Stakeholders React to MISO Proposed Auction Design

By Amanda Durish Cook

A MISO proposal to hold a separate forward capacity procurement auction for deregulated areas is meeting with skepticism from some RTO members.

Dynegy's-Baldwin-Energy-Complex-in-IL MISO auction — Dynegy’s Baldwin Energy Complex in southern Illinois. Some generators in retail choice regions of MISO such as southern Illinois have exported their power to PJM, where capacity prices have been higher *Source: MISO*

MISO stakeholders raised their concerns at a March 28 Competitive Retail Solution Task Team discussion focusing on the Forward Local Requirements Auction (FLRA) proposed last month. (See MISO Proposes Adding Forward Auction for Retail Choice Zones.) The task team plans to turn the proposal over to the Resource Adequacy Subcommittee (RASC) this month.

Zone 4 an ‘Island’

Much attention was focused on the fully deregulated Zone 4 in southern Illinois — MISO’s only fully deregulated zone.

Aaron Patterson with The NorthBridge Group pointed out that Zone 4’s local clearing requirement of about 5 GW during the 2016/17 planning year would leave more than half the zone’s supply unused in a forward auction.

“What I’m wrestling with is — we have 10 to 11 GW of supply [in Zone 4] and sort of structurally only 5 GW” under the local clearing requirement, Patterson said. “The supply that doesn’t clear is getting a price signal that it’s not needed.”

Jeff Bladen, MISO executive director of market design, responded that leftover supply would be applied to the planning reserve margin requirement.

“A lack of a forward signal is not lack of a need,” Bladen said. “It is a lack of need for it to be a local resource.”

Others said the FLRA would make Zone 4 even more of an “island.”

Bladen said MISO would not introduce a new import constraint for the auction. Instead, the RTO plans to examine system-wide import capability. And while the grid operator does not intend to impose a minimum offer price rule, it would update its Tariff with a bright line reliability test for forward procurement.

Multiple stakeholders asked what data and forecasting methods MISO would use to calculate local clearing requirements three years into the future, questions that Bladen deferred to the April RASC. “We’ll need to discuss that with stakeholders in a little more detail,” he said.

Bladen also said the RASC could best address the concerns of stakeholders who think the FLRA will produce extremely low prices and want MISO to run simulations and present the results. Price formation is “something we’ve given extraordinary amounts of attention to,” he said.

“This might work for a partially deregulated zone, but this won’t work for a zone that’s been fully deregulated,” said Exelon’s Marka Shaw, who asked for another CRSTT meeting specifically focused on affected Illinois customers. “I don’t like the idea of this rolling into the RASC and this getting shortchanged given the tight timeline.”

David Sapper of Customized Energy Solutions wanted to know how generators could use the five-year FLRA opt-in to participate, but Bladen clarified that the opt-in applies only to load-serving entities, not generators.

In response to a question about how MISO’s new two-season construct would align with forward procurement, Bladen said seasonal constructs — currently scheduled to be enacted in the 2018/19 planning year — would apply to the FLRA as well.

“These filings are effectively being looked at in parallel,” Bladen said.

Jim Dauphinais, counsel for Illinois Industrial Energy Consumers, asked how the downward sloping demand curve would apply to market supply. Bladen stressed the curve is only applicable to the demand — not the supply — side of the auction.

“It is very feasible to have different purchase price sensitivities for different consumers, if you will, in the same market,” Bladen said.

March 31, 2016May 27, 2025

UPDATED: FERC Action Awaited Following PUCO OK on PPAs

By Ted Caddell and Rich Heidorn Jr.

Having won Ohio regulators’ approval of their controversial power purchase agreements, American Electric Power and FirstEnergy now are hoping the PPAs will pass muster with FERC.

The Public Utilities Commission of Ohio on Thursday unanimously approved modified versions of two PPAs, which the companies said are crucial to keeping some of their underperforming plants running in the state (14-1297-EL-SSO and 14-1693-EL-RDR).

On Monday, AEP and FirstEnergy formally notified FERC of the approvals.

Competing merchant generators have asked FERC to revoke the waivers it granted AEP and FirstEnergy regarding affiliate power sales to ensure a Section 205 review of the above-market deals (EL16-33, EL16-34). (See PJM Joins EPSA’s Call for FERC Review of Ohio PPAs.)

In addition, 11 generating companies, including Calpine, Dynegy and NRG Energy, asked FERC on March 21 to expand PJM’s minimum offer price rule to prevent state subsidized plants from making below-cost offers that would suppress capacity prices (EL16-49). (See Generators to FERC: Expand MOPR for Subsidized FE, AEP Plants.)

The companies have asked FERC to rule before PJM’s next Base Residual Auction, which begins May 11.

Since PUCO’s ruling, seven organizations, including the Pennsylvania Public Utility Commission, the PJM Power Providers Group and CPV Power Holdings, have filed to intervene in the cases. On Monday, FERC denied AEP and FirstEnergy’s request for more time to respond to the MOPR filing, leaving the April 11 comment deadline intact.

