disgorging profits of $29,563 and paying a fine of $51,000 (IN10-5).
FERC staff also filed a notice of alleged violations in August against City Power Marketing and its principal, K. Stephen Tsingas, for a similar trading scheme. Tsingas and his attorney have declined to comment.
Allison M. Macfarlane, chairman of the Nuclear Regulatory Commission, is leaving at the end of the year to become director of the Center for International Science and Technology Policy at George Washington University.
Observers credit Macfarlane with bringing peace to the five-member commission, which was embroiled in controversy under the previous chairman, Gregory B. Jaczko. Macfarlane helped push for safety improvements at U.S. nuclear plants following the 2011 Fukushima disaster in Japan. But she lost a battle to expedite transfer of used fuel rods from on-site cooling ponds to dry cask storage.
“I came to the commission with the mission of righting the ship after a tumultuous period and ensuring that the agency implemented lessons learned from the tragic accident at Fukushima Daiichi, so that the American people can be confident that such an accident will never take place here.”
Before becoming NRC chair in 2012, Macfarlane was a professor at George Mason University. “I accomplished what I wanted to do at the NRC and I really miss academia,” she said. There is no word on her replacement yet.
DOE Eyeing New Conservation Standards for Water Heaters, Lamps
The Department of Energy said it is developing updated energy-efficiency standards for water heaters and fluorescent lamps.
The department is examining the standards for fluorescent ballasts, as well as new energy conservation standards for solar-thermal water heating systems, commercial water heaters, hot water supply boilers and hot water storage tanks.
MOX Recycling Plant Asks NRC for 10-Year Extension
The contractor working on a project to recycle Russian nuclear warheads into reactor fuel at the federal Savannah River site has asked for another 10 years to get up and running, the Nuclear Regulatory Commission said.
Shaw AREVA MOX Services said the South Carolina facility is about 60% complete, but the company said it still needs to construct several buildings and safety systems. The plant was started in 2007, part of a plan to repurpose weapons grade plutonium into nuclear reactor fuel in a process called mixed-oxide fuel, or MOX.
The facility was supposed to have been completed by 2015. The company blamed budgetary constraints, vendor shortages and difficulty finding qualified construction workers for the delays. Cost overruns are already into the billions of dollars. President Obama placed the project in “cold standby” earlier this year, but it was rescued by Senate and House committees that found millions of dollars to keep it going.
Limerick Security Problem Results in Closer NRC Oversight
The Nuclear Regulatory Commission said it will perform an inspection of Exelon’s Limerick Generating Station to “ensure Exelon fully understands the root causes … and has implemented long-term corrective actions” following an unspecified security issue.
The security issue occurred between June 16 and June 20, but no details were given. The NRC doesn’t provide specifics of security problems at plants, a change that occurred after the 9/11 attacks. Plant spokeswoman Dana Melia said the problem has been corrected.
“Due to security precautions, we are unable to provide additional details, but Limerick stakeholders should know that at no time was the security of the facility, our workers or local residents compromised,” she wrote. “Our comprehensive corrective action program ensures that we identify and correct issues, including those of low safety significance.”
The announcement came just three days after the commission granted the two Limerick units 20-year license extensions, allowing operations until June 2049.
DOE Says URS, Bechtel Refuse to Turn Over Hanford Documents
Department of Energy Inspector General Gregory Friedman says two contractors at the center of a whistleblower dispute concerning the Hanford site cleanup are refusing to turn over more than 4,500 documents that investigators requested.
Friedman said in a memo to Energy Secretary Ernest Moniz that Bechtel National and URS Energy Construction have withheld documents that his office sought to determine whether URS employee Donna Busche was terminated in retaliation for disclosing problems with a plan to treat radioactive waste at the Washington state site.
“[W]e did not have access to the full inventory of documents, which we felt were necessary to conduct our review,” Friedman wrote. “Thus, we were unable to complete our inquiry and accordingly disclaim any opinion regarding the circumstances of Ms. Busche’s termination.”
Bechtel said that it had gone “above and beyond in cooperating with the … investigation” and blamed its subcontractor, URS, for the firing decision. URS said the employee’s claim of wrongful termination is “without merit.”
Moniz Announces $53 Million in Solar Research Funding
Energy Secretary Ernest Moniz announced more than $53 million in grants for research aimed at driving down the cost of solar energy.
Moniz, speaking at the Solar Power International 2014 conference in Las Vegas, said the projects are investigating next generation photovoltaic cells, new manufacturing processes and the “soft” costs of solar installation.
“The projects announced today will help the U.S. solar energy industry continue to grow, ensuring America can capitalize on its vast renewable energy sources, cut carbon pollution and continue to lead the world in clean energy innovation,” Moniz said.
The Federal Energy Regulatory Commission published its final environmental review of the Constitution Pipeline, a 124-mile line connecting the Marcellus Shale natural gas region in northeastern Pennsylvania to New York. The action is a key step toward the commission’s decision on the project, which is expected as early as November.
“FERC’s Final Environmental Impact Statement confirms that the Constitution Pipeline can be constructed in a manner that minimizes environmental impacts, while adding a key piece of natural gas infrastructure to the U.S. Northeast,” the project sponsors, Constitution Pipeline and Leatherstocking Gas, said in a joint statement. The pipeline will allow interconnection with two other major gas pipelines, the Iroquois and Tennessee pipelines.
