Page 1552 – RTO Insider

February 23, 2017

CAISO Stakeholders Seek Clarity on Black Start Procurement Plan

By Robert Mullin

CAISO market participants continue to seek more details about an “expedited” ISO proposal to procure black start resources.

During a Feb. 21 call to discuss the plan, stakeholders pressed ISO staff to provide more specific information on the expected technical requirements for black start units, how the procurement process would play out and the contract terms for selected resources.

The ISO developed the proposal after identifying a need for additional black start resources in the transmission-constrained San Francisco Bay Area, which falls within Pacific Gas and Electric’s service territory. (See CAISO Kicks off Initiative to Procure Black Start Resources.)

CAISO black start procurement plan — CAISO’s black start procurement initiative was prompted by the need to acquire more system restoration resources to serve the constrained San Francisco area. | *SF Travel*

CAISO’s draft plan envisions significant collaboration between the ISO and an affected transmission owner to develop the specifications describing the requirements and selection criteria for the black start resource in the procurement process. The ISO would approve or reject the TO’s recommended resources. (See CAISO Proposes TO-focused Black Start Procurement.)

Ellen Wolfe, president of Resero Consulting, sought to know more about the history of black start procurement in California, questioning why CAISO was developing a new process.

“Historically, [TOs] have developed the restoration plans — is that correct?” Wolfe asked.

Neil Millar, CAISO executive director of infrastructure development, confirmed that utilities previously were solely responsible for devising black start plans. With the creation of CAISO, system restoration took on a collaborative approach in which the ISO “accumulates, reviews and can modify” plans if it identifies shortcomings.

“So it’s a layered approach, with the [TOs] taking a first cut and then the ISO looking at the aggregate of the various restoration plans and reviewing to make sure that there are adequate black start resources available,” Millar said, noting that the requirement for developing plans is now a “shared responsibility.”

Millar added that the ISO’s tariff allows for the acquisition of additional black start resources if needed.

“That’s the direction we see needing to move, but the question is how do we go about doing that and where should those costs actually fall?” he said.

Wolfe turned her focus to the proposed collaborative procurement process itself, asking whether the affected TO would get just the technical information from a resource bidding as black start capable, or cost information as well.

“We’re expecting that [the TO] would get all that information” from the bids, said Scott Vaughan, CAISO lead grid assets engineer. “Then they would provide a recommendation to the ISO and we would look at the analysis and either agree or not.”

Wolfe asked if the TO would effectively be acting as the “agent” for all the load-serving entities within its territory “in terms of making prudent financial choices as well.”

“The one point that we want to be clear on is that the ISO is ultimately procuring the additional service under our Tariff, so while we’re looking for the heavy participation of the [participating] TO to sort out which is the best resource, we ultimately have to wear our procurement decision,” Millar said.

Paul Nelson, electricity market design manager at Southern California Edison, sought more specifics on the potential length of the contracts and wondered whether entering multiyear arrangements with generators marked a “new area” for the ISO.

“Is this something you’ve done in the past?” Nelson asked.

CAISO currently has multiyear contracts for black start capability with TOs and generators, but they offer no compensation, explained Andrew Ulmer, the director of federal regulatory affairs at the ISO.

“So it’s a little different, because we’re talking about contracts with non-zero price terms now and figuring out a way to address that fact and allocate costs,” Ulmer said. “But [there is] no real difference in the structure of the contracts we have today.”

Ulmer added that the ISO is specifically seeking stakeholder feedback on the terms of the contracts.

Brian Theaker, director of market affairs at NRG Energy, asked if CAISO expected to publish a list of resources capable of meeting the black start requirements in the San Francisco area before conducting the solicitation.

“I think our expectation was that we would be able to define geographically the area that would help us meet the requirement, and that the generators themselves would be able to decide whether or not they were in or out,” Millar said.

Theaker raised the potential for a conflict of interest in the procurement.

“Is it possible that PG&E — in addition to being an entity that would review the offers into the solicitation process — would also be a party that would be participating in the solicitation process?” he asked.

Millar said it could happen, but it was unlikely because any black start-capable resource already owned by the utility is probably already included in the system restoration plan. “I think we’ll take your point that there needs to be some check and balance on a potential conflict there,” Millar added.

Alan Wecker, market design analyst at PG&E, said his company is “thinking through” the conflict-of-interest issue to ensure that it develops “walled-off procedures similar to how we run our [requests for offers] — such as the storage RFO — where we have our utility side participating as a bidder.”

CAISO is leaning toward a cost-of-service approach for compensating generators rather than providing a capacity-type payment sufficient to support the operation of an otherwise unprofitable resource. Under the current proposal, contracts — in which the ISO would be the counterparty — would run either five or 10 years with a clause requiring one year’s notice for termination.

On the issue of cost allocation, Wolfe asked if ISO staff had considered collecting the costs through CAISO’s transmission access charge. The ISO has proposed having individual TOs recover the expense from its customers through its reliability services rate schedule.

Ulmer said staff had considered the TAC alternative, and that the Tariff would allow the ISO to “peanut butter” the cost across all scheduling coordinators.

“But if we wanted to step back and make a more geographic, precise allocation of these costs, would that mechanism meet that requirement? We don’t think it would,” Ulmer said.

The ISO is seeking comments on the black start procurement proposal by Feb. 28 and plans to issue a draft final proposal by March 14. ISO management expects to submit a final plan to the Board of Governors approval in May.

February 23, 2017

NextEra Still Faces Skepticism over Oncor Acquisition

By Tom Kleckner

AUSTIN, Texas — NextEra Energy has taken its bid to acquire Texas utility Oncor before the Public Utility Commission of Texas, the same body that last year effectively sank a previous attempt to buy the same company.

nextera texas Oncor acquisition — Oncor CFO David Davis, CEO Bob Shapard | © *RTO Insider*

If the first day of hearings Feb. 21 was any indication, NextEra’s $18.7 billion attempt to gain 100% ownership of Oncor is no slam dunk.

