Page 315 – RTO Insider

March 17, 2023October 24, 2023

Panel Debates Impact of Renewables, Electrification on Reliability

The answer to the question of whether the U.S. can reliably decarbonize its electricity grid while electrifying most of its economy usually comes down to perspective — and how the question is framed.

For a media briefing on Monday, the U.S. Energy Association approached it with a sense of alarm and urgency as a “crisis ahead for electric utilities as electrification picks up.”

“The world’s greatest machine, the U.S. electricity supply system, will begin to sputter in a few years as more is asked of it than it can deliver with its present resources and constraints,” the USEA said in its invitation for the online event. “There is fear in the industry that it is heading toward a time when it can’t produce and deliver the amount of power the increasingly electrified world will need.”

Louis Finkel, NRECA | USEA

Speaking on a panel at the briefing, Louis Finkel, senior vice president of government relations at the National Rural Electric Cooperative Association (NRECA), acknowledged the opportunities in the country’s ongoing energy transition, but focused more on the “huge risk” now playing out in real-time.

Pointing to concerns raised by the National Academies of Science and NERC, Finkel said, the U.S. would need to increase generating capacity 170% “just to facilitate a surface transportation fleet transition … all while we have a disorderly retirement of baseload power.”

His frame of reference, he said, is rooted in NRECA’s 900 member cooperatives, which serve “92% of the persistent poverty counties in America,” where affordability and reliability are imperative.

Arguing for maintaining fossil fuel generation, Finkel said, “You need dispatchable power to keep the grid afloat, and you have to acknowledge that a megawatt of dispatchable power is not a megawatt of [intermittent] wind and of solar; the capacity factor is different.”

But Emily Fisher, general counsel at the Edison Electric Institute (EEI), countered that cross-industry conversations such as the USEA briefing should inspire optimism “that we can make it through this transition and provide customers resilient, clean power. I think we all know where we’re going, and there are going to be some challenges to getting there, but given the way that we operate and regulate the electric system in the U.S., it’s going to be a multistakeholder effort.”

Ron Schoff, EPRI | USEA

Ron Schoff, director of renewable energy and fleet enabling technologies at the Electric Power Research Institute (EPRI), said the problems of decarbonizing the grid while slashing greenhouse gas emissions are daunting but solvable.

EPRI expects U.S. renewable capacity will grow from 230 GW at present to 600 GW by 2030 as sales of electric vehicles, electric heat pumps and other electric appliances grow. Integrating those resources will “require system-level thinking to ensure that as we progress through the stages of decarbonization we are maintaining reliability, … affordability and … the level of service that our customers and people ultimately expect and, by the way, are increasingly dependent on as we start to shift to more electrification.”

John Di Stasio, Large Public Power Council | USEA

John Di Stasio, president of the Large Public Power Council, which represents the country’s 27 largest publicly owned utilities, said he was less pessimistic than “realistic and maybe pragmatic.” His topline concerns included the need for “permitting reform” and the decade-long lead times needed to build transmission or other large energy projects.

“We need a lot more coordination and harmonization to facilitate some of the aspirations that had been stated, and then … we really need every resource that we have, and that means natural gas,” Di Stasio said. He predicts ongoing complexity as the grid changes from an inertia-based system to a fully digital system “and trying to manage that from a compliance and reliability standpoint.

“We need to be optimistic, but [with] eyes wide open and making sure we’re covering all our bases as we go forward,” he said.

The End Mix

Federal and state policies have become key drivers for decarbonization and electrification, including President Biden’s goals of cutting U.S. GHG emissions 50 to 52% from 2005 levels by 2030 and decarbonizing the grid by 2035. The Infrastructure Investment and Jobs Act and Inflation Reduction Act contain a range of incentives for clean technologies, such as the IIJA’s $7.5 billion to build out a national network of 500,000 EV chargers and the IRA’s EV tax credits and heat pump rebates, all of which have set off a growing wave of private investment.

State-level policy is also pushing electrification forward, such as California’s Advanced Clean Cars II rule, which will require all new passenger cars, SUVs and light-duty pickup trucks sold in the state to be zero-emission vehicles by 2035. Eight additional states have either adopted the rule or are working toward adopting it.

At the same time, a range of industry voices, such as NRECA CEO Jim Matheson, have repeatedly said decarbonizing the grid by 2035 is unrealistic or not possible. RTOs and ISOs have said it could take years to upgrade and build out their systems to integrate the 1,400 GW of power capacity ― mostly solar, wind and storage sitting in their interconnection queues.

And while the need to update and streamline permitting processes in the U.S. has become a major bipartisan concern, bipartisan solutions remain elusive.

The catch, according to Schoff, is that solutions will have to evolve with technology as electrification and renewables on the grid increase.

“Do we have distribution transformers that are up to the task of everybody on my street having an EV with a fast charger on their wall or in their garage?” he said. An understanding of the regulatory and economic environments in which clean technologies will be deployed will also be essential, he said.

A mix of resources ― solar, wind, nuclear, hydro and natural gas ― will be critical to maintain reliability, but the amounts needed of each will also continue to change, Schoff said. “Whatever we’re going to end up [with] in 2050 or some future endpoint, it’s going to not look like that along the way.

“We’re going to have to progressively march our way through, and we have to manage risk at every point,” he said.

Todd Ramey, MISO | USEA

Todd Ramey, MISO’s senior vice president for markets and digital strategy, said the 171 GW of generation in the RTO’s interconnection queue — 95% of which is solar, wind and storage — would far exceed the RTO’s current 130 GW load, but putting those resources on the system would “drastically change the reliability characteristics of operating this fleet.”

“The only way to do that reliably is through extensive collaboration and coordination across participants, local regulators, state regulators and federal regulators, so that we have the information we need to make good choices, and it’s going to be a lot more dynamic than it’s ever been,” Ramey said.

The increasing frequency and severity of extreme weather events — like the winter storms in Texas in 2021 and in the Midwest and Mid-Atlantic in December 2022 — add another layer of complexity to the resilience challenge, Schoff said.

