Members narrowed the scope of a task force created to improve funding of financial transmission rights (FTR) Thursday, agreeing to eliminate consideration of balancing congestion.
The Markets and Reliability Committee approved the narrowed scope after first rejecting a proposed charter for the FTR/ARR Senior Task Force.
The MRC approved the charter on a second vote, which called for removing from the charter and issue charge a reference to “enhancing the mechanism by which balancing congestion is allocated.”
The MRC had approved the task force on first reading May 29 after PJM officials said they wanted to fast-track the issue in order to have a solution in place before next year’s FTR auction. (See New Task Force to Target FTR Underfunding.)
PJM said it had suggested an altered allocation of balancing congestion as a potential transition mechanism for any rule changes.
At the task force’s first meeting, however, Market Monitor Joe Bowring objected to the inclusion of the balancing congestion issue. Bowring told the MRC Thursday that the task force’s work would be “bogged down” by including the issue, which has been the subject of litigation and has eluded previous stakeholder attempts at consensus. Bowring said members could craft a transition without it.
Others, including Susan Bruce of the PJM Industrial Customer Coalition agreed, calling Bowring’s observation “a cautionary tale on approving things on first read.”
Pamela Quinlan of Rockland Electric said she agreed with Bruce’s concern over approving matters on first read. “People walked away with different understandings of what this group is actually going to work on,” she said.
Dan Griffiths, executive director of the Consumer Advocates of PJM States (CAPS), said that including balancing congestion in the charter suggested the task force had already decided on a solution.
ARRs ‘Sacred Cow’
Steve Lieberman of Old Dominion Electric Cooperative, however, opposed the narrowed scope. “We agreed to the problem statement with the understanding that it would be a broad discussion,” he said.
“We’re very sensitive to focusing only on ARRs [auction revenue rights]” as a solution to the underfunding, Lieberman said, calling ARRs the “sacred cow” for load-serving entities.
PJM Executive Vice President for Markets Andy Ott said the task force would be hamstrung with the narrowed scope. “I don’t know how you talk about an expanding set of causes” without considering balancing congestion, he said.
Jason Barker of Exelon agreed, noting that PJM told the task force meeting June 25 that balancing congestion represented almost $420 million in revenue inadequacy for 2013/14, nearly two-thirds of the total. “We’re interested in discussing all of revenue inadequacy, not one-third of it,” he said.
Bowring had proposed eight changes that he said would improve funding adequacy to 91% from the current 72%. “Either do ARRs only or consider everything,” Bowring said, calling PJM’s original scope a “half-measure.”
In his 2013 State of the Market report, the Monitor rejected suggestions that load subsidize payments to FTR holders by ignoring balancing congestion when calculating total congestion dollars available to fund FTRs.
“This approach would ignore the fact that loads must pay both day-ahead and balancing congestion,” the Monitor said. “To eliminate balancing congestion from the FTR revenue calculation would require load to pay twice for congestion. Load would have to continue paying for the physical transmission system as a hedge against congestion and pay for balancing congestion in order to increase the payout to holders of FTRs who are not loads.”
Growing Shortfall
PJM told the task force Wednesday that the shortfall could be narrowed by allowing proration of Stage 1A allocations. PJM said it would improve FTR funding by removing infeasibilities and improve confidence in FTR values with a “minimal impact” on ARR revenues.
A second alternative proposed by PJM would remove Stage 1 historical resources when they physically retire. PJM said transmission system rights are not necessary for generators that do not exist.
PJM says more than 15% of Stage 1 historical generation (25,544 MW) has retired or submitted deactivation notices since the ARR allocation process was designed.
Below is a summary of issues discussed and voted on at the Markets and Reliability and Members committees on Thursday June 26.
MEASURES REJECTED
RPM Supply Curve Change Rejected
The Markets and Reliability and Members committees rejected a proposal to create more informative supply curves from capacity auctions. The proposal won only 40% support after Market Monitor Joe Bowring warned that “We continue to think this is an extremely bad idea.”
Stakeholders had approved a problem statement by Exelon on the issue without opposition last June. But support for the change eroded after Bowring signaled his opposition, saying it could reveal sensitive data about price-quantity offers and cause collusion among generators. Load representatives opposing the change cited Bowring’s concerns and news reports indicating Exelon had helped boost clearing prices in the May auction by offering 4,255 MW of nuclear capacity at the maximum price allowed. (See Load Balks at Supply Curve Fix in Response to Auction Strategies.)
The proposal won support of three-quarters of Transmission and Generation owners but less than half of Other Suppliers and virtually none of End Use Customers and Electric Distributors.
Cost Development Subcommittee to ‘Hibernate’
PJM withdrew a proposal to sunset the Cost Development Subcommittee after members and the Market Monitor predicted the panel would be needed in the future.
The subcommittee was created to develop standard procedures for calculating the costs of products or services provided to PJM when those products or services are required to be provided at a cost-based rate. It has been dormant since October.
“It strikes us as inevitable” that the committee will be needed again, Exelon’s Jason Barker said.
Dominion’s Louis Slade said it might take as long as two months to reestablish the committee, which is comprised of technical experts, if it were disbanded.