PUC commissioners peppered Oncor CEO Bob Shapard with questions about whether his regulated Texas utility would really be able to be managed by a Florida company with a reputation as an aggressive competitor.

“A broad concern in the pink building,” Commissioner Ken Anderson said, referring to the nearby state Capitol, “as well as with the stakeholders, is that they’re not known as being wallflowers. Even early on in this process, they have gently reminded us that [our approach] wasn’t the right approach.”

Shapard worked hard to allay the PUC’s concerns.

PUC commissioners Ken Anderson, Brandy Marty Marquez question TIEC’s Phillip Oldham | © *RTO Insider*

NextEra is “trying to show they’re listening,” he said. “They’re trying to convince you they’re listening to other parties.” Shapard pointed out that, through its Florida Power & Light subsidiary, NextEra is the largest investor, employer and taxpayer in Florida, a position it’s vigorously protected.

“When they first came in [to Texas], they thought this market was like Florida, but it’s not,” Shapard said. “I think [NextEra CEO] Jim [Robo] will trust us to handle business in Texas.”

Robo is scheduled to personally make his case as a witness before the PUC on Thursday.

The two companies need the commissioners’ approval to proceed with the acquisition. NextEra has attempted to appease the PUC through numerous commitments to maintain Oncor’s independence, including placing Texas residents and independent directors on the utility’s board. (See NextEra Energy Talks Up its Oncor Acquisition.)

Shapard would chair the board, with General Counsel E. Allen Nye Jr. succeeding him as CEO. Nye is the son of former TXU CEO Erle Nye, who retired from the company before a 2007 leveraged buyout by private-equity groups that eventually led to the Chapter 11 bankruptcy of Oncor’s parent corporation.

“Aren’t you a little worried about being hometowned by a Florida company?” Chairman Donna Nelson asked Shapard.

“Jim will insist this company is run pretty well,” Shapard said. “Will he drive Allen crazy? I don’t know, but the operation of the company is not the issue.”

PUC’s Ken Anderson, Donna Nelson, Brandy Marty Marquez | © *RTO Insider*

There was little disagreement with commissioners over Oncor’s performance and value, despite the bankruptcy of its parent company, Energy Future Holdings. That was generally attributed to stringent ring-fence measures placed upon the utility after the leveraged buyout, which insulated Oncor from its unregulated generation and retail energy affiliates and the eventual financial difficulties of its owner.

PUC staffer Stephen Mack said there was no disputing that the ring fence around Oncor has served its purpose and the risks to the company are lower than if it had been exposed to the “EFH family.”

Oncor has “maintained a strong credit rating, and it cares deeply about maintaining that credit rating,” Mack said.

NextEra and Oncor are now saying the ring fence is still strong enough. Intervenors, led by PUC staff, the Texas Office of Public Utility Counsel, Texas Industrial Energy Consumers (TIEC) and the Steering Committee of Cities Served by Oncor, are pushing for even more robust protection.

Geoffrey Gay, representing cities served by Oncor | © *RTO Insider*

Attorney Geoffrey Gay, representing cities served by Oncor, noted that when Hunt Consolidated withdrew its offer for Oncor last year, the utility was still able to reach out to 18 other entities to gauge their interest. (See With Oncor Back on the Market, Multiple Suitors Line Up.)

“That tells me the industry in general recognizes Oncor is a gem,” Gay said. “It’s worth a lot, and its ownership will be beneficial to whoever acquires it.”

NextEra says it needs to maintain control over Oncor’s board by having the ability to appoint, remove or replace the utility’s directors.

That might seem a small price to pay for having NextEra lend its A- credit rating and a market cap of $59.24 billion to help Oncor eliminate the overhang of $11 billion to $12 billion in debt left by EFH — but the Texas entities don’t seem to see it the same way.

Oncor attorney Matt Henry discusses a point with TIEC’s Phillip Oldham | © *RTO Insider*

“The TIEC members represent billions of dollars captive to Oncor that could be harmed if this doesn’t turn out well,” said the TIEC’s legal counsel, Phillip Oldham. “Our group requires us to kick the tires, look under the hood and see how much stress this situation can endure.”

The TIEC has submitted testimony from Charles Griffey, a consultant and former regulatory executive with Houston-based Reliant Energy. Griffey offered a number of recommendations that he said would improve Oncor’s position, including a requirement that all the board members be Texas residents.

“We ask you to take a hard look at that issue in particular,” Oldham said. “Our desire is to ensure Oncor is protected and continues to do the job it’s been doing, even if there are problems with the parent.”

Oldham also said NextEra is not really “extinguishing” Oncor’s debt, a position with which Anderson agreed.

“That’s not really correct,” Anderson told Oncor’s panel of witnesses. “It’s being refinanced. Whatever the amount and however you describe it, what they’re really doing is spreading the peanut butter over a bigger piece of bread.”

During the second day of hearings, Mark Hickson, NextEra’s executive vice president of corporate development, strategy and integration, said that the company has $12.2 billion in funding for the transaction — $9.8 billion for an 80% interest in Oncor and $2.4 billion for a 20% interest in various holding companies.

He agreed that the full debt would not transfer to NextEra, saying the company would assume only $6.5 billion, in line with its 60/40 debt-to-equity ratio.

“We have said we are going to finance this transaction in a way that allows us to maintain our strong credit rating,” Hickson said. “We are laser focused, as we always have been as a company, in maintaining our credit metrics, which means maintaining our target metrics.”

TIEC’s Phillip Oldham questions NextEra Energy’s Mark Hickson | © *RTO Insider*

Hickson said NextEra works closely with Moody’s Investors Service, Standard & Poor’s and Fitch Ratings, and has separate targets with each of the three. He spent much of Wednesday downplaying the company’s communications with the agencies.