“You [need to know] whether wind turbines are able operate under certain circumstances, whether you have or need an enclosure around a natural gas plant, whether your coal pile may freeze, understanding the limitations potentially of natural gas,” he said.

Ramey agreed that “weather-dependent outages of fossil fuel-fired resources” have become a key issue, which will affect “the complexity of modeling and planning going forward. To the extent that there are resources that are not well-prepared to operate through extreme weather, that’s going to have effects in the way the resources are accredited,” he said.

Focus on Resource Attributes

Emily Fisher, EEI | USEA

EEI’s Fisher believes that a “broadly interconnected” system must be part of the solution for reliability and integrating renewables onto the grid.

“I actually find some of the distinctions between baseload and peaking a bit artificial in the current environment. Any resource can provide what is needed at any given moment in time, if it’s available,” she said.

“But a lot of that has to do with how broadly interconnected the system is. One of the true benefits of a broadly interconnected system is we’re able to rely on resources across a vast geography and that allows us to address some of the intermittency concerns” of renewables, Fisher said.

Both she and Di Stasio talked about the parallel evolution of utility planning processes. “You’re constantly in a planning process versus having a one-time plan and then you execute it over a decade,” Di Stasio said. He noted that his member utilities now plan with an eye to the attributes of resources and how they work together, rather than focusing on resource types.

“How do you get something that’s optimal versus just trying to do something that’s possible with one resource?” he said.

However, resource planning has its own challenges, Schoff said. “It’s so sensitive to the assumptions that are entered by the modelers for what the technologies are capable of and what they will cost. … We need to understand the system in which new assets will operate in and understand what they will have to be capable of.

“Will it be OK to build … wind and solar that are for the most part energy producers without a lot of dispatchability, or should we be including energy storage and some additional dispatchable technologies?” he said.

The decision might come down to interconnection requirements, market signals and technological advances, “but the system-level thinking about what that operation is going to look like needs to start informing the capital investment decisions for new projects as we go forward,” he said.

The role of demand-side management and the potential integration of distribution and transmission systems was also discussed.

While demand management occurs at the distribution level, Ramey said a key trend will be “the need to integrate load management into wholesale operations, blurring that current distinction between distribution and transmission.”

It may be a big leap for MISO and its members who rely on the RTO to operate the transmission side of their businesses, Ramey said, but “we’re all expecting the distribution system to be much more dynamic going forward. So, one of the challenges is to build on MISO’s current technology systems to start covering and penetrating and getting more information about the distribution system so we can optimize that interface.”

Schoff said more load management technologies will be needed. “The more loads you have that are controllable, the less pain each one of those loads will have to experience when you’re trying to manage the load on the grid,” he said. “We see a system coming forward that is much more dynamic on the demand and the supply side, and ultimately the grid in the middle is going to have to be able to manage that really effectively.”

March 17, 2023June 14, 2023

EIA: Major Solar Growth Ahead, but EV Adoption Stalls After 2030

WASHINGTON — The U.S. Energy Information Administration projects the nation will be able to cut energy-related CO₂ emissions to 25 to 38% below 2005 levels by 2030, which falls short of President Biden’s target of a 50 to 52% reduction of all greenhouse gases.

But the agency’s 2023 Annual Energy Outlook says its analysis only looks at CO₂, not the full range of GHGs, particularly methane.

Still, emissions reductions in the EIA’s 2023 reference case, not taking into account the full impact of the Inflation Reduction Act or other potential economic drivers, are 15% lower than last year’s estimates.

Speaking at a launch event on Thursday, EIA Administrator John DeCarolis cautioned that the outlook is based on federal policy and regulations as of November 2022, and that the full impact of the IRA has been difficult to model and integrate into the report’s forward projections.

Energy-Related Carbon Dioxide Emissions (EIA) Content.jpg

By 2030, energy-related CO₂ emissions fall 25 to 38% below 2005 levels | EIA

“We don’t explicitly include a representation of every IRA energy-related provision within the AEO,” he said, noting that “guidance might not be available on how a particular provision is enacted or how agencies will implement it.” Both industry and consumers are currently waiting for IRS guidance for many of the law’s tax credits and rebates.

In addition, DeCarolis said, “There are provisions that require significant model modifications that we simply weren’t able to complete this year.”

While acknowledging the implicit uncertainties of such modeling, DeCarolis also stressed that the report provides ranges of how different aspects of the transition could unfold based on several different scenarios modeled on high and low assumptions of economic growth and costs of oil, gas and zero-emission technology.

For example, the EIA sees electric generating capacity doubling by 2050 with solar, wind and storage accounting for most of the increase, but nuclear and natural gas remain more or less static. The range for solar runs from 22 to 56% of U.S. power production, EIA Assistant Administrator Angelina LaRose said.

Bonus tax credits in the IRA — for example, for projects paying prevailing wage and offering registered apprenticeships — could raise those figures to 39 to 59%, LaRose said.

Renewable growth will be driven by increasing electrification, she said, but “a higher share of renewables in the generation mix [will require] a higher total grid capacity requirement. This is owing to the currently lower capacity factors for solar and wind compared with coal, nuclear [or natural gas] combined cycle plants.”

Natural gas and storage will be needed to firm up intermittent resources, and “a small number of the relatively newer and more efficient coal power plants remain online in the United States due to their ability to provide cheap and dispatchable power to the grid,” LaRose said.

Increasing renewables on the grid may also drive higher levels of power curtailment, she said, with both higher gas prices and lower costs for renewables resulting in billions of kilowatt-hours of curtailment and a greater need for storage, both standalone and as part of hybrid projects combining solar and storage.

EV Uptake

The EIA does not expect the U.S. to hit Biden’s target for electric vehicles to reach 50% of new car sales by 2030. Even with high gasoline prices, the outlook estimates EVs making up 30% of sales by 2050. The reference case is even lower, less than 20%.

