The Federal Energy Regulatory Commission last week clarified its 2013 rule opening the ancillary services markets to more competition from electric storage.
Order 784 was designed to improve competition and transparency in ancillary services markets at a time when the growth of wind power and other intermittent sources is increasing the need for imbalance services. The rule requires PJM and other transmission providers to consider speed and accuracy in acquiring regulation resources, removes obstacles to selling such services at market-based rates, and creates new accounting categories for tracking investments in electric storage. (SeeFERC Rule Boosts Storage, Renewables.)
Any intra-hour transmission scheduling practice will meet Order 784’s requirements regarding sales of energy and generator imbalance services;
The section 205 filing requirement for sales of ancillary services made pursuant to a competitive solicitation applies only to sales not otherwise authorized in Order 784;
Order 784 is not intended to permit transmission providers to limit the quantity or percentage of total reserve obligations of regulation and frequency response service a customer may self-supply;
Historical one-minute and 10-minute ACE data must be posted to OASIS by public utility transmission providers within 30 days;
Account 555.1, Power Purchased for Storage Operations, is intended to include all costs of power purchased for energy storage operations regardless of the classification of the associated energy storage device used in operations; and
The new accounting and reporting requirements must be implemented in the 2013 forms due to be filed April 18, 2014.
Separately, the commission scheduled a staff workshop April 22 at FERC headquarters on third-party provision of reactive supply, voltage control, regulation and frequency response services. Those wishing to provide input can complete a speaker nomination form. FERC encouraged those wanting to attend to register in advance.
Virtual transactions are used to arbitrage price differences between the day-ahead and real-time energy markets and hedge financial exposure from physical positions. A market participant takes a financial position in the day-ahead energy market by agreeing to buy or sell energy at a specific location that it then liquidates in the real-time market.
If the day-ahead price were higher than the real-time price, a trader would profit by submitting an increment offer (INC) to sell energy at the high day-ahead price and buy out of that position at the lower real-time price. Conversely, a decrement bid (DEC) would make money if the real-time price is higher.
An up-to congestion trade (UTC), used to arbitrage price spreads between geographical locations, is a bid in the day-ahead energy market to purchase congestion and losses between two points. UTCs based on the prevailing flow purchase positions on the day-ahead energy market congestion; those in the counterflow direction are paid to take a position.
Virtual transactions can benefit the market by providing price convergence between the day-ahead and real-time energy markets. However, by competing with physical resources in the day-ahead energy market, PJM says virtual transactions can affect the scheduling and dispatch of physical resources, contributing to uplift.
The Federal Energy Regulatory Commission ordered PJM and financial traders to submit briefs in a long-running dispute over excess line-loss revenues.
FERC said the filings will help it build a record so that it can respond to an appellate court ruling last August that found the commission had failed to justify its rationale for demanding repayment of $37 million in surplus funds awarded to the traders in 2009. (See Split Decision for Financial Traders on PJM Line-Loss Collections.)
The commission’s order last week (EL08-14) gave the parties 45 days to file initial briefs, with reply briefs due 30 days later.
FERC asked the parties to discuss the impact on the market of requiring the refunds; how much of the $37 million refund amount that PJM has already recouped; and which classes of customers would make up the shortfall if FERC denies PJM’s refund request.
WASHINGTON — PJM and other grid operators will face unprecedented reliability challenges in the next several years as federal environmental regulations and low energy and capacity prices threaten to sideline baseload coal and nuclear capacity, federal and PJM officials told state regulators.
“The next two, three years, I just hope energy is not on the front page every single day,” Federal Energy Regulatory Commissioner Philip Moeller told the National Association of Regulatory Utility Commissioners winter meeting, shaking his head. “If you’re up for excitement, the next two, three years will be very exciting.”
MATS, Coal Ash, GHG, Cooling Water Rules
Moeller cited the Environmental Protection Agency’s Mercury and Air Toxics Standards (MATS) and pending EPA rules on coal ash and greenhouse gas emissions. More than 30 GW of coal-fired capacity retirements have been announced nationwide, with about three-quarters expected by 2015, when MATS takes full effect. (See sidebar: State Regulators Await GHG Rules.)
PJM CEO Terry Boston and others also cited EPA’s pending regulations on cooling water intakes, which will affect nuclear and fossil steam generating units representing more than 80% of U.S. generation, according to the North American Electric Reliability Corp. The greatest impact will be on more than 1,200 generators with once‐through cooling water systems, NERC said.
Boston said he was most concerned about the impact of the rules on the nuclear fleet, citing an estimated cost of $400 million to $500 million per plant to install closed-cycle cooling systems.
David Owens, executive vice president of the Edison Electric Institute, said it could cost the industry as much as $100 billion to comply with the regulations.
“Ihope that the [EPA] air division is talking to the water division,” Moeller said. “There are so many [regulations] coming. I’m fuel neutral … but we can’t be reliability neutral.”
John Shelk, CEO of the Electric Power Supply Association, echoed Moeller’s concerns, saying, “I worry a lot about the next five to 10 years.”
Markets’ Impact on Reliability
Several speakers also voiced concerns that energy and capacity markets in PJM and other RTOs aren’t providing enough revenue to sustain nuclear generation, which is unaffected by most of the new EPA regulations.
“Right now competitive markets are not working and that’s why we’re losing nuclear plants,” said Marvin Feitel, president and CEO of the Nuclear Energy Institute.
