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December 10, 2025

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Order 1000 Window Draws 106 Proposals, 15 Companies

PJM received 106 proposals to fix about 50 reliability problems in the first Regional Transmission Expansion Plan window for 2014.

Fifteen companies made proposals in the window that closed July 28. PPL was the most ambitious, offering 16 projects totaling almost $3 billion.

It was the first full-scale reliability window opened by PJM under the Federal Energy Regulatory Commission’s Order 1000. Last year, PJM opened a window for a single reliability problem at Artificial Island and one for “market efficiency” proposals intended to reduce congestion.

The PPL projects include the reliability portion of a 725-mile, 500-kV transmission line that would run from Western Pennsylvania into New York and New Jersey, with a spur running south into Maryland, at an estimated cost of $4 billion to $6 billion. PPL said the line would address reliability problems on three 230-kV lines, as well as relieve congestion and move power from planned generators fueled by shale gas in northern Pennsylvania.

Four other companies – Public Service Enterprise Group, Transource Energy, ITC Holdings and LS Power’s Northeast Transmission Development – each proposed projects totaling more than $500 million.

They include 61 greenfield projects (total $5.7 billion) and 45 transmission owner upgrades totaling $522 million. Targeted were 18 transmission zones in 10 states, with Atlantic City Electric (AE), PPL, American Electric Power and American Transmission Systems Inc. each attracting 10 or more proposals.

The proposals are intended to address reliability violations that would occur through 2019. Some problems may be moot by that time, however, according to Paul McGlynn, general manager of system planning. Some violations in the AEP transmission zone, for example, will be eliminated by the planned retirement of AEP’s Tanners Creek generators, scheduled for mid-2015.

“We may not act on [all of] these issues,” McGlynn said. “There’s a lot of failings that won’t actually be problems.”

Conversely, problems identified in the AE zone because of capacity injection rights for the BL England generator may not manifest if the plant retires and is not replaced, planners said.

PJM plans to open a “long-term” window in November for market efficiency and reliability proposals addressing problems over a 15-year horizon.

Artificial Island Update

Meanwhile, McGlynn told the Transmission Expansion Advisory Committee that PJM will be sending Artificial Island project finalists Public Service Electric & Gas, Dominion Resources and Transource letters next week asking them whether they will join finalist LS Power in agreeing to cap the costs of their proposals.

PJM announced July 23 that the Board of Managers had delayed action on planners’ recommendation that it select PSE&G to construct the project. (See PJM Board Puts the Brakes on Artificial Island Selection.)

McGlynn said the finalists would have no more than two weeks to respond and that PJM is still planning to make a selection by year’s end. “The answers we get back from the finalists may lead to more questions,” he said, promising an “open and transparent” process for comparing any revised proposals.

Planners told the TEAC they had discovered an error in the cost allocation they announced in May for certain 500-kV proposals, including PSE&G’s. (See Delaware Unhappy with Artificial Island Cost Allocation.)

The allocation was split 50/50 based on load-ratio share and a distribution factor (DFAX) analysis. Planners said the original DFAX analysis assumed flows for a new 500-kV line between Artificial Island in New Jersey and Red Lion, Del., would be predominantly west to east when they are actually the reverse.

Although revised calculations have not been completed, planners said they expect allocations for transmission zones west of Artificial Island to increase.

The original allocation would have assigned costs to among two dozen transmission zones and merchants with the Jersey Central Power & Light zone responsible for about 27% of the project and the AE zone picking up almost 20%.

The error did not affect the cost allocation for LS Power’s proposed 230-kV line between Artificial Island and Cedar Creek, Del., all of which would be allocated to the Delmarva Power & Light zone, according to PJM.

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PJM Backs Off on Regulation Market Fix

regulationPJM dropped a proposal to consider changes to the regulation market after receiving a cool reaction from stakeholders and the Market Monitor.

PJM officials drafted a proposed problem statement in response to the polar vortex in early January, when regulation market prices spiked to 4.5 times normal levels.

Regulation prices hit $3,296/MWh at the peak of the polar vortex as real-time energy prices rose above $1,800/MWh. Including lost opportunity costs — for example forgone revenue in the energy market — PJM rang up a $65 million bill for regulation in January.

PJM’s Jeff Schmidt said the jump was due in part to the fact that high-performing generators were being used for energy and reserves instead of regulation, leaving the RTO to rely on poorer-performing generators to maintain system frequency at 60 hertz. Regulation market prices can be influenced by poorer-performing resources because the calculation uses a “historic performance score” in the denominator.

The issue was first raised in PJM’s analysis of the system’s performance during January’s cold. PJM said stakeholders should consider whether the division by the performance score is appropriate and whether the minimum participation requirements are high enough. It also said they should consider whether to go short on regulation during system peaks.

But the 4x jump in regulation prices was actually far below the increases in operating reserve (10x) and synchronized reserve (9x) costs for the same period.

“I don’t understand why it’s a problem,” Market Monitor Joe Bowring said during a discussion before the Market Implementation Committee last week. “Poor-performing resources raised the prices. That’s exactly the way it’s supposed to work.”

Brock Ondayko of American Electric Power Energy Supply agreed with Bowring. “If we start weeding out the slower performers I guess you would end up with no regulation resources,” he said.

“That certainly could happen,” Schmidt acknowledged.

Public Service Enterprise Group’s John Citrolo said it was improper for PJM to take an “administrative role” in controlling volatility “rather than letting the market handle it.” He said load-serving entities can hedge against such risks.

John Webster of Icetec said increasing the performance requirement for regulation resources might actually increase prices.