IRA speeding EV adoption (EIA) Content.jpg

The EIA sees the IRA speeding EV adoption but expects sales to plateau after 2030, accounting for less than 20% of the market by 2050. | EIA

DeCarolis said the EIA’s modeling takes consumer choice into account. “When we all go to buy a vehicle, certainly the price matters a lot, but there’s more to those decisions,” he said. “So, at its core, it’s a consumer choice model. We do model technological learning, but it’s evolutionary.”

The EIA also did not factor in state policies like California’s Advanced Clean Cars II rule, which requires all new passenger vehicle sales in the state to be zero-emission by 2035. Four states have already adopted the rule, and four more are considering it, but DeCarolis said the potential impact was not integrated into the EIA’s models because the EPA has yet to approve the waiver for California’s rule.

He also expects the EV market to continue being limited to the luxury models automakers have introduced as they begin to build out their own electric fleets.

Natural Gas

Energy consumption for space heating will decline by 2050, but natural gas will remain the primary fuel for this end use in both the residential and commercial sectors, LaRose said.

Overall consumption is reduced because of “warmer winters, as well as population shifts to warmer and drier areas, higher efficiency heating equipment, as well as new building energy codes,” she said. But the growing market — and IRA rebates for heat pumps — will not offset ongoing use of natural gas, which will “continue to account for the largest share of energy consumption for space heating in the U.S. residential and commercial buildings.”

Older space heating will be replaced with higher-efficiency heat pumps and natural gas furnaces, she said.

The outlook also anticipates the U.S. will continue to be a net exporter of fossil fuels through 2050 and continue to rely on natural gas in both the industrial and electric power sectors. High economic growth and high adoption of zero-emission technologies could lead to “increased end-use demand, which results in more natural gas consumption,” the report says. “Higher costs for renewables make natural gas a more competitive option in that case, further increasing natural gas consumption in the electric power sector.”

March 17, 2023June 14, 2023

CPUC to Investigate Western Natural Gas Price Surge

The California Public Utilities Commission launched an investigation Thursday into the extremely high natural gas costs in California and much of the West this winter, when average prices at key trading hubs were five times higher than in the Eastern U.S. in December and January.

Utilities passed through the costs to ratepayers, many of whom were shocked when they saw their utility bills had doubled or tripled compared with last winter. The prolonged price spike also drove up the cost of gas-fired generation, adding $4 billion to California’s wholesale electricity costs in December and January, CAISO estimated in a report last month. (See Natural Gas Prices Add $4B to CAISO Electricity Costs.)

“This is one of the most pressing issues that ratepayers in California have faced this past winter,” CPUC President Alice Reynolds said before the unanimous vote to open the investigation. “It was an extraordinary spike in the price of wholesale natural gas, which led to steep increases in residential customer energy bills in January and February across the Western region.”

The investigation will look into the causes of the price spikes, their impact on customers, the possibility of recurrence, and the potential threats to gas and electric reliability this summer and beyond.

“The commission will also examine the utility communications to customers to determine whether they were sufficient or require modifications,” the order instituting the investigation said.

Giving ratepayers notice of high prices so they can reduce their natural gas use is one way to mitigate high prices, Commissioner John Reynolds said.

“If customers don’t even know about a price spike, they don’t really have an opportunity to change their behavior,” Reynolds said.

‘Anomalous Activities’?

The CPUC’s move followed Gov. Gavin Newsom’s request to FERC that it investigate natural gas prices in the West.

On Feb. 6, Newsom wrote to FERC Chair Willie Phillips, asking the federal regulator to “immediately focus its investigatory resources on assessing whether market manipulation, anticompetitive behavior or other anomalous activities are driving these ongoing elevated prices in the Western gas markets.”

FERC responded to Newsom in a letter this month saying it is “conducting surveillance to determine whether any market participants engaged in behavior that contributed to or took advantage of the high gas prices,” said Reynolds, Newsom’s former top energy adviser

Natural gas prices in California this winter were far above the national benchmark at the Henry Hub in Louisiana and much higher than last winter’s prices in California. | CPUC

“FERC possesses broad powers under the Natural Gas Act to investigate and penalize anti-competitive behavior in the interstate natural gas transportation pipelines under its jurisdiction,” she said.

The CPUC does not regulate natural gas prices, but it does have oversight of utilities, including Pacific Gas and Electric, Southern California Gas and San Diego Gas & Electric that pass on their costs to ratepayers without additional markups. The CPUC named 10 utilities and gas storage companies as respondents in the investigation.

Whether the CPUC or FERC will uncover evidence of wrongdoing remains uncertain.

In an analysis published in January, the U.S. Energy Information Administration said this winter’s price spikes were driven by below-normal temperatures in the West, pipeline constraints and low storage inventories, among other factors.

“The western region receives most of its supply from other parts of the United States and Canada,” the EIA wrote. “Net natural gas flows from Canada dropped by 4% in the first three weeks of December compared with the second half of November, and 9% less natural gas was delivered from the Rocky Mountains.”

The EIA also pointed to the impact on Southern California prices from gas pipeline maintenance in West Texas, which reduced flows into the Southwest.

On Feb. 7, the CPUC, CAISO and the California Energy Commission held a joint hearing to understand the factors that caused the cost increases. Market analysts and utility representatives who testified cited conditions such as an El Paso Natural Gas pipeline that exploded in Arizona in August 2021, impacting one supply line to California, and CPUC-imposed capacity limits at Southern California Gas’s Aliso Canyon underground storage facility, where a massive methane leak occurred in October 2015.

Newsom acknowledged in his letter to FERC’s Phillips that cold weather certainly “exacerbated” the gas price increases but lower-than-normal temperatures and other “known factors cannot explain the extent and longevity of the price spike,” he said. “It is clear that the root causes of these extraordinary prices warrant further examination.”

