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November 5, 2024

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Vistra’s Deal for Energy Harbor Runs into Opposition at FERC

Vistra’s more than $3 billion purchase of Energy Harbor and its nuclear plants ran into opposition at FERC on Friday as consumer advocates in Ohio argued the deal would harm the state’s retail power market (EC23-74).

PJM’s Independent Market Monitor, Monitoring Analytics, did not oppose the merger, but it argued that FERC should condition its approval on behavioral commitments from Vistra so it cannot abuse market power in the RTO’s capacity market and local energy markets.

Vistra proposed buying Energy Harbor, which owns the generation and competitive retail business spun off from FirstEnergy, in March. Vistra plans to combine the three nuclear plants from the deal with its existing clean energy assets and retail businesses in a new subsidiary called “Vistra Vision.” (See Vistra Pays More than $3 Billion for Energy Harbor.)

Ohio restructured its industry in 2001, allowing customers to buy power from competitive retailers, but even those who do not shop benefit from the default standard service offer (SSO) auctions into which Vistra and Energy Harbor have bid their generation in recent years, said the Northeast Ohio Public Energy Council (NOPEC).

“The Ohio SSO market is served by a small — and shrinking — set of suppliers. Over the past five years, the average number of suppliers has dropped from 11 to six,” NOPEC said. “In addition, in recent SSO auctions all (or almost all) registered bidders were selected to provide one or more tranches. This is a sign that these auctions currently have limited alternative suppliers.”

Both have participated in 39 auctions since 2019, with Energy Harbor winning 22% of total supply and Vistra 33%.

“When both Energy Harbor and Dynegy have submitted winning bids in the same auction, their combined shares of the procured tranches range from 35% to as high as 82%,” said NOPEC.

NOPEC is a regional council of local governments that provides electricity aggregation services to their citizens, which represents 68% of the total retail power market of 2.5 million customers — with the rest making individual decisions to shop with specific retailers. Energy Harbor and Vistra each serve about 20% of the state’s government aggregation market, said NOPEC, which is the largest provider of such services with slightly more than their combined share.

“The proposed transaction, and Vistra’s resulting increased share of the governmental aggregation market, follows directly on the heels of efforts by its subsidiary, Dynegy, to attempt to eliminate NOPEC as a competitor,” the group said.

Vistra’s subsidiary Dynegy asked the Public Utilities Commission of Ohio (PUCO) to terminate NOPEC’s certificate to serve as a government aggregator after it returned some customers to utility SSO rather than force them to pay spiking prices. NOPEC noted that Dynegy did the same thing because both were responding rationally to market conditions, while the nonprofit was working to ensure its member communities and their retail customers got the lowest prices possible.

The PUCO threw out Dynegy’s request, saying that NOPEC did nothing wrong in returning some customers to SSO.

The Ohio Consumers’ Counsel also urged FERC to review the measure and its impact on the retail market in Ohio, noting that the commission has agreed to do so when state agencies have limited authority over mergers.

“The potential adverse effects of this merger on retail consumers in Ohio will be significant,” the OCC said. “FERC’s review of both the retail and wholesale impacts of the merger on Ohio consumers is needed so that Ohio consumers can be protected from the adverse effects of this merger.”

Fewer bidders in the SSO auctions will likely raise prices in them, which will have an impact on the offers made by retailers.

“The standard service offer is used by Ohio consumers as the price to compare against the prices offered by marketers, including prices offered by governmental aggregators,” the OCC said. “Thus, higher standard service offer prices would act as a price ‘umbrella,’ allowing for increases in both marketer headroom and likely the prices offered by them. This also could result in higher profits for marketers, to the detriment of consumers.”

Both NOPEC and the OCC argued that the deal would have detrimental effects on PJM’s wholesale markets, as did the Monitor, though the latter argued behavioral constraints were the best way to deal with any such issues.

“The IMM recommends behavioral remedies to address flaws in PJM’s energy market power mitigation rules to ensure that Vistra cannot exercise market power as a result of the Energy Harbor acquisition,” the Monitor said. “Absent a reorganization of the entire market, structural remedies for individual transactions are not likely to be as effective as behavioral remedies because the structural remedies are generally based on an unrealistic, static view of market structure.”

Nuclear units have traditionally participated as zero- or low-cost baseload resources in the PJM markets, meaning they bid low and clear often — while benefiting when power prices spike. But now, owners of nuclear plants are increasingly looking to serve some kind of load directly located nearby that is outside of the wholesale markets, which creates the ability and incentive for nuclear plants to exercise market power.

“Under this offer strategy for the nuclear units, the combination of Vistra with Energy Harbor would result in more structural market power for Vistra as measured by the [three-pivotal-supplier] test both in local markets and in the aggregate energy market,” the Monitor said. “The impact on energy prices and congestion could be very large if the FERC permits this behavior and enough plants engage in the behavior.”

Energy Harbor has a deal with Standard Power to use its Beaver Valley nuclear plant to provide between 200 and 300 MW of power to a data center.

Any competitive concerns from that deal can be dealt with by requiring Vistra to reduce the capacity interconnection rights equal any “behind the generator” load added to the acquired nuclear plants, the Monitor said.

It also suggested three other behavioral requirements: a prohibition on submitting price-based offers that intersect, or cross, the cost-based offer for the resource; that Vistra include operating parameters that are identical to their parameter-limited schedules in its energy-market offers; and that the company use a market seller offer cap in the capacity market that is equal to its units’ net avoidable-cost rate, which the IMM said is the competitive offer for capacity resources.

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Western EIM Governing Body Gets New Member, Chair

The Western Energy Imbalance Market Governing Body appointed a new member Thursday and selected a new chair and vice chair from among its members.

The Governing Body’s five members chose Rebecca Wagner, an independent energy consultant, to serve the remainder of the term of member Jennifer Gardner, who had announced she planned to resign at the end of this month. The term ends June 30, 2024.

Rebecca Wagner, WEIM | Rebecca Wagner via LinkedIn

Wagner recently served as vice chair of the WEIM’s Governance Review Committee. She was a member of the Public Utilities Commission of Nevada for more than nine years. She also served as director of the Nevada Office of Energy and energy adviser to Nevada Gov. Kenny Guinn.

She now heads Wagner Strategies, advising clients on regulatory and utility matters, clean energy and climate policy.

“Rebecca is an outstanding addition to the Governing Body,” CAISO COO Mark Rothleder said in a statement. “Her electric industry experience and her participation on WEIM committees [afford] her insight into issues facing our partners in the West. Her leadership experience was central in the development of the joint-authority governance model” for the WEIM and CAISO.

The Governing Body elected Andrew Campbell to serve as chair and Robert Kondziolka to serve as vice chair for the next year.