Sale Likely?

Guggenheim Securities analyst Shahriar Pourreza said in a research note Thursday that he expects AEP to sell the remaining 5 GW of generation not covered by the PPAs, “a path for the company to move toward a fully regulated business profile.”

“We estimate the sale could generate $1.9 [billion to] $2.3 billion, which we expect to be redeployed into transmission to offset lost earnings,” Pourreza wrote.

For FirstEnergy, Pourreza said, the PPAs will strengthen its balance sheet without requiring the issuance of additional equity. “We see FE as a turnaround story with the PPAs approved,” he wrote.

The analyst said FERC is unlikely to change PJM’s MOPR “to apply specifically to AEP and FE’s plants.” The MOPR plaintiffs have asked FERC to order PJM to develop a long-term solution by Nov. 1.

PUCO’s approval appears to have had little effect on Wall Street. AEP has risen just 53 cents (0.8%) from Thursday’s open, closing Monday night at $66.58. FirstEnergy has dropped 37 cents (1%), closing at $35.68.

‘Rate Stability’

In approving the eight-year PPAs, Ohio regulators said they were striving for “rate stability” by building in safeguards intended to protect consumers, modifying the plans to limit bill increases. The commission also added provisions meant to “encourage” grid modernization and retail competition.

“The commission’s order strikes an appropriate balance between consumers’ interests in cost-effective electric service and diverse stakeholder interests,” Chairman Andre Porter said. “Today’s opinion and order affirms Ohio’s commitment to encourage a modernized grid and retail competition.”

Although the PPAs guarantee the generators receive revenue streams above current market prices, AEP and FirstEnergy contend the deals will save customers money if natural gas prices increase.

“The Public Utilities Commission of Ohio recognized the significant benefits of this plan for Ohio consumers. This plan will ensure more stable electricity prices in Ohio and promote the development of new, renewable generation to support the state’s economy,” AEP CEO Nick Akins said in a statement.

“Today’s decision will help protect our customers against rising electric prices and volatility in the years ahead, while helping to preserve vital baseload power plants that serve Ohio customers and provide thousands of family-sustaining jobs in the state,” FirstEnergy CEO Charles E. Jones said in a statement.

Opponents Denounce PUCO Ruling

Opponents of the plan were quick to respond to the decision.

“Today the PUCO failed more than 100,000 Ohioans who opposed the multi-billion dollar FirstEnergy and American Electric Power bailouts,” said Rachael Belz, executive director of Ohio Citizen Action. “Ohioans don’t want utilities raiding their pockets to prop up 18th-century technology in a 21st-century world.”

“The Alliance for Energy Choice is dismayed that the PUCO did not reject outright FirstEnergy’s and AEP’s demands to force consumers to pay unnecessary, additional electric charges of at least $6 billion over eight years,” the competitive energy supplier group said in a prepared statement.

“Anything short of rejection damages markets and competition,” tweeted former Pennsylvania PUC Commissioner John Hanger, now a private energy industry attorney. “Good for crony capitalism.”

Rate Freeze

The two utilities sought the long-term PPAs to provide guaranteed income for plants facing competition from cheaper gas-burning plants. Both companies had earlier reached settlements with PUCO’s staff and others, leading to Thursday’s rulings by the commission.

AEP’s plan calls for guaranteed income for the company’s 2,671-MW ownership share of nine plants, as well as a 423-MW contractual share of Ohio Valley Electric’s generating fleet, until May 2024.

FirstEnergy’s agreement provides similar guarantees for its 908-MW Davis-Besse Nuclear Power Station, the 2.2-GW W.H. Sammis coal-fired plant and the company’s 105-MW share of Ohio Valley Electric’s generation.

In both cases, ratepayers would make the generating units whole if capacity and energy sales in the competitive market were not sufficiently profitable. While the companies testified that the market would eventually prove profitable for their plants, the Ohio Consumers’ Counsel said the plans left consumers open to excess costs that could top $8 billion over the life of the deals.

“FirstEnergy’s Ohio utilities expect to file new rates with the PUCO by May 2, following the completion of a competitive auction process to buy electric generation supply for their non-shopping customers,” FirstEnergy said in a press release. “FirstEnergy expects that the vast majority of its Ohio utility customers will see lower total bills after these auctions.”

But Todd Snitchler, former PUCO chairman and now with The Alliance for Energy Choice, said FirstEnergy’s claim of static or lower bills is disingenuous.

“It’s not out of the goodness of their hearts,” he scoffed. “It’s because that’s what the commission said.”

PUCO’s order freezes FirstEnergy’s base distribution rates during the PPA and ensures that average customer bills will not increase for the first two years.

PUCO’s order on AEP limits rate increases to 5% during the first two years of the PPA. The company also promised $100 million in rate credits to reduce increases during the final four years.

Both companies originally requested 15-year PPAs, but they scaled back those requests in the face of opposition from consumer advocates and other merchant generators. The companies worked behind the scenes to construct settlements with some of the opposition, adding environmental incentives and consumer protections in exchange for their approval.