The PUC’s approval would end EFH’s nearly three years in bankruptcy. What’s left of TXU has already spun off its Texas competitive businesses, power generator Luminant and retailer TXU Energy as standalone companies.

On Feb. 17, a U.S. bankruptcy judge in Delaware accepted EFH’s plan to exit bankruptcy after the company said it had resolved a final lingering dispute after its noteholders reached an agreement to modify what they were owed.

The settlements were with two creditor groups, who were offered 95% or 87.5% of their make-whole claim premiums, in addition to full principal and interest. The groups had been seeking about $800 million.

The PUC’s hearings on the acquisition are scheduled through the end of the week but will likely end Thursday.

February 23, 2017

FirstEnergy Seeking ZECs to Aid Sale of Ohio Nukes

By Rory D. Sweeney

After reporting a loss of $6.2 billion ($14.49/share) for 2016, FirstEnergy’s CEO said the company plans to seek subsidies for its Davis-Besse and Perry nuclear plants in Ohio to make them attractive to buyers and allow the company to exit competitive generation in 2018.

FirstEnergy ohio nuclear plants ZECs — Perry Nuclear Plant | *Wainstead*

“I can’t speak for prospective new owners of these four nuclear units, but I can tell you this: Running nuclear reactors isn’t something that just anybody can do. And there is a significant amount of capital risk associated with that business,” CEO Charles E. Jones said in response to analysts’ questions during an earnings call Wednesday. “I’m not sure people are going to be willing to take on the risk of even the next refueling outage, which is very expensive, so I don’t think there’s any guarantee — absent some other support for these units — that they’re going to keep running far into the future.”

The “support” would be zero-emissions credits, which have been approved for nuclear power plants in Illinois and New York but face challenges in federal court.

FirstEnergy’s multibillion-dollar loss for 2016, which came on revenue of $14.6 billion, includes asset impairment and plant exit costs related to its decision to leave competitive generation by mid-2018. The company reported earnings of $578 million ($1.37/share) in 2015 on revenue of $15 billion.

For the fourth quarter, FirstEnergy posted a loss of $5.8 billion ($13.44/share) on revenue of $3.4 billion versus a loss of $226 million ($0.53/share) on revenue of $3.5 billion a year earlier. Higher corporate operating expenses and increased retirement costs factored into the loss, but it was partially offset by reductions in the valuation of pension and post-employment benefits.

The company’s adjusted earnings were $2.63/share for 2016 compared to $2.71/share for 2015 and 38 cents/share for the fourth quarter compared to 58 cents/share a year ago.

Jones said the company’s generation fleet will go into bankruptcy without a buyer, and a buyer is unlikely without more financial certainty for the nuclear assets.

“These assets are now valued at somewhere around $1.5 billion and that includes the nuclear fuel that they own. The debt is significantly higher than that. … It’s highly unlikely that we’ll get the book value to a place that’s greater than the debt. … Absent something to raise the value of these units and make them attractive to a buyer, there’s only one way for us to exit this business,” he said. “I’ve been up front with the legislators that I have met with, personally, to tell them, ‘Don’t do this [approve ZECs] for FirstEnergy because it’s unlikely we’re going to be the long-term owner-operators of these assets.’”

PJM has remained agnostic about state actions but active in figuring out ways to address them.

“Our position is not whether a state should or shouldn’t do whatever it is they want to do, but [what] we have to think about is how do we make sure the market remains competitive. … We need to protect the integrity of the regional market price,” PJM CEO Andy Ott said in an interview with The Plain Dealer, Cleveland’s major daily newspaper. “We have to figure out a way to harmonize what is happening in wholesale markets and what is happening at the state level.”

Last month, RTO stakeholders approved the creation of the Capacity Construct/Public Policy Senior Task Force to consider how to ensure that PJM’s markets don’t run afoul of state initiatives. Its first meeting is on March 6. (See PJM to Review Impact of State Public Policies on RPM.)

He also noted that the company has restructured its finances in preparation for a potential return to cost-of-service regulation in Ohio.

“We successfully restructured our credit facilities to provide the necessary financial flexibility to become a fully regulated company,” he said.

On the regulated utility side, distribution deliveries increased 4% in the fourth quarter. Weather-related usage resulted in an 8% increase in residential sales compared to the prior-year period, while commercial sales increased 3% because of a combination of weather and stronger demand. Heating degree days in the fourth quarter were 8.9% below normal but 26.3% higher than the same period of 2015. Deliveries to industrial customers increased nearly 2%, primarily because of higher usage in the shale gas and steel sectors.

The regulated transmission business increased because of a higher rate base associated with its Energizing the Future infrastructure program. Earnings were flat year over year, reflecting an increase in rate base offset by a lower return on equity at its electric transmission subsidiary, American Transmission Systems Inc., as part of its comprehensive formula rate settlement.

In its competitive generation business, its commodity margin was down compared to 2015 from lower capacity revenues and contract sales volume, though it was partially offset by higher wholesale sales and lower capacity and fuel expenses.

February 22, 2017

Stakeholders Caught in PJM-IMM Dispute over Fuel-Cost Policy

By Rory D. Sweeney

PJM stakeholders have lingering questions about the RTO’s plan to implement a fuel-cost policy review process — despite a three-hour discussion intended to help sort out the issue.

Those questions focused on how the review will unfold in light of an ongoing debate between PJM and its Independent Market Monitor about who has the final word on policy approval.

Responses from PJM and the Monitor only added to the confusion.

The issue provoked tension between the two during PJM’s submission of a compliance filing with FERC on hourly generation offers. While that filing was supposed to focus on improving flexibility for such offers, PJM also initiated a petition under Section 206 of the Federal Power Act to implement changes to its policy-approval rules and penalties.