Andrew Campbell, Energy Institute at Haas | Energy Institute at Haas

Campbell, executive director of the University of California at Berkeley’s Energy Institute at Haas, was named to the Governing Body last June.

Kondziolka, a veteran of Arizona’s Salt River Project, has chaired the Governing Body for the past year and has been a member since January 2020.

The Governing Body also reappointed member Anita Decker to her third term. Decker was executive director of the Northwest Public Power Association prior to joining the Governing Body in 2019. Her three-year term ends in June 2026.

The Governing Body oversees the WEIM’s interstate real-time market, which now includes 22 participants. It has generated nearly $4 billion in benefits for participants since 2014.

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Clean Energy Bills Stack up in NJ Legislature

New Jersey lawmakers are considering a pile of proposed laws related to clean energy as the legislature nears its summer recess, among them bills that would expand the state community solar program, create an electric vehicle battery recycling program, promote the use of heat pumps and develop storage system capacity.

The Assembly Environment and Solid Waste Committee on June 15 advanced A4782, which would give the New Jersey Board of Public Utilities the power to approve 225 MW of community solar projects in fiscal years 2024 and 2025, and 150 MW a year after that.

The Senate passed the bill in February. The legislature takes a summer recess at the end of the month, and any legislation not passed by then will have to wait until at least November to be considered.

Community solar is seen as a key part of the state’s clean energy future, and the capacity levels set in A4782 are slightly above the 150 MW/year proposed by the BPU in a straw proposal for a permanent community solar program released in April. However, the capacity is well below the 500 MW/year that the bill’s sponsors had sought when they first introduced the legislation. BPU officials, who held two successful pilot community solar solicitations, had opposed the expansion, arguing that the agency could not handle such a dramatic increase in capacity. (See NJ Proposes Modest Community Solar Capacity Hike.)

The bill would also direct the BPU to draft rules and regulations to allow low- and moderate-income residents to “self-attest” their income in applying for the program, rather than providing documentation. At least half the customers enrolled in community solar projects must be low- or moderate-income residents, but developers have found it difficult to meet that quota, in part because residents don’t want — or are unable — to provide the documentation.

Opponents to the law included the New Jersey Division of Rate Counsel, who submitted a letter June 14 to the committee that expressed concern that the 500-MW capacity would “likely crowd out lower-cost grid supply projects” that attract lower subsidies.

“Legislation should not limit competition in the solar market, as competition tends to drive prices downward,” the division wrote.

Assemblymember John F. McKeon (D), a bill sponsor and committee member, said he and Sen. Bob Smith (D), a sponsor in the Senate, had met with the BPU and other stakeholders over the past 18 months.

“This was the framework that they’ve chosen and asked us to proceed with to best implement our goals to accentuate solar throughout the state,” he said.

End-of-life EV Battery Management

The committee on Thursday also approved A5365, which would create a program to provide “proper end-of-life management” of EV batteries.

The bill would require battery manufacturers, resellers, importers and anyone who sells vehicle batteries in the state to submit a battery management plan to the New Jersey Department of Environmental Protection (DEP). The bill also would require any vehicle battery sold in the state to contain a permanent label providing information about the battery. It would also prohibit the disposal of such batteries as solid waste.

Scot Mackey, a lobbyist for Alliance for Automotive Innovation, which represents many automobile manufacturers, said the bill’s proposal that manufacturers submit a battery recycling plan to the DEP would be “onerous.” He urged legislators to instead back a plan under which battery owners would find their own recycling method, with the manufacturer as a “backstop,” if there is no other alternative.

That approach “lets the existing infrastructure that is already out there … to still play the role that they play and take those vehicles and recycle them,” Mackey said.

The committee also backed A5442, which would direct the BPU to study how best to market and promote large-scale geothermal heat pump systems, and look at the feasibility and benefits of mounting such a campaign.

The bill is part of an escalating focus among state agencies on how to reduce carbon emissions from buildings. Other elements include an executive order from Murphy to electrify 400,000 dwelling units; an energy benchmarking program; a “Clean Buildings Working Group”; and a recent building decarbonization straw proposal. (See NJ BPU Outlines $150M Building Decarbonization Plan.)

The bill would require the BPU to study whether the state should offer financial incentives such as public-private partnerships and financial investments. The study would also examine whether heat pumps would be “affordable” and to what extent those costs should be borne by ratepayers.

The bill also would require the BPU to assess the relative energy efficiency of geothermal heat pumps compared to other common energy sources, such as natural gas, propane and fuel oil, and how other states are implementing the pumps.

Barbara Blumenthal, research director with the New Jersey Conservation Foundation, said the organization considers the topic important and urged the BPU study to adopt a broad approach.

“We want to make sure we’re using this technology … in ways that it actually reduces bills for consumers,” she said. “We want to make sure that the study considers different business models … and not just assuming that it’s going to take a significant amount of ratepayer money or other general expenditures to do this.”

Stimulating Storage Development

Another bill under consideration in the Assembly, A4893, takes aim at the state’s shortfall in energy storage capacity, seeking to boost a supplemental energy source that is seen as key to the expansion of clean energy use and to address the inconsistent nature of wind and solar generation.

The state, although aggressive in several clean energy sectors, is far from reaching its goal of putting 2,000 MW of storage in place by 2030. (See NJ Offers Plan to Boost Lagging Storage Capacity.)

The legislation would require the BPU to develop a pilot program to provide incentives to developers and others that install energy storage systems, and then regulations for a permanent program. The program would seek to help develop a range of storage, from “customer-sited energy storage systems, which are smaller energy storage systems owned by a customer of electric utilities and sited in a customer’s residence or business … to front-of-the-meter energy storage systems, which are larger energy storage systems that are connected directly to the grid,” according to a legislative summary of the bill.

The incentives, a portion of which would go to low- to moderate-income customers, would consist of an upfront payment and a performance incentive paid by the electric utility to compensate the storage owner for services providing electricity to the grid. The Senate approved the bill a year ago.

Stimulating EV Charger Development

Still awaiting support in either house, however, is a controversial bill that seeks to promote the installation of commercial EV chargers by reducing the electricity rate charged to the operators. Sen. Smith, chairman of the Senate Environment and Energy Committee and a vigorous clean energy advocate, pulled it from the committee’s June 8 agenda, and it has yet to be formally considered.

The bill, S3914, would require each electric utility to submit a tariff for commercial customers to the BPU. The tariff would not use “demand charges” but would be designed to “utilize alternatives to both traditional demand-based rate structure and capacity demand charges” and “establish cost equity between commercial electric vehicle tariffs and residential tariffs,” according to the bill.

