Exelon, a company primarily known for its generation fleet, continued its customer-buying spree last week when it announced an agreement to buy Integrys Energy Services for $60 million.
Integrys is a competitive retail electricity and natural gas company with nearly 1.2 million customers across 22 states and D.C.
Exelon will fold those customers in with its existing 2.5 million retail electricity and gas customers served by its Constellation subsidiary. Integrys has commercial and industrial customers across more than 100 utility service territories, primarily in the Northeast. Its residential customers are mostly in Illinois, Michigan and Ohio.
Why is Exelon getting into retail when other utilities such as Dominion are getting out?
“We continue to see growth opportunities in our competitive businesses and the value of matching load to generation, which was one of the primary reasons for our acquisition of Constellation in 2012,” Exelon spokesman Paul Adams said last week. “Integrys Energy Services is a well-run company with an attractive customer base in key markets.”
Chris Crane, Exelon’s president and CEO, also emphasized matching load to generation. “Integrys Energy Services’ geographic footprint is a perfect strategic fit for Constellation and will create opportunities to reach more customers and grow the business, particularly in regions where Exelon also owns significant generation assets,” he said.
The agreement is the latest divestment move by Chicago-based Integrys Energy Group. In June, it announced it would sell its regulated utility operations — Michigan Gas Utilities, Minnesota Energy Resources, North Shore Gas, Peoples Gas, Upper Peninsula Power Company and Wisconsin Public Service — to Milwaukee-based Wisconsin Energy for $9.1 billion.
Others have also decided to get out of the retail business. Dominion Resources announced in March it would sell its retail electric business to NRG Energy.
NRG is paying $165 million for Dominion’s 600,000 retail customers in Illinois, Maryland, New Jersey, Ohio, Connecticut, New York, Massachusetts and Texas. Exelon is paying $60 million for 1.2 million customers.
In April, the company announced plans to buy Pepco Holdings Inc., which will add nearly 2 million distribution customers to its regulated customer count while increasing its rate base to almost $26 billion from $19 billion.
In March, Exelon announced that it was buying Indianapolis-based ETC ProLiance Energy. ProLiance is a retail supplier of natural gas with about 2,500 commercial and industrial customers in eight states. The terms of that acquisition were not released at the time.
One of the prizes of buying a retail business like Integrys is that it will allow Exelon to compete for some of the valued municipal contracts its regulated utilities, such as Commonwealth Edison, have been losing to retail companies. This includes the contract for a large chunk of Chicago’s customers. In 2012, Exelon lost 700,000 residential customers in Chicago to a retail energy business — Integrys.
Below is a summary of the issues scheduled to be brought to a vote at the Markets and Reliability Committee meeting Thursday. Each item is listed by agenda number, description and projected time of discussion, followed by a summary of the issue and links to prior coverage in RTO Insider.
RTO Insider will be in Valley Forge covering the discussions and votes. See next Tuesday’s newsletter for a full report.
2. PJM Manuals (9:10-9:20)
Members will be asked to endorse the following:
Revisions to Manual 37: Reliability Coordination to update the System Operating Limits (SOL) definition and violation language (sections 3.1, 3.2) to conform to the North American Electric Reliability Corp. standard. Includes updates to various references and the Interconnected Reliability Operating Limit (IROL) table (Section 3.1).
Revisions to Manual 14A: Generation and Transmission Interconnection Process to reflect changes in how the interim deliverability studies are conducted. Language was added regarding projects proposed for interconnection to PJM and those seeking connections with MISO. Stakeholders in MISO are reviewing similar language; the manual may require additional changes depending on their feedback.
Updates to the cost allocation section of Manual 14B: PJM Region Transmission Planning Process to describe the current solution-based methodology as detailed in the PJM Tariff. There are no changes to the actual method or calculation.
3. System Restoration Strategy Task Force (SRSTF) Recommendations (9:30-10:00)
Members will consider minor Tariff and manual changes to the compensation of black start units. The System Restoration Strategy Senior Task Force considered several proposals but only one received the minimum 50% support to forward it to the MRC for consideration. (See PJM to Seek Smaller Black Start Changes.) The proposal would:
Allow energy-only black start units to be compensated. There is no mechanism to compensate energy-only generators through the base formula rate.
Allow automatic load rejection (ALR) units to recover NERC Compliance costs as documented to the Market Monitor.
Allow fuel-storage compensation for liquefied natural gas, propane and oil. Currently, only oil storage is compensated.
Limit black start units sharing a common fuel tank to claim the fuel-storage compensation for only one unit, closing a loophole.
Schedule a review of compensation formulas every five years (down from the current two years) to align it with the RTO-wide black start solicitation.
Facing a barrage of criticism from environmentalists, New Jersey officials and spurned bidders, PJM’s Board of Managers has delayed action on planners’ recommendation that it select Public Service Electric & Gas to fix the Artificial Island stability problem.
Instead, the board will allow PSE&G and finalists Transource Energy and Dominion Resources to “supplement” their proposals in response to finalist LS Power’s offer to cap its project cost at $171 million — $40 million to $90 million less than the PSE&G project.
“The project costs included in any such supplemental proposals to PJM will be factors considered in the final selection for an Artificial Island solution. However, the Board has reiterated that cost is only one of several considerations that will drive a final decision,” Vice President for Planning Steve Herling said in a letter to the Transmission Expansion Advisory Committee yesterday.