March 16, 2023December 10, 2023

EPA Good Neighbor Plan Expected to Accelerate Coal Plant Retirements

EPA on Wednesday announced the final details of its Good Neighbor Plan to slash emissions of smog-forming nitrogen oxides.

The rules will take effect this year and affect power plants and industrial facilities in the 23 states that contribute to unhealthy levels of ground-level ozone in neighboring downwind states, EPA said. It will resolve those states’ obligations under the 2015 National Ambient Air Quality Standards (NAAQS).

The plan includes a revised NO_x allowance trading program with gradually decreasing emissions budgets. The 2027 NO_x emissions budget for power plants in 22 states during the May 1-Sept. 30 “ozone season” will be 50% lower than the 2021 budget, resulting in significant public health benefits, EPA said.

Revisions to the trading program include features to promote consistent operation of emissions controls, annual recalibration of the emissions allowance bank and annual updates to the emissions budget to reflect changes in the generating fleet.

Also targeted in 20 states are NO_x emissions from nine industries: natural gas pipelines; cement kilns; iron/steel/ferroalloy mills; glass furnaces; solid waste incinerators; metal ore mining; chemical manufacturing; petroleum/coal manufacturing; and pulp/paper/paperboard mills.

EPA projects a reduction of 70,000 tons of NO_x emissions in 2026: 25,000 from power plants and 45,000 from industry. It also projects a reduction of 16 MMT of carbon dioxide, 29,000 tons of sulfur dioxide and 1,000 tons of fine particle emissions.

The rules drew cheers from environmental activists and warnings from the coal industry about the threat posed to electric resource adequacy and system reliability.

EPA projects that the final rule will result in an additional 14 GW of coal-fired power plant retirements by 2030, some of that through acceleration of shutdowns that had been scheduled after 2030.

State budgets for power plants (EPA) Content.jpg

EPA named 22 states with electric generating units (EGUs) linked to downwind air quality problems and said 10 of them will have to reduce their EGU NOx emission budgets by half or more by 2029, with the biggest percentage impacts on Utah (-84%) and Mississippi (-72%). Texas faces the biggest absolute cut, a 49% reduction totaling almost 19,500 tons. | EPA

The agency also expects the rules will incentivize retrofit of selective catalytic reduction emissions controls on 8 GW of coal power plants. And it expects the rule to accelerate buildout of renewable energy, primarily solar.

Each of the 23 states must submit a State Implementation Plan (SIP) to EPA within three years. If they submit an unacceptable SIP or miss the deadline, EPA will issue a Federal Implementation Plan within two years.

The states haven’t been very successful so far: On Jan. 31, EPA disapproved 19 states’ SIP submissions for the 2015 NAAQS and partially disapproved two other states’ submissions.

EPA said the Good Neighbor Plan provides enough lead time and flexibility that power plant operators can make the necessary changes at reasonable cost without impacting reliability.

But representatives of companies that mine and burn coal voiced concern Wednesday about the impact that the plan will have on the grid at a time when numerous states and the federal government are pushing for increased electrification and use of intermittent resources.

In a statement, the coal power industry group America’s Power said that the rule could “further increase the risks to grid reliability” that it has been warning about.

“Additional coal plant retirements are in stark contrast to the concerns that have been raised by the North American Electric Reliability Corp. and grid operators about the possibility of electricity shortages in many regions of the country caused largely by coal plant retirements,” CEO Michelle Bloodworth said. “Unfortunately, EPA has chosen to reject state plans that would have reduced emissions and avoided reliability problems and, instead, imposed its anti-coal bias on the states and the nation’s electricity supply.”

EPA said that it made several changes to the final rule to address reliability concerns raised by those commenting on the draft.

Among those is deferring “backstop” emission rate requirements for plants that do not have state-of-the-art controls until 2030, allowing power plant operators to “bank” allowances at a higher level through 2030 and establishing a “predictable minimum quantity of allowances available through 2029.”

PJM welcomed those changes.

“PJM worked extensively with other affected RTOs and EPA to address our reliability concerns with the rule as originally proposed,” it told RTO Insider via email. “We are encouraged by the changes that EPA has made and their indication of a willingness to develop various mechanisms to ensure the adequate availability of allowances to meet reliability needs. We intend to work closely with EPA and stakeholders to further the development of these reliability safety valve mechanisms to accompany the Good Neighbor Rule.”

The National Mining Association was not mollified.

“The nation’s grid regulators and operators have repeatedly warned EPA that its regulatory plans pose an ominous threat to reliability, and the EPA’s response is to paper over the problem with meaningless memorandums of understanding,” the group stated. “Intermittent renewable power additions will require a massive expansion of transmission infrastructure and energy storage — an effort that will take years to complete — in order to fill the gulf left by coal plant retirements. In fact, in 2022, as many as 40 planned coal plant retirements were postponed or scrapped largely due to acute grid reliability challenges where utilities and grid operators have made it clear closing plants would be reckless.”

NERC has flagged reliability as an increasing concern, particularly from severe weather and increasing use of variable power generation. (See NERC Warns of Ongoing Extreme Weather Risks.)

“NERC has not done a specific analysis of the Good Neighbor Rule but recognizes that to assure reliability during the energy transformation, the pace of change must occur in an orderly and managed way, with flexibility to maintain generating units that are needed for reliability,” the ERO said via email. “NERC’s Long-Term Reliability Assessment examines the reliability implications of the changing resource mix, including the cumulative impacts of policies that are driving the transformation such as the Good Neighbor Rule.”

The rule is the latest in a long series of regulatory constraints on emissions from power plants, particularly those that burn coal. Already this year EPA has proposed tighter rules on wastewater discharge from coal plants and reaffirmed the Mercury and Air Toxic Standards for coal and oil plants. (See EPA Proposes Tighter Coal Plant Wastewater Regs and EPA Reaffirms Power Plant Mercury Regulations.)

The agency has framed the Good Neighbor Plan as a tool for public health and environmental justice. It said that in 2026 alone it expected the tighter emissions standards to prevent approximately 1,300 premature deaths, more than 2,300 hospital visits, 1.3 million asthma attacks, 430,000 school-day absences and 25,000 lost workdays.