During that proceeding, Monitor Joe Bowring argued that the RTO was attempting to usurp his authority to review fuel-cost policies. PJM requires generation units that use fuels with volatile prices to explain their methodology for purchasing fuel so the RTO and Monitor can confirm it was secured through a competitive process.

PJM argued that approval of the policies was wholly under its authority, and FERC accepted the RTO’s proposal earlier this month, including its delineation of review responsibilities. (See FERC Seeks More Details on PJM Fuel-Cost Policy Proposal.)

The debate extended into a Feb. 21 special session of the Market Implementation Committee, where PJM was emphatic that generators can’t hold separate discussions with the Monitor on such policies.

“PJM needs to be involved in those discussions,” said Jeff Schmitt, manager of market analysis. “There is only one process.”

Bowring responded that his role remains separate from that of PJM.

“Just to be clear: We have our own separate standard of review that we’ve had for some time,” he said. “If we ultimately disagree with PJM’s decision, we’ll make that clear [to PJM]. Our role remains our role.”

“You review for market power, but what you do not do is approve the fuel-cost policy,” PJM attorney Steve Shparber responded.

Shparber said that generators must follow PJM’s policy on the matter — not a Monitor “shadow” policy.

“There’s only one fuel-cost policy, and that’s approved by PJM,” he said.

Bowring countered that he wasn’t suggesting that there is a “parallel process.”

“We understand the process, but it’s not definitive about market power,” Bowring said.

The Monitor added that FERC’s ruling isn’t going to change how his team reviews policies, and that he didn’t think the ruling was intended to have that effect.

That exchange occurred near the middle of the meeting, but it colored many subsequent questions from stakeholders, who asked what shape the process would take and how generators would be notified about whether their policies need approval.

“In the last 18 months, we’ve been in touch with every single owner in PJM, so no one should be oblivious,” Bowring said.

Schmitt clarified that generators currently only require a policy that covers any fuel type the unit might use, but PJM plans to enhance that in the future.

“Ideally, we’d like to have a one-for-one where every unit has its own policy [for each fuel type], but we’re not there yet,” he said.

Bowring has repeatedly called for policies to be systematic, algorithmic and verifiable, but PJM has hesitated to require algorithmic accounting. That didn’t sit well with stakeholders.

“I guess my concern is you’re asking us to be comfortable with a standard that is: They comply with a document that the public cannot see,” said Gregory Carmean, the executive director of the Organization of PJM States Inc.

Catherine Mooney, who works for Bowring’s firm Monitoring Analytics, suggested developing sample-approved language that’s verifiable but not algorithmic, but Schmitt declined to commit to that.

Schmitt said PJM’s long-term plan is to get all policy information into a database rather than an approved document. Until then, RTO staff stressed that stakeholders need to follow the guidelines in the manuals.

During the meeting, PJM also displayed a slide that compared maintenance costs for units that run — which can recover for variable operations and maintenance (VOM) — versus units that don’t run, which recover avoidable cost rates. Dave Pratzon of GT Power Group questioned PJM’s grouping of combustion turbine hot gas path inspections under VOM when 2015 rule changes excluded major overhauls and inspections of CTs and combined cycle units in VOM.

PJM IMM fuel-cost policy — Natural gas plants in PJM’s energy market, such as Duke Energy’s 620-MW Buck Combined Cycle Station in Rowan County, N.C., would be subject to the RTO’s rules on fuel-cost policies. *Photo Source: Duke Energy*

Schmitt said revisions to the CT and CC rules might be necessary but will likely need to be handled with a problem statement after the fuel-cost policy issue is resolved to figure out the best way to “unwind” them, given the complexities of three-year forward-looking energy auctions.

February 22, 2017

UPDATED: Longtime Foe Pruitt Meets the EPA

By Rich Heidorn Jr.

WASHINGTON — Scott Pruitt had his coming out at the EPA last week, promising to root for the Washington Nationals, obey the rule of law and “be a good listener.”

The new administrator took no questions following the 11-minute noontime speech Feb. 21.

Pruitt received an EPA lapel pin, an EPA baseball cap and a polite, partial standing ovation, as he was introduced as a father, husband, former state senator and a businessman — the former co-owner of the Texas Rangers’ AAA farm club in Oklahoma City. Because the Rangers are in the American League, Pruitt joked, he would feel no divided loyalties becoming a Nationals fan.

Pruitt was confirmed Feb. 17 on a largely party line vote. (See Pruitt Begins Hostile Takeover at EPA.)

His low-key speech did not mention any of the more than a dozen lawsuits he filed against the agency, including the one now pending against the Clean Power Plan, nor the executive orders President Trump is reportedly readying that would undo the CPP and one expected Tuesday requiring a review of the 2015 Waters of the United States rule. There was no hint of the 25% budget cut President Trump is reportedly proposing for the agency.

But without mentioning any specific targets, Pruitt gently lectured the approximately 75 EPA employees in the Rachel Carson Green Room that “process matters,” saying the job of the regulator is “to give certainty to those that they regulate.” He also criticized the use of consent decrees that he said bypass the Administrative Procedures Act, calling it “regulation through litigation.”

Jefferson, Madison and Hamilton

Pruitt’s address came the day before Oklahoma officials released thousands of emails illustrating a cozy relationship between the former state attorney general and energy companies.

Pruitt opened the speech by telling a story from Joseph Ellis’ book “Founding Brothers” about how Thomas Jefferson, James Madison and Alexander Hamilton reached a deal over a bill authorizing the federal government to assume the states’ debts. Pruitt recounted how Madison and Jefferson agreed over dinner to Hamilton’s plan — in return for a promise to move the capital from New York to the banks of the Potomac.