After an extended discussion, MIC Chair Adrien Ford said she would table the matter, though PJM may bring it back at a later meeting.

Performance-Based Pricing

In response to the Federal Energy Regulatory Commission’s Order 755, PJM switched in October 2012 to performance-based regulation, which is intended to pay resources based on the accuracy, speed and precision of their response.

In the 2013 State of the Market report, the Monitor said that the changes had improved the regulation market, but that the market’s design remained “flawed,” including an incorrect definition of opportunity cost and an inconsistent implementation of the marginal benefit factor — a conversion calculation — in optimization, pricing and settlement.

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State Briefs

DELAWARE
Lawmaker Proposes Study for Power Aggregation

Colin Bonini
Colin Bonini

A Delaware lawmaker included a proposal for an electricity aggregation study into the state’s capital budget this year in a move that could lead to lower electricity prices for local governments and their residents. The measure, penned by state Sen. Colin Bonini (R-Dover South), calls for the assessment of local conditions and a study of best practices in other states. Aggregation programs allow for large groups to buy power in blocks, with the idea that the group could negotiate a better deal than the standard offer from utilities. Delmarva Power & Light officials said they were studying the proposal.

More: The News Journal

ILLINOIS

Wisconsin Energy Promises Rate Freeze in Acquisition

we-energiesSourceWEWisconsin Energy is promising to freeze rates and guarantee jobs for at least two years in an attempt to convince the Illinois Commerce Commission to OK its proposed acquisition of Integrys Energy Group. Wisconsin Energy is trying to buy Integrys, parent company of Peoples Gas and North Shore Gas of Illinois. The company said if it obtained ICC approval, it would freeze rates for Illinois customers and keep the same number of Illinois employees – about 2,000 – for at least two years, in addition to honoring all labor contracts. The ICC is only one of several state and federal approvals necessary for the acquisition.

More: Milwaukee Business Journal

NRG to Cut Emissions at 4 Coal Plants

NRG Energy said it has a plan to cut emissions at four of its coal-fired stations in the state that would bring the state more than halfway toward meeting new Environmental Protection Agency-mandated emissions limits. The company said it would stop burning coal at one of its Romeoville plant units, convert its Joliet plant to burn natural gas and upgrade the Pekin and Waukegan plants with new emissions-control technology. About 250 jobs would also be cut. NRG said the plan would cut about 16 million tons of carbon dioxide emissions a year. The plan would cost about $567 million, the company said.

More: Chicago Tribune (subscription required)

INDIANA

$400K Grant to Fund Small Solar Projects

The Indiana Association for Community Economic Development received a $400,000 grant to help start up small solar energy projects in the Indiana Michigan Power service territory. The grant, which came from a legal settlement between American Electric Power and the U.S. Environmental Protection Agency, will be used to start Solar Uniting Neighbors (SUN). The economic development association said the grant would be enough to provide funding for 10 to 17 solar installations.

More: WANE TV

MICHIGAN

Solar, Wind Metering Growing

Small-scale solar- and wind-power installations in the state have increased their energy production by 18% since 2012, according to a Public Service Commission report. Since a state-mandated metering system went into effect in 2008, the state has seen 1,527 customers enter the net metering program.Under a net metering program, when customers produce more electric energy than they consume, the excess is sent back to the grid and the customer gets a credit. The PSC report noted that the number of net metering customers increased from 1,330 in 2012 to 1,527 in 2013.

More: Michigan Public Service Commission

NEW JERSEY

Environmentalists Urge State to Rejoin RGGI

RGGISourceRGGIClean energy and environmental advocates urged state officials to rejoin the Regional Greenhouse Gas Initiative during a court-ordered hearing last week. Two years after Gov. Chris Christie withdrew from the RGGI, a state appeals court ruled that the administration and the state Department of Environmental Protection didn’t follow the proper rules, and ordered a hearing to reconsider the move.

While it is unclear whether the court-ordered hearing would have an effect on the decision, many speakers took the opportunity to urge state leaders to rejoin the regional effort.Doug O’Malley, the director of Environment New Jersey, which filed the lawsuit along with the Natural Resources Defense Council, said he hoped the legislature would invalidate the repeal. “Gov. Christie is on the wrong side of public opinion on his decision to pull New Jersey out of this landmark climate program,” O’Malley said.

More: New Jersey Herald

State Consumer Agency Calls for More Protection

The state Division of Rate Counsel is again asking the Board of Public Utilities to tighten rules governing third-party energy suppliers. The consumer advocate’s efforts were spurred by a tough winter, skyrocketing energy prices and widespread accusations of misleading or fraudulent business practices.

Rate Counsel Director Stefanie Brand said her new petition was produced after consultation with the Retail Energy Suppliers Association. “The most important improvement is increased disclosure, in clear and plain language, of all contract terms,’’ one part of the petition explains.

Some of the proposed rules mirror those being considered in the state legislature.

More: NJ Spotlight

Fishermen’s Energy Goes Forward with DOE Funds

fishermensenergySourceFishermensenergyWind energy developer Fishermen’s Energy signed an agreement with the Department of Energy last week, giving it access to almost $47 million to develop a 25-MW wind project off Atlantic City. The project seems to be going forward, even though the New Jersey Board of Public Utilities has denied it ratepayer subsidies and said the project is too expensive and risky. Fishermen’s is appealing that ruling.

One of the terms of the DOE grant is that the project have a customer for its energy one year from now. But the developers are optimistic. “Our goal here in Atlantic City is to build a commercially operational wind farm that demonstrates job creation and specifically to show that these types of projects create benefits that far exceed their costs,” said Chris Wissemann, Fishermen’s CEO.