Market Monitor Joe Bowring said the committee may be needed soon to consider the costs of batteries used in energy storage. “There will soon enough be additional work” for the committee, Bowring said.
The subcommittee will remain standing but will hold no meetings until it receives another assignment.
Members Balk at ‘Deferring’ Issues
Leaders of the Members Committee backed off from a proposal that it “defer” action on four initiatives after receiving push-back from members last week.
Vice Chair Jim Jablonski outlined a proposal to delay further action on four initiatives so that members could concentrate their efforts on several other items that have early fall deadlines for completion. MC Secretary Dave Anders said further meetings on the deferred items would be delayed until about October.
But when members raised objections to delaying two of the four issues, Anders and Jablonski said they would reconsider the proposal.
MEASURES APPROVED
The Markets and Reliability and Members Committees approved the following by acclamation Thursday following little discussion or debate:
Markets and Reliability Committee
PJM Manuals
Members endorsed revisions to Manual 01: Control Center and Data Exchange Requirements and Manual 14D: Generator Operational Requirements that incorporate requirements for installation of SynchroPhasor Measurement Units (PMU) at new generation interconnections. Related Tariff changes were approved by members last June and approved by the Federal Energy Regulatory Commission in February. The requirements apply to interconnection customers entering the new services queue on or after Oct. 1, 2012 with facilities with a maximum output of 100 MW or greater. (See Members Approve PMU Requirement.)
Members endorsed changes to Manual 01: Control Center and Data Exchange Requirements and Manual 14D: Generator Operational Requirements governing rules for members wishing to purchase access to the PJMNet data feed. (See Final OK for Membership Inquiry, PJMNet.)
Designated Entity and Interconnection Coordination Agreements
The MRC and MC approved the Designated Entity Agreement (DEA) and Interconnection Coordination Agreement (ICA) developed by the Regional Planning Process Task Force (RPPTF).
The documents define the obligations of companies designated to build and operate transmission projects awarded under the competitive rules of FERC Order 1000. They include project scope, planning criteria, development schedules, project milestones and terms and conditions.
FERC ordered PJM to file the DEA for commission approval by July 14. (See: 147 FERC ¶61,128).
Coordinated Transaction Schedule
The MRC gave PJM final approval to implement the Coordinated Transaction Schedule (CTS) product for trading between PJM and the New York ISO.
Last week’s vote endorsed the accuracy of the PJM scheduling tool that will be used to optimize the cross-border transactions. PJM officials told members in March that the Intermediate Term Security Constrained Economic Dispatch (IT SCED) tool is accurate within $5/MWh more than two-thirds of the time. (See PJM Price Forecasts: Close Enough for Power Trading?)
CTS, which is intended to reduce uneconomic power flows between the two regions, is scheduled to be implemented as soon as November.
Transmission Owner Data Feed
Members approved a revised issue charge for the Transmission Owner Data Feed Task Force to include consideration of generator real-time reactive capability data. Members approved creation of the task force in April to consider an easier method for transmission owners to access real-time generator data, an effort intended to improve situational awareness and emergency response.
During initial task force discussions, stakeholders shared concerns about TOs having access to generator-characteristic data in addition to real-time telemetry. Exelon responded that generator real-time reactive capability data is necessary for accurate state estimator and contingency analyses. (See Members to Consider Easier Sharing of Real-Time Generator Data.)
Despite losing out on a $487 million, four-year Department of Energy grant, the developers of a proposed Lake Erie wind farm say they will proceed with the project. The Lake Erie Energy Development Corp. (LEEDCo) will still get a $3 million federal grant for engineering and other studies, in addition to the $4 million it received in 2012. The planned Icebreaker project is to be built near Cleveland, seven miles off shore. LEEDCo President Lorry Wagner said that “the fundamentals of the project are as strong, if not stronger” than ever. “People want locally grown green energy.”
Nuclear Regulatory Commissioner George Apostolakis announced last week that he would retire at the end of his term on June 30. He became the second NRC commissioner to announce his departure in a month. William Magwood announced two weeks ago that he was leaving in September. If neither is replaced immediately, three of the commission’s five seats will be vacant. Apostolakis became a member of the NRC in April 2010. Before that, he was a professor of nuclear science and engineering and a professor of engineering systems at Massachusetts Institute of Technology.
NRC: Entergy Plant Still has ‘Chilled Work Environment’
The Palisades Nuclear Power Plant in Michigan still presents a “chilled work environment” for its security workers despite Entergy Corp.’s commitment to improve, the Nuclear Regulatory Commission said in a letter sent to plant management on June 20. Entergy’s efforts “did not demonstrate a strong commitment to effectively improve” the culture at the plant, the NRC said.
“We concluded that the quality of the actions implemented have been insufficient to assess and understand the cause of the chilled work environment within the Security Department,” according to the letter. Security employees at the plant continue to be afraid to point out problems, the commission said.
But it did note that Entergy continues to work to improve the situation. “Because the first step in any 12-step recovery program involves identifying and admitting the problem, Palisades has clearly passed this step,” the NRC said.