Pruitt said the anecdote was meant to harken days when compromise was possible, contrasting it with the “very toxic environment” he said dominated the country now. “I seek to be a good listener,” he promised. “You can’t lead unless you listen.”

He also quoted from Daniel Hannan’s “Inventing Freedom,” to highlight the principle that “process matters.”

“Regulations ought to make things regular. Regulators exist to give certainty to those that they regulate. Those that we regulate ought to know what’s expected of them so that they can plan and allocate resources to comply. That’s really the job of the regulator,” he said.

‘Informed Decisions’

Pruitt said following the proper processes “sends a message that we take seriously our role of taking comment and offering response and making informed decisions.” In oral arguments over Pruitt’s challenge of the CPP in September, EPA had defended its outreach, saying it received 4.3 million comments and held more than 600 meetings with stakeholders during the rulemaking. (See Analysis: No Knock Out Blow for Clean Power Plan Foes in Court Arguments.)

The new administrator also said rulemaking “needs to be tethered to the statute.”

“The only authority that any agency has in the executive branch is the authority given to them by Congress. Sometimes those authorities are broadly stated, giving much discretion to agencies … but other times Congress has been very prescriptive … we need to respect that.”

Pruitt also said the agency should see itself as a “partner” with state regulators “and not adversaries.”

He closed the speech by quoting Sierra Club founder John Muir’s observation that man “needs beauty as well as bread,” insisting that one can be “both pro-energy and jobs and pro-environment.”

In his confirmation hearing in January, Pruitt had defended letters he sent to EPA and other federal officials — on state government stationary and signed by him — that had been authored by oil and gas companies, saying he was representing the state’s interest because the industry is responsible for one-quarter of the state’s budget.

Sierra Club Executive Director Michael Brune did not appreciate the shout out to his organization’s founder. “John Muir is rolling over in his grave at the notion of someone as toxic to the environment as Scott Pruitt taking over the EPA,” he said in a statement.

Confronting the Bureaucracy

Pruitt’s plans for the agency are certain to be met with skepticism, if not hostility, by many in the EPA bureaucracy.

John O’Grady, an EPA environmental scientist who leads the union that represents 9,000 EPA employees, told The Guardian that Pruitt’s remarks came across “very professionally and conciliatory. He didn’t come out heavy handed.”

“Mr. Pruitt isn’t a proponent of addressing climate change or of a strong EPA, so it won’t surprise me when they start to whittle away at what we do as an agency,” O’Grady added. “I’m wondering when the hammer is going to fall.”

Before Pruitt’s confirmation, dozens of EPA employees took part in a lunch hour rally outside the agency’s Chicago regional headquarters opposing his appointment. More than 400 former EPA officials signed a letter to Congress also seeking to block him.

But the new administrator is doing his best to wrest control of the agency. Immediately following his confirmation, EPA issued a press release quoting elected officials and industry leaders celebrating him and criticizing the agency’s “harsh regulatory overreach,” “runaway bureaucracy” and “toxic regulatory environment.” Rep. Jim Bridenstine (R-Okla.) was quoted calling EPA “one of the most vilified agencies in the ‘swamp’ of over-reaching government.”

The EPA workforce would be far smaller, if Trump has his way. The president will reportedly call for a 24% cut in EPA’s budget, part of broad cuts in domestic spending intended to fund increases in defense outlays.

EPA’s budget would be cut by $2 billion to $6.1 billion, according to news reports, with staff cut to 12,000 workers from 15,000.

The cuts would be far deeper than Congress has proposed, reducing EPA’s budget to its lowest level since the early 1990s and its staffing to the lowest since the 1980s. The House Appropriations Committee in 2015 called for reducing the agency’s funding by only $718 million.

Trump officials have said they will not slash the 40% of the agency’s budget that is sent to state, tribal and local governments as environmental grants. That means the cuts would fall more heavily on programs protecting air and water.

“We have real doubts that can be done without substantially weakening the ability of EPA to respond to environmental problems and to carry out its core functions that are all established in law,” John Coequyt, global climate policy director for the Sierra Club, told Bloomberg.

Emails Released

The day after Pruitt’s speech, the Oklahoma attorney general’s office released more than 6,000 pages of his email correspondence in response to an open records lawsuit by the watchdog group Center for Media and Democracy.

The emails show Pruitt taking talking points from energy companies, including American Electric Power and Oklahoma Gas & Electric, for letters complaining to federal environmental officials over rules on ozone, fracking and greenhouse gas emissions from oil and gas production.

Among the emails were some obtained previously by The New York Times, which reported in 2014 that Pruitt had sent letters to EPA, above his signature on state letterhead, that had been drafted by Devon Energy, an Oklahoma oil and gas producer.

The emails were “basically a big, long bear hug between Pruitt and oil and gas companies,” said Ken Cook, president of the Environmental Working Group, a nonprofit group that claims a mission of protecting human health and the environment.

The release of the emails also called into question Pruitt’s assertion in his confirmation hearing that he had never used private email for state business. KOKH, the Fox affiliate in Oklahoma City, reported that the attorney general’s office confirmed Pruitt had used a private account for some official correspondence.

February 21, 2017

States Want Cyber Best Practices; Santorum Seeks ‘Warriors’

By Rich Heidorn Jr.

WASHINGTON — A recent survey of state cybersecurity practices provided some surprising results, New Jersey Board of Public Utilities President Richard Mroz told the National Association of Regulatory Utility Commissioners’ winter meeting last week.

“We found most of the states actually do have a fusion center of some sort, so states are taking that seriously,” Mroz said, referring to locations at which state agencies share intelligence on security threats. “On the other hand we hear … from our colleagues that they don’t know what the best [cybersecurity] practices are — what’s working elsewhere.”