The pipeline’s builders say it could deliver natural gas to New York and New England for the winter 2015-2016 season.
ALBANY — Chastened by January’s price spikes, New York’s electric utilities are hedging 70% of their natural gas purchases this winter, up from 55% last year.
Last year, about 35% of gas was bought on the spot market; this year, utilities intend to cut that down to 20%. The change is intended to insulate the companies from price volatility as natural gas demand for home heating and power generation continues to rise.
“Utilities are better prepared and have modified their portfolios,” said Raj Addepalli, the New York Public Service Commission director of the Office of Electric, Gas and Water, during a briefing at last week’s commission meeting.
After the havoc wrought by last winter’s polar vortex, New York officials say they are ready for severe weather that may come.
New York set a winter peak of 25,738 MW last year, breaking a record set a decade before. The PSC is reporting a capacity margin of 10,400 MW for this winter.
Last year’s cold weather caused electricity prices to rise to unprecedented levels in New York.
Average prices for customers receiving default service or on variable rate contracts with competitive suppliers jumped by an average of almost 12 cents per kWh from December 2013 to January 2014, a 175% increase. Gas prices have stabilized as new production from the Marcellus Shale in Pennsylvania and Utica Shale in Ohio has reached eastern markets. Price projections are 21% to 27% lower than last winter’s forecasts.
That could change some of the fuel mix in New York. Dual-fuel capable power plants frequently switched to oil last winter as natural gas prices jumped above oil 18 times in January.
PSC staff said the Department of Environmental Conservation has promised faster response to requests for fuel waivers needed to switch from natural gas to the more polluting oil. The department took longer to grant waivers than generators and power market officials would have liked last winter, according to PSC officials.
The PSC said it is looking at neighboring regions for long-term policy refinements. “The incentives in place may not be enough” to ensure reliability, Addepalli said, mentioning New England’s pay-for-performance program as a possible model.
ALBANY — The New York Public Service Commission Thursday reiterated its approval of NRG Energy’s request to convert the Dunkirk coal-fired generator to natural gas.
The commission unanimously rejected a rehearing request by the Sierra Club and a community group, which contended the state’s environmental review was deficient and that ratepayers would be unfairly subsidizing the plant’s owner (12-E-0577).
The Sierra Club and the community group also filed suit in the state Supreme Court last month to block the $140 million conversion. The PSC approved the repowering in June.
Just one of the four coal units at the 635-MW plant is currently in use. NRG plans to convert three of the units to natural gas, to bring its total generating capacity to 475 MW.
State and NYISO officials say Dunkirk, 47 miles southeast of Buffalo, is needed to maintain the reliability of the transmission system in western New York.
Wisconsin’s 18 MW of solar power represents only one-tenth of 1% of the state’s installed generation capacity. But the state’s utilities are joining those in sunnier climes in treating distributed solar as an existential threat.
Milwaukee-based We Energies is among three utilities facing pushback over proposals to increase fixed costs and reduce how much the company pays customers for their own solar generation fed back to the grid.
Madison Gas & Electric this summer asked the state Public Service Commission to more than double its fixed charge from $10.44 a month to nearly $22 for a typical residential customer. After an earful from consumer and environmental groups, MG&E lowered its request to $19 a month, an 82% increase.
In Green Bay, Wisconsin Public Service also proposed more than doubling its fixed charge, to $25 a month from $10.40.
We Energies has proposed increasing monthly fixed charges by more than 75%, to $16 a month from $9. It also proposed a new “capacity demand” charge and restrictions on solar energy financing options. (Docket #5-UR-107)
Environmental group Renew Wisconsin said the capacity charge would offset nearly 30% of a customer’s savings from solar. It also complains that the utility would pay those who generate their own solar just 4.2 cents for each extra kilowatt-hour of electricity they create, while reselling the electricity to other customers for as much as 28 cents during peak summer hours.
The utilities argue they need more revenue to cover their fixed costs as customers improve energy efficiency and generate more of their own power.
NRDC-EEI Agree on Decoupling
At least some renewable advocates, such as the Natural Resources Defense Council, agree with the idea of “decoupling” revenue from consumption. In February, the NRDC and the Edison Electric Institute, lobbying arm of the nation’s investor-owned utilities, issued a joint statement urging state regulators to adopt new rate designs to protect utilities’ finances when they accommodate distributed generation and prevent cost shifts. (See related story, Postcards from the Future.)
Agreeing on the details of those new rate designs has proven far more difficult.
About half the states have decoupled revenue from consumption, often after “ferocious” fights, says Ralph Cavanagh, co-director of NRDC’s energy program.
The battle was on display at a public hearing in Milwaukee earlier this month on We Energies’ proposal. More than 200 people attended the session, at which both the utility’s supporters and opponents claimed to be protecting the poor.
We Energies says that only 25% of its fixed costs are covered by the “facilities” charge on customers’ bills. The increased fixed charges, it says, would eliminate the cost shift that has low-income consumers subsidizing wealthier homeowners’ rooftop solar panels.