It estimated the annual net benefit at $13 billion a year through 2042, not counting intangibles such as ecosystem improvements.

“We know air pollution doesn’t stop at the state line,” EPA Administrator Michael Regan said in a statement. “Today’s action will help our state partners meet stronger air quality health standards beyond borders, saving lives and improving public health in impacted communities across the United States.”

The Sierra Club hailed the announcement.

“Last summer, over 70,000 people shared their support for the Good Neighbor Plan, demanding fossil fuel power plants and industrial facilities that are polluting communities … comply with strict air quality standards,” said Leslie Fields, Sierra Club’s policy, advocacy and legal director. “We are pleased EPA is listening to the people it serves and finalizing this common-sense solution to dangerous interstate ozone pollution.”

The 23 states affected by the rule are:

- - industrial emissions only: California.
  - power plant emissions only: Alabama, Minnesota, Wisconsin.
  - both: Arkansas, Illinois, Indiana, Kentucky, Louisiana, Maryland, Michigan, Mississippi, Missouri, Nevada, New Jersey, New York, Ohio, Oklahoma, Pennsylvania, Texas, Utah, Virginia and West Virginia.

But the list may change. In a fact sheet, EPA said its updated modeling analysis showed that Arizona, Iowa, Kansas and New Mexico may be significantly contributing to ozone pollution in downwind states. It plans to undertake additional analysis to determine if they should be subject to Good Neighbor obligations.

The same updated modeling indicated Delaware is not significantly contributing to downwind pollution, so EPA withdrew its proposed Good Neighbor Plan for that state.

EPA is deferring action on Tennessee and Wyoming pending further review of the updated modeling.

March 16, 2023

Analysts Predict Steady Rise for Wash. Carbon Prices

Washington carbon allowance prices will increase sharply as the state’s cap-and-trade program becomes better established and more companies seek to cover their exposure, carbon market analysts said this week.

Speaking during a company-hosted webinar Tuesday, analysts from carbon advisory firm cCarbon predicted that Washington allowance prices could reach $66 in 2025, $122 in 2029 and $170 in 2036, before dropping as the state curtails its emissions over time. Each allowance permits its holder to emit one ton of greenhouse gases.

“This is an exciting time to be in the carbon market,” Jake Frankel, vice president of carbon markets at brokerage firm BGC Partners, said during the webinar.

Washington’s Department of Ecology conducted its first allowance auction under the state’s cap-and-trade program on Feb. 28. Results released March 7 showed all 6,185,222 available allowances sold at clearing price of $48.50, raising roughly $300 million for the state’s coffers. (See Washington’s 1st Cap-and-Trade Auction Nets Nearly $300M.)

Craig Rocha, an analyst with cCarbon parent company cKinetics, said 56 of the state’s 135 potential bidders participated in the auction. That included 16 out of 22 transportation fuel suppliers, including BP, Shell, Phillips 66 and Marathon. Natural gas utilities barely participated, and carbon-emitting entities competing with foreign companies (emissions intensive trade exposed companies — or EITEs) did not bid, Rocha noted.

“The EITEs remained away from participating in the auction, as they are due to receive free allocations for all their emissions in the first compliance period,” cCarbon analyst Megha Jha said in an analysis posted by the company Wednesday. “We expect to see EITEs start participating at auction only in the second compliance period.”

That analysis also showed that financial entities were heavily represented in the first auction, accounting for 23 — or 44% — of the bidders, compared with an average of 28% in the more established California-Quebec carbon market.

Participating financial entities included investment funds, such as Bellus Ventures, Carbon Point Partners, Morgan Stanley Capital Group, Klima Holdings, Norther Trace Capital, and Environmental Commodity Partners, and commodity traders, such as Mercuria Energy and Macquarie Energy. Jha noted there was a heavy overlap with funds and traders that already participate in the California-Quebec auctions.

Participants from the petroleum and electricity sectors also participated, Jha said.

A 2008 Washington law sets the state’s carbon-reduction targets at 45% below 1990 levels by 2030, 70% by 2040 and 95% by 2050. A 2021 report from the Ecology Department put state CO₂ emissions at 99.57 million metric tons (MMT) in 2018. The report showed that from 2016 to 2018, the transportation sector was the largest contributor at nearly 45% of emissions.

cCarbon has calculated that the cap-and-trade program will address 68 MMT of the total, with that portion projected to shrink 7% annually through 2030, followed by a 1.9% decrease per year from 2031 to 2042, then 2.5% annually to 2050.

The company estimates that Washington’s natural gas emissions will phase out between 2035 and 2045, while 8 to 18% of vehicles will be electric by 2030, with the state posting steady economic growth.

March 16, 2023

FERC OKs CAISO-TransWest Move Toward PTO Status

FERC on Wednesday approved an agreement that allows the developer of the TransWest Express transmission project from Wyoming to continue its bid to become a participating transmission owner in CAISO under a new “subscriber PTO” model the ISO is developing.

If FERC eventually approves the model and TransWest Express joins CAISO, it will expand the ISO’s reach as a transmission operator roughly 700 miles across the West. The TransWest project is intended to carry 3,000 MW of wind energy from Wyoming to Nevada, where it will connect with CAISO’s grid.

Wednesday’s decision dealt only with an “applicant participating transmission owner agreement” (APTOA) between CAISO and TransWest.

“The APTOA sets forth the terms and conditions that will govern TransWest’s responsibilities and relationship with CAISO until CAISO assumes operational control over TransWest’s transmission project,” FERC explained.

The agreement takes the place of CAISO’s “approved project sponsor agreement” (APSA) that it signs with developers whose transmission projects address needs identified in the ISO’s transmission planning process.

TransWest Express was not identified in the ISO’s transmission planning process and is ineligible to sign an APSA, FERC noted. The APTOA takes its place, setting out the rights and responsibilities of CAISO and TransWest during project development.