More: Recharge

NORTH CAROLINA

Study: New State Policies Could Boost Solar

While North Carolina ranks fourth in the nation for overall solar capacity, it is only 10th per capita, behind cloudier states such as New Jersey and Massachusetts, according to a report by an environmental group calling for more solar-friendly state policies.

Environment North Carolina said the state has benefited from the rise of large-scale solar farms but lagged in residential and commercial rooftop systems. The report recommends the state enable third-party sales of electricity, improve net metering laws and expand renewable energy standards.

More: Environment North Carolina

OHIO

State to see 1,000th Utica Shale Well

The state Department of Natural Resources said the 1,000th Utica Shale well will be drilled as early as this week. Through last week 997 horizontal wells had been drilled out of 1,428 permits issued since the shale boom started in 2010.

More: Columbus Business First

Net Metering Case Headed to High Court

OhioSupremeCourtSourceOHIOThe Ohio Supreme Court will be called on to determine how much net metering customers should be paid for electricity they feed back into the grid in a case pitting the Public Utility Commission of Ohio against several large utilities.

PUCO ruled recently that net metering customers are entitled to full value of the electricity, including capacity. FirstEnergy and American Electric Power have argued that their compensation should be based only on the energy portion of their bills. AEP appealed PUCO’s latest ruling, in July, to the state Supreme Court.

More: Midwest Energy News

PENNSYLVANIA

PUC Ponders Limits on Solar Net Metering

The Public Utility Commission is considering a rule that would limit the amount of solar energy customers can sell back to the grid. “By customer-generators producing more electricity and selling it back to the grid and the utility, this could actually be passed through and affect the rates for other customers,” PUC spokeswoman Robin Tilley said. The proposed rule would limit energy production for households and businesses to 110% of annual consumption. The solar industry opposes the rule.

More: WHYY

WEST VIRGINIA

Chesapeake Energy Eyes Shale Fields

CHK_3C_logo.epsState Department of Environmental Protection filings show that Chesapeake Energy, one of the largest shale gas energy players in the Midwest, is looking at the state as its next gas frontier. Chesapeake was one of the first companies to start drilling into Ohio’s Utica Shale Field. The Point Pleasant formation, in West Virginia, could be the scene of the next rush for shale gas production. State Department of Environmental Protection files show that Chesapeake is outlining plans to drill wells in the Point Pleasant formation.

More: Columbus Business Journal

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Norris Departure Opens Another FERC Seat

ferc
(Source: FERC)

It’s time for President Obama to start reviewing resumes again.

Just days after Norman Bay was sworn in as the Federal Energy Regulatory Commission’s fifth member, Democrat John Norris announced he will resign his position almost three years early, creating yet another opening on the panel.

Bay was sworn in Monday after taking a swipe at the PJM energy traders who had dogged him through his confirmation process.

On Friday, Norris confirmed long-standing rumors of his departure by announcing he will leave FERC Aug. 20 to take a post as the Minister-Counselor for the U.S. Department of Agriculture in Rome.

In between, newly promoted Chairman Cheryl LaFleur asserted her authority by filling the General Counsel’s post.

All in all, just another week at 888 First St. NE.

In one of his last acts as director of the FERC Office of Enforcement, Bay authorized the issuance of a Staff Notice of Alleged Violations against a group of investors over what staff said was illegal “wash” trades intended to capitalize on transmission line-loss rebates in PJM.

The notice, issued Tuesday, targets Kevin and Richard Gates, who launched a publicity campaign and lobbied against Bay’s nomination to highlight their complaints over FERC’s investigation. (See related story, PJM UTC Case Likely Headed to Court.)

Obama had indicated his intent to make Bay chairman immediately after his confirmation. But in order to win crucial votes in the Senate, the White House agreed to delay Bay’s promotion until April 15.

Cheryl LaFleur Flexes

That makes LaFleur, who had served as acting chair since November, kind of a Cinderella chairman.

But, apparently emboldened by Obama’s decision July 30 to remove her “acting” title, she asserted her authority Thursday by doing the same for former acting General Counsel David Morenoff, who has been doing that job since October 2012.

Meanwhile, Norris announced he would leave — not to return to his home in Iowa, as some had expected, but to Italy, thanks to Secretary of Agriculture Tom Vilsack.

Norris had served as Vilsack’s chief of staff, both in the Agriculture Department and before, when Vilsack was Iowa’s governor.

Norris issued a statement praising his FERC colleagues before heading off to a camping trip in Maine with his family. He was unavailable for comment yesterday.

Colette Honorable Next?

ferc
Colette Honorable

With Norris departing, speculation on his replacement has focused on Arkansas Public Service Commission Chair Colette Honorable. She was named chair of the Arkansas commission by Gov. Mike Beebe, whom she previously served as chief of staff when he was attorney general. Her six-year term expires in 2017. Honorable is also three-quarters through her one-year term as president of the National Association of Regulatory Utility Commissioners (NARUC).

A lawyer and native of Little Rock, she previously served as executive director of the Arkansas Workforce Investment Board and as an attorney in the Attorney General’s Office, where she worked on Medicaid fraud cases. She has also worked as an attorney at the Center for Arkansas Legal Services, a law clerk in the Arkansas Court of Appeals and as an assistant public defender.

She did not return a request for comment yesterday.

Lame Duck

Norris’ departure was widely expected after he told a conference in June that he would not seek renomination when his term ended in 2017. Norris said industry stakeholders had told him he could not win Senate confirmation if he was reappointed because he is too “pro-consumer.”