Herling said PJM will respond to the criticism of its recommendation and its handling of the solicitation — the first under the Federal Energy Regulatory Commission’s Order 1000 — at the Aug. 7 TEAC meeting. Planners also will discuss “any issues that require further analysis,” Herling added.
PJM also will contact the Nuclear Regulatory Commission to discuss how some of the proposals might impact the switchyards for Artificial Island’s occupants, the Salem and Hope Creek nuclear plants.
The board made its decision in a closed meeting Tuesday and announced it yesterday in a liaison meeting with PJM members.
Comments Mostly Critical
The board received 10 comments from bidders and other stakeholders after PJM planners announced their decision to recommend PSE&G last month. Only PSE&G and the Delaware Public Advocate supported the recommendation. Delaware said it preferred the planners’ recommendation — a 500-kV line between the Hope Creek nuclear plant and Red Lion, Del. — because a 230-kV southern path to Delaware would allocate the entire project cost to Delaware ratepayers.
Wetlands are among the sensitive ecosystems that would be impacted by the northern 500-kV path chosen by PJM planners. (Source: PSEG)
LS Power, Atlantic Grid Development, Dominion and Transource contended the proposal selected was technically inferior and/or more expensive than their own proposals. Exelon and Pepco, which made a joint proposal, said they would not challenge the recommendation but joined the others in criticizing the process as unfair and lacking transparency.
New Jersey’s Board of Public Utilities and Division of Rate Counsel criticized PJM’s recommendation as more expensive and presenting more of a permitting risk than the southern alternative because of its impact on sensitive environmental areas. The Sierra Club and the Delaware Riverkeeper Network said they shared the state’s concerns over the environmental impact of the northern path.
PJM’s choice “is very damaging environmentally, and not just to one important ecological resource, but to hundreds,” Delaware Riverkeeper Maya K. van Rossum said. The Riverkeeper Network is a non-profit organization formed to “advocate, educate and litigate” on behalf of the river. It promised it would “be active and committed” in its opposition to the 500-kV proposal.
Process Not Followed
Several of the bidders criticized PJM for failing to follow the procedures spelled out in PJM’s Order 1000 compliance filings, which revised Schedule 6 of the Operating Agreement.
PJM had said it would invite transmission developers to develop solutions to individual transmission needs and choose the best proposal from among the submissions. If none of the proposals were satisfactory, PJM could either revise its problem statement in a new solicitation window or develop its own solution and designate the incumbent transmission owner(s) to build it.
The bidders say that PJM changed the requirements by adding a unity-power-factor requirement — typically required for new generation interconnections — which none of the 26 proposals could meet.
Instead, the planners proposed adding a static var compensator (SVC) to all of the finalists’ proposals at an additional cost of $80 million.
PSE&G Proposal
PSE&G’s winning proposal was estimated at $1.066 billion before PJM planners eliminated two 500-kV lines from it. That reduced the project’s cost by more than three-quarters to a range of $211-$257 million, making it equal to an LS Power 230-kV proposal that was the cheapest among the finalists, PJM said.
“Although credited to [PSE&G], the selected Hope Creek to Red Lion 500-kV solution is nowhere close to the originally submitted proposal,” American Electric Power, co-owner of Transource, said in its July 18 letter to the board. “A modification that results in a more than 75% reduction in scope from what was originally proposed is a new project and should be treated as such.”
LS Power insisted its proposal would cost only $149 million and offered to cap its recovery at $171 million, a savings of at least $40 million to $90 million over the PSE&G project. (See Losing Bidders Blast Artificial Island Choice.)
Exelon and Pepco said that PJM had failed to provide the transparent selection process it promised FERC. “Following the filed process would likely have resulted in a significant reduction of more than a year’s worth of hard work performed by, and expenses incurred by, all participants,” they wrote.
In his letter to the TEAC yesterday, Herling said PJM was committed to improving its process to ensure fairness and transparency. “Order 1000 … has created entirely new processes, which are especially challenging when evaluating transmission solutions as complex as those required for the Artificial Island stability issues,” he said.
Cheryl LaFleur has won plaudits for her leadership since taking over as acting chair of the Federal Energy Regulatory Commission in November and won 90 votes for her renomination to a second five-year term on Tuesday. But she did it without any help from the Democratic senators from New York.
Charles Schumer and Kirsten Gillibrand were among seven senators to vote against LaFleur, along with Democrats Ben Cardin and Barbara Mikulski of Maryland, Democrat John E. Walsh of Montana and Republicans Jerry Moran and Pat Roberts of Kansas.
The New York senators are angry over LaFleur’s support for the New York ISO’s creation of a capacity zone in the Lower Hudson Valley that has led to increases in prices. The zone took effect May 1, following FERC’s unanimous approval last August.
The issue spilled into the Senate’s confirmation debate as Majority Leader Harry Reid (D-Nev.) referred to a Wall Street Journal editorial the day before that characterized the capacity zone plan as “a federal takeover of New York’s electric grid.”
“I’ve spoken to both nominees and they’ll take a hard look at that. When [the editorial] came out yesterday I directed attention to that and that will be addressed by both of them and they have said so,” Reid said.
In March, Schumer wrote to LaFleur, saying FERC’s approval of the new zone is “unacceptable to me, the New York Public Service Commission and to residents and businesses throughout the Hudson Valley who feel aggrieved for having to pay immediate rate hikes after a record winter of high energy costs.”
“As we both know, this winter has brought extreme low temperatures, and consequently high energy costs, to everyone in New York,” Schumer told LaFleur. “Imposing an additional cost increase on Hudson Valley residents is unfair and will place an undue burden on many of my constituents.”