It also aims to “accelerate third-party investment in electric vehicle charging infrastructure for light-, medium- and heavy-duty vehicles.”

The bill sparked opposition from the Division of Rate Counsel, which argued in a June 7 letter to the committee that the costs associated with high demand will not go away simply because the state allows commercial EV charging companies to avoid them.

“The [demand] charge is used so that users with high electric load are contributing their fair share to maintain the electric grid and account for other charges associated with large loads,” the division said. “If demand charges are waived for certain customers who are putting the greatest demands on the grid, other customers, who use far less electricity, will ultimately pay for them through rate increases.”

The Rate Counsel urged the committee to reject the bill and allow the BPU to study how best to set electric rates for commercial EV charging vendors while also being fair to ratepayers.

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From Whale Oil to Clean Hydrogen: NYC Takes Stock of the Energy Transition

NEW YORK — After a three-year hiatus prompted by the coronavirus pandemic, New York Energy Week returned to Manhattan last week, with participants celebrating the progress the state and city have made toward decarbonization while offering sobering acknowledgements of the challenges ahead.

Co-sponsored by Consolidated Edison, the New York State Energy Research and Development Authority and technology provider EnerKnol, the program offered panel discussions and presentations at several venues around New York City.

During a panel discussion on opening night June 20, Matthew Ketschke, vice president of distributed resource integration for Con Ed, observed that the utility, which serves 3.6 million customers in New York City and Westchester County, is at “the hub of the energy transition in New York City and New York state.”

“One of my roles is to help to figure out how to make that happen, [with] stakeholders and both government and industry innovation,” he said.

Ketschke noted that Con Ed, “the oldest continuously traded company on the New York Stock Exchange,” recently celebrated its 200th anniversary. “The original company was a manufactured gas company. It actually used whale oil to produce manufactured gas,” he said. “It wasn’t until the 1950s that we started to flow natural gas.”

Ketschke acknowledged the difficulty of meeting the state’s Climate Leadership and Community Protection Act, which requires 70% renewable energy by 2030 and 100% by 2040.

“Clearly, New York has set up very ambitious goals. But without ambitious objectives and goals, you really don’t make a whole lot of progress. We’re going to have some significant technical hurdles to overcome. But New York is already way ahead in a lot of areas,” he said, citing the city’s 100-year-old electrified subway system and its “very low” per capita energy consumption.

The utility recently published a long-range plan for decarbonizing its gas system, which considers “shrinking and sunsetting” the system or repurposing it for low-carbon fuels, such as hydrogen.

“I think there are a lot of challenges,” he acknowledged. “That said, we’re New Yorkers. We’re pretty good at overcoming challenges, and I think there’s a lot of very good work that’s been done so far.”

Hiring Needs

To meet those challenges, Con Ed is expanding its outreach efforts as it looks to add 1,000 new employees in the next year.

“That means going to high schools and having conversations with kids who might never have thought of the electric business or the gas business or the energy business as being a career for them,” Ketschke said. “Somebody I’m real interested in coming to work for us is somebody who is in high school … and is an athlete and … likes a physical job, but never thought of being a lineman, or maybe a gas mechanic, or working in a power plant.”

The company offers a tuition aid program that helps employees go to college. “We have a number of people today working [as] general managers and vice presidents who came in as meter readers and kind of worked their way up,” he added.

Con Ed and others seeking workers should expand their hiring criteria to emphasize “helpfulness and grit,” said Donnel Baird, CEO of New York-based BlocPower, which helps decarbonize homes and other buildings in low- and moderate-income neighborhoods. “When it really comes down to finding the best talent … if you’re serious about it, you’ll end up with a DEI [diversity, equity and inclusion] strategy.”

Donnel Baird, CEO of BlocPower | © RTO Insider LLC

For its part, BlocPower is providing job training to gang members and the incarcerated.

“There is, as we all know, a massive undersupply of skilled labor and skilled technicians across the country that is so pervasive that it could cripple all of the incredible clean energy legislation the Biden administration has passed,” he said. “We may not be able to implement [the Inflation Reduction Act] if we don’t solve this green workforce problem.

“There is a lot of heavy lifting that must be done, and my premise is that … most of us, if not 98% of us — even folks who are climate advocates — we do not truly believe that we’re going to pull this off,” he continued. “So we are all struggling with depression. We’re struggling with anxiety, particularly if you have children or … grandchildren that you care about. People don’t really believe that we’re going to pull this off. And so our job at BlocPower is to identify the geographies and markets where there’s an appetite to go big or go home.”

BlocPower has contracts to help three cities — Ithaca, N.Y., and Menlo Park and San Jose, Calif. — that have committed to decarbonizing 100% of their buildings.

“And so over the next five or six years, we’re supposed to invest around $6 billion of private sector capital … to help building owners finance affordable electrification for all in these cities, and go building by building to install air source heat pumps, heat pump hot water systems, replace gas ovens, and develop the workforce to go building by building to do that.”

Victoria Cerullo, acting executive director for the New York City Mayor’s Office of Climate and Environmental Justice, spoke about the city’s efforts to aid its 500,000 “energy-cost burdened” families and identifying “underutilized rooftops” to bring solar to small apartment buildings in environmental justice communities.

“We have old buildings here in New York City — old buildings [and] new buildings. … We need to harness all of the existing rooftops and any accessible space to power the city.”

Transmission, Generation to Eliminate the ‘Tale of Two Grids’

The push for more solar in New York City is among the efforts policymakers are making to eliminate what has been termed the “tale of two grids” in New York state, with upstate residents getting 90% of their electricity from non-emitting generation, and city residents depending on fossil fuel generation for 90% of their power needs.

Another effort to eliminate that disparity is Clean Path NY, an $11 billion partnership between the New York Power Authority (NYPA), energyRe and Invenergy to deliver more than 7.5 million MWh of emissions-free energy into New York City annually.

“We are extraordinarily proud of the fact that our project, and all of the projects that are happening, are really now oriented toward delivering meaningful benefits to frontline communities, to avoid some of the negative social health consequences that are pursuant to the burning of fossil fuels,” Clean Path COO Luke Falk said. “The reduction of [nitrogen oxides, sulfur oxides and particulate matter] attributable to just our project will reduce the statewide emissions from electricity by more than 20% per year.”

Falk, who discussed the project in a panel discussion Wednesday, was joined by Patricia Lombardi, senior vice president for NYPA, who discussed plans to retire additional fossil fuel peaker plants in the city as the new renewables are connected.