Opponents say the proposed increase in fixed charges is too high. Because low-income consumers generally use less electricity, they say, the proposed change is regressive. The Chicago-based Environmental Law & Policy Center says the Wisconsin utilities would have by far the highest fixed costs in the Midwest if the proposed increases are approved. (See chart.)
Opponents also contend the change would discourage rooftop solar and cripple the state’s budding solar industry. The Environmental Law & Policy Center says there are more than 12,000 Wisconsin jobs tied to about 300 solar and wind power supply chain businesses.
Brad Klein, senior attorney at the center, said utilities are attempting “to support and protect an outdated business model.”
In an Oct. 10 editorial, the MilwaukeeJournal Sentinel recommended a smaller increase, noting that less than 700 of the company’s 1.1 million customers have distributed generation systems. The shortfall from subsidizing those customers is $116,000, a rounding error compared to We Energies’ $4.52 billion in revenue.
“The harm that’s being caused by the unfairness in the current system is too small right now to warrant the changes in the proposal by the utility (and similar proposals by two other utilities),” the paper wrote. “Some increase in the monthly charge for fixed costs makes sense, but that increase should be more modest than the proposed increase.”
Solar’s Growth
While solar is barely a blip in Wisconsin, the number of installations nationwide have soared by 1,600% since 2006, according to the Solar Industry Association. Distributed residential installations increased 61% in 2012, most of them leased from companies such as Solar City rather than through electric utilities.
Some experts say that by as soon as 2016, installed distributed solar photovoltaic capacity could reach 30 GW, nearly one-third the U.S. nuclear generation capacity.
Steven Kihm, director of market research and policy at the Energy Center of Wisconsin, warns that utilities fighting solar firms that threaten their monopolies may no longer be able to count on sympathetic state regulators, as some of their battles are finding their ways into the courts.
In July, the Iowa Supreme Court shot down objections posed by Alliant Energy and Iowa regulators over Eagle Point Solar’s plans to install panels on the roof of a Dubuque government building. The utility argued the solar company was unfairly competing with Alliant’s monopoly footprint, but the court ruled in favor of the solar company.
Strategic Choices
In a recent Energy Law Journalpaper co-authored with Arizona State University professor Elisabeth Graffy, Kihm says that utilities face “two very different strategic choice pathways.”
One reaction can be to take “backward-looking, defensive” positions to protect past infrastructure investment. The other would be to look for new ways to create value in seeking opportunities in the renewables market.
They point to cable television companies that were wise enough to capitalize on the coaxial cable’s wide bandwidth that satellite couldn’t deliver. Those companies added high-speed Internet and other services that helped them thrive in the more competitive new environment.
Kihm argues that utilities that take defensive positions to discourage their customers from adding solar panels run the risk of alienating them such that they sever connections to the grid all together — particularly as solar providers offer them more advanced and compelling product offerings.
“There is no imminent death spiral or disruption,” agrees Cavanagh. “There is no reason why utilities cannot be engaged and effective partners in the clean-energy [future].”
Theodore F. Craver Jr., CEO of Edison International, parent of Southern California Edison, told PJM’s Grid 20/20 conference last week that maximizing the best features of distributed resources — flexibility, resiliency and customer engagement — with the efficiency and installed base of the bulk power system is a central task for his company. “There’s a seam between those two systems that can certainly be problematic.”
David Owens, executive vice president of the Edison Electric Institute (EEI), sees distribution utilities assuming a role akin to RTOs as “distribution system operators” to integrate the two and make decisions about planning and building the system. “There’s got to be an architect of that distribution system that Wall Street understands” to ensure sufficient investment, he said.
If You Can’t Beat ‘Em…
Some traditional electric utilities are now treading on the turf of solar firms. For example, Arizona Public Service recently said it plans to install solar panels on up to 3,000 homes in Phoenix.
We Energies is looking for the upside. We Energies’ parent, Wisconsin Energy, will acquire a rooftop solar business if it wins regulatory approval for its acquisition of Integrys Energy Group, of Chicago. (See related story, Michigan Gov.: Wisconsin Energy-Integrys Merger Could Stifle Competition.)
“We’s strategy would be to do renewable — on their side of the meter,” Kihm said.
State Holds Delayed Hearing on PSEG New Nuke Plans
The state’s Congressional delegation arranged for a public comment session on a possible new reactor at Public Service Enterprise Group’s Artificial Island site in New Jersey after lawmakers realized that only Garden State residents had been given the opportunity to talk. A session was held Thursday in Middletown to let residents speak out about the Nuclear Regulatory Commission’s draft environmental impact review. Although PSEG has not made firm plans for a new reactor at the site – home of the Salem and Hope Creek reactors – it is pursuing NRC site approval.
Richard Cathcart, manager of Delaware City and a former state representative, said he supports construction of a new reactor on the Artificial Island site across the state line. “We know that the construction workforce could grow to over 4,000 jobs, many of which could go to Delawareans,” he said, noting that he was speaking as a private citizen. “And we know new construction could bring a much-needed and major boost to the economy.”
But environmentalists question how an early site approval can be given when PSEG hasn’t even determined what type of reactor design it would deploy.
New Office of Consumer Services Chief Named by Public Service Commission
The Public Service Commission appointed a program analyst as the interim Director of the Office of Consumer Services.