However, FERC in late May denied a rehearing requested by Schumer and various New York agencies, political leaders and utilities. The matter is now pending before the U.S. District Court of Appeals for the Second Circuit.
FERC acknowledges that electricity costs will rise in the short run but says that higher price signals are needed to encourage construction of generation and transmission to serve New York City and the nine counties to its north. FERC said the congestion issue has been discussed since 2006 without a solution. Consumers have been shielded from higher prices since that time, it noted.
Previously, the Lower Hudson Valley was paying capacity prices set for the areas of New York outside of the city and Westchester County. The FERC order combines the Hudson Valley with the City/Westchester zone, whose capacity prices have historically been much higher.
The New York Power Authority claims the zone pricing only creates a windfall for power generators that will total more than $1 billion over the next three years.
Central Hudson Gas & Electric, which serves the Poughkeepsie area, says that capacity revenues from auctions in May and June more than doubled from the same months a year ago. That will increase monthly bills by 6% for residential customers and 10% for large industrials, the company said.
In its petition to FERC, NYISO said that the transmission bottleneck threatened reliability in and around New York City. The FERC order requires utilities to buy at least 88% of their capacity from generators within the zone.
State officials opposing the zone say that two large transmission projects are being planned to eliminate the bottleneck and that locally based generation is not needed. One transmission project would create a corridor from the Canadian border to New York City, making renewable energy generation from upstate more readily available.
FERC maintains the projects are not guaranteed to be built and, at best, are years from completion.
FERC also rejected a proposed phase-in of the zone. It said any delay would impair the market’s ability to send more efficient investment price signals.
The United States Court of Appeals expedited the appeal process when it required opening briefs filed by June 27. A ruling is anticipated in the fall.
The D.C. Circuit Court of Appeals signaled Friday that it may take another look at the court’s order voiding the Federal Energy Regulatory Commission’s authority over demand response compensation.
A three-judge panel of the D.C. Circuit ruled May 23 that FERC Order 745 violates state ratemaking authority. (See Court Throws Out Demand Response Rule.) FERC asked the circuit on July 7 to conduct an en banc review of the 2-1 ruling.
In a one-page order Friday, the court told the Order 745 challengers — the Electric Power Supply Association, American Public Power Association, National Rural Electric Cooperative Association, Old Dominion Electric Cooperative and Edison Electric Institute — to file a joint response to FERC’s petition within 15 days.
In its petition for review by the full D.C. Circuit, FERC acknowledged the rarity of rehearing. It noted that the commission has sought such a rehearing only once in the last 18 years — a case in which the Supreme Court reversed the circuit’s original decision.
Order 745 requires PJM and other RTOs to pay DR providers full locational marginal prices.
FERC said a review was warranted because the May 23 ruling “severely departs” from previous rulings on FERC’s jurisdiction under the Federal Power Act. A broad reading of the ruling could potentially invalidate DR participation in any wholesale market — energy, capacity or ancillary services — FERC said.
PJM joined FERC in seeking a review of the ruling, saying the loss of DR would be disruptive to operations. PJM General Counsel Vince Duane acknowledged that the court grants less than 1% of the rehearing requests it receives but said the odds were better in this case because of the implications of the ruling.
Superconducting cable (foreground) is able to carry 10 times as much power as traditional cable. (Source: American Superconductor)
Commonwealth Edison is teaming with an engineering company to boost the reliability of Chicago’s electric grid and protect it against terrorism by installing three miles of superconductor cable beneath the city’s Loop district.
Funded in part by a $60 million grant from the Department of Homeland Security, the project is expected to be the first commercial-scale deployment of American Superconductor’s Resilient Electric Grid system (REG).
American Superconductor spokesperson Kerry Farrell said that the project, now in the design stage, will supplement part of ComEd’s underground distribution system.
“Superconductors are an alternative to copper wire – smarter, stronger, smaller. [ComEd] will use the cable to connect existing substations together, increasing the capacity of the grid without rebuilding” or adding more substations or transformers, she said.
The new superconducting cable looks more like ribbon than traditional thick, twisted, sheathed cable and is able to carry 10 times as much power.
“This is the first major deployment of superconducting cable of this size, probably the largest project like it in the world,” Terence R. Donnelly, ComEd executive vice president and chief operating officer, said in an interview. Previous demonstration projects have been deployed in South Korea and with Long Island Power Authority.
In Case of Emergencies
Substations typically serve specific areas and are isolated from one another to prevent a domino-like failure scenario. But that isolation means that one substation is unable to shoulder more of the load in the event another substation is taken out by a storm, technical failure or terroristic attack.
The REG will allow instant transfer of load in such an event, leading to a more robust and reliable system, Farrell said.
Donnelly said the project is part of an effort to update ComEd’s transmission and distribution system.
“We’ve read about threats to electric power grids, such as the attack on the grid in California, and we were looking for ways to use technology to protect against things like superstorms and the possibility of terrorist attacks,” he said. “We wanted to use technology to develop a smarter, more reliable and more secure grid. And we think [the superconducting cable] would provide a solution to back up substations, not in just a catastrophic event, but also in routine operations.”
ComEd selected the Chicago Loop, the city’s central business district, because of its importance “as a key area of trade, finance and government.”
ComEd and American Superconductor declined to put a price tag on the project.