Last year, Norris blasted Senate Majority Leader Harry Reid (D-Nev.) for blocking his bid to become FERC chair. Norris said Reid had opposed his elevation to chairman because the majority leader thought he was “too pro-coal” during his time on the Iowa Utilities Board.

Since last year, Norris has increasingly forged his own path. After issuing 11 dissents or concurring statements in 2010, and 11 in 2011, he issued 19 last year and 11 through the first six months of 2014.

Norris’ wife Jackie ran the 2008 Obama campaign in Iowa and briefly served as Michelle Obama’s chief of staff; she is now executive director of the Points of Light Corporate Institute, an organization that helps companies develop employee-volunteer programs, in D.C.

Before Norris’ announcement last week, an editorial in The Storm Lake Times urged him to return home to run for office, suggesting he was one of the few Democrats who could oust Rep. Steve King or Gov. Terry Branstad. He had run unsuccessfully for the House in 2002.

The Work Goes On

Republican Commissioner Tony Clark said yesterday he will miss working with Norris, who he has known since they were both state regulators.

Clark said while it would be nice to have a full panel, there haven’t been many occasions when the panel locked in 2-2 ties.

While Bay may emphasize new initiatives when he becomes chair, Clark said, much of the commission’s day-to day activities will be unchanged. “A lot of the work is just driven by the filings themselves,” he said.

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PJM: Can’t Delay Interface Postings for FTR Auctions

interfacePJM officials last week defended their practice of creating interfaces to capture operator actions in response to voltage problems, saying they can’t guarantee the constraints will be modeled in Financial Transmission Right auctions.

In the last year, PJM has created “closed loop” interfaces in at least four locations so that operator actions — such as sub-zonal dispatch of demand response — are captured in Locational Marginal Prices rather than uplift. PJM said it must use the interfaces to set prices because its modeling software can only set prices for thermal constraints, not voltage problems.

But in its effort to reduce uplift, PJM is exacerbating FTR underfunding, DC Energy’s Bruce Bleiweis told the Market Implementation Committee during a discussion last week.

PJM has promised to provide notice of any new interfaces at least one day before implementing them. But that’s not enough time for FTR holders to react, said Bleiweis, who noted that the RTO requires 90 days’ notice before implementing special protective schemes (SPS).

He proposed PJM provide notice of the potential need for a new constraint as soon as it has identified one and discuss the results of their analysis at the next meeting of the MIC or Markets and Reliability Committee. Interfaces should be announced prior to the next FTR or Balance of Planning Period auction and not implemented until the beginning of the next month, Bleiweis said.

PJM “shouldn’t be in the position of choosing who will gain and who will lose,” he said.

PJM officials said Bleiweis’ proposal was unworkable.

“A lot of those things come up quicker than the time that Bruce would want,” said Adam Keech, director of wholesale market operations. “We might know two days before we need it, not 45 days. Forty-five days later we may not need it. We’re just printing uplift in between.”

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Company Briefs

VivintSourceVivintVivint Solar, an upstart business in the home security and automation fields, is planning an initial public offering for its solar segment, according to sources. Vivint’s IPO could come out as soon as September.

Vivint is the second biggest residential solar installation company in the U.S., behind SolarCity, which went public in December 2012 at $8 per share. Solar City shares closed Friday at $70.14.

More: Utility Dive

Sunoco Logistics Eying 2nd Shale Gas Pipeline

Sunoco Logistics, still finalizing its first cross-state pipeline in Pennsylvania to transport Marcellus Shale gas liquids, has already signed up a customer for a second pipeline. Austrian chemical company Borealis signed a 10-year agreement to buy ethane produced in the Marcellus and Utica shale fields. Ethane is used in plastics production.

The new agreement would go into effect in 2016. Sunoco is in the final stages of constructing its first line, Mariner East. It is scheduled to go into operation later this year. That project generated controversy among residents of the areas the pipeline crossed. Sunoco has been asking the state Public Utility Commission to designate the pipeline a public utility, which would ease the process of gaining rights of way. So far, it has been unsuccessful.

More: The Philadelphia Inquirer

LaSalle Unit 2 Shuts Down with Valve Problem

(Source: Exelon)
(Source: Exelon)

Unit 2 at Exelon’s LaSalle Nuclear Generating Station went into automatic shutdown last Tuesday when one of the station’s steam valves closed. The shutdown went according to plan, and no damage or impact on customers occurred, a station spokesperson said. The company is looking into the cause.

More: News Tribune (subscription required)

TVA Layoffs Reduced by Attrition, Retirements

The Tennessee Valley Authority said last week that it will accomplish most of its 2,000 job reductions through attrition, retirements and voluntary resignations, avoiding the need for massive firings. The cuts are TVA’s largest in 20 years.

TVA began the year with about 12,500 employees. This is down from 51,000 employees in 1981. TVA President Bill Johnson said the employee reductions are necessary in order to cut down on expenses and to keep electricity rates competitive in the region.

Labor unions are concerned that the layoffs merely mean that TVA is hiring more contractors. “As TVA is laying off some of our workers, they are filling some of that work with contractors or selecting managers or others to do the work from outside of our bargaining unit. Those are our major concerns,” said Faye Headrick, senior international representative for the Office and Professional Employees International union. The union represented 3,000 TVA employees 40 years ago but only about 600 now.

More: Chattanooga Times Free Press

FirstEnergy’s Harrison Plant Union Gets Contract

Workers at FirstEnergy’s Harrison Power Station in Haywood, W.Va., have been given their first contract. The Utility Workers Union of America, which has been negotiating since 2010, announced the contract last week. The coal-fired plant employs 184 workers. They’ve been fighting for a contract since they voted to unionize in September 2010. The 3.5-year collective bargaining agreement covers wages, benefits and working conditions. The plant was owned by Allegheny Energy and became part of FE’s fleet through a merger in February 2011.