AEP won over the Sierra Club with a promise to double the state’s wind generation and nearly quintuple its solar capacity — translating into 900 MW of new renewable energy.

Criticism from All Sides

Critics see the agreements as an attempt at re-regulation in a deregulated Ohio electricity market, coming after the generating companies were already provided stranded cost compensation to give up their monopolies. FirstEnergy, for instance, was compensated for $6.9 billion in stranded costs in 1999.

But the companies say that times have changed and that the PPAs are crucial for keeping the plants operating and Ohioans employed.

The companies’ proposals were immediately met with protests from environmentalists, ratepayer advocates and rival generators in PJM, with Dynegy and Talen Energy threatening litigation to block the agreements. (See Merchant Generators Lead Opposition to FirstEnergy-Ohio Settlement.)

Even Exelon, which is seeking a similar deal for its own nuclear stations in Illinois, came out against FirstEnergy, and upped the ante by offering its own offer to Ohio. It called on PUCO to reject the FirstEnergy plan as “grossly lopsided” and offered to supply the 3,000 MW covered in the PPA with its own generation, at a proposed $2 billion savings to Ohio consumers.

March 29, 2016

Maryland PSC Member Scrutinized over Contacts with Governor

By Rich Heidorn Jr.

A newly appointed member of the Maryland Public Service Commission insisted Monday there was nothing improper about his emails with Gov. Larry Hogan’s administration, communications that critics say raise questions about his independence.

Richard Source: Maryland PSC — Richard *Source: Maryland PSC*

Hogan named Michael T. Richard, his former deputy chief of staff, to the PSC in a recess appointment in late January. Richard, a former director of the Maryland Energy Administration (MEA), is seeking Senate confirmation to a full term.

Shortly after his appointment, according to emails obtained through a public records request, Richard shared non-public information with Hogan’s administration regarding an offshore wind application and discussed strategy with the governor’s office on energy efficiency and community solar programs.

The emails were obtained by Public Citizen and the Energy and Policy Institute, which said the records showed Richard had engaged in improper ex parte communications and should not be confirmed.

At a hearing of the Senate Executive Nominations Committee on Monday night, Chairman Jamie Raskin expressed concern that Richard was “coordinating strategy” with Hogan’s administration.

Richard said his communications were merely an effort to brief members of the governor’s office on energy issues they were taking over from the “portfolio” he held before his PSC appointment. Richard did offer a mea culpa. “I am sorry that I created a doubt about my independence,” he said.

After an hour of questioning, Raskin adjourned without calling for a vote on the nominee, saying he would schedule another meeting next week.

Offshore Wind Application

On Jan. 29, Richard sent Hogan’s director of policy, Adam Dubitsky, an email regarding an application for offshore wind renewable energy credits (OREC). “This is NOT yet public information, but I wanted you to be aware,” he wrote.

Dubitsky responded by asking whether the filing preempts “our taking action to protect ratepayers from a potentially $1.7B rate increase as indicated in OREC’s fiscal note?”

Richard had been informed of the application in an email from an advisor to PSC Chair Kevin Hughes. The email noted that the application is supposed to be confidential during a 30-day internal administrative review and a 180-day period in which other developers can apply for the credits.

“It was designed this way because the application window is supposed to be equivalent to a closed bid process,” the advisor wrote.

At the hearing Monday, however, Richard said the information was not confidential and that PSC General Counsel Robert Irwin had approved his communication. “It was discoverable. It was available,” he said.

EmPower Maryland

A second communication that concerned some committee members came on Feb. 11, when Richard sent Mary Beth Tung, deputy secretary of the state Department of the Environment, an email discussing the administration’s position in upcoming hearings on the EmPower Maryland energy efficiency program.

The governor’s office is a party to the EmPower hearings through the MEA. The agency intervened in PSC dockets involving the program, noting that the state’s utilities are required to consult with the agency regarding the “design and adequacy” of their plans to achieve the electricity savings and demand reduction targets set by the 2008 legislation creating the program. The act requires that the PSC consider MEA’s comments on the utilities plans.

Richard wrote Tung regarding hearings scheduled for May to review the utilities’ performance in the second half of 2015.

“This will begin our first potential opportunity to begin putting our imprint on this significant energy tax policy,” Richard wrote. “This will be a significant and very public PSC action, so early governor’s office direction, planning and executive [branch] coordination on related policies will be important.”

Richard also offered Tung “policy advice” on the state community solar program, suggesting a shift from “grant-based” to “financing-based” energy efficiency and renewable energy incentive programs.

Business as Usual?

Like Hogan, Richard is a Republican. The Senate is controlled by Democrats.

Republicans on the committee said Richard’s communications were similar to those Hughes and then-Commissioner Kelly Speakes-Backman had in 2012 with the administration of former Gov. Martin O’Malley, a Democrat. Hughes was O’Malley’s deputy legislative officer before joining the commission.

“We’re beating a dead horse,” said Republican Sen. George Edwards.