Susan Nelson, who started as an analyst in the PSC’s Office of Technical and Regulatory Analysis in May, was elevated to fill the position after Linda Jordan retired earlier this month. The Office of Consumer Services handles consumer complaints and inquiries and operates outreach programs. Nelson held numerous customer care and billing positions in the telecommunications industry before joining the PSC.
The Commerce Commission approved Commonwealth Edison’s Grand Prairie Gateway Project, a 70-mile transmission line running across four Illinois counties. Construction of the $251 million project is scheduled to begin next year and be completed in 2017.
The 345-kV line “would allow greater access to renewable energy west of Illinois, which should enhance competition in the electricity markets,” a commission news release said. Terence Donnelly, ComEd executive vice president, said the line will relieve congestion that impedes the flow of low-cost energy, and reduce costs for delivering energy to customers.
The line would start from a substation near Byron Nuclear Generation Station and continue to a substation near Wayne. Byron is owned by ComEd’s parent company, Exelon.
Droves of Vectren customers have applied for energy assistance after many complained about dramatically higher bills to make up for underpayments in previous months.
The Utility Regulatory Commission is monitoring Vectren’s action plan after hundreds of customers complained. Vectren officials say that the problem stems from inaccurately estimated bills. The company has been swamped with requests to meet with customer service representatives, and community service organizations say they’re experiencing record numbers of requests for emergency energy subsidies.
A single mother of three children said her Vectren bill was around $11 for three straight months then jumped to more than $700.
Louisville Gas & Electric and Kentucky Utilities updated plans with the Public Service Commission, telling the PSC they will need to build between 368 MW and 737 MW of natural gas generation starting in 2020. The PPL subsidiaries filed the updated resource assessment report with the PSC last week.
The companies said they plan to retire two units at the E.W. Brown coal-fired plant and still plan to go forward with a 10-MW solar project on the plant site. Uncertainty about the effect of the recent Environmental Protection Agency emissions rules make it difficult to be more specific, the utilities said. Further load growth studies could force them to consider building more natural gas-fired generation before 2020.
PSC Holding Public Sessions on BGE’s Rate Increases
Baltimore Gas and Electric is asking for its fourth rate hike in four years. The Public Service Commission has scheduled several public hearings.
The company wants to raise distribution charges to both gas and electric customers by about $15 a month. BGE says it needs the increase to pay for infrastructure upgrades. If approved, the rates would go in effect in January.
Sens. Carl Levin and Debbie Stabenow have asked the Federal Energy Regulatory Commission to reconsider its decision to force We Energies customers in the state to absorb a $97 million rate increase to pay for the company’s power plant in Marquette.
We Energies wanted to shut its Presque Isle Power Plant after its largest industrial companies switched to another provider. But MISO determined the plant was crucial to system reliability and ordered that it stay in operation. The Wisconsin Public Service Commission later ruled that a large number of Wisconsin customers should be freed from paying the plant’s costs, shifting the bill to Michigan customers. FERC upheld its ruling.
Levin and Stabenow said the rate impact on customers in the Upper Peninsula is unjustified.
Report: Utilities Need to Give BPU More Storm Info
The Board of Public Utilities needs more information on storm responses to determine how to best improve resiliency, according to a consultant’s report.
The report, prepared by GE Energy Consulting, says the state fails to get enough information before and during storms to help it determine the most cost-effective solutions.
It also called on utilities to harden portions of the grid, especially substations. During Superstorm Sandy, 40% of Public Service Electric & Gas substations were shut down by flooding. Since then, the company has started a program to raise substations above the 100-year flood zones or to protect them with walls.
Utilities Spent $1.25B on Storms in 2011 and 2012, Study Shows
The Board of Public Utilities said utilities in the state spent $1.25 billion to restore and repair systems after the storms of 2011 and 2012, including Superstorm Sandy. The tally was part of the board’s review of storm costs to determine what should be recovered from ratepayers.
The board approved a New Jersey Natural Gas request to recover $48.7 million, including the costs to replace sections of natural gas distribution mains washed away by Sandy. Jersey Central Power & Light said it spent $736.1 million in storm costs. Public Service Electric & Gas said it spent $366.3 million. Atlantic City Electric put its costs at $70 million.
ACE has already received permission to increase rates to cover its costs. JCP&L has a request pending. PSE&G hasn’t asked to raise rates.
Duke Won’t Charge Customers for Corporate Taxes it Doesn’t Pay
Duke Energy said it will not charge customers $19 million for corporate income taxes that it doesn’t actually have to pay, even though the Utilities Commission approved the practice.
The NCUC ruled earlier this month that utilities can continue to charge customers a 6.9% tax, even though the state legislature recently cut the corporate tax from 6.9% to 5%. Duke said it could have extracted $19 million a year more from Duke Energy Carolinas and Duke Energy Progress customers under the ruling.
“Duke Energy supports the NCUC’s Oct. 9 decision that explains the state of the law in North Carolina,” Duke said. “However, in this case, we have already reduced rates to reflect the decrease in corporate income taxes.”
The ruling gave utilities the option to adjust rates and set an Oct. 24 deadline for them to decide. Republican commission members said the over-collections are negligible for individual bills, but the Democrats said the state’s four utilities would generate an additional $21 million a year.