RTO Insider Editor Rich Heidorn Jr. (right) moderates a panel with (from left) Luke Falk, Clean Path NY; Emilie Nelson, NYISO; and Patricia Lombardi, New York Power Authority. | Andrew Theodorakis/NYPA

Several plants were recently shuttered, and NYISO will be issuing a short-term reliability assessment in July on plans to retire additional peakers in 2025, said ISO Executive Vice President Emilie Nelson, the third member of the panel.

“The reliability margins are narrowing,” Nelson said. “And that really comes back to what we’ve already talked about: that new supply needs to come into service in order to allow for resources to exit.”

Improving air quality in the city means winning buy-in from upstate communities hosting the generation and transmission. Clean Path sought to minimize the impact by using existing rights of way and putting much of the remaining transmission underground, Falk said.

“Our experience is that it is extraordinarily important … to give primacy to community engagement and stakeholder relations,” Falk said. “And that’s not just a talking point for our project. We’ve had literally hundreds of meetings with different groups across the state, representing every type of interests that you can think of: from the most local community-centric concern to … broad, regional environmental concerns, to labor, to workforce development to … our elected officials, and everybody in between. It’s an ongoing process.”

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NYISO Operating Committee Briefs: June 22, 2023

Long Island PPTN

NYISO’s Operating Committee on Thursday cleared a final administrative hurdle for Propel NY Energy’s Alternative Solution 5 transmission project, voting to recommend the approval of its system impact study report.

The ISO’s board on June 20 selected Propel’s proposal to fulfill Long Island public policy transmission needs and enable the export of at least 3,000 MW of offshore wind energy into New York. (See related story, NYISO Selects Propel Project for Long Island Transmission.) Construction is expected to begin in 2026, and the required in-service date is May 2030.

Also on Thursday, the state’s Public Service Commission declared that another PPTN is needed to facilitate Long Island’s delivery of more OSW. (See related story, New York PSC Calls for More Transmission for Long Island OSW.)

May Operations Report

NYISO updated the OC that it added an additional 20 MW of nameplate energy storage and 78 MW of behind-the-meter solar resources in May. It also said load peaked for the month at 19,777 MW and the month’s minimum load was 11,886 MW.

The ISO also told stakeholders it declared no thunderstorm alerts during the month, which it said was unusual for May.

Senior Vice President Rana Mukerji presented a similar monthly market operations report to the Business Issues Committee on June 21.

“May was very quiet, with low prices and low fuel costs,” he said. “Lower fuel prices are driving lower market prices.”

New Members for Environmental Advisory Council

NYISO on Thursday also announced that Julie Tighe, Burçin Ünel and Daniel Zarrilli were appointed to serve on the ISO’s Environmental Advisory Council.

Formed in 2005, the EAC provides NYISO senior leadership and its board with expert analysis on evolving state and federal environmental policies and how those policies impact the ISO’s mission of maintaining reliability.

Tighe is president of the New York League of Conservation Voters, while Ünel is executive director of the Institute for Policy Integrity at New York University School of Law. Zarrilli is special adviser for climate and sustainability at Columbia University.

The ISO’s Kevin Lanahan said in the announcement that the three “are respected experts and industry leaders who will help guide the work of our Environmental Advisory Council at a critical time for the industry and the pursuit of a just transition under state policy mandates.”

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Counterflow: How Many Deaths?

It’s high time we consider how many deaths would result from higher residential energy prices due to the energy transition. The Economist points out: “High energy prices can cost lives. They discourage people from heating their homes properly, and living in cold conditions raises the risk of cardiac and respiratory problems.”[1]

The Economist analyzed “excess deaths” in Europe last winter that are attributable to the enormous increase in residential energy prices after Russian President Vladimir Putin weaponized natural gas supply. Its chart shows the correlation between higher energy prices and higher excess deaths.

Based on these data and other inputs, The Economist estimated that higher residential energy prices resulted in 68,000 excess deaths last winter in Europe — more excess deaths than COVID during that period.

US Study

Disturbed by The Economist’s analysis, I went looking for similar research in the U.S. One study came out earlier this year from three economists with this conclusion: “Our estimates imply that the 42% drop in the natural gas price [13% decline in household energy bills] in the late 2000s, mostly driven by the shale gas boom, averted 12,500 deaths per year in the U.S. The effect appears to be especially large in high-poverty communities.”[2]

Deaths can occur from reducing or forgoing food or medicine to pay for energy (25% of U.S. households reporting this form of energy insecurity) and/or living at an unhealthy temperature to save money (12% of U.S. households reporting this form of energy insecurity).[3]

Implications for the Energy Transition

What are the implications for the U.S. energy transition? California is a harbinger for the rest of the country. Its residential electric rates have increased way above the national average,[4] due in large part to its energy transition policies:[5]

Average year-end electric residential rates by utility | California Public Advocates Office

These electric rate increases are just the beginning given California’s zero-carbon mandate for 2045.[6] Not to mention California’s phase-out of natural gas use that will impose sky-high electric rates for all space heating.[7]

As for the bigger picture, McKinsey says net-zero globally will require $3.5 trillion (that’s with a “t”) in new spending on low-emission assets per year to 2050.[8]

What We Don’t Know

How many lives are being lost with rising electric rates like these? We don’t know. And that’s a problem.

We need to figure out how much energy transition policies would increase electric rates, and how many deaths would result from such rate increases.

That — along with myriad other public policy considerations — needs to be factored into public policy decisions, such as what higher rates are justified, and who should pay them.[9]

A Closing Caveat

Let me acknowledge that there are other public health aspects of the electric industry, not the least of which are climate change and air pollution. Let me pass on the former other than to observe the obvious: “It’s complicated.”[10] About the latter a recent estimate put the range of premature deaths from electric generation air pollution at 4,000 to 9,000 per year;[11] presumably that number will continue to decline as natural gas and renewables continue to displace coal. It would seem from data discussed at the outset that excess deaths from the high rates necessary to end carbon emissions would be many times the lives saved from ending electric generation air pollution. But who knows? And that’s a problem.

Columnist Steve Huntoon, principal of Energy Counsel LLP, and a former president of the Energy Bar Association, has been practicing energy law for more than 30 years.

[1] https://www.economist.com/graphic-detail/2023/05/10/expensive-energy-may-have-killed-more-europeans-than-covid-19-last-winter

[2] https://gceps.princeton.edu/wp-content/uploads/2023/03/wp305_Jayachandran-et-al_heating_mortality_23jan.pdf

[3] https://www.eia.gov/consumption/residential/data/2020/hc/pdf/HC%2011.1.pdf. Smaller percentages suffer from inability to use heating or AC equipment due to monetary issues.

[4] https://www.publicadvocates.cpuc.ca.gov/-/media/cal-advocates-website/files/reports/230224-public-advocates-office-2022-electric-rates-report.pdf.