But in a June filing with the Securities and Exchange Commission, American Superconductor reported that the first phase — the evaluation and development of the installation plan — would take six to nine months and cost $1.5 million. The remaining phases of the project would cost the remainder of the $60 million — the total amount of revenue American Superconductor expects from the ComEd project.
After the design stage, Donnelly said it will take two to four years to complete the installation. He said an evaluation will be done to see if the REG should be expanded in the ComEd system, or in the other Exelon-owned systems, Baltimore Gas and Electric Co. and PECO.
Holtwood Hydroelectric Plant, one of two PPL hydro plants being offered in Talen Energy’s divestiture plan options.
PPL and Riverstone Holdings have offered to divest about 1,300 MW of generation from their 15,000-MW combined fleet to avoid market power concerns over their planned spinoff.
The new company, Talen Energy, proposed two divestiture options in a filing with the Federal Energy Regulatory Commission July 15 (EC14-112). One involves six Riverstone plants and one PPL plant in New Jersey and Pennsylvania — all combined-cycle plants — for a total of 1,315 MW. The second involves the same six Riverstone plants, plus a 399-MW coal-fired plant in Maryland and two PPL hydro plants in Pennsylvania for a total of 1,346 MW.
In an affidavit supporting the spinoff, Julie Solomon, a market power expert for Navigant Consulting, said that no company with more than 10% of PJM’s summer installed capacity would be permitted to bid for the plants. That would leave out Public Service Enterprise Group, Exelon and NRG Energy.
With almost 14,000 MW of generation, the new company will rank fifth nationally in competitive generation (behind NRG, Exelon, Calpine and Next Era) and third among independent power producers. (See PPL-Riverstone Spin-Off Shuffles GenCo Rankings.)
“What we are laying out in the filing are some potential options if FERC deems there would be market power concerns,” PPL spokesman Ryan Hill said. “They are simply proposals at this time. If FERC would deem that we would have to sell some power plants, we proposed entering in a contract or contracts to do that within one year of approval.”
Under Talen’s plan, all of the generation assets listed in both options — a total of nearly 2,000 MW — would be put into a blind trust after the PPL-Riverstone transaction is completed. The assets would be operated by an unaffiliated third party, or “Independent Energy Manager,” which would bid all energy and ancillary services of the units until the divestiture is complete. The IEM would be paid a management fee with performance incentives.
“Because neither Talen Energy nor its affiliates will have any control over the generation in the hands of the IEM, any ability or incentive to exercise market power with respect to these units will be eliminated,” Solomon wrote. “I assume that all the plants in either Option 1 or Option 2 will be divested to a single new entrant, although under the Applicants’ proposal, multiple buyers could purchase the plants, as long as all of the plants in the option selected are sold.
“The interim mitigation is further enhanced by the presence of Commission-approved market monitoring and mitigation in PJM, and ongoing oversight by the PJM Independent Market Monitor.”
Hill said PPL still believes all regulatory approvals will be obtained within a year.
Exelon Generation expects to break ground this week on construction of two more gas-fired units at its Perryman Generating Station near Aberdeen, Md. The station currently has five units generating 345 MW. Four of the units are oil and the fifth is fueled by natural gas. The two new units will be 60-MW peakers. Exelon said the plants should be completed by June 2015.
Last year saw a 47% increase in solar power installations, including 10 photovoltaic installations larger than 100 MW, according to a report by the Interstate Renewable Energy Council.
“Solar energy markets are booming in the United States due to falling photovoltaic [PV] prices, strong consumer demand, available financing, renewable portfolio standards (RPSs) and financial incentives from the federal government, states and utilities,” said Larry Sherwood, IREC’s chief operating officer. “Thirty-four percent more PV capacity was installed in 2013 than the year before accounting for 31% of all U.S. electric power installations completed in 2013.”
NRG Energy and JX Nippon of Japan are using carbon-capture technology to reduce emissions from a Texas coal plant and boost oil-field production. The Petra Nova Carbon Capture project is designed to trap 1.6 million tons of carbon each year from one unit of NRG’s W.A. Parrish plant. The carbon will be sent via pipeline about 809 miles away to the West Ranch Oil Field, where output has been falling. NRG and JX Nippon believe that by injecting the carbon gases into the field, it will push oil back up through the well.
If all goes correctly, production at the well will rise from 500 barrels a day to 15,000 barrels a day. Oil revenues will pay off the $1 billion project cost, according to NRG.
Delmarva Adds Smart Meter Fees to Gas Bills with PSC OK
Natural gas customers of Delmarva Power & Light will soon begin seeing “smart meter” fees on their bills as part of a Public Service Commission-approved plan to promote energy conservation. The company said the charge will increase the average residential natural gas bill by about 37 cents, or 0.3%. The meters, which can be read remotely, provide usage information to customers, allowing them to make energy-use choices, according to the company.
RGA Labs wants to buy the Kewaunee nuclear generating station, which Dominion Resources shuttered last year as uneconomic. RGA is headed by Robert Abboud, a nuclear engineer and former Commonwealth Edison employee who said his company has a plan to bring Kewaunee back on-line.
Abboud said economic conditions and environmental regulations are lining up to make nuclear generation more profitable. “It won’t be easy. There will be a number of roadblocks that we’ll have to work to get over, but it’s entirely doable,” he said. “When you think about what other people have done, the guys at SpaceX or Tesla, here is a machine that already works and has demonstrated its performance for 30 years.”
Dominion put the plant up for sale in 2012 but now says it is no longer on the market.
