Monday, February 18, 2019

MACRUC Poses Choice: Markets or Preferred Resources?

By Rory D. Sweeney

HERSHEY, Pa. — In the days just before FERC announced it was rejecting both of PJM’s capacity proposals and suggesting its own, market participants and officials from states within the RTO’s footprint were still vigorously debating the issues those filings were meant to resolve.

Several panels last week at the Mid-Atlantic Conference of Regulatory Utilities Commissioners’ annual summer education session focused on related issues, including nuclear subsidies, the impact of state policy initiatives on power markets and how RTOs are faring 20 years into their existence.

macruc nuclear subsidies

Barron | © RTO Insider

The panel on nuclear subsidies became controversial when audience members took issue with the interests of the panelists. Moderated by Maryland Public Service Commissioner Anthony O’Donnell, the panel included Steve Aaron, representing a group called “Nuclear Powers Pennsylvania”; Kathleen Barron, Exelon’s senior vice president of competitive market policy; and Anne George, ISO-NE vice president of external affairs and corporate communications. The panel generally supported states providing compensation for generation attributes that aren’t valued in markets.

macruc nuclear subsidies

George | © RTO Insider

Direct Energy’s Marji Philips pointed out from the audience that while nuclear units provide carbon-free generation, the nation hasn’t solved the problem of what to do with nuclear waste.

Philips said her time at PECO Energy, now an Exelon subsidiary, taught her that nuclear plants have been a positive asset.

“Shareholders did very nicely for the cost recovery on these nuclear units a long time ago, as they should have. They were very efficient when gas was setting the margin,” she said. “But the idea that customers are repaying for them again is absolutely true, and this is money that could go to other resources that could provide flexibility. … Admittedly we’re caught in a transition where we still need a lot of the conventional generation, but I just had to challenge the idea that funding nuclear is an absolute necessity.”

macruc nuclear subsidies

O’Donnell | © RTO Insider

O’Donnell, who created the panel, accepted the criticism and said he attempted to secure a panelist “from a utility that has a different view” but was unable to do so.

“I know that it has to be an important part of the discussion going forward,” he said.

Todd Snitchler, director of the American Petroleum Institute’s market development group and a former Ohio regulatory commissioner, said he offered to sit on the panel. He also contended it should have discussed the issue of states blocking pipeline construction that would deliver gas to other regions.

The comment was a reference to New York’s longstanding objection to allowing a pipeline that could connect Marcellus region gas supplies to New England. Because of concerns about inadequate pipeline capacity, ISO-NE has asked FERC to approve a plan to prevent the retirement of Exelon’s gas-fired Mystic plant, which is fueled by shipments of liquefied gas. Subsidy proponents have used the situation as evidence of the need for national fuel security subsidies. (See FirstEnergy Calls out FERC ‘Failure’ to Act on Resilience.)

Snitchler also noted that the PJM fleet is more fuel-diverse now than ever before, and that there were no complaints about diversity when gas prices were higher.

“We’re trying to design a market that values what that fuel security is, and then anybody that can bring that to the market will be able to participate,” George said. “We’re in this kind of transition that’s evolving rapidly, and that’s what’s brought a lot of these issues to a head and everybody’s struggling with what to do with it.”

macruc nuclear subsidies

The Mid-Atlantic Conference of Regulatory Utilities Commissioners held their annual meeting last week in Hershey, PA. | © RTO Insider

O’Donnell confirmed there is currently no initiative to bail out the only nuclear plant in Maryland, Exelon’s Calvert Cliffs. But there is an ongoing legislative study on the state’s renewable portfolio standard, which has sparked “some interest” in whether it is “inclusive enough” because it doesn’t include nuclear. Connecticut is currently considering whether to include nuclear in a program that pays for output from renewable resources.

He noted that Calvert Cliffs remains “relatively healthy,” so a discussion on state subsidies is “coming to Maryland but not here yet because of other pressing” needs.

Irreconcilable Differences?

macruc nuclear subsidies

Thomas | © RTO Insider

In a later panel, former Pennsylvania Public Utility Commission Chairman Glen Thomas suggested that states concerned about markets crowding out preferred resources “have to think long and hard about whether [they] want to renew their vows to markets or get a divorce.”

He referenced the nuclear panel, noting that more than 50% of New England’s megawatts are subsidized, which has suppressed prices so much that generation needed for reliability is uneconomic.

“I worry that that could bleed into PJM if we’re not very, very careful,” he said. “There’s ways to pursue state environmental policies that are consistent with the market, but many of the policies that are being set up right now are not consistent with the market. That’s not only a problem in the states where they’re happening; it’s going to be a problem in the entire region if we’re not prepared to address it.”

macruc nuclear subsidies

Elliott | © RTO Insider

Randy Elliott, regulatory counsel for the National Rural Electric Cooperative Association, said co-ops have a different opinion because they operate with a different business model.