But Democratic Sen. James Brochin told Richard the communications created “a reasonable question of who’s team you’re on.”

“I can assure you that I understand very well what it means to be a Public Service Commissioner and that it demands independence,” Richard responded.

March 28, 2016

MISO Markets Committee of the Board of Directors Briefs

NEW ORLEANS — MISO energy prices declined this winter along with loads and natural gas costs in the face of above-normal temperatures, RTO staff said during a March 22 Board of Directors meeting.

Real-time prices in the MISO footprint averaged $21.80/MWh, down 13% from the prior quarter and 29% from the same period a year ago. Average system-wide load fell 2.7% compared with last winter, with seasonal load peaking at 98.2 GW on Jan. 19, well below January 2014’s all-time winter peak of 109.3 GW.

“Part of the ease in making our way through the winter was the relatively mild temperature conditions,” said Jeff Bladen, MISO’s executive director of market design.

Bladen said the higher temperatures and historically low gas prices also reduced revenue sufficiency guarantee payments to “some of the lowest market uplift charges since 2012.” Uplift charges averaged $0.09/MWh, down from $0.23/MWh last winter and $0.46/MWh in 2014.

Natural gas costs should stay low in the near term, said Michael Wander, of MISO Independent Market Monitor Potomac Economics. Prices at both the Chicago City Gate and Henry Hub ended February under $2/MMBtu.

Other winter highlights:

MISO set an all-time wind output record of 13.1 GW on Feb. 19, surpassing the previous peak of 12.7 GW set a month earlier. For an hour, more than one-fifth of MISO’s power came from wind resources.
Coal generated 47.7% of electric production, down 25% since 2014. Most retired coal generation has been replaced by gas.

MISO board member Michael Curran said he wanted a review of MISO’s metrics, as so many “boil down to a dollar amount.” He worried that low gas prices could be “masking” uneconomic activity.

MISO Prepped for Summer Demand

MISO Markets Committee of the BoD — At the meeting *© RTO Insider*

MISO officials are concerned about tightening reserve margins despite a preliminary assessment showing that the RTO is comfortably positioned to meet demand this summer.

MISO is projecting an 18.2% reserve margin this summer, exceeding the 15.2% requirement and a slight increase from last year’s 18% margin.

Available supply, however, dropped to 149 GW from 150.3 GW.

MISO CEO John Bear said declining demand contributed to this year’s slightly higher reserve margin. He added that retirements driven by EPA’s Mercury and Air Toxics Standards were on par with the RTO’s predictions.

A final summer analysis will be presented at MISO’s Summer Readiness Workshop in May.

– Amanda Durish Cook

March 28, 2016

ISO-NE Forecast for 2024 Boosts Solar 30%

By William Opalka

WESTBOROUGH, Mass. — Load growth remains low in New England while solar power generation is expected to grow even faster than previously predicted, according to a draft study of the region’s power trends.

ISO-NE staff presented the draft of its annual Capacity, Energy, Loads and Transmission forecast at the Planning Advisory Committee meeting on Tuesday.

“The draft forecast [for solar] is 30% higher than last year’s final forecast,” said Jon Black, ISO-NE’s manager of load forecasting. He cited increased state support for the resource along with Congress’ unexpected extension of the investment tax credit last year.

The 2015 forecast predicted 1,620 MW of solar PV at the end of this year, rising through 2024 to 2,449 MW. In the preliminary 2016 draft, the forecast for the end of this year is essentially flat but rises to 3,092 MW at the end of 2024, an increase of 26%.

The new forecast extends a year further, through 2025, when 3,214 MW of solar is predicted, 31% above the final year in last year’s forecast.

Black said the forecast has been refined to include more comprehensive data from distributed asset owners, as well as policy changes. For example, Connecticut’s renewable energy credit program is expected to encourage the development of 300 MW of solar and Vermont’s renewable portfolio standard has a carve-out for 25 MW of PV, Black said.

This year’s forecast, which includes behind-the-meter PV for the first time, also reduces load forecasts and net energy use.

The new study forecasts a 50/50 summer peak of 28,966 MW for 2016, a slight reduction from last year’s forecast for the year. It forecasts a 2024 summer peak of 31,493 MW, a 2% reduction from last year’s study and a 1.1% compound annual growth rate over 2016.

(The 50/50 estimate represents the mean value in a normal probability distribution, meaning there is a 50% chance the load will be higher than the forecast and an equal chance of being lower.)

Net of passive demand response and behind-the-meter solar, the 50/50 peak for 2024 is forecast at 27,060 MW, down almost 3% from last year’s study and a compound annual growth rate of 0.1%.

Energy efficiency, as reported by state utility commissions, is expected to remain stable. Minor increases of its use in some areas were offset by decreases in other parts of the region, according to ISO-NE.

The final CELT report for 2016 will be published on May 1.

March 28, 2016

IPL, MidAmerican: MISO Misallocating Upgrade Costs in GIA

By Michael Brooks

Two Midwest load-serving entities are challenging a generator interconnection agreement filed by MISO that they say would result in one company paying too much for $5.7 million in transmission upgrades because the RTO is misapplying a provision in its Tariff.