Utilities in the state no longer have to find in-state sources for half of their renewable energy supply, the Public Utilities Commission ruled.
While making it easier for companies to reach renewable targets, the decision is another blow to the state’s solar industry, which is already feeling a downturn after legislators froze renewable targets earlier this year. “Pure financial projects are on hold right now,” said Geoff Greenfield, president of Third Sun Solar.
PUC Eyes Extension of Utility-Based Energy-Efficiency Conservation
The Public Utility Commission opened a study to consider extending state-directed energy-efficiency and conservation targets for utilities beyond 2016.
The current programs, authorized by a 2008 law called Act 129, set targets for reductions in consumption and peak demand. The targets expire in May 2016. The law requires the PUC to re-evaluate the costs and benefits of energy-efficiency and conservation programs every five years and to consider extending the goals.
EDCs to Provide Customers Look at What Info is Given to Suppliers
The Public Utility Commission directed the state’s electric utilities to reach out to customers every three years to give them the opportunity to review the marketing information being provided to third-party electric generation suppliers. The information includes historic usage and customer addresses.
The PUC’s order directs electric distribution companies to allow customers to access the information and to restrict it if they want. The commission’s action calls on all distribution companies to remind customers of their right to access the information.
PUC’s Audit of PECO Shows Possible Millions in Savings
A Public Utility Commission audit of PECO’s management and operations suggested ways the company could save up to $5.7 million a year and up to $3.1 million in one-time savings. The commission’s Bureau of Audits report was made public by a 5-0 vote of the commission.
The report provided 28 recommendations for the company to improve performance and save money, including reducing non-storm response overtime, improving the mapping of its natural gas lines to cut down on gas line hits and improving oversight of contractors. PECO has agreed to implement all of the recommendations by the first quarter of 2017.
Appalachian Power Files for 6 Energy-Efficiency Plans
Appalachian Power has filed with the State Corporation Commission for approval for four residential energy-efficiency programs and two programs for commercial and industrial customers.
The residential programs include home energy assessments, incentives for customers to give up second refrigerators or freezers, new construction energy-efficiency standards and retail rebates for high-efficiency lighting and appliances. The C&I plans provide incentives for high-efficiency lighting and heating and cooling equipment, and rebates for larger energy-efficiency projects.
The programs are designed to help the company reach mandated energy reduction targets.
Possible to Meet EPA Standards with Mix of Methods, Report Says
The state could meet the Environmental Protection Agency’s proposed carbon emissions standards with a combination of more renewable generation, power plant modification and energy-efficiency programs, according to a report released last week.
The report identified several areas necessary to meet the targets, including modifying existing power plants; dispatching low-emitting plants first; increasing renewable energy generation; expanding energy-efficiency programs; and building lower-emitting, natural gas-fired plants to take advantage of the state’s shale gas production. The report was prepared by the West Virginia University College of Law’s Center for Energy and Sustainable Development, the Morgantown-based consulting firm Downstream Strategies and the Appalachian Stewardship Foundation.
Given the available options, the report said the state can develop a plan to meet its emission targets while also enhancing social, economic and environmental benefits.
The contentious $1,000/MWh energy offer cap is likely to be the subject of some of the most vigorous debate at Thursday’s Markets and Reliability and Members committees meetings.
An Oct. 10 task force meeting failed to bridge the gap between generators and load interests. As a result, PJM will ask the MRC to sunset the task force. (MRC agenda item # 3.)
Meanwhile, despite the lack of consensus, Bob O’Connell of J.P. Morgan Ventures Energy will attempt to win MC approval to effectively eliminate the cap from the Operating Agreement as of June 1, 2015. (MC agenda item #4.)
O’Connell’s proposal also suggests that cost-based offers below $2,250/MWh – equivalent to a 15,000 Btu/kWh generator burning gas purchased at $150/Btu -– be allowed to set LMPs. Cost-based offers above $2,250 would be reimbursed through uplift and not set the clearing price. Price-based offers would be permitted to equal cost-based offers when the latter is more than $1,000/MWh.
At the April MRC meeting, O’Connell said that if stakeholders refused to approve a problem statement considering changes to the cap, as few as five members could create a user group to push for the change “through an alternative stakeholder process that may disenfranchise certain members.” (See Effort to Lift Offer Cap Advances After Debate.)
Below is a summary of the other issues scheduled to be brought to a vote at the MRC and MC meetings. 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.
Markets and Reliability Committee
2. PJM Manuals (9:10-9:30)
Members will be asked to endorse the following manual changes:
Revisions to Manual 11: Energy & Ancillary Services Market Operations and Manual 28: Operating Agreement Accounting that will set the default Tier 1 synchronized reserves estimates to zero MW for nuclear, wind, solar, batteries and hydro generators. The change means those resources will not receive compensation unless they actually produce during a spinning event.
Changes to Manual 1 to comply with a revised reliability standard given preliminary approval by the Federal Energy Regulatory Commission last month. COM-002-4 (Operating Personnel Communications Protocols) requires the use of a three-part communications process when issuing operating instructions. (See FERC Backs NERC, NAESB Standards.)