The University of Delaware received a $12 million grant from the Department of Energy to help conduct energy research. Dionisios Vlachos, director of the university’s Catalysis Center for Energy Innovation, said the money will let researchers continue work researching widely abundant plant biomass to be used for renewable chemicals and fuels. The university was one of 32 “Energy Frontier Research Centers” across the country to share $100 million in research grants.
Other winners included the Carnegie Institution of Washington (accelerating the discovery and synthesis of kinetically stabilized energy-relevant materials using extreme pressures), the University of Maryland at College Park (nanostructures for electrical energy storage) and Pennsylvania State University (developing a detailed nano- to meso-scale understanding of plant cell wall structure and its mechanism of assembly to provide a basis for improved methods of converting biomass into fuels).
PJM will attempt to win stakeholder approval for limited changes to the compensation rules for black start units and a plan for selecting “backstop” resources for regions that fail to secure service through competitive solicitations.
The changes that will be considered by the Markets and Reliability Committee July 31 would make relatively minor changes to compensation rules, allowing:
Compensation for storage of propane and liquefied natural gas. Current rules permit compensation only for oil storage.
Compensation for energy-only resources.
Recovery of the costs of complying with the rules of the North American Electric Reliability Corp. (NERC) for automatic load rejection (ALR) units.
The changes received only 58% support in a poll of the System Restoration Strategy Task Force, well below the two-thirds vote it will need to clear at the MRC.
The task force unanimously approved a second proposal for selecting black start resources for zones that are unable to obtain black start services through PJM’s requests for proposals (RFPs). The “backstop” provision would be triggered by a failure of an RTO-wide RFP and two incremental RFPs. It would apply to zones that cannot be serviced by generation in another zone or through transmission upgrades to improve their cranking path.
Under the proposal, the host transmission owner would be responsible for obtaining black start service either through its generation affiliate or by contracting with a third-party generator. The unit providing black start capability under the scenario would be prevented from offering into the energy or ancillary services markets.
The alternative, explained PJM’s Chantal Hendrzak, “is to wait for another part of the system to come up” to jump start the zone.
Delmarva Power & Light Co. will accept applications for a Solar Renewable Energy Credit (SREC) Spot Market Auction through July 7. SRECs let renewable energy producers sell credits to Delmarva to help it meet its renewable mandates set by the state. Delmarva intends to buy 2,000 to 6,000 SRECs to help it meet its 2013-2014 renewable portfolio standards set by the state.
Public Service Commission staff said Delmarva Power & Light Co.’s planned reliability investments may shoot too high and suggested the company scale back some of the projects.
Delmarva proposed spending $397 million over the next five years upgrading its system and replacing aging infrastructure. But in a recently released report, PSC staff said they found that much of the Delmarva distribution system “is relatively young in terms of asset life” and that the company hadn’t shown “that its customers are dissatisfied with the current level of system reliability.”
The staff thinks Delmarva should limit its five-year investment plan to $200 million “until a more detailed annual review process can be completed.”
Chicago Mayor Rahm Emanuel’s deal with Integrys Energy Services to provide electricity to city homes and businesses could end up costing more than if customers had stayed with Commonwealth Edison, according Crain’s Chicago Business. A credit on ComEd bills for the months of June and July will lower electricity costs to less than 7.1 cents per kilowatt-hour. Prices negotiated for the 720,000 residences and businesses under Emanuel’s deal vary depending upon consumption. Under the Integrys plan, apartment dwellers would pay 8 cents per kilowatt-hour. The average homeowner would pay 9 cents in June and 7.8 cents in July. But the city has said that it could renegotiate terms if power prices turned out to be higher than ComEd’s.
Quinn, Clean Energy Trust Start $4.6 Million Renewable Fund
The Clean Energy Trust and Gov. Pat Quinn last week announced the creation of a revolving equity fund to stimulate investment in clean energy businesses in the state. “Illinois is a national leader in embracing green energy through innovation, and this fund will help us do even more,” Quinn said. The state Department of Commerce and Economic Opportunity is putting up $2.3 million from federal funds, and the Clean Energy Trust is matching that.
The new fund will award convertible notes ranging from $100,000 to $500,000 to startups working on renewable energy, energy efficiency, smart grids or other energy-related projects. Any returns from the resulting projects will be re-invested into additional businesses. A panel of judges will listen to project pitches and award the grants.
The Bowie City Council accepted a $92,000 grant from the Maryland Energy Administration on June 16 to help the city cut energy consumption and to develop a renewable energy policy. The award, part of the Maryland Smart Energy Community program, will help the city develop policies for a 15% cut in energy consumption within five years and meet a goal of using 20% renewable energy for government-owned buildings by 2022.
The state attorney general filed felony racketeering charges last week against Chesapeake Energy Corp. related to what the state says was a fraudulent land lease scheme. Attorney General Bill Schuette said Chesapeake’s leasing agents entered into gas leases with landowners, and then backed out of the leases by falsely claiming that mortgages on the properties were a legitimate basis for cancellation.
Chesapeake, the second-largest natural gas producer in the U.S., allegedly entered into the gas leases in order to keep other gas producers from obtaining drilling rights during the state’s recent fracking boom. Chesapeake spokesman Gordon Pennoyer said all charges facing the company are “baseless allegations” and pledged to battle them in court.