[5] One California utility says: “Currently, about 40% of what SDG&E customers pay in their bills go toward climate-related expenses.” https://www.sdge.com/rates/rates-whats-being-done-make-bills-more-affordable.  One such policy is California’s net metering rules for rooftop solar, which hurt lower income households. https://energyathaas.wordpress.com/2021/06/01/rooftop-solar-inequity/ and https://energyathaas.wordpress.com/2022/06/05/myths-that-solar-owners-tell-themselves/. The net metering rules are being changed prospectively, but the damage will continue.

[6] My take on California’s scary no-carb future is here, https://www.energy-counsel.com/docs/No-Carb-California.pdf. Other reality checks are here, https://haas.berkeley.edu/wp-content/uploads/WP332.pdf, and here, https://www.economist.com/leaders/2022/11/03/the-world-is-missing-its-lofty-climate-targets-time-for-some-realism.

[7] All sales of residential gas heating units will be eliminated by 2035. https://ww2.arb.ca.gov/sites/default/files/2022-11/2022-sp.pdf, page 214.

[8] https://www.mckinsey.com/capabilities/sustainability/our-insights/the-net-zero-transition-what-it-would-cost-what-it-could-bring

[9]  Or, dare I repeat myself, Plan B: solar geoengineering. https://energy-counsel.com/wp-content/uploads/2022/05/We-are-Going-to-Need-a-Plan-B-RTO-Insider-5-10-22.pdf.  As Captain James T. Kirk said: “We all have to take a chance – especially if one is all you have.” https://www.imdb.com/title/tt0708484/characters/nm0000638.

[10] One discussion of complications is here, https://www.washingtonpost.com/climate-environment/interactive/2023/hot-cold-extreme-temperature-deaths/.

[11] https://iopscience.iop.org/article/10.1088/1748-9326/ac6cfa

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PJM MRC/MC Briefs: June 22, 2023

MRC Endorses IROL-CIP Cost Recovery

VALLEY FORGE, Pa. — The PJM Markets and Reliability Committee endorsed a proposal to create a cost-of-service payment structure for generators that require upgrades following being designated critical to the derivation of an interconnected reliability operating limit (IROL) under NERC’s critical infrastructure protection (CIP) standards. (See “PJM, Monitor Review IROL-CIP Proposals,” PJM MRC/MC Briefs: May 31, 2023.)

PJM’s Darrell Frogg previously told the committee that the proposal would function similarly to PJM’s existing black start cost-recovery mechanism, with generators submitting costs to the RTO and Monitor to review, and reviews collected through charges to market participants.

Supporters during the Operating Committee discussions on the proposal argued that having a facility declared critical by NERC and required to make reliability upgrades is outside of their control, can carry significant costs and is unpredictable. The OC endorsed the PJM proposal on March 9 with 89% support, while a competing proposal from the Independent Market Monitor received 11%. (See PJM OC Briefs: March 9, 2023.)

Susan Bruce, representing the PJM Industrial Customer Coalition (ICC), questioned if there are any cost minimization functions taken into consideration and what costs PJM can share with stakeholders regarding IROL-CIP expenses.

Frogg said security concerns limit how transparent they can be about specific costs, but there are oversight mechanisms in place and cost estimates of IROL-CIP upgrades in general can be shared, similar to data sharing around black start costs.

Independent Market Monitor Joe Bowring said the definition of which resources can be designated as critical is vague and argued that it’s a slippery slope to create new cost-of-service structures, rather than putting the costs in the markets.

“This is not like black start; it’s opening a whole new opportunity to non-market cost-of-service recovery services,” he said.

“PJM operates markets. PJM is not a cost-of-service regulator. These costs are part of the cost of doing business as a generator in PJM markets. Generators do not offer to share excess revenues when regulatory changes result in more revenues rather than more costs. This proposal is inconsistent with the PJM market design,” he said.

Greg Poulos, executive director of the Consumer Advocates of the PJM States (CAPS), said advocates appreciate Bowring’s efforts to find a market solution and believe the question of whether this should be a cost of service is best addressed at FERC. Several advocates abstained from Thursday’s acclamation vote on the proposal.

“There’s always a concern, I think a growing concern in some respects, about cost-of-service mechanisms at the PJM level,” he said.

Dominion’s Jim Davis said ensuring that generators can recover their costs avoids putting operators in the positions of considering retirement after being found critical due to the cost of making the required upgrades.

Frogg said costs will be recovered over 12 months and only those upgrades that are required to comply with CIP standards and would not be made had the facility not been designated critical would be recoverable under the proposal.

Craig Glazer, PJM vice president of federal government policy, said the proposal is consistent with other formula rates approved by FERC and implemented by the RTO. While PJM determines which facilities are critical and which upgrades are legitimate, it must follow the formula approved by the commission.

“It’s not like whatever you believe is reasonable you go with,” he said.

Bowring responded that the fact that it’s possible to define a cost-recovery mechanism is not a reason to do so. He said the proposal raises the possibility that there will be proposals for more cost-of-service recovery mechanisms in the markets, undermining the fundamentals of the PJM market design.

PJM Gives Date for Winter Storm Elliott Presentation

A detailed report on the impact the December 2022 winter storm had on PJM’s operations and generator performance during the event will be released on July 17, PJM Vice President of Market Design and Economics Adam Keech told the MRC. A workshop for stakeholders to discuss the report has been scheduled for July 25, with the aim of giving stakeholders time to digest the document.

“Right now, the paper is fairly hefty, so it may take an amount of time to get through it,” Keech said.

PJM provided a preview of the report’s findings during a May 17 critical issue fast path (CIFP) process meeting, a forum that was in part convened in response to the storm’s impact. (See PJM Presents Lessons Learned from Elliott, More CIFP Presentations.)

During that meeting, PJM’s Glen Boyle said Elliott was the latest winter storm demonstrating what the RTO has concluded is a shift in reliability risks toward the winter, rather than its longtime assumption that risk correlated with summer load peaks.

The analysis has found that market participants require additional education regarding performance assessment intervals (PAIs) and the penalties they carry for generators underperforming during an emergency. It also found instances where the penalties were not aligned with dispatch basepoints due to resources’ obligations not taking their specific characteristics into account.

Boyle laid out a series of recommendations that PJM had reached as a result of the analysis at that point, including an overhaul of capacity market incentives, re-evaluating whether energy efficiency and demand response resources have performed in a way that matches their expected reliability contributions and investigation of poor performance of non-retail, behind-the-meter generation.

Stakeholders Approve Tariff Clarification on Smooth Supply Curves

The MRC endorsed proposed tariff changes aimed at clarifying that smooth supply curves will only be published for Base Residual Auction (BRA) results and not for Incremental Auctions (IAs). (See “First Read on Smooth Supply Curve Quick Fix,” PJM MIC Briefs: April. 12, 2023.)