Interstate Power and Light (IPL), which is building the 650-MW Marshalltown Generating Station in Iowa, joined MidAmerican Energy last week in protesting the GIA that MISO filed for the combined cycle plant. The companies told FERC that MidAmerican would end up paying the majority of costs for the transmission upgrades in the agreement, while IPL would only pay the installed cost of capital of the shared network upgrades and not its full portion of the monthly facilities charges contained in MidAmerican’s facility service agreements with transmission owner ITC Midwest (EL16-1083).

The upgrades in the Marshalltown agreement were previously included in GIAs filed for two MidAmerican wind farms. ITC had elected to fund the upgrades itself and agreed with MidAmerican that if they became shared upgrades, ITC would determine each interconnection customer’s cost responsibility for them.

Instead, the companies said, MISO believes that Attachment FF of its Tariff requires IPL to make a one-time cost of capital payment to MidAmerican. The companies argued that Attachment FF only applies to when an interconnection customer, not the TO, is funding the upgrades.

“The MISO Tariff language is silent regarding the instant situation, where ITC Midwest as the transmission owner elected to self-fund the network upgrades,” IPL and MidAmerican said. “MISO has refused to recognize the difference between a situation where the first interconnection customer funded the shared network upgrades and the situation here where the transmission owner self-funded” them.

“The distinction is important because … MISO’s requirement that the second interconnection customer simply make a one-time payment for the cost of the shared network upgrades to the first interconnection customer results in unequal and inequitable treatment of the two interconnection customers for the same upgrades,” the companies said.

The companies said IPL should pay 32% of the costs for a $2 million transformer upgrade and 51.4% for a $3.72 million line rebuild. They asked FERC to order MISO to revise the Marshalltown GIA to reflect these cost allocations.

“Parties should be paying their fair share,” Cortlandt C. Choate Jr., senior attorney for IPL parent company Alliant Energy, said in an interview.

They also asked that MISO be required to revise its Tariff to clarify interconnection customers’ cost responsibilities for upgrades funded by the TO.

March 28, 2016

SPP Briefs: New Trustee Chairman, Wind Record

The SPP Regional Entity trustees elected Dave Christiano as their new chairman during a special board meeting last week, replacing the resigned John Meyer.

Meyer announced his resignation the week before, during the SPP RE’s spring workshop in Little Rock, Ark. Because there are only three RE trustees, Christiano and Gerry Burrows moved quickly to “expedite” Meyer’s replacement, they said in an email to members.

During the March 22 call, Burrows nominated Christiano for chairman, then joined him in a 2-0 vote.

Christiano told members the RE doesn’t expect to fill Meyer’s vacancy until July at the earliest. The Russell Reynolds Associates executive search firm has been contracted to help.

“Gerry and I decided we couldn’t go four months without a chairman,” Christiano said.

Alluding to Meyer’s nine years as chair of the RE trustees, Christiano told members they will see little change.

“I will pledge, and I’m sure Gerry will pledge too, that we’re not going to change any directions,” said Christiano, who has been a trustee alongside Meyer since the RE’s inception in 2007.

The RE trustees operate separately from SPP’s Board of Directors, providing oversight of RE decisions on regional standards, compliance enforcement and penalties. Only the trustees and certain RE staff members have the authority to make compliance and enforcement decisions.

An electrical engineering graduate from Clarkson College in New York, Christiano began his industry career with Consolidated Edison in New York City in 1971 and took part in an analysis of the 1977 blackout. He spent 28 years with City Utilities of Springfield in Missouri before becoming an RE trustee. Christiano has served on numerous SPP and NERC boards and committees.

Meyer resigned from the RE because of a conflict with the bylaws of Western Interconnection reliability coordinator Peak Reliability, where he is vice chair. The Western Area Power Administration, which joined SPP last year, is partly in the Western Interconnection, requiring SPP to register with the Western Electricity Coordinating Council as a planning authority and transmission-service provider.

To ensure independence, Peak’s bylaws prohibit its board members from serving on other boards in the WECC.

Christiano said Meyer chose to stay with Peak, where he only has two years of service. “He felt he had a lot more to offer there,” Christiano told RTO Insider.

SPP Sets New Wind Peak Record

The RTO set a new wind peak at 6 a.m. March 21, relying on about 87% of the wind capacity in its footprint to generate 10,783 MW. The previous record of 10,280 MW was set Feb. 17.

The RTO has 12,397 MW of installed and available wind capacity in its footprint, with another 33,819 MW of capacity in various stages of development.

Brown Honored with International Award

SPP CEO Nick Brown will be honored by the University of Arkansas at Little Rock’s (UALR) College of Business for his recent Business Achievement Award from the Beta Gamma Sigma.

The society annually recognizes achievement in business and ethical leadership. The UALR College of Business nominated Brown for the award and will hold an invitation-only reception in his honor in Little Rock. Brown said he was “humbled” by the award and thanked SPPs employees, “who are the foundation of our corporate success.”