More: The State Journal

PSEG One Step Closer to Permit for New Nuke

PSEG Nuclear is close to filing a draft environmental impact study on its plan to build a new nuclear station on Artificial Island. The company would need to complete a land swap of 631 acres with the U.S. Army Corps of Engineers on the island in order to go forward. Other studies, including a storm surge study, are also necessary. The environmental impact study could be filed as soon as September. Final action could come late next year, with a separate decision on technologies, design and construction to follow.

More: The News Journal

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Q2 Earnings Roundup

FirstEnergy, Duke Energy, NRG Energy, Dynegy and AES all announced second-quarter earnings last week with FirstEnergy capturing headlines for its decision to exit most retail sales and AES saying it won’t sell Dayton Power and Light after all.

FirstEnergy Announces Retail Exit as Earnings Rebound

earningsFE executives said that price volatility due to extreme weather and a “fundamental” change in retail markets has made the company decide to exit retail.

“We intend to exit the medium commercial and industrial, or MCI, and mass-market retail channels as existing contracts expire, but we will continue to serve strategic large industrial and commercial customers as well as our governmental aggregation in [provider of last resort] channels as appropriate,” FirstEnergy CEO Anthony Alexander said last week.

Volatility, eroding price stability and the need to swallow costs on fixed-rate offers translated into too much risk, Chief Financial Officer James Pearson said. “We were already taking steps to be more selective in our sales to the large and medium-sized commercial and industrial customers during the second quarter,” Pearson said.

The company reported earnings of 16 cents per share in the second quarter on earnings of $64 million and revenue of nearly $3.5 billion, compared to a loss of $164 million, or 39 cents per share, with revenue of more than $3.5 billion for the same period the year before.

Pearson said operating earnings were driven by a lower commodity margin, higher investment income and lower operating and maintenance costs.

Meanwhile, the four Pennsylvania subsidiaries of FE last week filed rate-increase requests to help pay for infrastructure enhancements.

Under the proposals, residential customers who use 1,000 kWh a month would see their bills increase by 11.8% for Penn Power, 14.7% for West Penn Power, 16.3% for Penelec and 17.8% for Met-Ed. A company spokesman said the new rates would allow the company to use technology to reduce the number of outages and the number of customers affected when outages occur.

The utilities want the state Public Utility Commission to approve the rates effective Oct. 3.

FE’s Ohio utilities filed a request to sign a 15-year purchase-power agreement with two unregulated FirstEnergy Solutions generators. (See related story, FE Wants Regulated Companies to Subsidize Generation)

AES: We’ll Keep DPL After All

earningsAES, parent of DPL, has changed its mind about the company again. Three months after saying it was seeking buyers for DPL, parent of Dayton Power and Light, AES said the company is off the block.

The offers received “were not attractive relative to the long-term value to AES,” Chief Financial Officer Tom O’Flynn said during a conference call last week. “We therefore decided not to sell.”

Dayton Power and Light owns 2,897 MW of capacity, most of it coal-fired. DPL subsidiary DPL Energy owns 556 MW of peaking capacity in Ohio and Indiana. AES bought DPL in November 2011 for $3.5 billion, saying it wanted to increase its presence in the Midwest, where it already owned Indianapolis Power & Light.

At its first-quarter earnings call in March, however, O’Flynn told analysts AES would “explore all potential options to optimize” DPL, including a sale.

An improving wholesale energy market is one of the things that convinced AES to hang on to DPL, for the time being.

“The market is still higher than what we were projecting at the start of the year,” O’Flynn said. “Second, we saw an improvement in PJM [capacity] prices, which doubled, albeit from low level at the last auction, and outstanding proposals to provide additional improvement.”

He also cited a plan to improve generation plant performance and its multiyear commercial hedging strategy.

AES reported second-quarter earnings of 28 cents a share on revenue of $340 million, compared to 35 cents per share on revenue of $289 million for the same period last year.

Duke Earnings up 80%

earningsSecond-quarter earnings for Duke rose 80% over the same period last year, fueled in part by higher customer rates in the Carolinas from 2013 rates cases, warmer-than-usual weather and higher PJM capacity prices.

The company reported earnings per share of 86 cents on $609 million in profit and revenue of $5.17 billion, compared to 48 cents/$339 million/$4.83 billion for the same period last year. The company also credited lower taxes and lower operational costs.

In a conference call, Duke CEO Lynn Good highlighted the company’s five-year growth plan through 2018, in which it will spend $18 billion to $20 billion on investments. These include $1.9 billion in three large natural gas-fired generation plants in Florida, and $600 million for a 750-MW plant in South Carolina.

This is on top of the company’s recent announcement that it was buying out North Carolina Eastern Municipal Power Agency’s ownership of 700 MW at Duke Energy Progress plants for $1.2 billion.

Good spent a significant amount of time on the call addressing the company’s Dan River coal ash spill and cleanup. Good said cleanup expenses were about $20 million through June and that she did not expect total costs to be material.

“We are cooperating with and defending the company in ongoing investigations resulting from the Dan River accident,” she said. Good noted that there have been legislative moves to require Duke to clean up some, or all, of the company’s remaining coal ash ponds. North Carolina’s legislature adjourned without approving a bill, and Good would not say what the total cost could be. But she said that depending on legislative and regulatory action, some or all of Duke’s costs could be covered.

“We believe the recoverability of coal ash based in closure cost will be determined by the Carolina’s Commission.”