PJM’s Skyler Marzewski said the new language consists of adding “for each Base Residual Auction” to a paragraph in Attachment DD section 5.11(e) pertaining to how the supply curve will be graphed after the auction.

Road Path for CAPSTF Discussed

The Clean Attribute Procurement Senior Task Force (CAPSTF) is on hiatus until September after more than 90% of stakeholders participating indicated that the group should suspend discussions until the CIFP has completed its work on drafting changes to the capacity market because of overlap in the two groups’ deliberations. A second vote also found that none of the three conceptual designs drafted by the task force reached 50% support.

Scott Baker, PJM’s facilitator for the task force, said the group will reconvene in September to determine if it should continue working toward market-design changes based on the final product created through the CIFP process or if the CAPSTF should be sunset.

He said Package A would create a forward clean energy market with a PJM renewable energy certificate and a PJM clean energy attribute certificate differentiated on the eligible technologies. Package B would have a third product, a clean capacity certificate. The certificates in Package A would be unbundled from energy, while the added certificate under Package B would be unbundled from capacity.

Package C would create a two-auction system, with a state attributes procurement auction (SAPA) that would provide the locational marginal reliability value of participating clean resources and a minimum reliability attributes auction in which PJM would procure enough capacity to satisfy locational reliability needs netted against the impact of SAPA resources’ impact on load.

Calpine’s David “Scarp” Scarpignato said the company supports the clean energy transition but believes the capacity market is not the best place for market-design changes to be made with the goal of incentivizing new renewable generation.

“There might be better ways through the energy market or maybe bilaterals to get a more effective transition to clean energy,” he said.

Ken Foladare of the Tangibl Group said the CAPSTF has engaged in fruitful discussion, but agrees the CIFP process is likely to yield significant changes to the capacity market and its work should be completed before the task force continues drafting design packages.

Constellation’s Adrien Ford noted that the task force’s vote to go on hiatus had a significant number of abstentions and suggested the reason could be that it was an advisory vote on how the group should best direct its work. She said the company supports Package A and hopes that the work on finalizing the proposal can continue.

PAI Notifications to Include More Information

PJM’s Chris Pilong said the RTO plans to include information about the proposed revisions to conditions under which a PAI can be declared in any future notifications sent out when an interval begins. Should a PAI be called in the “limbo period” before FERC rules on PJM’s filing, email notifications will include the proposed language and the impact it could have on settlements if FERC were to accept the change. (See PJM Board Rejects Lowering Capacity Performance Penalties.)

If the order were to partially approve the filing or a deficiency notice issued prior to a PAI being called, notifications would include information about what changes to the proposal are required.

If FERC were to approve the filing, software changes would be developed to allow more precise notifications to be sent out and information would include what changes have been made. Notifications would go out to all stakeholders subscribed to email lists for the standing committees.

Vitol’s Jason Barker said he’s concerned about the potential for notifications to be sent out for false positives or when the criteria for a PAI have not all been met, adding that any actions PJM can take to give a more assertive signal to market participants are welcome.

Old Dominion Electric Cooperative’s Mike Cocco urged PJM to develop a way for data about emergency conditions to be pushed to members, rather than require them to go to PJM’s Data Monitor portal to monitor for any changes.­­

Members Committee

State Advocates Concerned About Rising Transmission Costs

Speaking to the Members Committee Thursday, Poulos said consumer advocates are concerned about the rising cost of transmission for end customers and the lack of market-driven ways of containing costs.

“It is now about 28% of the bill for wholesale-cost customers,” he said.

Exelon’s Alex Stern said transmission development is mainly driven by state and federal policy, rather than markets. Grid reliability concerns have driven investments for decades and the challenges presented by the clean energy transition have only exacerbated the issue.

“A lot of what we’re seeing in real time as far as transmission investment is driven by regulatory signals and from my perspective that’s how it should be. Transmission owners will continue to discharge their obligation to ensure grid reliability is preserved. The regulators need to keep doing the job on their end as well and if they feel the grid is reliable enough or if they feel the transition is happening too fast, then they need to send those signals as well,” he said.

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PJM Continues CIFP Discussion of Seasonal Capacity Market Proposal

PJM last week continued outlining its proposal to redesign the capacity market to address resource adequacy and reliability concerns through the Critical Issue Fast Path (CIFP) process.

The June 21 presentation followed a June 14 CIFP meeting initiating the third stage of the CIFP process, in which PJM and stakeholders will finalize their proposals. Both stage-three meetings have been devoted solely to PJM’s proposal, with additional time scheduled to continue the presentation this Wednesday. (See PJM Adds Seasonal Capacity to Stage 3 of CIFP Proposal.)

Both meetings were dominated by discussion of PJM’s proposition to bifurcate the capacity market into summer and winter products, which it argues would allow the markets to address a shift in risk toward winter storms, rather than the historical expectation that risk coincides with the peak loads that typically fall in the summer.

PJM Senior Director of Economics Walter Graf said resources could submit offers to participate in either season and could clear in both, one or neither. Resources with costs to operate that may not be recovered by clearing in just one season would be able to indicate a minimum price, which would prevent them from being committed if they cleared in only one season and would not cover their costs at the price the other season’s auction reached. Most resources today have capacity value in both seasons, Graf said, and would have both annual and seasonal costs.

“There are certainly resources today that are mitigated to offer at zero. Those resources would probably also in this construct be mitigated to have a zero-offer component,” he said.

Kevin Kilgallen, of Avangrid Renewables, said each season carries its own risks for generators as well, creating a need for a season-specific capacity performance quantified risk component to fully represent those liabilities.

Once resources clear the seasonal auctions, an adjustment factor would be used to align the results with the annual variable resource requirement (VRR) curve. The summer and winter capacity price would be linked and scaled up or down until it matched the price on the VRR curve with the corresponding amount of capacity procured.

PJM’s Skyler Marzewski said the advantage of retaining an annual is that the new market structure would be built around components already approved by FERC. Graf said that under “blue sky” conditions, without the constraints of the CIFP timeline, avoiding this additional step would be ideal.

“What are the fewest steps we can take to make a seasonal approach with what we already have,” he said, describing PJM’s approach to drafting the new model.

Kilgallen said if PJM’s preference is to move entirely to seasonal auctions with their own demand curves, it should do so rather than trying to use adjustments to get back to the current annual VRR curve.

“If the seasonal demand curves are the way to go, let’s just go there and accept it,” he said.