Mroz is chairman of NARUC’s Critical Infrastructure Committee, which sent the survey last year to the 34 states that are members of the committee; 19 had responded as of January. The committee is now seeking responses from the remaining states, including those not on the panel. The results will be included in what NARUC intends as a “living” catalog of information about state regulators’ efforts on critical infrastructure resilience. The survey is also referenced in the latest edition of NARUC’s cybersecurity primer, which was released Jan. 31.

‘Retasking’ the National Guard

NARUC cybersecurity best practices — Santorum | © *RTO Insider*

Also speaking on the NARUC General Session panel Tuesday was former Sen. Rick Santorum (R-Pa.), who expressed concern over the shortage of cybersecurity personnel and their lack of preparation for “war.”

“These are people who went to school for computer service or a whole variety of other things and they’re the people who are our quote ‘war fighters.’ They’re not trained as war fighters … and yet they’re in the middle of a battle,” said Santorum, an unsuccessful presidential candidate in 2012 and 2016.

“So they don’t take the approach of ‘How do we comprehensively deal with this problem?’ … We seem to be saying just ‘How do we defend ourselves?’ instead of ‘How do we really put a strategy together to attack the enemy to make sure they aren’t attacking us?’

“I’m not too sure we want corporations out there attacking those who might attack them, but I think we have to start thinking about innovative ways in which to deter people from coming at us,” he added.

In conversations with former colleagues on Capitol Hill, Santorum said, he has proposed “retasking” the National Guard for a cyberdefense role. “We need these people to be out across America to be almost like a Minute Man type of operation to be able to respond to some of these threats we have.”

‘Lanes of Effort’

Jonathon Monken, PJM’s senior director of system resiliency and strategic coordination, a West Point graduate and former director of the Illinois State Police, responded that officials need to “de-conflict … the lanes of effort” by clearly defining roles and responsibilities to determine “who’s best suited to do what.”

Monken said the electric industry also needs to improve the security of its tools.

“Recognizing the fact that our systems are interconnected. Our [information technology] configurations are very, very similar. They’re not identical. It’s not if you breach one that you get access to everybody. But it’s not like there’s that many different [energy management system] providers out there. It’s just a handful of system types and the architectures are very similar.”

Separately, acting FERC Chairman Cheryl LaFleur talked about the importance of collaboration between government and industry and of not relying on just meeting NERC’s standards on critical infrastructure protection.

“While mandatory standards are important, the cyber challenges are evolving so quickly, you can’t really regulate your way out of it. You can’t do a standard fast enough for some new piece of malware or ransomware that comes along,” she said. “The non-mandatory piece is becoming more and more important.”

February 21, 2017

Panel: Choices on CO2, Tech, Competition Will Shape Grid

By Wayne Barber

WASHINGTON — Choices made by customers on issues ranging from carbon dioxide to technology could rank alongside decisions made by policymakers in shaping the future of the grid, RTO officials said last week.

co2 grid innovation caucus — McCoy | *Smartwires*

This was a recurring theme during a Feb. 16 briefing by WIRES, the House Grid Innovation Caucus, the National Electrical Manufacturers Association (NEMA) and the Environmental and Energy Study Institute (EESI). “Unlike ever before, the electric customers are actively participating in the industry,” said Adriann McCoy, a vice president of Smart Wires, which makes advanced power flow control technology. The growing clout of end users is reflected in rooftop solar, plug-in electric vehicles and consumers’ purchasing of renewable power from alternative suppliers, she said.

“Anytime consumers start playing more actively in a market,” it brings about innovation, McCoy said.

Coal plant retirements, such as the recently announced plans to close the Navajo power plant in Arizona, will require that electricity be moved from other sources, McCoy said. The utility owners of the Navajo plant said Feb. 13 that they don’t plan to operate the facility beyond December 2019.

Speakers said people’s choice about where their power is coming from is driving the transmission system. This includes decisions favoring renewable energy and less-carbon-emitting sources.

“The planning is only slightly less complicated than the engineering” these days, said former FERC Chairman Jim Hoecker, counsel to WIRES. “It’s a challenging time, it’s a transformative time, for the electricity business.”

At the same time, a robust transmission system will save consumers billions every year in avoided power disruptions, Hoecker said. “That’s not pocket change,” he added.

MISO Executive Vice President Clair Moeller said it is resilience and the need to move power from new low-carbon resources that is driving new transmission. “There is essentially no load growth in the nation,” he said. “My job at MISO is mostly about planning,” Moeller said. Sometimes “you get cheaper electricity from your next-door neighbor,” rather than from the generating unit in your own area, Moeller said.

Congress in 1992 said it wanted to see more electric competition, said Craig Glazer, PJM vice president for federal government policy. But even since the Energy Policy Act of 1992, lawmakers still engage in picking winners and losers, Glazer said.

The wind production tax credits and state bailouts of struggling nuclear plants can make things complicated, Glazer said. But Glazer cautioned against too much market tinkering, noting that the goal of competition was to shift risk from ratepayers to shareholders.

Innovation happens quickly, but “Congress doesn’t move very fast,” said former U.S. Rep. Mike Ross, senior vice president for government affairs at SPP. Congress needs to ensure its laws “don’t get in the way” of innovation, Ross said.

Many panelists said while the concept of regional planning is popular in the abstract, it often runs into roadblocks in the real world. For example, states are all over the board on issues like renewable mandates, Moeller said.

“States have not wanted to relinquish their regulatory authority over utility operations. This is a tremendous burden to interstate commerce,” Hoecker said.

“We want to make sure this [electric transmission issue] is front and center … that people know how important this is,” said Rep. Jerry McNerney (D-Calif.), who co-chairs the House Grid Innovation Caucus along with Rep. Bob Latta (R-Ohio).