It states, for instance, that the “parties recognize and agree that CAISO is the transmission planning authority for the project transmission facilities from the time the APTOA goes into effect, regardless of the timeline for project construction or energization,” FERC said.

FERC approved the APTOA “as it largely mirrors the language already approved by the commission in the pro forma APSA. While TransWest would be ineligible to execute an APSA with CAISO … we find that the APTOA is a reasonable vehicle to address this situation.

“Like the APSA, the APTOA provides a mechanism for a potential participating TO to function as a participating TO in ways that facilitate the eventual transition … to becoming a participating TO,” it said.

“Furthermore, as CAISO explains, the APTOA bridges the gap until CAISO’s tariff and [its transmission control agreement] can govern TransWest’s relationship with CAISO as a participating TO. This will allow, among other things, any requests for generator interconnections to the project to go through and be studied in CAISO’s generator interconnection queue cluster 15, opening April 1, 2023.”

The generator interconnection to be studied is that of the line’s “subscriber,” the Power Company of Wyoming (PCW), owner of a 3,000-MW wind farm being constructed in the south-central part of the state. TransWest and PCW are affiliates, both wholly owned by the private Anschutz Corporation.

TransWest conducted a FERC-approved open-solicitation process in 2021 that offered firm, long-term transmission service to California via Utah and Nevada and decided to allocate 100% of its capacity to PCW. FERC approved the arrangement in February 2021.

Under the subscriber model, the costs of the TransWest project would not be included in CAISO’s transmission access charge, the mechanism by which costs for transmission lines are allocated to the ISO’s benefitting load-serving entities.

“Rather, TransWest intends that the transmission capacity of the project will be paid for by its transmission customer,” PCW, FERC said. “The transmission customer will in turn use its long-term transmission rights on the project to deliver wind energy and capacity to California.”

TransWest applied to join CAISO as a TO in July, saying in its application that it “intends to place under the CAISO’s operational control all of [its] project transmission lines and associated facilities.”

CAISO’s Board of Governors voted in December to admit TransWest pending further steps that include TransWest signing up energy off-takers in CAISO. (See TransWest Express to Join CAISO as Tx Owner.)

FERC must approve the subscribing participating transmission owner model once it emerges from CAISO’s stakeholder process. The ISO plans to post a draft final proposal on April 11.

“TransWest’s efforts to join CAISO as a participating TO must include certain terms and conditions that consider its agreements with PCW,” FERC noted. “In particular, the existing PCW transmission service agreements with TransWest will encumber the north-to-south capacity of the project, and that transmission capacity will be reserved for delivery of the associated wind energy and capacity to California.

“If a satisfactory subscriber PTO model cannot be developed and approved by the commission, CAISO expects that TransWest may instead move forward as an independent generation-only balancing authority,” FERC said.

March 16, 2023

NYSERDA Chief Lays out Cost, Benefits of Climate Plan

One of the architects of New York’s energy transition plan presented its challenges as opportunities while speaking to state legislators Thursday.

Doreen Harris, president of the New York State Energy Research and Development Authority, told members of the Senate Energy and Telecommunications Committee that the state will reap benefits from decarbonizing its grid. The massive costs will be met in part through federal spending or tax breaks, she said, and assistance will be available for lower-income New Yorkers.

Harris was co-chair of the New York Climate Action Council, which drew up the scoping plan for the landmark 2019 Climate Leadership and Community Protection Act. And as head of NYSERDA, she is now a central figure in carrying out the energy transition mandated by the CLCPA, at a cost of hundreds of billions of dollars.

The scoping plan, completed in December, was a framework for the executive and legislative branches to work from; Senate and Assembly leaders are now hashing out key spending and policy details with Gov. Kathy Hochul as the state approaches the April 1 start of its 2023/24 fiscal year.

Harris ran through some of the major points of the plan — a cap-and-invest system to reduce emissions; building decarbonization; prioritization of disadvantaged communities; and extensive buildout of generation, storage and transmission — before taking questions.

Sen. Mario Mattera (R) asked Harris if she thought New Yorkers are sufficiently informed about the energy transition and all it entails.

The CAC’s meetings in every region of the state and the 35,000 comments it received show the effort was made, Harris said, but more could be done, particularly to combat the notion that the transition would be undertaken — and paid for — in a year or two, rather than over the course of decades.

The cost of New York’s energy transition has been estimated at $275 billion, or $14,000 per state resident. That does not include energy efficiency upgrades and electrification of millions of homes and businesses.

Mattera asked if the cost of retrofitting homes for all-electric operation would cause residents — who have been moving out of state at the highest rate in the nation — to relocate in even greater numbers.

Harris said it might prompt residents to stay for the employment and business opportunities the transition will create and prompt residents of other states to move to New York.

“In fact, what we’re talking about is an extraordinary amount of investment we’ll be making in this transition,” Harris said, “and I would say, an extraordinary amount of opportunity that will come forward from that. It needs to be looked at through that lens.”

When Mattera pressed her on utility ratepayers bearing the cost of grid modernization and expansion, committee Chair Kevin Parker (D) interjected that even if the state repealed CLCPA tomorrow, there would still be costs for grid maintenance and modernization.

But Parker acknowledged concerns about beginning the transition before planning is complete, or “building the plane after takeoff,” as others have called it.

“This is such a massive undertaking that we have to walk and chew gum at the same time,” Parker said.

Sen. Kristen Gonzalez (D) — whose New York City district contains “Asthma Alley,” the cluster of fossil-fired power plants that degrade air quality in nearby neighborhoods — asked about the economy’s impact on the transition.

Inflation, interest rates and supply chain constraints have caused problems for multiple clean energy sectors, including the offshore wind farms that downstate is counting on to replace fossil fuel generation.

“It is a particularly challenging time in the near term for frankly all projects of any type,” Harris said. “The clean energy investments we’re making are particularly challenged.”