Beta Gamma Sigma is an international honor society serving business programs accredited by the Association to Advance Collegiate Schools of Business.

– Tom Kleckner

March 28, 2016

Texas Commission Approves Oncor REIT Structure

By Tom Kleckner

The Public Utility Commission of Texas on Thursday approved Hunt Consolidated’s proposed acquisition of Oncor, the state’s largest transmission and distribution utility and the most valuable remaining piece of troubled Energy Future Holdings (Docket # 45188).

The PUC’s March 24 order would split Oncor into two companies, one of which would operate as a real estate investment trust (REIT) under the state Public Utility Regulatory Act. The commission gave the parties a Nov. 30 deadline to complete the transaction.

As a REIT, Oncor AssetCo would own the transmission and distribution facilities, while Oncor Electric Delivery Co. (OEDC) would rent the facilities to provide electric delivery services. OEDC would house most of Oncor’s management and employees and the remainder of the assets.

Oncor AssetCo would avoid paying federal income taxes as part of the transaction if it derives at least 75% of the its gross income from property rents. Hunt has taken a similar tack with its Sharyland Utilities, which provides services to 53,000 customers, primarily in West Texas and the Rio Grande Valley.

The commission agreed with the proposal, saying “payments received from OEDC, as the lessee and operator of the assets, will constitute rents from real property under the meaning of the Internal Revenue Code.”

The plan has drawn criticism from a disparate group that includes former Texas Gov. Rick Perry, a coalition of cities served by Oncor, the AARP and PUC staff. Much of the criticism centers on the REIT conversion and whether it would provide a windfall for the company at the expense of ratepayers.

Two Texas state senators, Kelly Hancock and Royce West, called into the meeting to add their objections, saying the REIT should not be able to collect taxes in its rate structure if it doesn’t intend to pay them. The tax benefit is worth about $250 million, and the Hunt group had been looking for a guarantee it could take full advantage of the benefit.

“I am not against the acquisition,” West said from China through heavy static. “I understand a REIT has to distribute [funds to shareholders]. The question in my mind is should [the REIT] be allowed to use dollars earmarked for taxes … to shareholders.”

The commissioners discussed whether to add a separate accounting treatment for the taxes, with one proposal to immediately credit ratepayers $100 million. However, Chair Donna Nelson stepped in to say adding too many restrictions to the deal might make it unmanageable.

“It sounds like you’re punishing them now,” she said. “If we’re going to deny it, why don’t we just deny it? If you’re going to keep attaching these things to it, it’s going to die anyway. All we’re doing is wasting time.”

In the end, the PUC’s order said the tax-savings issue will be “addressed by commission staff and intervenors in the next rate proceeding of Oncor AssetCo and OEDC.”

While siding with Anderson and Commissioner Brandy Marquez on the order, Nelson dissented from the majority’s decision “regarding the timing and treatment of the income tax expense.” Nelson’s position throughout the Hunt-Oncor process has been to oppose customer refunds.

Geoffrey Gay, legal counsel for about 150 cities served by Oncor, said he expects his clients to file rate cases by the end of April, bringing about the rate case a year earlier than the current schedule.

Oncor expects the proposed transaction, “if funded by investors,” to close on or before year-end.

“While there are a number of hurdles left to clear, we look forward to working with the parties involved to reach a conclusion in this change-in-control proceeding,” said Geoff Bailey, Oncor’s director of communications, in a statement.

Hunt did not respond to a request for comment on the order. However, a Hunt representative issued a statement after the PUC meeting saying it would “continue to work with all parties in the EFH bankruptcy proceeding over the coming months to reach a successful closure of the transaction consistent with the order approved today.” The company is a Dallas-based oil and gas, real estate and power company, owned by the wealthy Hunt family.

Oncor delivers power to more than 3 million homes and businesses over about 119,000 miles of transmission and distribution lines in North and West Texas. Determining its fate is central to resolving EFH’s Chapter 11 bankruptcy reorganization, which was filed in April 2014.

EFH was the result of a $48 billion leveraged buyout of TXU Corp. in 2007, when the utility faced strong public opposition to its plan to build 11 coal plants in Texas. Private investors led by KKR and TPG Capital bet on rising energy prices but found themselves instead saddled with $42 billion in debt following the 2008 global financial crisis and plunging gas prices due to the fracking boom.

A U.S. bankruptcy judge in December approved EFH’s plan to split into two separate companies — Oncor and the unregulated power generation and retail arms, Luminant and TXU Energy, respectively — wiping out the LBO sponsors’ equity. The Luminant-TXU Energy businesses would go to senior lenders owed about $24 billion.

The decision assumes creditors would not incur a multibillion-dollar tax bill. The IRS is reviewing whether the transfer of assets to creditors represents a taxable sale.