The Environmental Protection Agency said last week that Duke Energy has finished its cleanup of the massive ash spill that occurred when a drainage pipe broke, spewing more than 39,000 tons of coal ash into the Dan River. The river flows from Virginia into North Carolina.
EPA cleanup coordinator Myles Bartos said Duke and its contractors dredged up about 2,500 tons of sediment that had piled up behind a downstream dam and sucked up another 500 tons in other areas and at two municipal water treatment plants.
Although not all of the ash that spilled was cleaned up, Bartos ruled the operation complete. He said continued monitoring of the water and sediment will be the company’s responsibility, and additional cleanup will be ordered if needed.
A Philadelphia man with a bag of tools and knowledge of electric meters set up a booming business tampering with some PECO customer electric meters, changing them so it appeared that their electricity consumption was less than it really was. Marcelina Cuadra Jr.’s business plan fell apart when PECO investigators noted the fluctuation in consumption and took a closer look.
Company officials and court documents say that between 2009 and 2012, Cuadra’s tampering cost PECO about $346,000. He pleaded guilty to theft of services and other charges and was sentenced in Montgomery County Court to seven years of probation. Some of his customers were also charged and are awaiting trial.
Protesters blocked the entrance to the Federal Energy Regulatory Commission last week, resulting in more than two dozen arrests. (Source: Erik McGregor)
By Michael Brooks
Cheryl LaFleur has won plaudits for her leadership since taking over as acting chair of the Federal Energy Regulatory Commission in November and won 90 votes for her renomination to a second five-year term on Tuesday. But she did it without any help from the Democratic senators from Maryland.
Maryland’s Ben Cardin and Barbara Mikulski were among seven senators to vote against LaFleur, along with New York’s Charles Schumer and Kirsten Gillibrand, Democrat John E. Walsh of Montana and Republicans Jerry Moran and Pat Roberts of Kansas.
LaFleur’s confirmation came the day after more than two dozen opponents of Dominion’s $3.8 billion plan to convert the liquefied natural gas (LNG) import terminal on the Chesapeake Bay into an export terminal were arrested for blocking the entrance to FERC’s headquarters. The sit-in, organized by environmental group Chesapeake Climate Action Network (CCAN), was part of a larger demonstration in D.C. against hydraulic fracturing and the natural gas industry’s push to export LNG. Reuters reported that people held signs calling the agency the “Fracking Expansion Rubberstamp Commission.”
Dominion has said that Cove Point would not depend on fracking for its exported LNG. Those in opposition, including Cardin and Mikulski, disagree.
Environmental Assessment
In May, FERC staff released its environmental assessment (EA) of Dominion’s plans for Cove Point, which said that “approval of the project … would not constitute a major federal action significantly affecting the quality of the human environment.”
FERC accepted public comments at a meeting held in Calvert County, where Cove Point is located.
The senators wrote FERC in March, forwarding the concerns of a number of communities and activist groups. They asked the commission to “go the extra mile” and schedule additional meetings in five Maryland counties that they said could be subject to either fracking or the construction of gas pipelines if Cove Point is approved.
A letter from the Montgomery County Council seconded the request. “Construction of this facility will most likely lead to higher demand for gas recovered from ‘fracking,’ particularly from the Marcellus Shale basin that extends into Maryland,” wrote Council Vice President George Leventhal, who noted that another natural gas reservoir, the “Culpepper Basin,” lies in the county.
LaFleur responded with a letter declining the requests, saying that the commission “gives equal consideration to written comments and comments received at a public meeting” during the requisite 30-day public comment period for an EA.
The senators’ request to extend the comment period by another 30 days was also declined.
“We are extremely disappointed by FERC’s denial of our simple request for an additional 30 days for the public comment period,” they said in a joint press release in June. “It’s unfortunate FERC has denied this request, refusing to respect the needs for Marylanders to have sufficient time to review and understand the contents of the environmental assessment document and provide comment” to FERC.
Foreign Markets
As natural gas supply has boomed in the U.S., domestic prices have dropped sharply, leading producers to seek access to international markets, where prices are higher.
The Obama administration is also under pressure to export natural gas as part of its economic sanctions against Russia for its role in the Ukrainian revolution. Russia controls most of Europe’s natural gas supply and in June began withholding its supply to Ukraine.
Last September, the Department of Energy approved Dominion’s 20-year contracts with two companies – one in India and one in Japan – to export LNG from Cove Point. Dominion needed department approval because the U.S. doesn’t have free-trade agreements with these countries.
Both DOE and FERC have already approved two LNG export facilities in Louisiana. Cheniere Energy expects its Sabine Pass LNG site to begin exporting in late 2015, while Sempra Energy got FERC approval last week for its Cameron LNG site. Construction is expected to begin there in the fall.
FERC’s order for Cove Point is expected as early as the end of this month.
Dominion is confident that, after meeting FERC’s environmental requirements, the project will be approved. Dominion says construction could begin before the end of summer and that the station would be fully operational by late 2017, the Pittsburgh Post-Gazettereported.
WASHINGTON — After a year of political wrangling, the Federal Energy Regulatory Commission finally got its fifth commissioner last week with the confirmation of Norman C. Bay.
But uncertainty will linger for months at the agency due to Bay’s lack of a policy record and the unprecedented compromise that won his confirmation — an agreement that President Obama wouldn’t promote him to the chairmanship for nine months.
In private conversations before FERC’s open meeting Thursday, commission staff, industry attorneys and other stakeholders had no shortage of questions:
How assertive will Acting Chair Cheryl LaFleur be as a lame duck? And will she remain for her five-year term after she has to relinquish the gavel?