In March, Schuette accused Chesapeake and rival Encana Corp of colluding to keep oil and gas lease prices artificially low in Michigan during the oil and gas rush in its Collingwood Shale region in 2010.
The Board of Public Utilities is considering a change in tax policy that would align the state with most others, to the benefit of utilities. The issue concerns utility holding companies that file consolidated taxes not only for their utilities but also for other unregulated subsidiaries.
Consolidated income tax returns allow members of the company to take advantage of tax losses incurred by other businesses owned by the parent. Under current practice, customers received 100% less certain adjustments, making New Jersey one of only four states that allow losses to be returned to ratepayers.
Under the proposed change, 75% of any savings from consolidated filings would be returned to the companies, with only 25% going to ratepayers. Rate Counsel Director Stefanie Brand, however, is concerned with the proposed change in tax laws. “You want to share more with ratepayers, not less,” she said. “It could be where it’s going to get down to where ratepayers get very little, or nothing.”
Duke Residential Customers to Pay More for Renewables
Duke Energy Progress wants to charge residential customers more for solar and other renewable energy than it would charge business customers, the company told the state Utilities Commission last week. Residential customers currently pay 20 cents per month for renewable energy – primarily from solar farms – but Duke wants to push that up to 83 cents per month beginning in December. The charge goes toward subsidies to independent power producers to cover the higher cost of that type of energy that Duke must buy under state-mandated standards.
While the cost to residential customers would go up under Duke’s plan, the cost to businesses would drop from $8.08 a month to $6.11 a month and from $29.68 a month to $24.56 a month for industrial customers. The cost changes are tied to annual caps set by state law. The annual caps for business and industrial customers stay the same for 2015, but the cap for residential customers will rise from $12 a year to $34 a year.
AEP Energy, American Electric Power’s competitive electric service provider, announced last week that it will begin offering natural gas in the state. AEP joins several other competitive natural gas suppliers in the Columbia Gas of Ohio service territory. “By offering natural gas together with electricity, AEP Energy now can provide Ohio residents with a full-service energy solution,” said Scott Slisher, an AEP executive.
Ohio State University and the engineering firm of Babcock & Wilcox are working together to develop a coal-fired power plant that incorporates carbon-capture technology. Funded by a $2.5 million federal grant, the team is planning to use a chemical process to capture carbon dioxide waste during the combustion process. The university’s College of Engineering has already constructed a pilot plant, which generates about 25 kW of thermal energy. It has already run for 680 hours. The planned unit will produce 550 MW.
Public Utility Commission Chairman Robert F. Powelson was sworn in as president of the Mid-Atlantic Conference of Regulatory Utilities Commissioners last week. “I’m thrilled to expand my role with MACRUC and continue to work toward advancement and uniformity of public utility regulation throughout the Mid-Atlantic region,” Powelson said. Powelson was appointed to the PUC in 2008 by then-Gov. Edward G. Rendell. He also is a member of the Marcellus Shale Advisory Commission and is former president of the Chester County Chamber of Business & Industry.
A former GOP strategist who is facing Sen. Mark Warner in November’s Senate election has proposed an energy plan that would eliminate the recent EPA emissions rules, allow more offshore oil and gas leases and push through the Keystone XL Pipeline, all in the name in economic growth. “Virginia should be a model for the rest of the nation in promoting ‘all-of-the-above’ energy policies,” GOP candidate Ed Gillespie said last week. “Technologies that have enabled the shale gas boom have unleashed enormous possibilities for the future, and the nation is positioned to become energy-independent for the first time ever. All that is lacking is national leadership.”
Shares of NiSource Inc., parent company of Northern Indiana Public Service Co. (NIPSCO), rose 60 cents (1.5%) last week after news that it has been engaged in “soft” merger talks with Dominion Resources. Citing industry sources, The Deal reported that NiSource and Dominion have been talking for months, but that pricing has prevented an agreement. One source said that the two companies have “chatted” but talks have not turned serious and NiSource is not working with a financial adviser.
The report said Duke Energy Corp., Exelon Corp., Southern Co. and American Electric Power Co. have been approached by industry bankers trying to assemble a deal to acquire NiSource. The company owns 15,700 miles of interstate gas pipelines and gas distribution operations in seven states in addition to NIPSCO, which provides power to 450,000 customers in 20 counties in northern Indiana.
Rumors of a NiSource-Dominion deal date back to at least December, when Mergermarket reported that Dominion was attempting to raise more than $10 billion in debt to acquire an unidentified Midwest utility. One analyst said Dominion was NiSource’s most likely acquirer because it is already involved in the interstate pipeline business and is interested in the Marcellus shale play, where NiSource has pipelines and storage.
Operators at PPL’s Susquehanna nuclear generating station shut down Unit 2 last week to check for cracked turbine blades. Equipment that monitors the turbines for excessive vibration indicated that some of the finely balanced turbine blades in the steam generator may have developed small cracks.
“We have been monitoring turbine performance closely for the last several years and continue to work with the manufacturer to address conditions that are associated with cracks developing,” said Timothy S. Rausch, PPL’s chief nuclear officer. “That’s why we decided to shut down Unit 2 now to inspect blades and replace any that are found to have developed cracks.”