Calpine’s Matt Barmack said if the summer clearing price is low, reflecting PJM’s belief that risk is now concentrated in the winter, resources may struggle to clear in that auction and cover their full annual costs.

Graf said co-optimizing the seasonal capacity prices allows the rate at which each auction clears to also reflect any costs generators may incur that bleed into other seasons. That’s also in part why PJM decided to seek a seasonal model with two auctions, rather than adding more granularity, he said.

The shift toward winter risk is in part a result of PJM’s proposal to use an expected unserved energy (EUE) model for its reliability analysis instead of its status quo loss of load expectation (LOLE). During the May 30 CIFP meeting, PJM shared preliminary analysis of how the EUE model — which aims to capture the depth and breadth of outages, rather than a count of the number of incidents — could change its thinking on what periods have the highest risk. (See “PJM Presents Risk Modeling Analysis,” PJM Stakeholders Complete 2nd Phase of CIFP.)

The analysis suggests that 96% of the risk is concentrated in the winter under the EUE model, compared to 78% under LOLE. The increase in winter risk also reflects a proposal to use a longer lookback for weather data to capture the impact of rarer weather events.

PJM’s presentation of its proposal is to continue Wednesday, with discussion of a potential model for reliability risk assessment and changes to accreditation, particularly pertaining to the effective load carrying capability construct. The Independent Market Monitor and Leeward Energy also are set to make presentations.

PJM Director of Stakeholder Affairs Dave Anders said additional stage three CIFP meetings will likely be required before the stage-four meeting scheduled for August, when stakeholders will vote on the proposals.

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MISO Stakeholder Activists Propose Equity Principles

MADISON, Wis. — MISO stakeholders from the environmental and consumer-advocate realms are on a mission to make the grid operator’s transmission planning more equitable in nature and accessible to the public.

Leading the charge is Yvonne Cappel-Vickery, the clean energy organizer for the Alliance for Affordable Energy, who said there’s a lack of accessibility within MISO for individual ratepayers to make their opinions heard on grid decisions that affect them.

During a public comment period at MISO Board Week held in Madison in mid-June, Cappel-Vickery introduced a set of equitable grid principles she wrote with a group of 25 scientists and activists from throughout the MISO footprint in the hope that MISO will adopt some or all of them in its transmission planning.

The principles call on MISO to prioritize renewable energy, climate resilience, indigenous rights, an environmentally conscious sourcing of infrastructure materials, worker protections, making meetings more user-friendly and communicating with and addressing concerns of impacted communities during system planning.

Cappel-Vickery told the MISO Board of Directors that transmission planning is “becoming increasingly public,” as evidenced by a recent article in the New York Times that emphasized that the clean energy transition is dependent on major transmission construction.

She asked the MISO Board of Directors to consider how the equity principles can be implemented into the RTO’s transmission planning and the Board of Directors governance.

Authors of the document also include members of the Union of Concerned Scientists, the Environmental Law and Policy Center, Vote Solar, Healthy Gulf and the Center for Earth, Energy, and Democracy, among others. The representatives began connecting last summer to devise the principles.

Authors of the principles call themselves the Equitable Grid Cohort and met in New Orleans in the fall to discuss how transmission investment decisions can be made more equitable and with more community input. | Colin Byers, Union of Concerned Scientists

“MISO and other RTOs are too heavily influenced by the interests of incumbent electricity industry players. Impacted communities and the general public are often marginalized in grid infrastructure decision making at the RTO level…Ultimately, decisions about the purpose and siting of billions of dollars in grid infrastructure are made with little public accountability,” the groups wrote in the equity  principles. They said MISO and state utility commissions are “generally inaccessible to the public and to impacted communities.”

“There are a lot of people getting more knowledgeable about the levers they can pull to make changes. We only have things to gain from feeling more empowered about the system that impacts all of our lives,” Cappel-Vickery said in an interview with RTO Insider.

Most of MISO’s stakeholder meetings are open to the public, but Cappel-Vickery said the learning curve to understand what’s being talked about is daunting.

She said MISO hosting some public meetings free of acronyms and pared-down technical speak would go a long way in making MISO more accessible to the public. She also said MISO can provide more accessible education so that the public understands the important work that it provides.

“It’s a lot of acronyms. RTO language isn’t just engineers. It’s also economists, public service commission staff, politicians. It’s like a convergence of four foreign languages,” she said. “When the equity conversation comes up, I think people get uneasy. And it’s hard. But one thing that is completely free is saying what you mean without acronyms. … I don’t think folks need to understand every nitty-gritty detail to understand that they want transmission to deliver cleaner and more reliable energy.”

Cappel-Vickery said when she explains the grid’s innerworkings, she often makes parallels to the highway system enabling trucks to deliver food to grocery stores.

Cappel-Vickery said the principles are designed to be iterative, and MISO could customize them.

“This is something that MISO can look at and say, ‘We can achieve four of these but maybe we can’t adopt these others right now.’ Even if they could only adopt some components of the principles, it would go far to show that MISO is taking this seriously,” she said.

Cappel-Vickery said the principles shouldn’t be construed as rebuke of MISO, either.

“From my work and perspective, MISO is not a bad guy. MISO does critical work, and we rely on their brilliant staff to keep the lights on,” she said.

Cappel-Vickery said MISO might approach the conversation by asking the authors of the grid principles to speak to staff and stakeholders at one of its public meetings. She said she realizes that equity planning isn’t something that RTOs have historically engaged in.

“Just because we haven’t done it before doesn’t mean we can’t do it now,” she said. “We just think there are ways planning could be a little bit better and more inclusive.”

Co-author and Union of Concerned Scientists Senior Energy Analyst Sam Gomberg said the set of equity principles “provide clear guidance to MISO regarding the future we need to be driving towards.”

“MISO is in the midst of an extraordinary transition to clean energy, and the decisions made at MISO affect every community located in its footprint. It’s critical to get it right,” he said in an emailed statement to RTO Insider. “…As MISO and its member utilities embark on an unprecedented build out of the transmission system to enable clean energy, communities will be asked to support these investments and host this infrastructure. These principles inform all of us about what needs to happen to garner their support and to be successful in our collective efforts to build an equitable, just, and clean energy future.”

Cappel-Vickery pointed out that MISO’s quarterly board meetings occur in the middle of a work week “at a time when anyone not expressly hired to do this is in working hours.” She said MISO might allow for public comments that aren’t reliant on attendance. MISO could dedicate an inbox to collecting emailed comments and could publish them or read them to board members during open sessions, she said.

She said that could lead to a resident of Louisiana, for example, telling MISO they’d like a more interconnected MISO South even if they aren’t available to travel or call in.

“That’s something that isn’t going to be a huge lift. We hear from MISO that they’re overburdened, that they’re experiencing labor shortages, but this is doable,” she said.