February 21, 2017

MISO South Conference Focuses on Limits, Investments and Climate

By Amanda Durish Cook

NEW ORLEANS — Three years after the region’s integration, MISO South, with its plentiful gas generation, constrained interface into the North and capacity for severe weather, still doesn’t feel fully “in” the RTO, speakers told the Gulf Coast Power Association’s MISO South Regional Conference on Thursday.

MISO South Conference Focuses on Transfer Limit, Transmission Investment, Climate — Vosburg | © *RTO Insider*

Jennifer Vosburg, president of Louisiana generating at NRG Energy, said MISO’s North-South transfer constraint under the RTO’s settlement with SPP limits South’s participation in North. “It’s a challenge to how competitive MISO South continues to be,” Vosburg said.

“The drive to integrate into MISO was, ‘We’re going to be fully in MISO,’” Vosburg said. “We’re proud that the Planning Resource Auction limit is 600 MW more this year. That’s not fully integrated … MISO South is not on the same playing field as MISO North.”

Multiple panelists said the constrained North-South interface has exacerbated an “illiquidity” issue in MISO South.

Plentiful capacity in South is unable to help shortage conditions in North, Vosburg said, and South will remain isolated until it can fully participate in the market. She added that since integration, it is often easier to sell in the PJM capacity market than participate in MISO’s capacity market.

Vosburg said MISO’s once-thriving independent power producers have become “a lonely table.”

Paul Zimmering, an attorney at Stone Pigman who has represented the Louisiana Public Service Commission, said the North-South transfer limit should have been examined by MISO much earlier than its currently underway footprint diversity study. “This is 2017, and we were hoping this would have been looked at earlier. We thought that we would get an evaluation earlier on, but it’s happening now and it’s great,” Zimmering said.

However, Zimmering said MISO is doing a good job through its Transmission Expansion Plan playing catch-up on other transmission projects in the Entergy territory that were ignored prior to the incorporation of MISO South. He said 86% of Public Utility Regulatory Policies Act qualifying facilities in South now participate in the MISO market.

“One MISO is a goal, and I don’t think we’re there just yet,” he added.

Zimmering also said regulation challenges exist in MISO South, where states — Louisiana, Texas and Arkansas — are located in both SPP and MISO. “There are a lot of — I wouldn’t call them divided loyalties — but different interests to look out for,” he said.

MISO President and CEO John Bear pointed out the $2.3 billion in transmission investment since MISO South’s addition in 2014 and said the RTO has created almost $2.5 billion in total savings over the region’s three years of existence.

The value “is real and it’s happening, and I think it’s a really good story,” Bear said.

Although the region hasn’t experienced a hurricane since integration, operations have withstood significant weather events, Bear said: tornados in northern Arkansas in 2014; a Texas dam at risk because of heavy rains in 2015; flooding in eastern Texas and Louisiana; and persistent regionwide heat in 2016.

Matt Brown, vice president of federal policy at Entergy, said MISO’s footprint-wide climate differences are a benefit to MISO South, allowing lower planning reserve margins. Brown said Entergy operating companies saved about $412 million in 2014 and 2015 after joining the RTO. Transmission investment in MISO South has doubled from $359 million in MTEP 14 to $886 million in MTEP 16.

Jim Schott, vice president of transmission for Entergy Louisiana, said the company has noticed that the RTO can better identify congestion for future projects and has sounder congestion management practices, decreasing instances of transmission loading relief (TLR).

“Since December of 2013, TLR and [local area procedures] have hardly been uttered once,” Brown said.

Schott also said MISO membership means Entergy plans projects further in advance to fit into the annual MTEP schedule.

He also made a case for allocating costs of economic transmission upgrades to benefiting local resource zones alone. The RTO is considering changing cost allocation for economic projects in time for 2018, when costs can be shared with MISO South. “Benefits generally flow to some region, and the region should bear those costs,” he said. (See MISO Stakeholders Propose Changes to Market Efficiency Cost Allocation Process.)

Ted Kuhn, consultant at Customized Energy Solutions, said integration has brought pricing transparency — and added bureaucracy — to MISO South. “It takes time to get things through a larger process. It takes time to know which stakeholder meetings to go to, which person to talk to. It’s a process that will kill you if you don’t know it,” he said.

SPP Seam and MISO South

Laurie Dunham, vice president and manager of regional planning for Duke-American Transmission Co., said SPP and MISO need better coordination of the models in their joint studies. She urged stakeholders to get involved in interregional planning meetings.

Left to right: Schott, Clarey and Dunham | © *RTO Insider*

Dunham said large-scale transmission projects aren’t always needed to resolve reliability issues, and, in some cases, the addition of “2 to 5 miles of line and a reactor” eliminates a problem.

Patrick Clarey, a FERC attorney adviser, noted that SPP is facing challenges with greater wind penetration. MISO and SPP’s possible overlay study, designed to last through 2019, could produce transmission projects to solve SPP’s problem, he said. (See related story, SPP Eyes 75% Wind Penetration Levels.)

Ted Thomas, chairman of the Arkansas Public Service Commission, said his state is in a good position — for now.

“It’s easy to be in my position when gas prices are low. Our utilities aren’t stirred up, our customers are satisfied, the legislature is calm,” Thomas said. However, he added, “if the last three weeks are any indication of the next three years, administrations will change, federal policies will zig-zag … and the consumer needs to be protected throughout.”

MISO South and the Climate

Thomas said the electric industry’s long 30- to 40-year capital cycles create a high risk of stranded costs. He said with Arkansas, Texas and Louisiana’s low-cost energy when compared to California’s prices, MISO South can wait to implement more expensive and experimental carbon-reduction measures.

“We can’t stick our heads in the sand. But we can wait and see. We don’t have to take the risk that the high-cost states take,” Thomas said. “I know that carbon is a long-term problem, and I question if we have a solution. I know that some states have a political appetite to reduce carbon, but I also know that Arkansas, and I suspect Louisiana, aren’t those places,” Thomas said. He added that even if Arkansas eliminated carbon emissions by 2018, it would not be enough to impact global temperature rise.