With Commissioner John Norris openly musing about his post-FERC future, who will replace him and how soon?
How will Bay resolve the investigation into Powhatan Energy Fund, whose principals have been running a public relations campaign accusing FERC of heavy-handed enforcement tactics?
The biggest question on the minds of many: Who is Norman Bay and what kind of a chairman will he be?
Who is Norman Bay?
A former U.S. attorney who has never been a regulatory commissioner, Bay rarely speaks at commission hearings and is virtually unknown outside FERC’s Office of Enforcement, which he has run as director since 2009.
He has maintained a sphinx-like demeanor throughout the confirmation battle, giving no interviews and speaking publicly only at his Senate confirmation hearing in May. When LaFleur congratulated him on his nomination at the commission’s February meeting, Bay betrayed neither a smile nor any sign of appreciation for the gesture.
LaFleur had called a press conference to lobby for the chairmanship just days before President Obama announced Bay as his pick. So did Bay’s reaction suggest he felt LaFleur was being disingenuous? Bay’s not talking and those close to him won’t say. (When LaFleur offered similar congratulations on his confirmation at last week’s meeting, Bay did allow a thin smile.)
Bay’s seeming aloofness, some staffers suggest, is a product of his cautious approach to surviving the nomination process and his experience as a former federal prosecutor. In private, colleagues say, Bay can be warm, friendly and self-deprecating. He spends some of his spare time attending classical music concerts with his wife, a pianist.
But that’s a side few have seen. Outside of FERC headquarters, there is much speculation.
“The dynamics are going to be very interesting. His personality issues with the other commissioners will determine how the commission is going to be run,” said one veteran member of the energy bar. “He’s seen as kind of [mysterious] right now. Doesn’t seem like a gregarious guy who would be a leader. He seems more like a guy who would implement policy.”
Wellinghoff Era Ends
FERC’s leadership has been in question since May 2013, when then-Chair Jon Wellinghoff announced he would leave the commission after a seven-year tenure including almost five years as chairman — the longest run at the top job in FERC’s nearly 37-year history.
Wellinghoff, a fellow Nevadan and ally of Senate Majority Leader Harry Reid, was a champion of renewable energy, energy efficiency and demand response. As chair, he created new offices to focus on policy and infrastructure security and hired Bay, a law professor and former U.S. Attorney from New Mexico, to run an expanded and increasingly aggressive Office of Enforcement.
In June, Obama nominated former Colorado regulator Ron Binz to fill the seat and — in an unprecedented move — said he would appoint him immediately as chairman. As chair of the Colorado Public Utilities Commission, Binz helped draft a state law that offered utilities incentives for replacing coal-fired power plants with natural gas.
Binz became an immediate target for those angry over the Obama administration’s so-called “war on coal.” When it became clear that he would not win the support of West Virginia Democrat Joe Manchin, Binz withdrew in September.
LaFleur: ‘Keeping the Trains Moving’
Cheryl LaFleur (Source: FERC)
LaFleur was named acting chair in late November, when Wellinghoff resigned from the commission to join a law firm. She has won wide and bipartisan praise for her stewardship. While Bay squeaked by last week’s Senate vote 52-45, with only a single Republican vote (Dean Heller of Nevada), LaFleur was approved 90-7, with only two Republicans in opposition.
“The commission’s continued to move while we’ve been in this,” one industry stakeholder said. “She’s done an outstanding job keeping the trains moving. She’s done a lot of things in her tenure.”
LaFleur moved swiftly to end FERC’s long-running turf battle with the Commodity Futures Trading Commission, completing two Memoranda of Understanding to help clarify jurisdictional questions and increase information sharing between the two agencies.
She also won approval for an order requiring the development of rules to protect the grid against sabotage, with an unusually short 90-day deadline. (See related story, FERC: We’ll Have Last Say on Sabotage Rules.)
LaFleur made her case for the chairmanship and a second term in a press briefing at the end of January. But opposition from Reid doomed her chances for the top spot. Reid acknowledged his antipathy in an interview with The Wall Street Journal in June, complaining that LaFleur was undermining the legacy of Wellinghoff. “She has done some stuff to do away with some of Wellinghoff’s stuff,” Reid said.
In May, LaFleur and Republicans Philip Moeller and Tony Clark rolled back a provision of Order 1000 — one of Wellinghoff’s signature achievements — regarding incumbent transmission owners’ rights of first refusal. Democrat John Norris dissented.
LaFleur’s future was unclear until May 1, when Obama renominated her under pressure from supporters in the Senate. Republicans raised the issue of gender in questioning Obama’s decision to leapfrog the less experienced Bay over LaFleur. Some did so clumsily, suggesting their words were more political than genuine. When Senate Minority Leader Mitch McConnell (R-Ky.) took to the Senate floor Tuesday to denounce Obama as “shameful” for demoting LaFleur, for example, he called her “Shirley.”
Shadow Chairman?
In announcing her vote against Bay on the Senate floor last week, Alaska Sen. Lisa Murkowski, ranking Republican on the Senate Energy and Natural Resources Committee, questioned whether Bay would undermine LaFleur as a “shadow chairman.”
There are limits to LaFleur’s authority in an interim role, observers say. “There’s a concern that it could stall more aggressive, thoughtful policy development,” one industry lobbyist said. “There’s a disappointment that it will take a while to have … someone who’s able to feel comfortable with the full authority of the chairmanship.”