Workers replaced turbine blades at Unit 1 during a refueling outage in May. After the Unit 2 inspection, PPL will install new blades during the 2015 refueling outage, Rausch said.
Atlantic City Electric, Union Reach Pact Through 2018
Atlantic City Electric Co. and the International Brotherhood of Electrical Workers Local 210 reached a labor agreement last week that lasts through 2018. Local 1238, which represents workers at the company’s Carneys Point call center, also agreed to extend its collective bargaining agreement to 2020.
Atlantic City Electric’s parent company, Pepco Holdings Inc., announced in April that it was merging with Exelon, who said it will honor all union contracts and not issue any merger-related layoffs for at least two years after the merger.
Two former New York state regulators are opening a public utility consulting firm in Albany, N.Y. Maureen Harris, who served on the New York State Public Service Commission between 2006 and 2013, and Tom Dvorsky, former senior advisor to the commission, call their new firm Claritas Energy Advisors LLC.
Hess Corp. said it is selling its 50% stake in the Newark Energy Center to private equity firm Energy Investors Funds (EIF) for an undisclosed amount. The 705-MW natural gas-fired plant, currently under construction, is slated to go operational in May 2015. The transaction will make EIF the sole owner of the project. The plant is located on a 23-acre brownfield site adjacent to the Hess Newark petroleum storage terminal.
An Indiana developer is building a $7 million, 3-MW plant at a former gravel mine to turn cow manure to power. Brian Furrer said Green Cow Power should be running by September and will be the largest manure-fed power plant in the U.S. “We’re going to use less dirty coal in this country,” Furrer said. “That is just a fundamental fact of life. We’re going to do it through many different mechanisms. This is one mechanism that’s going to help.”
The plant will pump cow manure into tanks, where bacteria breaks it down and generates methane gas to produce power. Leftover solids are reused as bedding for cow barns, while leftover liquids are treated and spread on farm fields. The electricity will be sold to Northern Indiana Public Service Co. (NIPSCO).
The Federal Energy Regulatory Commission will convene workshops beginning this fall to consider rule changes regarding uplift, price caps and other issues affecting price formation in PJM and other RTOs and ISOs.
The commission said its inquiry was prompted by comments made at recent technical conferences on capacity markets and the grid’s response to the recent severe winter.
The workshops will consider ways to address limitations in RTO market software that prevent RTOs from modeling all system parameters, such as voltage constraints and generator operating constraints. “While these limitations are to some extent inherent in the complexity of the electric system, staff believes it is worth exploring whether there may be opportunities for RTOs and ISOs to improve their energy and ancillary services price formation processes,” FERC staff said in a presentation announcing the initiative (AD14-14).
Acting Chair Cheryl LaFleur said ancillary service markets are growing in importance because of the need to balance the increasing volume of intermittent resources.
The first of three workshops will be in early September and will focus on uplift, which can mute price signals. “Sustained patterns of specific resources receiving a large proportion of uplift payments over long periods of time raise additional concerns that those resources are providing a service that should be priced in the market or opened to competition,” the commission said.
Subsequent sessions will focus on:
Offer price mitigation and offer price caps. RTO rules designed to limit generator market power assume the ability of resources to fully reflect their marginal costs in their bids, but $1,000/MWh price caps in PJM and elsewhere prevented some operators from doing so during the gas price spikes in January. “To the extent existing rules on marginal cost bidding do not provide for this, bids and resulting energy and ancillary service prices may be artificially low,” the commission said.
Scarcity and shortage pricing. RTOs may dispatch emergency demand response and order voltage reductions to avoid reserve deficiencies, actions often tied to administrative pricing rules designed to reflect scarcity. “To the extent that actions taken to avoid reserve deficiencies are not priced appropriately or not priced in a manner consistent with the prices set during a reserve deficiency, the price signals sent when the system is tight will not incent appropriate short- and long-term actions by resources and loads,” the commission said.
Unpriced operator actions. RTO operators regularly commit uneconomic resources to ensure reliability or respond to un-modeled system constraints. “To the extent RTOs/ISOs regularly commit excess resources, such actions may artificially suppress energy and ancillary service prices,” the commission said.
Commissioner Philip Moeller predicted the discussion over price caps will be “contentious and long.” In response to a question from Moeller, Jamie L. Simler, director of the Office of Energy Policy and Innovation (OEPI), acknowledged it was “fairly unlikely” that the commission would be able to craft new rules before next winter.
OEPI staffer Mary Cain said one of the goals of the workshops will be to identify best practices among RTOs.
Gov. Jack Markell nominated Wilmington’s economic development director to the Public Service Commission last week. Harold Gray would take the seat of former commission member Arnetta McRae, who left the PSC in 2011. Her seat has remained vacant since then, and plans to reduce the five-member body to a three-member commission were shelved. Gray is a former member of the state Environmental Appeals Board and was an officer with United Way of Delaware. He was president and CEO of TehniData America, an IT consulting company.