“Our fallback position has been trying to secure the right to self-supply our own capacity … and have that count toward our capacity requirements,” he said. “We’re trying to get our different business model accommodated with the existing regulatory structure in the three eastern RTOs.”

macruc nuclear subsidies

Hunger | © RTO Insider

“Any of these resources that may be receiving some sort of state subsidy, I’m not convinced that they automatically tank the capacity market,” said David Hunger, vice president at Charles River Associates. “As long as these resources face the performance risk in Capacity Performance … and that risk isn’t passed off to consumers, or passed off to someone else through some contract, for the life of me, I can’t figure out why they have any incentive to offer other than their competitive offer, which is their opportunity cost.”

macruc nuclear subsidies

Hopper | © RTO Insider

Abby Hopper, CEO of the Solar Energy Industries Association, struck a middle ground, advocating for respecting state decisions but driving those decisions to look forward to new technologies rather than figure out how to maintain old ones.

“I think state policy is critically important, and recognizing and respecting the role of states to make decisions about what kind of generation they want, how they want to support that and sort of what their priorities are is important, and the wholesale market should respect that,” she said. “I think we are at a critical point in the history of the evolution of these markets. I do not have that same level of alarm. I do see an incredible amount of opportunity.”

macruc nuclear subsidies

Moeller | © RTO Insider

In the conference’s opening panel, former FERC Commissioner Phil Moeller, now an executive vice president at the Edison Electric Institute, argued for dynamic rates that respond to changes in demand.

“You need those right price signals. I think it’s the way to move the system in a way that helps people … I’m open to all kinds of creativity,” he said, adding that pricing “has to be on the table” because of the “dynamic nature” of a system “driven by physics.”

macruc nuclear subsidies

Poulos | © RTO Insider

Greg Poulos, executive director of the Consumer Advocates of the PJM States, said costs are “always an issue” for consumers and that real-time rates are a concern because residential customers don’t have the capability to follow price signals or impact prices through their actions. He shared the view that the discussion shouldn’t be about “getting money to” existing resources to keep them operating.

“It should be focused on the consumers. Not just some consumers, but all consumers,” he said.

In the concluding commission roundtable, D.C. Public Service Commission Chair Betty Ann Kane said the biggest change in regulatory processes over the past 11 years is that “things don’t lend themselves to that firmness that we used to have.”

“There’s more and more judgment that goes into [decisions] and there’s more and more policy,” she said. “You have these things — jobs, climate, policy — that’s much harder to measure, and it’s much harder to know if you’re making a good decision.”

Past and Future

In a panel on how RTOs have evolved over the past 20 years and where they’re going, PJM’s Darlene Phillips argued they are fulfilling their purpose.

Phillips (left) and Gramlich | © RTO Insider | © RTO Insider

“I think we got what was originally envisioned, which was reliability at lowest cost,” she said.

Ohio Public Utilities Commissioner Beth Trombold said the ongoing resource switch from coal to gas and renewables is having the biggest impact, but that “I think there’s obviously political pressures. Each state has politics to navigate.”

macruc nuclear subsidies

Trombold | © RTO Insider

Phillips said states have “options” about procuring resources for their citizens and that providing capacity was not a “mandatory function” of RTOs.

“It was a service that was offered, and many states took advantage of it,” she said, noting the RTO would be “OK” with states returning to a regulated industry or developing their own integrated resource plans.

Rob Gramlich, president of Grid Strategies, argued that RTOs should stick to their original goals of operating real-time grid dispatch for reliability and doing regional transmission planning.

“Stop trying to be regional energy policy makers,” he said. “Consumers will do well under one scenario if [grid operators] stick to what they’re supposed to do, and they’ll probably do worse if they don’t.”

“It’s our responsibility to make sure those energy markets are working as they’re designed,” Phillips said. “Politics is deep. Economics sometimes can take a backseat to the politics, both at the federal and the local” level. She said she would be “hard pressed” to think of who might have lost by being in an RTO.

“I think that everyone got a piece of this pie in some shape or form,” she said.

Greg Carmean, executive director of the Organization of PJM States Inc., commented from the audience that load-serving entities were supposed to obtain adequate capacity for customers, while the Base Residual Auction was intended to be, as the name implies, residual, but that “mission creep” at PJM had expanded its role to be the main outlet.

Gramlich said the idea of LSEs being responsible for hedging — rather than relying on the regional capacity market — is effective, such as in ERCOT, where “it’s their job [to hedge], and they know they’ll pay $9,000 energy prices if they don’t.”

macruc nuclear subsidies

Malcolm | © RTO Insider

AARP’s Bill Malcolm said in the next 20 years, “I think the whole country will be in an RTO,” though he conceded that it’s a “Hail Mary” in the Southeast.

Phillips said “a larger portion” of the country will be in an RTO and that “we’ll be further along than we are today with seams and coordination.”

Gramlich took it even further.

“I think every country is going to have large regional balancing markets,” he said, adding that there will be more microgrids, but the “broad regional market will be best option” for those who can’t afford their own microgrid.