Revisions to Manual 14A: Generation and Transmission Interconnection Process that create a pre-application process for new and existing generation resource additions of 20 MW or less in compliance with FERC Order 792. Potential interconnection customers will have to submit a formal written request and a $300 processing fee. PJM is requesting these changes be effective beginning Nov. 1. (See PC Starts Work on Small Generator Interconnection Changes.)
Revisions to Manual 19: Load Forecasting and Analysis clarifying process for adjusting load forecasts due to significant load changes. The changes, which do not reflect any change in the procedures, were endorsed by the Planning Committee Sept. 2.
Conforming changes to Manual 18: PJM Capacity Market in response to members’ requests for details of the process for requesting and cancelling demand response maintenance outages and a FERC order allowing Annual, Extended and Limited products for DR (ER11-2288). The changes detail what qualifies for the maintenance outage, timeframes for the notification window, length of outage, extensions, cancellations, impacts to compliance calculations and resource testing.
3. Cap Review Senior Task Force (CRSTF) (9:30-9:50)
The committee will be asked to approve sunsetting the task force. (See above.)
4. Energy / Reserve Pricing & Interchange Volatility update (9:50-10:20)
Members will vote on whether to approve new rules to reduce uplift and ensure energy prices better reflect operator actions. The changes would increase synchronized and primary reserve requirements under emergency conditions when additional intraday resources are scheduled. The committee also will be asked to approve limits on interchange during emergency conditions. The limit would be used when operators have made firm resource commitments and anticipated interchange schedules are sufficient to meet projected load for the hour. The changes were approved last month by the Market Implementation Committee. (See MIC Briefs.)
5. Transmission Owner (TO) Data Feed (10:20-10:30)
Members will be asked to approve Operating Agreement and manual changes to make it easier for transmission owners to access real-time generator data. The changes are intended to improve situational awareness and emergency response. The Operating Agreement would be revised to include a universal non-disclosure agreement, eliminating the need for a separate data confidentiality agreement. Transmission owners will be able to obtain data from generators in their zone without justification. For generators outside its zone, the TO must confirm that the plant is in the current TO energy management system (EMS) model or will be included in an expanded model. The changes were approved by the Operating Committee last month.
Members will be asked to approve rules for voluntary winter testing of seldom-used generators. The tests would be limited to generators that haven’t run in the prior eight weeks and days when temperatures are below 35 degrees Fahrenheit. (See Winter Testing Could Cost $15.9M.) The Operating Committee approved the changes earlier this month.
7. 2014 IRM STUDY RESULTS (10:45-11:00)
Members will be asked to approve a recommendation to leave PJM’s Installed Reserve Margin at 15.7% for planning year 2018/19, unchanged from 2017/18. The Planning Committee approved the recommendation earlier this month. (See Planning Committee Briefs.)
8. Reactive Supply and Voltage Control Service from Deactivating Resources (11:00-11:15)
The MRC will be asked to approve on first read a proposed problem statement and issue charge seeking to prevent generation fleet owners from collecting payments for reactive power and voltage control service from generators that are no longer running.
The committee will be asked to approve a proposed problem statement and issue charge on first read regarding revisions to Manual 29: Billing, regarding treatment of underpayments of miscellaneous items or special adjustments. The changes are intended to prevent cost shifting when miscellaneous items or special adjustments are underpaid.
10. Regional Planning Process Senior Task Force (RPPTF) – Window Proposal Fee (11:30-11:45)
Members will consider a proposal by the RPPTF to charge a nonrefundable $30,000 fee for “greenfield” transmission proposals submitted during project proposal windows as a result of FERC Order 1000.
Members Committee
2. CONSENT AGENDA (1:20-1:25)
The MC will be asked to endorse revisions to Manual 11: Energy & Ancillary Services Market Operations and Manual 15: Cost Development Guidelines to correct a typographical error. The words “mileage ratio” will be replaced with “mileage” in Section 3.2.7 of Manual 11 and Section 2.8 of Manual 15, where the calculation of adjusted regulation performance cost is described. There is no change in PJM’s calculations, which have been correctly using mileage as it is defined by PJM.
Members will consider revising its conflict of interest policy to reflect the increasing number of consumer product companies, manufacturers and technology companies becoming involved in the electric industry. (See PJM Revising Policy on Prohibited Investments.)
3. Nominating Committee (1:25-1:30)
The MC will elect members of the 2015 Nominating Committee.
4. Energy Market Offer Price Cap (1:30-2:00)
Bob O’Connell of J.P. Morgan Ventures Energy will attempt to win approval for Tariff and Operating Agreement revisions eliminating the $1,000/MWh energy market offer price cap effective June 1, 2015. (See above.)
The Federal Energy Regulatory Commission said Tuesday that PJM should not have included a 10% adder in its calculation of make-whole payments to generators whose costs exceeded the $1,000/MWh offer cap last winter.
FERC granted a rehearing request to PJM’s Independent Market Monitor, agreeing that including the adder — typically included in cost-based offers to account for the uncertainty of calculating operating costs for combustion turbines under changing ambient conditions — was a mistake.
FERC said that the generators subject to their Jan. 24 waiver of the offer cap would still “receive make-whole payments by documenting the cost and volumes of natural gas needed to generate electricity.”