NRG Posts Loss

earningsNRG saw a downturn in the second quarter, posting a loss of $97 million, or 30 cents a share, compared with a profit of $124 million, or 37 cents a share, for the same period last year. Its retail operations posted a loss, but its wholesale businesses all posted profits for the quarter.

CEO David W. Crane said the past two quarters prove NRG’s move to diversify away from strictly wholesale generation was a good one.

“Never before in my 11 years at NRG do I recall a first half of the year where we were so whipsawed by the weather,” he said. “A severely cold winter followed by a summer, which, to date, through the second quarter and so far into the third quarter, has been completely devoid of extreme weather in any of our core markets.

“Fortunately, to some degree, our diversification away from being exclusively a wholesale generator, first, into retail and then into clean energy, has increased the resilience of our earnings in the face of mild weather and tepid wholesale electricity demand.”

Perhaps the biggest news out of NRG is its decision to reorganize its business units. The three business units will be NRG Business, holding the wholesale generation business; NRG Home, which includes retail operations such as residential solar; and NRG Renew, its large-scale solar, wind and other renewables business.

Crane acknowledged on the conference call that yet another reorganization may be confusing for some investors but said it makes sense nonetheless.

“The way we’re organized going forward allows senior executives of the team to sort of focus in their area and win in their area because each area is pretty distinct,” he said. “I mean they’re mutually reinforcing, but each has different competitors.”

Dynegy Revenue up, Earnings Down

earningsDynegy reported a loss of $123 million, or $1.23 a share, compared to a loss of $145 million, or $1.45 a share, for the same period last year. Revenue for the second quarter rose to $521 million from $301 million a year ago, a 73% jump.

Dynegy has narrowed its losses since coming out of bankruptcy in 2012. Its second-quarter operating loss in its coal-fired generation business was $5 million, compared to a $49 million loss for the same period in 2013. Its gas segment shows a similar story, with a second-quarter loss of $2 million, compared to a loss of $36 million for the same period last year.

Dynegy President and CEO Robert Flexon is taking a long-term view.

“The underlying fundamentals continue to indicate improving capacity prices and higher energy prices and volatility,” he said. “These improvements are driven by a market expectation of reduced supply as a result of plant retirements, the majority of which will occur in the 2015-2016 timeframe.”

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FERC Staff Accuses Powhatan as Bay Moves Up — UPDATE

PJM UTC Trades at Issue in High-Profile Case

By Ted Caddell

After nearly four years of investigation, the Federal Energy Regulatory Commission Tuesday publicly accused an energy trading firm of market manipulation in a case that dogged FERC enforcement chief Norman Bay through his confirmation as commissioner.

The staff “notice of alleged violations” accuses Houlian (Alan) Chen and the Powhatan Energy Fund LLC of engaging in “manipulative” up-to-congestion trades in PJM in 2010.

Norman Bay, with Richard Gates looking on, responds to questions during his Senate confirmation hearing in May.
Norman Bay, with Richard Gates looking on, responds to questions during his Senate confirmation hearing in May.

The notice was issued the day after Bay was sworn in as a FERC commissioner and his deputy at the commission’s Office of Enforcement, Larry Gasteiger, was named acting director. Bay’s handling of the Powhatan case was cited during his Senate confirmation hearing in May as evidence of what critics said was his unit’s harsh and unfair tactics.

[Editor’s Note: An earlier version of this article inaccurately stated that FERC had “charged” Powhatan. The notice is merely a public disclosure of a previously non-public investigation.]

Powhatan, based in West Chester, Pa., is a private investment fund headed by portfolio manager Kevin Gates and his twin brother Rich. FERC staff says Powhatan and a predecessor fund netted $4.7 million in profits in 2010 by taking advantage of a loophole for making low-risk up-to-congestion trades to profit from line loss refunds.

The investigation was disclosed under a policy approved by FERC in December 2009 to balance “the need to protect the subject’s confidentiality in the early stages of an investigation with the public interest of promoting additional transparency during investigations.” It allows the Director of Enforcement to authorize a Preliminary Notice of Violations “after the subject of the investigation has had the opportunity to respond to staff’s preliminary findings letter.”

“In our experience, once staff provides its preliminary conclusions to a subject, the existence of the investigation is likely to become public in any event, through a negotiated settlement, an order to show cause, or, in the case of a publicly traded company, a securities filing,” the commission said in approving the policy. “The absence of disclosure means that a greater amount of time passes before the public becomes aware of potential violations that enforcement staff is investigating.”

Kevin Gates on Tuesday issued a statement vowing to fight the allegations. “We’ve read it and it makes no sense. We will aggressively fight their allegations. We can only speculate on FERC’s motives,” he wrote. “When a regulator is not concerned with the facts or the law, then traders can become easy targets if it has a political agenda.”

It is unclear what, if anything, FERC will do next. FERC staff advised Powhatan of its preliminary findings in August 2013 and Powhatan responded with its rebuttal in October. Powhatan said it has rejected an earlier settlement offer from enforcement staff.

“This is an acknowledgement that an investigation is going on,” FERC spokeswoman Mary O’Driscoll said today. “This is not an indication of whether the commission is going to go to court. There is no other step at this point.”

The case has drawn widespread attention and was highlighted in a Wall Street Journal op-ed penned by former FERC general counsel William Scherman. In it, Scherman accused Bay of driving Wall Street banks out of energy trading with heavy-handed enforcement tactics.

Republicans grilled Bay on the case and his management of the enforcement unit during his confirmation hearing. Bay declined to comment on the Powhatan case, which was then “non-public,” but dismissed Scherman’s allegations of due process violations as untrue.