Upstate solar and wind developers have expressed concerns, Harris said, and port development to support offshore wind has been affected as well.

No existing clean energy development contracts have been adjusted for inflation, nor are any negotiations underway, she added. But NYSERDA has begun putting an inflation-adjustment mechanism into new contracts, she said.

Sen. Mark Walczyk (R) asked why single-family residences are being targeted first for the phaseout of fossil fuel systems and multifamily residential buildings at a later date.

Walczyk, whose district is upstate, pointed out the “upside-down” impact of this: Upstate areas that have cleaner air and a larger percentage of single-family homes will see their housing stock decarbonize sooner than Gonzalez’s district and other parts of New York City, which has dirtier air and a larger percentage of multiunit dwellings.

It is relatively the easiest place to start, Harris started to say.

“It’s not the easiest for the single-family homeowner,” Walczyk interjected. “It might be easy as a governmental policy.”

“We need to start somewhere,” Harris replied. “We agree these are the largest source of emissions in our state. I would fully agree without you, buildings are the heart of the biggest challenge before us.” That is why new construction is targeted for zero-emission requirements, she added: It is much easier to build new than retrofit an existing structure.

Among his other points, Mattera said residents should not have to time their lives around the electric grid’s peak hours, washing their laundry at midnight and waiting for a good time to recharge their car batteries.

Sen. Michelle Hinchey (D) said this line of thinking does not give residents enough credit for being adaptable. The choice, she said, is between making small adaptations to help fight climate change or huge adaptations to respond to climate change.

March 16, 2023

Mich. Lawmakers Grill Utilities over Winter Storm Outages

LANSING, Mich. — Top executives from Michigan’s two largest utilities were challenged by state legislators Wednesday over why they were not helping customers recoup losses, including ruined food and medicine, when they lost power during the ice and snow storms that slammed the state in February and early March.

“The consensus is people over profits,” said Rep. Helena Scott (D) chair of the House Communications and Technology Committee, as the committee’s three-hour hearing into the outages concluded.

In her final comments, Scott questioned whether utility executives should forego their salaries and bonuses, citing former Chrysler CEO Lee Iacocca passing on his salary in the 1970s when the automaker was struggling. The meeting adjourned before any executive could respond.

The hearing was called after a series of outages that affected almost 1 million customers. The first and largest series of outages hit following an ice storm on Feb. 22 — considered the worst ice storm Michigan had seen in decades — that left as much as three-quarters of an inch of ice on buildings, roads, trees and power lines. That was followed by another ice storm some days later and then a large snowstorm on March 3.

Scott said legislators would take steps to ensure Michigan’s power grid was strengthened to prevent future outages, but no significant legislation has been introduced to date.

No additional House committee hearings are scheduled, although the Senate Energy and Environment Committee has slated a hearing for March 23.

Most of Wednesday’s hearing focused on questions to DTE Energy President and COO Trevor Lauer (NYSE:DTE), Tonya Berry, CMS Energy’s (NYSE:CMS) senior vice president for transformation and energy and Electric Operations Vice President Chris Laird.

Lauer was questioned about an article published last week by Bridge Michigan outlining how DTE cut some operating costs to help boost profits and shareholder dividends. The dividend payouts were announced on Feb. 2, less than three weeks before the February ice storm.

Lauer said none of the cutbacks affected safety or DTE’s efforts to restore power to affected customers. The cutbacks included such items as reducing the number of times grass was cut around substations, Lauer said.

He said DTE’s priority is to ensure customers are not affected by outages, but that it has been challenged by an increasing number of storms in recent years.

“We are very sorry for the outages we had,” Lauer said, adding that “we need to find a way to work with all our stakeholders” to minimize the chances of severe outages.

The executives were repeatedly asked why customers whose power was lost for multiple days would only get paid $35, in the case of DTE, or $25, in the case of CMS. Those amounts would not cover the cost of replacing food or medications, legislators said.

But the executives said those amounts were what is now required by the state’s Public Service Commission as a penalty. Laird also said DTE would work with community, governmental and charitable groups to assist customers who had suffered losses.

PSC Commissioner Katherine Peretick told the committee that new rules the PSC is implementing will require the utilities to automatically pay customers who have lost power for 48 hours (reduced from the current 60 hours) $35 a day instead of a single payment.

Lauer, Berry and Laird said the utilities’ primary focus will be minimizing the chance of outages if the state continues to suffer severe weather incidents. Tree trimming was highlighted by both companies; for example, Lauer said, DTE had boosted what it spent on tree trimming from $180 million in 2021 to $240 million in 2022 and would continue to boost those costs. Laird said CMS had gone from trimming trees along 5,000 miles of roads a year to 7,000 miles, with a goal of boosting the number to 8,000.

Lauer said Michigan is seeing the severe winds that Florida and other Gulf Coast states have seen for years. Automation — having electric systems automatically reroute power around downed lines — will be essential, Lauer said. That will allow DTE to focus restoration efforts on the houses and businesses that could not have power restored automatically.

Both companies said they are considering running more power lines underground. Michigan has very few underground power lines.

Lauer said some of the electrical infrastructure in service in Detroit is a century old and needs upgrading.

Highland Park, a city surrounded by Detroit, lost power to its senior centers, city hall, fire department and police department during the Feb. 22 storm, said Mayor Glenda McDonald.

The PSC on March 13 issued a request for third-parties to audit the state’s utilities and how they have responded to outages. The audits could take as much as a year to complete, said Peretick.

March 16, 2023June 14, 2023

FERC State of the Markets Report Shows High Energy Prices for 2022

WASHINGTON — Electric and natural gas prices were at their highest level in years in 2022, according to FERC’s State of the Markets report, released at the commission’s monthly open meeting Thursday.

Henry Hub natural gas prices averaged $6.38/MMBtu, which was higher than any year since 2008, as Russia’s invasion of Ukraine and the subsequent scrambling of international supply arrangements pressured markets.