But the commission said that because the generators’ actual costs are now known, including an adder meant to cover uncertainty was inappropriate.
“This type of ex post determination does not contain any inherent uncertainty that would warrant an adder whose purpose in ex ante offers is solely to enable resources to recover uncertain or difficult-to-quantify costs,” FERC said.
The Monitor had argued in a March report that the adder portion was “not an actual cost and the generation owners did not pay it.” (See Stakeholders Preview Offer-Cap Debate.)
Denied
In its rehearing request, the Monitor also argued that non-capacity natural gas-fired generation resources should receive relief so as not to deter them from participating with PJM. FERC, however, disagreed.
“PJM’s filing requested a temporary waiver only for generation capacity resources and, therefore, we will not extend the waiver to other generators,” FERC said. “Further, no party in this proceeding has presented evidence that natural gas-fired generators other than generation capacity resources had documented costs above the market-clearing price.”
FERC also denied requests for rehearing from the Maryland Public Service Commission and the PJM Industrial Customer Coalition.
The coalition said customers shouldn’t be forced to pay higher prices due to generators’ decisions not to hedge against price spikes in the natural gas market. The coalition also said the waiver should have been limited in scope to specific PJM zones rather than the entire footprint.
FERC countered that the events of late January amounted to an emergency that harmed confidence in the wholesale markets and threatened reliability. “Delaying the issuance of the order could have threatened reliability by discouraging generators from making their units available,” FERC said, adding that its broad waiver was consistent with past orders during emergencies.
FERC’s denial of the PSC’s request was mostly procedural: the PSC had requested a detailed report from the Monitor explaining the basis for determining make-whole payments. The PSC filed its request on Feb. 21; one month later, the Monitor filed its report.
PJM officials are developing contingency plans for their 2015 capacity auctions in the wake of last week’s stay of the D.C. Circuit Court of Appeals’ EPSA ruling.
PJM General Counsel Vince Duane said it will be at least next spring before the Supreme Court decides whether to review the D.C. Circuit’s ruling (Electric Power Supply Association v. Federal Energy Regulatory Commission) throwing out the Federal Energy Regulatory Commission’s Order 745.
On Monday, the D.C. Circuit granted a stay until Dec. 16 on its ruling in order to give U.S. Solicitor General Donald B. Verrilli Jr. time to file a petition for certiorari on FERC’s behalf. If Verrilli files the petition, the stay will remain in effect until the Supreme Court rejects the request, or accepts it and decides the case on its merits.
Although the D.C. Circuit’s May 23 ruling explicitly concerned FERC’s jurisdiction over demand response in energy markets, some believe it also jeopardizes the inclusion of DR in FERC-regulated capacity markets. To avoid legal vulnerabilities, PJM on Oct. 7 proposed eliminating DR as a capacity supply resource and instead having load-serving entities offer DR and energy efficiency to reduce their capacity obligations.
Duane said the stay does nothing to provide additional certainty regarding the May 2015 Base Residual Auction.
“If [the Supreme Court justices] take the case, you have another year of not knowing what the rules for DR participation are,” Duane said in an interview last week.
“If cert isn’t granted, that’s the walk-off home run. That’s the end of it. There’s no more appeals,” he added. “And we are right on the eve of a capacity auction and the question then is what rules can apply now that EPSA is the law of the land and we have Tariff sheets that are kind of antiquated.”
Electric Power Supply Association CEO John Shelk responded to the stay with a statement calling on PJM to assume the D.C. Circuit’s ruling stands.
“EPSA remains confident that the D.C. Circuit’s decision will stand and that Order 745 will eventually be vacated,” Shelk said. “The key now is moving forward on plans for an orderly transition that take into account not only what the decision requires with respect to demand response participation as supply in the energy markets but also its implications for the capacity markets. Even lawyers who disagree with the court’s conclusion that FERC lacks jurisdiction agree that the ruling’s legal rationale logically means that demand response cannot be a supply-side resource in capacity markets.”
ISO-NE Response
ISO-NE spokeswoman Marcia Blomberg said Friday that the ISO is continuing with its plans to seek FERC approval for rules allowing DR to provide operating reserves and participate in the Forward Reserve Market effective June 2017.
“However, given the legal uncertainty regarding the future of Order 745, and the fact that the full integration of demand response into energy and reserve markets will require two years of work to modify software and system infrastructure, the ISO will decide in early 2015 whether to begin devoting resources to meet the June 1, 2017, implementation date, or to ask for a delay until the legal questions are resolved,” Blomberg said.
FirstEnergy Complaint
The court ruled that Order 745, which required PJM and other RTOs to pay DR resources market-clearing prices, violates state ratemaking authority.
FirstEnergy Solutions filed a complaint with FERC within hours of the May 23 ruling, demanding that PJM throw out the DR that cleared in the May BRA for delivery year 2017/18.