Pepco and the District Department of Transportation last week asked permission to move more electric lines underground in a project that would take up to a decade and cost $1 billion. The plan would result in an increase to the average residential electric bill of $1.50 a month in the first year and up to $3.25 a month after seven years. Moving the lines underground is expected to reduce the number and length of service interruptions.
Ameren Transmission Co. completed public comment sessions on its proposed 345-kV transmission line on June 12 and will make recommendations to the Commerce Commission later this summer on the route from Peoria to Galesburg. Ameren says the line is needed to serve an increase in wind and other renewable energy sources in the state.
Gov. Rick Snyder signed a law allowing coal ash to be used in cement and asphalt last week. The law will also protect those who store coal ash and other byproducts from legal liability if proper procedures are followed. Snyder said the law will help keep waste disposal costs low and support the environment.
Just days after signing a bill freezing the state’s renewable energy standards, Gov. John Kasich signed House Bill 483, vastly increasing the setbacks required at wind farms. The setbacks, which increased from 550 feet to about 1,300 from the base of wind turbine bases to the nearest home, will drastically cut the number of turbines at proposed wind farms. Wind energy proponents were upset, with some saying that the new regulations could spell the end of new wind energy projects in Ohio.
The bill “basically zones new wind projects out of Ohio,” said Eric Thumma, director of policy and regulatory affairs for Iberdrola Renewables Inc. Thumma said the practical effect of the new regulations would cut the number of turbines at one project from 50 to seven and from 75 to three at another. “The economics are not going to work if you have such reduced projects,” he said. The new regulations were put in place in response to complaints about wind turbine noise and visual pollution.
Rockies Express Pipeline said its new 24-inch natural gas pipeline will start delivering gas from the state’s Utica shale gas fields to Indiana and Illinois this week. The Seneca lateral in southeast Ohio sends gas from the MarkWest Energy Partners Seneca processing plant to the main pipeline, and from there to markets in the west. Construction of additional compressor stations could allow gas to be sent as far as Missouri, pipeline owners say.
The state Environmental Quality Board has approved a final rule hiking the fees for unconventional well permits, a move that will result in about $4.7 million in additional revenue for the state, according to the state Department of Environmental Protection. “Under the Corbett administration, there has been a strategic, proactive approach to the oversight of this industry,” DEP Secretary and EQB Chairperson E. Christopher Abruzzo said. “The efforts to date have been unprecedented, and this fee increase will give us the ability to continue to grow and strengthen our program along with the growing industry.” The increased revenue will be used on additional staff and information technology projects to aid regulators in monitoring the increase in drilling.
PUC Eyes Settlement with Electric Company for Slamming
The Public Utility Commission is seeking public comment on a proposed settlement with an electric marketer for switching customers’ electric providers without full permission. The PUC proposes to fine ResCom $59,000 and require it to abide by “Do Not Call” lists. The company would also be required to file quarterly reports with the commission. The settlement arose after three ResCom customers complained to the commission that their service provider was switched without their permission.
State Agencies Target Five Energy Suppliers for Slamming
The Bureau of Consumer Protection and the Office of Consumer Advocate are targeting five electricity suppliers for a variety of alleged fraudulent tactics, including switching customers without their knowledge and overcharging them.
The joint complaints were filed before the Public Utility Commission, Attorney General Kathleen G. Kane announced on Friday. The complaints seek the revocation of the licenses of Energy Services Providers Inc. d/b/a Pennsylvania Gas & Electric; IDT Energy Inc.; Respond Power LLC; Hiko Energy LLC; and Blue Pilot Energy LLC.
Among the allegations are that the suppliers promised low or “competitive” rates if customers switched, and then charged them up to 300% more than they had been paying. Other customers complained that they were switched without their consent, a practice known as “slamming.” In addition to license revocation, the complaints seek civil penalties and refunds for the customers.
Dominion Faces Opposition to Jamestown Tx Tower Path
Photo simulation of planned James River towers (Source: Save the James Alliance)
Dominion’s plan to build a transmission line across the James River within sight of Jamestown Island and other historic sites is facing opposition from groups who say it would be a blight. The company is seeking permits from the U.S. Army Corps of Engineers to build 17 towers, some as tall as 295 feet, for the four-mile river crossing. Historic preservationists say the project would be a shocking sight among the area’s historic places. “I’m hard-pressed to find a worse place for Dominion to build this power line,” said Rob Nieweg, field director with the District of Columbia office of the National Trust for Historic Preservation. Dominion has argued that the project is necessary to ensure the reliability of service to the area.
FirstEnergy subsidiaries Mon Power and Potomac Edison amended their rate hike requests to include $7.5 million for monthly meter readings. The new filings, prompted by a recent PSC order, boosts the combined rate increases to about $103 million. The commission ordered both companies to ensure each customer’s meter is read monthly. Both companies have already started hiring and training enough new meter readers to comply with the order.
The Federal Energy Regulatory Commission unanimously agreed last week to change the way it calculates return on equity (ROE) rates for electric utilities, moving to a two-step process it has long used for natural gas and oil pipelines that incorporates long-term growth rates.
But the panel split 3-1 over its first application of the new formula, tentatively setting the ROE for New England transmission owners at three-quarters of the top of the “zone of reasonableness,” a departure from the prior practice that used the midpoint in the range.