March 28, 2016

Federal Briefs

The Nuclear Regulatory Commission sent a letter to the Tennessee Valley Authority outlining allegations of a “chilling effect” at its Watts Bar Nuclear Plant, where control room operators have expressed concerns about raising safety issues. NRC earlier this month said it was looking into the issue, but sending the letter formalizes its intent to investigate.

“While we believe TVA management understands these issues, the chilling effect letter documents the NRC concerns and our expectations that TVA fully address them and ensure that all plant employees feel free to raise any safety problems,” NRC Region II Administrator Cathy Haney said in a statement. The letter gives TVA 30 days to respond.

“I think it’s important to note that neither NRC nor TVA have found evidence of any actual retaliation, but both have found that just the perception that retaliation has happened can have the same effect,” TVA spokesman Jim Hopson said. “This is just as serious to us as any type of actual retaliation.”

More: Knoxville News Sentinel

Protesters Arrested at FERC ‘Pancakes not Pipelines’ Event

A documentary filmmaker and six others were arrested after they blocked the garage entrance of FERC headquarters to protest a pipeline project that would deliver Marcellus Shale natural gas to Northeastern markets.

Josh Fox, the maker of the anti-drilling film “Gasland,” was part of the protest, in which FERC commissioners were invited to sample pancakes topped with maple syrup produced from trees that were cleared for the Constitution Pipeline in Pennsylvania.

“It is clear to me that FERC has to be the most destructive agency in the United States right now,” said protester and syrup producer Megan Holleran. “They are faceless, nameless, unelected and ignore citizen input.”

More: Beyond Extreme Energy

Circuit Court Gives Sierra Club Chance to Obtain Entergy Records

A federal appeals court will allow the Sierra Club to make its case in federal court to obtain records that Entergy supplied to EPA about two Arkansas coal plants and a third plant in Louisiana.

The 5th U.S. Circuit Court of Appeals ruled in favor of the Sierra Club’s efforts to obtain the documents, which concern the 1,700-MW Independence and White Bluff coal plants in Arkansas, which operate without major emission-reducing scrubbers. The third plant is a 30-year-old coal plant near Lake Charles, La.

Glen Hooks, director of the Sierra Club of Arkansas, said his organization uses such emissions documents to monitor whether Clean Air Act violations are occurring. “I don’t think we’re going to have a lot of trouble getting the documents now,” he said.

More: Arkansas Democrat-Gazette

Tennessee Gas Seeks Pipeline Challenge Dismissal

Tennessee Gas Pipeline has asked FERC to dismiss an attempt by an advocacy group to block construction of a 4-mile pipeline spur that cuts through a state-protected forest in western Massachusetts.

The filing opposes a motion by Sandisfield Taxpayers Opposing the Pipeline to prevent immediate tree-cutting. The regulators approved the pipeline project on March 11. The loop is part of a 13-mile, $87 million Connecticut Expansion Project that would provide additional natural gas to three utilities.

The state of Massachusetts is also trying to delay the project, arguing that the state constitution protects the woodlands unless lawmakers grant an exemption, which they have declined to do.

More: The Berkshire Eagle

Energy Companies Bid $156M For Gulf Drilling Leases

Thirty exploration companies bid $156 million to lease 128 oil and natural gas tracts in the central section of the Gulf of Mexico. The area covers nearly 700,000 acres 3 to 230 nautical miles off the coasts of Louisiana, Mississippi and Alabama.

While bidding was heavy for the central section, no bids were received for the Eastern Planning Area, according to the Bureau of Ocean Energy Management.

More: World Oil

Feds Approve Research Wind Facility Offshore Virginia

The Bureau of Ocean Energy Management approved construction of two 6-MW wind turbines to be installed 27 miles off the coast of Virginia as part of a research project to test how the turbines hold up under harsh conditions.

“Data collected under this research lease will help us better understand the wind potential, weather and other conditions off of Virginia’s coast,” BOEM Director Abigail Ross Hopper said.

Dominion Resources issued a request for bids for the research turbines last year. The bids came back between $375 million and $400 million, about twice as high as expected, so Dominion delayed the project’s start date from 2017 to 2018. Dominion has a lease on 113,000 acres for offshore wind development.

More: The Associated Press

EPA Believes it has Mapped Extent of Nuclear Waste

Radiation from nuclear waste that was buried in the 1970s has migrated farther than once thought, according to EPA. The waste in the West Lake Landfill near St. Louis comes from uranium processing of material for the Manhattan Project in the 1940s.

EPA said mapping shows some of the waste products seem to be about 600 feet further than thought, but the agency downplayed the risk. “While the footprint of the [radiologically impacted material] has changed … there’s still no significant health risk posed by the radioactive waste at the West Lake Landfill,” EPA’s Brad Vann said.

EPA is mapping the waste as part of an investigation to determine how to build a barrier to contain the material.

More: St. Louis Post-Dispatch

March 28, 2016

MISO, Stakeholders: Reforms Needed, but ‘Seamless’ Seam an Illusion

By Amanda Durish Cook

MISO stakeholders say they do not expect perfect procedures at the seams with neighboring balancing areas, but they do want the

Robert-Gee-(copyright-RTO-Insider)-web — Gee (with Bloodworth in the background) *© RTO Insider*

RTO to implement reforms to address price deviations, remove obstacles to interregional transmission projects and improve cost allocation among those projects.