The commission has had an acting general counsel, David Morenoff, since October 2012 and that appears unlikely to change until Bay takes over.
Publicly, at least, LaFleur exhibits no concerns about her mandate. “My understanding is I will be leading the commission for the next nine months with full authority,” she said at a press conference after Thursday’s commission meeting. “I don’t anticipate any broad changes in priority with this extension of my leadership.”
She said she will continue her focus on responding to the changes in the generation-resource mix, environmental regulations and grid security.
“I think I will stand back and say ‘Ok, what can I get done in nine months? Are there things I want to specifically organize?’” LaFleur said. “But I recognize that most of the work at the commission does not take place in blocks. You start things and it continues. And since I’ve just been confirmed for another term I hope to be here to see a lot of these things through.”
But will she really want to stick around to complete her new five-year term after having tasted the power of the chairmanship?
“That’s certainly my plan,” she said last week. “I’ve been asked many times, am I going to stay after nine months? The answer is yes.”
A lawyer and former utility executive, she could easily multiply her salary by joining the energy bar or returning to the industry.
But at least some of those who watch her daily say they believe her. “She really loves her job,” said one.
How Will Norman Bay and Cheryl LaFleur Get Along?
LaFleur’s appetite for remaining may be driven by how much influence she is able to retain once she hands off the gavel.
The Republicans’ hostility toward Bay, and LaFleur’s bipartisan support, means that “Norman can’t go around her as a commissioner,” one observer said. “Her stock has gone up.”
One early signal as to their cooperation will be who LaFleur appoints to replace Bay as head of the enforcement division when Bay is sworn in as commissioner. Will LaFleur appoint Bay’s choice? Bay’s deputy, FERC veteran Larry Gasteiger, is an early favorite to serve in at least an interim role.
Differences over Enforcement
Under Bay, FERC has won more than $670 million in fines and disgorged profits from Morgan Stanley, Constellation Energy, Deutsche Bank and J.P. Morgan since 2011. Barclays is contesting an additional $488 million in levies. LaFleur supported all of the settlements Bay brought to the commission.
But Bay and LaFleur have not always seen eye-to-eye. In response to questions from the Senate, LaFleur detailed seven cases in which she issued separate concurrences or dissented from the majority on matters such as the way the commission applied its penalty guidelines, or when it would share deposition transcripts with investigation targets.
Subjects in four of the cases LaFleur cited were represented by former FERC general counsel William Scherman, who co-authored an Energy Law Journal article in May accusing Bay’s unit of ignoring subjects’ due process rights. Scherman and some other members of the energy bar had been criticizing Bay’s enforcement tactics privately and in industry forums for months.
The criticism became louder in March, when the principals of Powhatan Energy Fund, which had been under investigation by Bay’s unit for three years without being charged, released documents they say prove they have been unfairly hounded. The fund enlisted testimonials from an all-star team, including Susan J. Court, Bay’s predecessor as enforcement chief, Harvard professor William Hogan and John N. Estes III, a prominent defense attorney.
The Powhatan Energy investigation was a case study for critics, including some past and present FERC officials, who say the agency is punishing legitimate, if opportunistic, trading. “I think [enforcement lawyers] could do a better job parsing what’s manipulation and what’s bad market rules,” said one current enforcement staffer who otherwise backs Bay.
Commissioner Moeller also has concerns. While Moeller praised Bay for improving the transparency of the agency’s enforcement through the implementation of settlement guidelines and more explicit enforcement orders that give guidance to traders, Bay hasn’t gone as far as the commissioner would like.
“I want to be sure the legitimate actors do not feel a chill in terms of how they communicate with our Office of Enforcement when they have legitimate questions about whether certain activities are allowed or not,” Moeller said. “We don’t want them to be afraid to ask questions.”
What’s Norman Bay’s Agenda?
At his Senate confirmation hearing in May, Bay articulately defended himself against questions about his energy policy experience and management of the Office of Enforcement. But like all well-coached nominees, he did his best notto make any definitive policy statements.
Wellinghoff became chairman after three years on the commission and announced the creation of a new unit, the Office of Energy Policy and Innovation, at his first meeting with the gavel. In his Colorado post, Binz had called for a new “regulatory compact” and opined on the future of coal and natural gas.
Bay has written extensively on criminal law and national security issues. But his opinions on the major policy issues facing the commission — the role of demand response and renewables, implementing Order 1000 — are unknown, even to the current commissioners.
“Zero,” said one industry lobbyist when asked what he knows of Bay’s policy leanings. “I guess it’s a concern — or an opportunity to educate and work with him. He definitely doesn’t come in with a vision that people will be prepared for. Wellinghoff came in very clear with what he was about.”
“The industry’s worried” because of Bay’s prosecutorial background and because he is a “blank slate” on energy policy, said another veteran FERC watcher.
“He’s got a prosecutor’s mentality and he’s in [his current job] to prosecute,” one FERC analyst said. “But he’s a fast learner. I think he’s flexible enough to have a broader view [once he becomes commissioner]. He’s honest. I don’t think he’s ideological. I think he’s fair.”
Events will Dictate
Some observers say the commission’s path forward in the short term will be dictated by having to respond to the Environmental Protection Agency’s 111(d) carbon emission rule, concerns over physical security of the grid and the recent appellate court decision voiding FERC’s jurisdiction over demand response compensation.
“Those are three huge issues coming at them. They will be extremely time consuming,” one FERC watcher said. “Pulling DR out of the [wholesale] markets will be complicated to say the least.”