The case resulted from a complaint filed in 2011 by New England state officials and others that challenged the New England TOs’ 11.14% base ROE as unreasonable. The commission’s ruling (EL11-66-001) sets the ROE at 10.57% for the New England TOs, which include Northeast Utilities, Central Maine Power Co., National Grid and NextEra.
(Although the commission chose a higher position within the range, the New England TOs’ ROE was reduced because the new formula reduced the top end of the zone.)
The commission also ordered hearing and settlement judge procedures in five pending challenges to electric utility ROEs, saying they should be resolved within the new framework. These include a December 2012 complaint that sought to reduce the New England TOs’ ROE to 8.7% (EL13-33) and cases involving Florida Power Corp.(EL12-39), Duke Energy Florida (EL13-63 & EL12-39) and Southwestern Public Service Co. (EL12-59 and EL13-78 & EL12-59).
FERC Staff, Consumers Rebuffed
In setting the ROE at the 75th percentile of the zone of reasonableness, the commission majority sided with the TOs and rejected arguments by FERC trial staff and consumer representatives, who had argued for continuing the commission’s traditional use of the zone’s midpoint.
Acting Chair Cheryl LaFleur, a former executive vice president and acting CEO of National Grid, sided with the two Republican commissioners, Philip Moeller and Tony Clark, saying the change was justified because of the unusually low current interest rates.
Commissioner John Norris — a Democrat like LaFleur — issued a partial dissent, saying that while he agreed that the companies deserved an ROE increase, there was insufficient evidence to support setting the rate so high.
“This order tilts the balance too far,” Norris said in a statement during the commission’s public meeting. “They will clearly be celebrating in the corporate boardroom of Northeast Utilities today.”
New Formula
The order changes the methodology for electric utility ROEs from a one-step discounted cash flow (DCF) model to the same two-step DCF the commission has used for natural gas and oil pipeline ROEs. While the one-step methodology relies on only short-term growth rates, the two-step process includes short-term and long-term growth rate estimates.
The commission said the two-step process will produce a narrower zone of reasonableness because long-term growth rates are more stable than short-term growth rates and because the two-step methodology does not calculate a high-end and low-end cost of equity estimate for each company in the relevant proxy group.
The two-step methodology “is less likely to produce the anomalous results that can result from combining high and low dividend yields with high and low short-term projections of dividend growth to produce two estimates for each proxy company,” the commission said. “The end result is often a zone of reasonableness that is defined by two widely divergent growth rates that do not engender much confidence in the reliability of the estimates.”
The commission ordered a paper hearing to determine whether growth in gross domestic product should be the indicator for long-term growth rates, as it is in natural gas and oil pipeline proceedings. Using the GDP indicator, the commission tentatively set the zone of reasonableness as 7.03% to 11.74%.
The previous zone ranged from 7.3% to 13.1%. Thus, although the commission chose a higher position within the range, the reduced top end resulted in a decrease from the New England TOs’ previous ROE, which also included a post-hearing adder.
Clearing the Backlog
In announcing the ruling at last week’s commission meeting, LaFleur said that she had made acting on a backlog of ROE cases a high priority when she was appointed acting chair in November. “I established specific goals for addressing the ROE cases, including that any resolution would be fair to customers and investors, principled and sustainable, and represent a consensus of my colleagues. While we did not achieve unanimous agreement on all points, I believe that we have met these goals,” she said.
LaFleur said the grid’s shift from coal to natural gas and renewables “will require the construction of a significant amount of transmission in the coming years. I anticipate that this order, along with our recent compliance orders on Order No. 1000 will help provide some certainty to that process.”
Norris: `Troubling Precedent’
Norris praised LaFleur for pushing the commission to act on the ROE disputes, which he said “had been languishing too long.”
But he said the order sets a “troubling precedent” and may subject consumers to unjustly high rates in the future.
He said he would have ordered a paper hearing because there was insufficient evidence to support setting the rate at the 75th percentile.
“Regrettably, today’s order tilts the balance in favor of the New England transmission owners without further recourse and fails to adequately give a voice to consumer interests,” he wrote in his dissent.
“Looking beyond today’s order, my broader concern is that the precedent established through this adjustment could become the new norm that would potentially ratchet up and lock in substantially higher ROEs in future cases. I am further troubled by today’s order in light of recent commission decisions on Order No. 1000 compliance filings that have served to protect incumbent transmission owners from competition in the development of new transmission. Simply put, not only will incumbent transmission owners be more insulated from competition, they will also be the primary beneficiaries of the new precedent established in this proceeding that could provide for substantially higher ROEs.”
Treasury Bond Update Eliminated
The commission’s order also ends its practice of using U.S. Treasury bond yields to make a final ROE adjustment, which reflect changes in capital market conditions after the close of the record in a rate hearing. Instead, the commission’s decision will be based on the latest financial data available in the hearing record.
The D.C. Circuit Court of Appeals had ordered the commission to revisit the issue in a ruling on a 2008 ROE case involving Southern California Edison Co. The court said FERC should consider evidence that U.S. Treasury bond yields and corporate bond yields might be inversely related. The commission acknowledged that “there is not necessarily a one-to-one correlation between U.S. Treasury bond yields and public utility returns on equity.”