On Wednesday, PJM filed a response in opposition to the FE complaint, saying that FE’s demand that PJM recalculate the 2014 auction results without DR would be “extremely damaging to the market certainty that is critical to sustaining investment in electricity infrastructure.” (EL14-55)
Instead, PJM said it will submit Tariff revisions around New Year’s that will seek to minimize litigation risk by proposing that:
Load-serving entities be permitted to submit price-responsive bids into the capacity auction beginning with the May 2015 BRA, as outlined in the white paper;
Demand response capacity commitments already made for the 2014/15 through 2017/18 delivery years be honored “subject to an orderly, voluntary exit path for capacity demand resources that anticipate losing their energy market compensation as a result of EPSA”; and
Changes be made to incremental capacity auction rules to support a transition, including a provision precluding any new demand resource offers in RPM auctions by retail end users or by aggregators of retail customers.
“PJM expects to ask the commission to accept these changes to serve at least as a ‘stop-gap measure,’” the RTO wrote, “perhaps to be effective only until such time as the commission and industry stakeholders have had an opportunity, once jurisdictional questions are finally resolved, to consider and develop generic and more considered options for demand response participation in organized wholesale electricity markets.”
In its own response, PJM’s Independent Market Monitor told FERC it opposed recalculating the 2014 auction but “generally supports the objective of” the FE complaint.
“Granting this objective as it pertains to future [capacity] auctions would permit the correction of faulty rules that have interfered with the efficient performance of the PJM capacity market design,” the Monitor wrote.
Praise from LaFleur
Because FERC’s direct authority to initiate legal action ends at the D.C. Circuit, FERC Chairman Cheryl LaFleur said that the decision whether to seek a Supreme Court hearing will be made by Verrilli. “That office has the exclusive authority to make that decision for the U.S. government — all the agencies. As with other agencies, we work behind the scenes with them,” she said during a keynote address at PJM’s Grid 20/20 conference Tuesday.
LaFleur said she was unable to talk about the pending FirstEnergy complaint. But she praised PJM’s “very thoughtful” white paper.
“I appreciate your contributing to the discourse on this,” she said. “Because we have a pending complaint before us on how we treat demand response in the markets right now, I haven’t been able to be a part of that discourse, but I’m glad it’s going on.”
Wisconsin Energy Corp.’s proposed $9.1 billion acquisition of Integrys Energy Group has generated some notable opposition — including Michigan Gov. Rick Snyder.
On Oct. 17, Snyder and Michigan Attorney General Bill Schuette asked the Federal Energy Regulatory Commission to reject the merger, which would create one of the Midwest’s largest electric and natural gas utilities (EC14-126).
Wisconsin Energy and its subsidiaries already control most of the generation in Michigan’s Upper Peninsula. Michigan officials say the merger would give Wisconsin Energy a 60% ownership interest in the area’s only transmission system operator, American Transmission Co. (ATC).
“The level of concentration in both generation and transmission in the Upper Peninsula by one company as a result of this merger is a major concern for Michigan. This concentration will provide the [utilities] market power in the region that could negatively affect competition and rates,” Snyder and Schuette wrote.
Milwaukee-based Wisconsin Energy, parent of We Energies, and Chicago-based Integrys, whose holdings include Wisconsin Public Service and Michigan Gas Utilities, announced the merger June 23.
If the merger is approved, the combined companies will serve more than 4.3 million gas and electric customers in Wisconsin, Illinois, Michigan and Minnesota.
Most of the merging utilities’ generation is in the so-called Wisconsin and Upper Michigan region, or WUMS.
In their request to intervene, the Michigan officials said Wisconsin Energy and Integrys failed to analyze the relevant geographic market in determining market power, significantly understating “both the horizontal and vertical market power that the merged utility will have,” including the adverse impact such market power could have on rates and competition in Michigan’s Upper Peninsula.
Wrong Market Studied
The officials assert that the relevant geographic market is not the entire MISO footprint but WUMS, which includes the Upper Peninsula.
“Michigan contends that it is completely inappropriate to use MISO’s footprint, which includes parts of 16 states and one Canadian province, as the geographic market for assessing market concentration,” the state wrote.
Michigan pointed to findings by MISO’s Independent Market Monitor, as of the start of energy markets in April 2005, as identifying WUMS and North WUMS as narrow constraint areas (NCAs). “In designating submarkets as NCAs, the commission has effectively recognized these areas as separate and distinct geographical markets,” Michigan said.
Michigan says the merger could shift 93% of the cost of retiring the Presque Isle generating plant — $90.2 million — from Wisconsin ratepayers to a “much smaller set” of ratepayers in Michigan’s Upper Peninsula.
Great Lakes Utilities Protest
The proposed merger is also problematic for some utilities, including Wisconsin-based Great Lakes Utilities.
GLU’s members include municipal electric utilities in 12 Wisconsin and Michigan cities that are neighboring utilities to Wisconsin Energy and Integrys. GLU is a wholesale power customer of both.
GLU’s protest complains that the merger is likely to result in “substantial” increases to the cost of wholesale power. GLU also asserts that the merger will “strengthen Wisconsin Energy’s hand in transmission planning and cost allocation issues at the expense of other entities.”
In particular, GLU said the acquisition of Integrys will consolidate the ownership of ATC. Wisconsin Energy controls 26% of the voting shares in ATC while Integrys controls 34%.
“Without diversity of opinion and perspective, ATC’s function as an independent entity will be less certain,” GLU said.
A spokeswoman for Wisconsin Energy, Cathy Schulze, said the utility will respond to the protests soon.