Attorney Scott Hempling said FERC’s “highly professional staff” will ensure Bay is prepared. “No commissioner will be lacking for excellent, varied advice on how to proceed,” he said.
Harry Reid’s Role
Commissioner John Norris (Source: FERC)
The commission’s five seats are split between Republicans and Democrats, with the president’s party holding the majority. Unlike some similarly aligned regulatory agencies, the commissioners have rarely split along partisan lines in the last decade. Unanimous votes are the norm.
The recent uncertainty hasn’t affected the day-to-day operations of the commission, such as approving routine tariff filings.
But Commissioner Norris has lamented what he called “dysfunction” at the agency, citing the risk of 2-2 ties and the inability to forge a strategic direction or make major personnel decisions. Norris, who said his own bid for the chairmanship was blocked by Reid, blamed what he called the majority leader’s “politicization” of the commission chairmanship.
Others also have concern that Reid may attempt to influence energy policy, as he did in pushing former Nuclear Regulatory Commission Chair Gregory Jaczko to terminate the Yucca Mountain nuclear waste site in Reid’s state of Nevada. In a June editorial critical of Bay’s handling the prosecution of a Maine paper mill for allegedly gaming demand response rules, The Wall Street Journal went so far as to refer to Bay as “Harry Reid’s personal prosecutor.”
Speaking before the confirmation vote last week, Reid said that he had won assurances from Bay and LaFleur that they will “take a hard look” at the controversial Hudson Valley capacity zone in New York. Reid’s comment was a favor to New York Democrat Charles Schumer, who opposes the zone.
What kind of assurance Reid thought he had won is unclear. The commission rejected a rehearing several weeks ago on the issue. It is now before an appellate court and — unless it is remanded back — out of FERC’s hands. (See related story, New Yorkers Upset over Capacity Zone.)
What else might Reid want from FERC? More transmission to import energy to his state and to deliver renewable energy from it. Nevada ranked second in the nation for geothermal production and third for solar output in 2013. Some 90% of its energy is imported.
FERC’s incentive transmission rates, and Order 1000, which ensured a role for state renewable policies in transmission planning, are intended to accelerate building of new lines.
Future Openings
One fact of life at FERC is that the commissioners’ staggered terms means there is always a commissioner heading into his or her final year. That person is now Republican Moeller, whose term expires next June.
Moeller, who has served since 2006, declined to say yesterday whether he will seek a new term.
“I’ll broach that subject at the beginning of next year,” Moeller said yesterday. “For me personally it’s a huge distraction” to think about.
Meanwhile, Norris, who has served on the commission since 2010, told a conference last month that he will not seek renomination when his term ends in 2017.
“I couldn’t get confirmed if I wanted to,” Norris said, according to an account by SNL Energy. Norris told the forum that industry stakeholders have told him he could not get Senate confirmation even if he was reappointed because he is too “pro-consumer.”
Last September, Norris said Reid had opposed his elevation to chairman because the majority leader thought he was “too pro-coal” during his time on the Iowa Utilities Board. Reid was said to prefer a chair like himself and Wellinghoff from the southwest.
Since last year, Norris has increasingly forged his own path. After issuing 11 dissents or concurring statements in 2010, and 11 in 2011, he issued 19 last year and 11 through the first six months of 2014.
There is speculation that Norris and his wife Jackie might prefer to return to their home state of Iowa in time for the 2016 elections. Norris was chief of staff to former Iowa Gov. Tom Vilsack. Jackie ran the 2008 Obama campaign in Iowa and briefly served as Michelle Obama’s chief of staff; she is now executive director of the Points of Light Corporate Institute, an organization that helps companies develop employee-volunteer programs, in Washington.
Norris denied a press report earlier this year that his departure was imminent; he declined to comment on his plans yesterday.
Tony Clark Emerges
Commissioner Tony Clark (Source: FERC)
If Moeller is not reappointed, Commissioner Tony Clark would become the senior Republican member on the panel — perhaps putting him in line for the chairmanship if the GOP takes over the White House in 2016.
Currently the junior member of the panel, Clark is the last called on to speak at commission meetings. In his first year, Clark often had little to say at the sessions.
Recently, Clark has seemed more sure of his footing. In a speech at PJM’s annual meeting in May, he said FERC may need to rethink its fuel-agnostic policies to preserve coal and nuclear generation threatened by environmental rules and market forces.
Earlier this month, a law journal published an article he co-wrote that defended FERC’s enforcement and called on companies to be proactive in developing internal compliance organizations. Last week, he issued a statement defending the commission’s approval of physical security reliability standards while calling for additional work to improve the rule.
Communication on the 11th Floor
Commissioner Philip Moeller (Source: FERC)
Communication will be essential to the functioning of the agency during the continued uncertainty, Moeller said.
“We have to keep the communication channels [open] on the 11th floor [where the commissioners’ offices are located], really work hard to keep them open,” Moeller said in an interview last month at a meeting of the Mid-Atlantic Conference of Regulatory Utilities Commissioners (MACRUC). “That’s when we have problems — when there’s a lack of communication about what priorities are.”
Moeller said LaFleur has “really worked at opening the communication channels” since she replaced Wellinghoff. Still he said, the continued uncertainty is “awkward” for FERC’s senior staff. “We have some folks who could retire any day, who have put in 35, 30 years of valuable experience. What does that mean for them in terms of leaving or staying, or mentoring their replacements? It’s a challenge. It’s not insurmountable, but … it’s a pretty unique situation.”