FERC's Larry Gasteiger answers questions about FERC enforcement as Michael Spofford of Bingham McCutchen (R) listens at an Energy Bar Association panel discussion in April.
FERC’s Larry Gasteiger answers questions about FERC enforcement as Michael Spofford of Bingham McCutchen (R) listens at an Energy Bar Association panel discussion in April.

Gasteiger responded to charges that FERC was unfairly targeting traders during a panel discussion at an Energy Bar Association conference earlier this year. “We take these cases extremely seriously, whether it’s individuals or companies,” he said. “We won’t take on a case unless we think we have an extremely solid case to present to the commission and if necessary to take it to a hearing before an [administrative law judge] or a district court proceeding.”

Tuesday’s notice alleges that Chen, trading on Powhatan’s behalf, placed “millions of megawatt hours of offsetting trades between the same two trading points, in the same volumes and the same hours — an intentional effort to cancel out the financial consequences from any spread between the two trading points while capturing large amounts of MLSA [Marginal Loss Surplus Allocation] payments.” FERC charges this was “wash trading,” which is illegal.

The Gates brothers said it was savvy trading and legal until the “loophole” was closed later in 2010.

After being under investigation by Bay’s enforcement unit for more than three years with no charges filed against them, the Gates brothers went on the offensive. In March, they released documents they say prove they have been unfairly hounded. The fund enlisted testimonials from an all-star team, including Susan J. Court, Bay’s predecessor as enforcement chief, Harvard professor William Hogan and John N. Estes III, a prominent defense attorney. (See PJM Trader Calls FERC on Manipulation Probe.)

The Gates brothers filed a Freedom of Information Act lawsuit to obtain agency records relevant to their case, lobbied the Senate to block Bay’s confirmation and lurked behind Bay during his confirmation hearing. In a letter to the editor published in The News Journal days before Bay’s confirmation hearing, Richard Gates said they were offered a settlement by FERC.

“While that would have been the easier and cheaper thing to do, Powhatan declined,” he wrote. “Instead, we planned for protracted litigation against the federal government.”

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PJM MRC Briefs

The Markets and Reliability Committee last week endorsed two manual changes and approved changes to rules on black start compensation and auction-specific transactions.

Manual Changes

Members endorsed changes to Manual 37: Reliability Coordination to update the System Operating Limits (SOL) definition and violation language (sections 3.1, 3.2) to conform to the North American Electric Reliability Corp. standard.

Revisions to the cost allocation section of Manual 14B: PJM Region Transmission Planning Process also won endorsement. The changes describe the current solution-based methodology as detailed in the PJM Tariff.

Revisions to Manual 14A: Generation and Transmission Interconnection Process were deferred to await coordination with MISO. The revisions are intended to reflect changes in how interim deliverability studies are conducted.

Black Start Compensation, ‘Back Stop’

Members approved a “back stop” mechanism for acquiring black start services through transmission providers when PJM solicitations fail to obtain service for a zone. Members also approved minor Tariff and manual changes relating to the compensation of black start units. (See PJM to Seek Smaller Black Start Changes.)

The new rules:

  • Allow energy-only black start units to be compensated. There was previously no mechanism to compensate energy-only generators through the base formula rate.
  • Allow automatic load rejection (ALR) units to recover NERC Compliance costs as documented to the Market Monitor.
  • Allow fuel-storage compensation for liquefied natural gas, propane and oil. Previously, only oil storage was compensated.
  • Limit black start units sharing a common fuel tank to claim the fuel-storage compensation for only one unit, closing a loophole.
  • Schedule a review of compensation formulas every five years (down from the current two years) to align it with the RTO-wide black start solicitation.

The System Restoration Strategy Senior Task Force had considered several proposed changes but none of the others received the minimum 50% support to forward it to the MRC for consideration. With its work complete, the task force will be sunset, said MRC Chairman Mike Kormos, PJM’s executive vice president for operations.

Auction-Specific Transactions

Members gave final approval to a manual change that will make it easier for banks to purchase capacity providers’ revenue streams. The change, proposed by Citigroup Energy, will allow auction-specific transactions to be entered into PJM’s eRPM system after the auction that initiated them. Previously, such transactions could not be submitted to PJM until after the third incremental auction for a delivery year. (See Stakeholders Look to Expedite Auction-Specific Transactions.)

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PJM to Hike Penalties, Incentives to Improve Winter Reliability

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PJM will increase performance penalties and incentives and seek ways to incorporate firm gas transportation in energy prices under an initiative announced last week to reduce generator outage rates.

PJM CEO Terry Boston announced the initiative, which he said resulted from a three-day meeting of the Board of Managers and discussions with present and former leaders of the Members Committee and stakeholder sectors.

The action was prompted by January’s extreme cold, when as much as 22% of PJM’s generation suffered forced outages, three times the normal winter rate.

“We would have to interrupt load if this happened in [future] winters,” Boston told the Markets and Reliability Committee Thursday, noting that the RTO will lose about 8,500 MW of generation to retirements by the winter of 2015/16. “We feel [changing capacity rules] has to be one of our highest priorities.”

Officials said the changes may increase capacity costs but should also reduce volatility during tight supply/demand conditions.

Redefinition of Capacity

“You should think of this as a holistic redefinition of what capacity is,” said Andy Ott, executive vice president for markets.

Members’ initial response to the initiative — which PJM said would be conducted under expedited procedures outside the normal stakeholder process — was muted.

David “Scarp” Scarpignato of Direct Energy questioned whether PJM would bring proposed changes to “advisory” votes before the MRC or Members Committee.