LNG exports were up 9%, and the U.S. sent more of the fuel to Europe, with France, the U.K., Spain and the Netherlands receiving 48% of the total. Exports to China were down 78%, by 40% to Japan and by 38% to South Korea. The U.S. sent 66% of LNG volumes to European markets and 23% to Asian markets last year.

Despite the ongoing war, gas prices dropped in the fourth quarter to $4.60/MMBtu as the winter proved milder than expected and production hit record levels.

The two main California hubs — SoCalGas Citygate outside Los Angeles, and PG&E Citygate — averaged $9.26/MMBtu and $9.63/MMBtu, respectively, as prices rose in the state starting in November because of below-average temperatures, high natural gas consumption, lower imports from Canada, pipeline constraints from West Texas and low storage levels in California.

“Seasonal electricity prices also tracked prices for natural gas, as natural gas was typically the marginal fuel for electricity generation in most markets,” the report said.

Natural gas was still the main generator of electricity, making up 38.9% of total generation on the year. Wholesale power prices were up at most pricing hubs for the second year in a row, with the biggest jumps being seen in New York City and PJM, which both saw average prices rise by 80% from 2021.

“Electricity demand grew in every regional transmission organization or independent system operator as economic activity continued to rebound from the COVID-19 pandemic and weather had an increased impact on heating and cooling demand at times,” the report said. “Various factors including higher electricity demand and higher natural gas prices placed upward pressure on wholesale electricity prices in 2022.”

The only regions that did not see prices rise were ERCOT and SPP, which were significantly impacted by the February 2021 winter storm to the point where average prices were lower, but median prices were higher.

Longer-term trends in electric capacity continued with new entry dominated by wind and solar, while retirements were dominated by coal-fired power plants. ERCOT added the most generating capacity with 7.4 GW constructed, followed by CAISO at 4.5 GW, MISO at 3.9 GW, PJM at 3.5 GW and SPP at 3.2 GW.

Battery storage additions totaled 3 GW across the country, reaching that level for the second year in a row and making up the fourth biggest group of additions after solar, wind and natural gas.

“The markets are not all right,” Commissioner Mark Christie said after staff presented the report. “Specifically, the capacity markets are not all right. There are fundamental problems, specifically in the multistate capacity markets — ISO New England, MISO and PJM — that are directly leading to serious reliability problems.”

ISO-NE has faced winter reliability issues for years, but MISO and PJM have more recent problems, as resources are retiring and new additions are not keeping up, he added. PJM almost had rotating outages during winter weather over the holidays, and its Independent Market Monitor has called its Capacity Performance construct “a failed experiment.” (See PJM Monitor: Rise in Fuel Costs Led to Record-high Prices in 2022.)

PJM could lose up to 50 GW of dispatchable generation by 2030, and the new plants that are coming online are not enough to replace that, Christie said.

“For those who think queue reform is going to be the magic bullet [that fixes] everything: No, it’s not going to be the magic bullet because so many of the resources in the queue are intermittent resources,” Christie said. “And they’re not going to be a one for one replacement for the dispatchable resources that are being lost.”

FERC is going to have to address whether the multistate capacity markets can deliver reliable power at prices that people can afford, he added.

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The commission is already hosting a forum on PJM’s capacity market, and it is holding another event focused on New England’s winter issues in the coming months too, Chairman Willie Phillips said at a press conference after the meeting. When markets do work, they drive competition, and they can lower costs for consumers, he said.

“I think it’s also clear with recent winter extreme weather events, we’ve seen markets come to the rescue, and actually keep us from having some type of cascading outages,” Phillips said. “But that being said, we certainly have questions. I think we should always have questions about the way our markets are working. That’s why we’re having these forums. That’s why we’re digging deeper for solutions.”

March 16, 2023

FERC Affirms ITC Midwest’s Capital Structure Rehearing

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FERC on Thursday affirmed ITC Midwest’s 16-year-old capital structure over protests that it results in unaffordable customer rates.

The commission said ITC Midwest’s (NYSE:ITC) 60% equity/40% debt capital structure passes its three-prong test; some of the language mirrored the commission’s November ruling (EL22-56-001). (See FERC Rejects Iowa Coalition’s Complaint over ITC Structure.)

The Iowa Coalition for Affordable Transmission, a group of Iowa utilities, industrial customers and consumer advocates led by Alliant Energy, challenged the transmission developer’s capital structure twice in 2022 as being excessive and too skewed toward equity. The group asked FERC to reduce ITC’s equity component to 53% and initiate a refund process.

FERC said that ITC Midwest’s equity component is not unusually high and falls within the range of other approved capital structures. It said ITC Midwest has a bond rating independent of parent companies ITC Holdings and Fortis and said there remains no proof that either parent guarantees Midwest’s debt or would take on obligations in the event of a default.

Canada-based Fortis purchased ITC Holdings for $11.3 billion in 2016.

On rehearing, the Iowa organizations argued that FERC hasn’t meaningfully analyzed the capital structure’s appropriateness since 2007. They said that a 2021 Moody’s report contained the line, “We expect that Fortis would provide ‘extraordinary support’ if required, provided that the parent had the economic incentive to do so.” Moody’s use of “extraordinary support” “constitutes evidence of an effective guarantee of ITC Midwest’s debt by its parent companies,” they said.

The commission said Fortis and ITC Holdings have made no formal pledges that they would extend credit support. It also said Moody’s statement doesn’t amount to a guarantee.

FERC said the Iowa group’s fixation on Moody’s statement “merely speculates upon which circumstances would prompt Fortis or ITC Holdings to assist its subsidiary” and is not enough grounds to order a hearing.

“A finding of less than total separateness between ITC Midwest and its corporate parent with respect to corporate governance does not demonstrate that ITC Midwest fails prong two” of the three-part capital structure test, FERC said.

The commission said it would be unusual for it to order a new capital structure.

“The commission does not dictate the level of common equity in a utility’s capital structure used for ratemaking, except in very limited and specific circumstances, which … are not present here,” it said.