She also said MISO’s Consumer Advocate Sector could “activate” new members to be a mouthpiece for the public during meetings.

Cappel-Vickery suggested MISO embrace the stance that climate change is real from an apolitical, scientific perspective and should be planned for accordingly. She said it’s possible for MISO to discuss grid resilience in a way that expressly includes climate change.

“The way that it’s spoken about now, it seems like this opt-in. It doesn’t sound like it’s definitive, that this is something we need to address,” she said. “Here in south Louisiana, whether you believe in climate change or not, we’re experiencing storms that are more severe and more frequent.”

More Lines Equal Equity in MISO South

Cappel-Vickery, a New Orleans resident, said while she wants the equity in planning principles applied to MISO Midwest and MISO South alike, they would be particularly beneficial in MISO South.

Cappel-Vickery said in her experience, many MISO South residents welcome the idea of transmission expansion, viewing it as crucial to avoid prolonged outages during heatwaves or after hurricanes. She said the importance of equity planning was never more crystallized than in the aftermath of Hurricane Ida in 2021.

“People lost their lives after that storm. We don’t see transmission as being inherently bad at all,” she said.

She also said soaring summertime temperatures are cause for more intensive planning.

“I have no recollections in my childhood of experiencing 115-degree heat indexes. And now we have them multiple times per year. It seems imperative to include climate change modeling when they’re talking about reliability,” she said.

Cappel-Vickery said she shares concerns that Entergy’s outsized local reliability spending in the 2023 Transmission Expansion Plan could negate the need for larger, regional transmission and could lead to a “really skimpy” third cycle of MISO’s long-range transmission plan (LRTP) portfolio, which will be the first to contemplate MISO South subregional needs. (See Initial MTEP 23 Ignites Familiar Arguments over MISO South’s Reliability Spending.)

“There are a lot of questions around Entergy’s proposals. And we’re not OK with the cost burden falling completely on ratepayers,” Cappel-Vickery said of a regional-versus-local cost allocation. “Tranche 3 and Tranche 4 could hold incredible potential for ratepayers in MISO South. From our organizational standpoint, a worst-case scenario is we keep building more generation and never expand transmission.”

MISO: Onus is on Members and State Officials

MISO said it “acknowledges the importance of concepts such as those outlined in the equitable grid principles” but said it is limited in what it can do as it doesn’t own grid assets.

“We support our members’ goals as they address clean energy, siting and overall investment in electricity infrastructure. As MISO does not own, site or construct electricity infrastructure, our members and state regulators are a more appropriate venue to assess and appropriately address these matters. MISO’s role is to understand the impacts of our members’ plans as it relates to existing energy policies and provide insight on how to reliably implement their goals,” MISO spokesperson Brandon Morris said in an emailed statement to RTO Insider.

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Siemens Gamesa Quality Control Problems Growing Worse

Siemens Energy said last week that quality-control problems with components of certain Siemens Gamesa onshore wind turbines are worse than previously believed.

The parent company on Thursday withdrew its profit guidance for fiscal year 2023 and said costs incurred correcting the situation will likely exceed a billion euros.

“The fact that we have identified more quality problems marks a significant setback for us,” Siemens Energy CEO Christian Bruch told financial analysts in a conference call Friday. “This setback is more severe than I thought possible.”

The revenue guidance issued May 15 — calling for a 10 to 12% increase over fiscal 2022 — remains in place.

Siemens Energy stock tanked in subsequent trading, closing 37.3% lower Friday on the Xetra market.

Siemens Gamesa is a leading company in the wind power industry, with more than 130 GW of nameplate capacity installed worldwide. Its 11 GW offshore turbines will equip what is likely to be the first utility-scale wind project to come online in U.S. waters: South Fork Wind.

But it has seen a rising defect rate in its wind power products, as have competitors General Electric and Vestas.

During Friday’s call, Bruch said the problems appear to be concentrated in select components and with a few important suppliers. The billion-euro price tag, he said, is only an initial assessment and does not include mitigation measures.

Bruch touched on other problems in the company’s wind power product line: Productivity is not improving as expected, and challenges persist in the offshore wind manufacturing ramp-up.

Corporate culture at Siemens Gamesa also is a problem, Bruch said: “Too much has been swept under the carpet.”

He said Siemens Energy will soon own 100% of Siemens Gamesa, which will aid its efforts to put the house in order, but Siemens Gamesa will incur heavy losses this year.

Further analysis is needed to fully understand the extent of the problems and their repercussions, Bruch said, and he expects to provide more details no later than Aug. 7, when the third-quarter financial report is due.

But he and Siemens Gamesa’s new CEO, Jochen Eickholt, were able to offer additional information during their Q&A with analysts Friday.

Bruch said some of the problems — such as degradation from increased vibration — will not manifest immediately, which makes it hard to calculate their eventual cost and impact.

“Some of the components show perhaps different behaviors over lifetime, and the lifetime sometimes extends 25 years,” Eickholt said. “In the end of the day, what’s going to happen in the next 20 years is not so easy to predict.”

The problems are mostly occurring in recent installations, Eickholt said, so the challenge is to model the lifetime of similar units using data from a limited number of failures.

Early results show a 15% to 30% failure rate, he said, but the company is trying to refine that estimate through better modeling.

One analyst asked why the profit guidance was issued in mid-May if it was going to be recalled only five weeks later: “What exactly are we dealing with in terms of culture here, and how confident are you that you have nothing else swept under the carpet?”

The failure rates have been increasing recently, Bruch said, and his understanding of the situation has evolved in that brief time.

“I would not relate this to five weeks ago.”

Another analyst said the industry’s earlier race-to-the-bottom strategy appears to be the basis of the quality-control problems being seen, and asked how the company could be sure this would not repeat as new products are launched and new suppliers qualified.

The practices of the past are not the basis for running the company today, Bruch said, yet it must cope with this legacy while building its future.

“That is something that is super-painful today, but it is not to be extrapolated going forward to say, that is the logic of the industry,” he said.

Friday’s call focused on the onshore product line, but the same problems have had an “absolutely disappointing” impact on the installed offshore fleet, Bruch said.

An analyst asked about the potential financial ramifications of this, as offshore turbines are much larger and much harder logistically to work with than their onshore cousins.

Bruch did not directly answer the question, saying instead that ramping up any industry sector comes with its challenges. (See Big Offshore Wind Plans Face Multiple Major Obstacles.)

He did say there needs to be “proper risk and reward balance in your business models” to help drive the energy transition and that Eickholt has been vocal about this.

The company will be selective about the projects it takes on, Bruch said, and that is reflected in the order intake.