Gregory Carmean, executive director of the Organization of PJM States (OPSI), expressed concern that additional costs would be largely for winter performance while capacity cost allocation is based on summer loads.

Carl Johnson, representing the PJM Public Power Coalition, expressed misgivings over the initiative during a later MRC discussion regarding the Triennial Review of capacity auction parameters.

Johnson said stakeholders haven’t received enough information on the cost impact of the parameter changes, which include a potential increase in the Installed Reserve Margin. Referring to PJM’s plans to “redefine” capacity Johnson said, “When we don’t understand what we’re buying when we buy capacity, to say we’re going to be buying more of it, we cannot support.”

The Consumer Advocates of PJM States discussed the initiative yesterday and was expected to issue a statement later this week.

Fuel Security

A key part of the new definition will be fuel security, meaning incentives are likely to encourage nuclear generators, dual-fuel units and firm gas contracts.

“At 20 mph [the speed at which gas flows], there’s not a lot of difference between just-in-time delivery and too dang late,” Boston said.

He also referred to two coal plants that were unable to operate in January because they lacked natural gas needed to start up. “Twenty thousand dollars’ worth of fuel oil could have brought those units up,” Boston said. “I would pay that now.”

More Flexible Operations

winterOfficials also will be seeking to reverse a trend toward less flexible unit operating parameters. In a 23-page white paper issued Friday, PJM said unit flexibility has dropped as a result of staffing reductions and other cost cuts. (See Problem Statement on PJM Capacity Performance Definition.)

Ott said limits on unit flexibility must be a function of operational limits, not financial concerns. “We’ve seen units with three starts per day reduced to one; units with very short minimum run times became very long minimum run times,” he said.

The effort will also seek to boost operations and maintenance spending to improve generator availability on “low probability peak events” such as January’s polar vortex or last September’s unexpected heat wave.

“Generation owners may choose to cut O&M costs or choose not to make investments that enhance availability as a means to manage costs,” the report noted. “In making such a decision, the generation owner has implicitly or explicitly made a calculation that the benefits of such measures [increased net revenues] do not cover these ‘additional’ costs.”

Generator owners also have complained that there is no way to reflect such costs in supply offers.

“Competitive pressure to clear in the RPM capacity market may push generation owners to not make these investments if they feel other competitors are taking a similar strategy due to the risk of pricing themselves out of the market,” the report said.

Insufficient Penalties

PJM said current penalties for capacity resources that are unavailable during the 500 “peak” hours per year are insufficient.

The Tariff defines summer peak hours as Hour Ending 1500 to HE 1900 on non-holiday weekdays from June through August. Winter peak hours are HE 800 to HE 900 and HE 1900 to HE 2000 on non-holiday weekdays in January and February.

Penalties are assessed only if the forced outage rate during peak hours (EFORp) is more than the five-year average forced outage rate (EFORd5) of the resource.

Generators are often able to avoid even these penalties because the Tariff forgives outages related to a lack of gas as “Out of Management Control (OMC).”

“The penalties for being unavailable during the pre-defined peak hours … provides no incentive to make investments in O&M or infrastructure to enhance availability since there is little risk of incurring a capacity market penalty for being unavailable during reliability critical events,” the report said.

The current structure “provides an incentive for generation owners to hide the real cause behind an outage, or to shift the cause of an outage to a third party such as a gas pipeline” and claim it as OMC, the report said. However fuel delivery contracts and installation of dual-fuel capacity “are business decisions well within the control of the generation owner.”

‘Enhanced’ Liaison Committee Process

PJM officials said they will invoke a never-used “Enhanced Liaison Committee” process so that the new rules can be filed with the Federal Energy Regulatory Commission in time for the winter of 2015/16.

“If Polar Vortex conditions occurred in 2015/16 and outage rates were as high as PJM experienced in January 2014 … PJM would almost certainly experience a loss-of-load event,” the report said. PJM hopes to reduce outages this winter by resuming winter generation testing.

The process — developed by the Governance Assessment Special Team (GAST) in 2011 and documented in Manual 34 — was created to allow members to provide input on issues for which consensus is unlikely and the board acts independently.

“There will be a lot of opportunity in the next two months for dialogue,” promised Dave Anders, director of stakeholder affairs.

PJM has scheduled two meetings — 1-4 p.m. Aug. 12 and 18 — to discuss the initiative and the problem statement white paper.

On Aug. 20, PJM plans to release a draft white paper detailing proposed solutions; it will be the subject of a third meeting from 9 a.m. to noon Aug. 22. Stakeholders’ written comments on the second paper will be due Sept. 12, followed by a fourth meeting to receive additional comments Sept. 24.

The enhanced liaison process will begin Oct. 7 when PJM issues the final version of its solutions whitepaper. Additional input from stakeholders will come through coalitions, which will be required to submit briefing papers by Oct. 28.

The board will meet with the Enhanced Liaison Committee Nov. 4.

The proposed solutions may incorporate cold-weather initiatives being conducted by other committees, including energy storage participation in RPM (Planning Committee); qualifying transmission upgrade (QTU) credits and unit market offers (Market Implementation Committee); and cold weather resource performance improvements and gas unit commitment coordination (Operating Committee).

Arbitrage Technical Conference

General Counsel Vince Duane said PJM will ask FERC to delay scheduling of a technical conference the commission ordered in May, when it rejected the RTO’s plan to curb speculation in capacity market auctions. The conference is to develop solutions to eliminate arbitrage opportunities between the base residual auction (BRA) and incremental auctions (IAs).

“Any conversations with FERC thus far I would characterize as very preliminary,” Ott said in response to a stakeholder question.