Will PPL shareholders be better off now that the company has decided to spin off its generation?
Wall Street seems far from convinced, with the company’s stock price virtually unchanged since the deal with investment firm Riverstone Holdings LLC was announced. (Though you would have earned a tidy 13.5% return had you bought when rumors of the spin-off began bubbling up in early February.)
But there’s no doubt the tax-free deal creating Talen Energy will shuffle the generator rankings. The new company will have more than 15,000 MW of generation, ranking fifth nationally in competitive generation (behind NRG, Exelon, Calpine and Next Era) and third among independent power producers.
Within PJM, it will rank sixth with more than 12,000 MW of generation, behind AEP, Exelon, Dominion, NRG and FirstEnergy. Its 1,883 MW in Texas will give it presence in the Electric Reliability Council of Texas (ERCOT). PPL said Talen anticipates needing to divest about 1,000 MW of generation to achieve regulatory approval, but it wouldn’t say what plants might be affected.
Meanwhile, Exelon and other integrated utilities are rumored to be considering PPL’s pure-play strategy. The rationale: By concentrating on regulated operations, utilities will be more attractive to shareholders seeking steady earnings and dividends, while more risk-tolerant investors can ride the highs and lows of merchant generation.
Welcoming Volatility
In announcing the deal, PPL Corp. CEO Bill Spence made repeated references to the volatility of the generation markets in PJM and ERCOT and said Talen would be poised to take advantage of it.
PPL, meanwhile, will be left with a “100% rate-regulated business model [that] provides earnings and dividend growth potential.” He said PPL expects “substantial” growth in the rate base in the coming years.
PPL shareholders will own 65% of Talen, with Riverstone holding 35%. The company will be listed on the New York Stock Exchange.
Coal and Natural Gas
Both Riverstone and PPL come with substantial coal generation — both about 40% of their portfolios. The company will also have a 40% share of natural gas, with 15% of its portfolio in nuclear and the remainder in oil (3%) and renewables (2%).
The combination, according to PPL Corp. CEO Bill Spence, will make Talen a “highly competitive player, operating very attractive assets, in the right regions” with “a significant proportion [of generation] with low or no carbon dioxide output.”
The new company will assume PPL Energy Supply’s 10,000 MW of generation, primarily in Pennsylvania, which includes its 90% stake in the Susquehanna nuclear generating station (pending approval by the Nuclear Regulatory Commission), 292 MW of hydro in Pennsylvania and 677 MW of coal-fired generation in Montana. It does not include 11 Montana hydro facilities, whose sale to NorthWestern Corp. was announced in 2013 and is nearing closing.
The Riverstone fleet includes three coal- and natural gas-fired plants in Maryland, five natural gas- or oil-fired plants in New Jersey, one natural gas plant in York, Pa., a natural gas-fired plant in Dartmouth, Mass., and five natural gas-fired plants in Texas. Combined, they produce 5,345 MW.
Not Included
Not included in the generation spinoff are the approximately 8,000 MW of generation PPL owns and operates in Kentucky. “The Kentucky generating plants are part of the rate bases of PPL’s Louisville Gas & Electric and Kentucky Utilities subsidiaries,” PPL spokesman George Lewis said Friday. “The Talen Energy transaction involves only merchant generating plants owned by PPL.”
The regulated delivery business in the United Kingdom – where PPL has 7.8 million electric customers – also will be unaffected by the transaction, Lewis said.
Lewis said Talen Energy headquarters “will be in Pennsylvania, but the specific location has not been chosen yet.” Marketing the generation will be done by PPL Energy’s existing marketing operation, he said.“Talen Energy will have an asset-focused energy marketing operation to get the greatest value for electricity generated by Talen Energy plants,” he said.
Layoffs Expected
Paul Farr, president of PPL Energy Supply, will become president and CEO of Talen at the closing of the deal. Jeremy McGuire, PPL’s vice president of strategic development, will be Talen’s chief financial officer.
“There will be job reductions across PPL as a result” of the transaction, he said. “The number of positions and the timing of the reductions will be determined during the transition process over the next nine to 12 months.”
Regulatory Approvals
Lewis said the partners anticipate completing the transaction by the middle of 2015. Approvals will be necessary from the Federal Energy Regulatory Commission, the Federal Trade Commission, the Department of Justice, the Nuclear Regulatory Commission and the Pennsylvania Public Utility Commission.
The NRC, which has to approve any transfer of Susquehanna’s operating license to the new company, will meet with PPL July 2 to discuss its plans. The meeting, from 10 a.m. to noon, will cover the new owner’s financial and technical qualifications, among other areas. Members of the public will be able to call in to the meeting to participate. The NRC approval process could take up to a year, an agency spokesman said.
At the task force’s first meeting, however, Market Monitor Joe Bowring objected to the inclusion of the balancing congestion issue. Bowring told the MRC Thursday that the task force’s work would be “bogged down” by including the issue, which has been the subject of litigation and has eluded previous stakeholder attempts at consensus. Bowring said members could craft a transition without it.