Seams issues were the “hot topic” at last week’s Advisory Committee discussion moderated by consultant Robert Gee.

Remove ‘Triple Hurdle’

Several times during last week’s discussion, stakeholders called for removal of the “triple hurdle” faced by interregional projects, which must meet a specific interregional cost-benefit standard as well as comply with the internal standards of the two RTOs involved.

Stakeholders also repeated a request that MISO and SPP lower the minimum 345-kV requirement for interregional projects. In comments filed ahead of the meeting, the Power Marketer sector noted that of the 300 interconnections between the two RTOs, only 12 meet that standard.

The Competitive Transmission Developer sector recommended that MISO create a new interregional project category with a separate, singular benefit calculation. “MISO should conduct outreach to neighboring regions to advocate for adoption of the proposed interregional criteria in both [joint operating agreements] and in MISO’s regional Tariff as a separate project category,” the sector wrote.

It noted that RTO boundaries are “artificially imposed and do not reflect natural barriers to the flow of power throughout the region.”

The Environmental Sector urged MISO and PJM to expedite their initiative on targeted market efficiency projects, formerly called “quick hit” projects. The sector also urged MISO to resolve disagreements with other RTOs over the future scenarios that should be studied.

Letting Go

The Independent Power Producers sector predicted a dire future for MISO’s market if the RTO failed to improve its market-to-market locational energy pricing and settlements.

The IPPs said MISO’s “uncompetitive” capacity construct and abundant wind resources would incentivize energy exports. The sector criticized MISO and its Independent Market Monitor for endorsing concepts rejected by other RTOs, such as the proposed two-season capacity construct. It also criticized MISO’s efforts to discourage generators from exporting power under pseudo-tie arrangements with PJM. (See MISO Delays Seasonal, Locational Capacity Constructs.)

“MISO staff and the MISO IMM seem to have a hard time letting go of some of their proposals that have been evaluated and subsequently rejected by their seams partners and their seams partners’ constituents and stakeholders,” the IPPs said.

The Public Consumer sector declined to recommend specific changes but observed that “transmission from region to region … is a major way that [operational] efficiency across seams can be realized.”

The Transmission Dependent Utilities sector said RTOs should improve data exchange to better coordinate outages and update firm flow entitlement calculations. “As additional flowgates are determined to be significantly impacted by the dispatch in neighboring regions and interregional transactions, the modeling detail of neighboring systems must expand,” the sector wrote.

The TDUs also said RTOs should “seek middle ground rather than holding out for the ideal solution” and consider mediating seams issues when necessary.

Chris Plante, of TDU member Wisconsin Public Service, said the best way to improve the efficiency of the seam is to operate seams dispatch from two RTOs as if they were “under a single commitment and dispatch algorithm.”

The Transmission Owners sector wrote in favor of coordinating congestion hedges with other RTOs, improving real-time coordination with SPP and altering generator pseudo-tie requirements to synch with PJM’s market.

MISO Board: Cooperation is Key

MISO Advisory Committee (Copyright RTO-Insider) — MSIO Advisory Committee *© RTO Insider*

MISO officials and stakeholders generally agreed that better interregional cooperation is essential to addressing seams issues but opinions varied about what to expect from that cooperation — and what outcomes are actually desirable.

NRG Energy’s Tia Elliot pointed out that MISO struggles with project cost allocation even among its own stakeholders. “I think it could be difficult when it comes to interregional planning,” she said.

Calpine Vice President of Market Design Brett Kruse advocated “reasonable expectations with the guy on the other side of the seam,” noting that RTOs will not have identical cost allocations and flowgates. “The other RTOs have already considered [other market operations], determined it’s not for them and moved on,” he said. “It’s best to leave that stuff alone and work on the common areas.”

FERC Action Needed?

MISO Chair Judy Walsh asked, “We know the problem … but are [RTOs] going to be able to work this out, or is it going to take FERC stepping in and ordering this for the common good? Are we kidding ourselves that we will be able to work this out?”

“Your question, I think, is right on target,” Plante replied. “Now we’re dealing with topics and issues that are heavily ingrained in each RTO’s process.” He said mutual respect for different market implementations will be instrumental in “bridging the gap.”

Director Phyllis Currie said RTOs must seek compromise. “What I’m hearing here is not that different from what I’ve heard in California … and I’ve seen it over the years across different industries,” she said. “If everybody keeps coming at the problem the same way they’ve come at the problem time and time again, you don’t get anywhere.”

Megan Wisersky of Madison Gas and Electric said RTOs should not be required to have uniform rules. “I say, vive la différence!”

“My takeaway is we may not ever get to the idea of a seamless seam, but that shouldn’t dissuade us,” said board member Thomas Rainwater.

Plante agreed. “A seamless seam is an oxymoron,” he said.