Other panelists maintain that MISO South is ripe for increased renewable penetration and more energy efficiency programs.

Siobhan Foley, the City of New Orleans’ FUSE Executive Fellow for Climate Action, said solar has come down dramatically in price and now is viable in terms of cost. She said MISO South can reduce carbon through several smaller solar projects. “It really is about smaller wedges and more of them, sharing and distributing in different ways,” Foley said.

Dunham said that the Clean Power Plan’s uncertain future should not stop the adoption of renewables and storage. “I don’t think it’s ever ‘pencils down.’ We need to be always modifying and adapting,” she said.

Low Rates, High Bills

Some officials think MISO South could do with more energy efficiency programs to reduce the region’s high energy consumption.

“We have low rates, but we have really high bills,” said Logan Atkinson Burke, CEO of consumer advocate Alliance for Affordable Energy. She said Entergy New Orleans customers have among the highest energy use rates in the country. Mississippi, Alabama and Louisiana rank among the worst in the country in available energy efficiency programs.

Thomas said energy efficiency programs can help defer “big decisions” and capital expenses by keeping demand low.

Jeff Baudier, chief development officer of Louisiana-based Cleco Holdings, said the company’s addition of a heat recovery steam generator to the Cabot coal plant in the St. Mary Parish in Franklin, La., will add 50 MW of capacity with no additional emissions. The project is expected to be in service in the first quarter of 2018.

Ted Romaine, director of origination for renewable generation developer Invenergy, said commercial and industrial customers, especially Internet companies like Google, Amazon and Facebook, are increasingly making off-site renewable energy deals such as virtual power purchase agreements.

“This is a market that’s really picked up steam in the last few years. … We see more buyers come into the market, and interest continues to grow. This isn’t a Silicon Valley-exclusive market,” Romaine said.

ERCOT, SPP and PJM lead in corporate off-site renewable deals with a 77% share of the U.S. and Mexico, Romaine said. He said although MISO doesn’t have any such contracts, it will in the future. He expects more than 20 first-time corporate renewable buyers nationwide in 2017. He added that vertically integrated MISO South utilities might bend to pressure from big energy users such as Google to create green tariffs — renewable energy purchasing programs — even if they have no legal obligation to do so. He said there is “strong potential” for solar-based virtual power purchase agreements in MISO South.

“If we don’t start recognizing that multinational corporations have sustainability agendas, they’re going to go somewhere else,” Baudier said.

February 21, 2017

PPL’s Earnings Soar, Exceeding Expectations

PPL’s earnings from ongoing operations rose 11% to $1.67 billion last year, boosted by a 39% jump in the fourth quarter as the company benefited from a strong performance by its utilities and gains on currency hedges.

Reported earnings more than doubled to $1.9 billion ($2.79/share) for the year, compared with $682 million ($1.01/share) in 2015, which included a $921 million loss from discontinued operations, primarily the spinoff of its competitive supply business to Talen Energy.

PPL earnings — PPL workers raising an osprey nesting platform at Owl Creek Reservoir near Tamaqua, Pa. | *PPL*

The company’s results exceeded the high end of its 2016 reported earnings forecast range of $2.55 to $2.70/share.

Reported fourth-quarter earnings were $465 million ($0.68/share), compared with $399 million ($0.59/share) in 2015. Eliminating special items, fourth-quarter earnings from ongoing operations were $409 million ($0.60/share) versus $294 million ($0.43/share) a year earlier.

CEO William Spence said the company made $3 billion in infrastructure investments last year and plans an additional $16 billion over the next five. “We are confident in our ability to deliver our projected 5 to 6% compound annual earnings growth range from 2017 to 2020 even if the exchange rate declines well below current levels,” Spence said in a statement.

The company announced that it is increasing its quarterly common stock dividend from 38 cents/share to 39.5 cents/share, payable to shareowners of record as of March 10. The increase is PPL’s 15th in 16 years.

– Rory D. Sweeney

February 21, 2017

Duke Earnings Dip on Sale of International Operations

Duke Energy saw its 2016 earnings drop more than 20% to $2.15 billion ($3.11/share) from $2.82 billion ($4.05/share) in 2015 largely because of a loss on the sales of its international energy operations.

For the fourth quarter, Duke reported a loss of $227 million ($0.33/share), compared to a profit of $477 million ($0.69/share) for the same period in 2015.

The company’s adjusted earnings were $3.24 billion ($4.69/share) for the year up from $3.15 billion ($4.54/share) a year earlier. Adjusted earnings exclude merger costs, severance charges, asset impairments, a 2015 charge associated with the Edwardsport IGCC regulatory settlement, and the loss on the sale of its hydroelectric and natural gas generation plants, transmission and natural gas processing facilities in Central and South America.

The company said results were bolstered by favorable weather, cost controls and the early close of its acquisition of Piedmont Natural Gas.

duke energy earnings international operations — Nashville CNG Fueling Station | *Piedmont Natural Gas*

“2016 was a transformational year for Duke Energy as we acquired Piedmont Natural Gas and exited our international business,” CEO Lynn Good said.

Duke has realigned its reporting segments into three major categories: Electric Utilities and Infrastructure; Gas Utilities and Infrastructure; and Commercial Renewables.

The Electric Utilities segment earned $483 million in the fourth quarter, down from $569 million in the last quarter of 2015. The company blamed higher operations and maintenance expenses, tax rates, interest expenses and depreciation and amortization costs.

The Commercial Renewables unit earned $10 million in the fourth quarter, down from $17 million a year earlier, because of lower investment tax credits resulting from lower solar investments, partially offset by higher production tax credits from additional wind facilities placed in service.

– Rory D. Sweeney