EEI’s Owens agreed. “I think it would be a travesty if we lost a large number of nuclear plants because we don’t have sustainable price signals,” he said.
Owens said the markets’ treatment of demand response was partly at fault. “I think [DR] gets paid too high a price because I don’t think it’s the same as steel in the ground,” he said. “Right now we’re shutting down plants that [should remain operating] because of market distortions.”
FirstEnergy CEO Tony Alexander said competitive markets are flawed because they encourage excess capacity.
“Those of you in regulated states would never put your states at risk the way we are in PJM and other competitive markets,” he said.
PJM’s Boston defended the RTO’s market rules but conceded that the current low prices are “not sustainable.”
“The markets aren’t broken, but furiously competitive,” he said.
Gas-Electric Dependencies
FirstEnergy’s Alexander also called for changes in the relationship between the electric grid and natural gas pipeline system.
“You can’t have the electric system at the tail being wagged by the pipeline system. That’s what we’re building today,” he said.
Commissioner Moeller said two consecutive warm winters “masked our vulnerability” to gas supply shortages, vulnerabilities that were exposed during last month’s arctic cold. FERC will hold a technical conference April 1 to discuss operational and market issues raised by the grid’s response to this winter’s cold. (See related story: Technical Conference Set on Winter Reliability.)
The Federal Energy Regulatory Commission approved a new product designed to reduce uneconomic power flows between PJM and NYISO.
The commission’s orders (ER14-623 and ER14-552) allows Coordinated Transaction Scheduling (CTS) to begin as soon as November if stakeholders are satisfied with the accuracy of the forecasts the product will use.
According to PJM, power often flows into NYISO even when prices are higher in PJM. CTS, which is based on a price projection algorithm, will allow traders to submit bids that would clear only when the price difference between New York and PJM exceed a threshold set by the bidder. (See New NYISO Product OK’d.)
Before beginning to use the product, PJM will be required to post monthly price forecasts from its Intermediate Term Security Constrained Economic Dispatch (IT SCED) application from November 2013 through April 2014 and win a stakeholder vote approving the tool’s accuracy.
CTS trades will be in addition to two current options: hourly evaluations of traditional wheel-through transactions and intra-hour evaluations of traditional LMP bids and offers.
WASHINGTON — Senators told state regulators they had little hope of passing comprehensive cybersecurity legislation or finding a solution for the nuclear waste stalemate this year.
Four members of the Senate Energy and Natural Resources Committee gave the National Association of Regulatory Utility Commissioners an update on the prospects for legislation affecting the grid and made their cases on subjects including the wind Production Tax Credit, greenhouse gas rules and Norman Bay, President Obama’s nominee for the Federal Energy Regulatory Commission chairmanship. (See sidebar: Senators Cite PJM in Reliability Concerns.)
Sen. Mary Landrieu (D-La.)
Sen. Mary Landrieu (D-La.), who replaced Oregon Democrat Ron Wyden as chair of the energy panel, promised “a very balanced and common sense” approach that she said reflects her state’s role as both a big producer and — due to its industrial production — consumer of energy.
Also speaking was Arkansas Democratic Sen. Mark Pryor, a mentor to NARUC president Colette Honorable.
Pryor, who serves on the Communications, Technology and the Internet Subcommittee, said he no longer expects Congress to pass a single, comprehensive cybersecurity bill. “I think it’s more likely we’ll do it section by section, committee by committee,” he said, referring to committees with jurisdiction over energy, banking and telecommunications. “I’m hoping we can get some of that done this year.”
Sen. Lamar Alexander (R-Tenn.) spoke out against extending the PTC, which expired Jan. 1, saying it contributed to negative energy prices, which undercut the viability of nuclear power. “It props up renewable energy at the expense of reliable energy,” Alexander said.
Carbon Capture
Sen. Lamar Alexander (R-Tenn.)
Alexander also called for simplifying the tax code, eliminating fuel-specific energy subsidies and doubling spending on energy research, which he said could make carbon capture and sequestration (CCS) cost competitive.
Sen. Joseph Manchin (D-W.Va.) touted a bill he sponsored with North Dakota Republican Sen. John Hoeven that would essentially bar the Environmental Protection Agency from requiring CCS in new coal-fired generators. The bill would instead base emission standards on those achieved by the six cleanest coal plants currently operating. “If [the standard is] not obtainable it’s not reasonable,” Manchin said.
Norman Bay Nomination
Sen. Joseph Manchin (D-W.Va.)
Manchin and Alaska Republican Sen. Lisa Murkowski — who helped sink Ron Binz’ FERC nomination last year — said they were keeping an open mind on the new nominee, FERC enforcement director Norman Bay. (See FERC Pick a Blank Slate.)
“Don’t know much about him. We’re going to look him up pretty good,” Manchin told reporters after his speech.
He offered unsolicited support for Honorable, the Arkansas regulator whose name had circulated in the capital earlier as a potential FERC candidate. “She has the chops to get it done,” he said, adding, “There’s a lot of good candidates.”
Murkowski, the ranking Republican on the energy panel, told reporters she was surprised Obama nominated Bay to the FERC chairmanship rather than promoting a current commissioner. “It didn’t work out so well for Mr. Binz,” she said.
She said she also has “a little concern” about Bay having to recuse himself in commission votes because of his involvement in enforcement cases.
Nuclear Waste
Sen. Lisa Murkowski (R-Alaska)
Murkowski expressed frustration that energy efficiency legislation, which she thought would be “low-hanging fruit,” instead “has gotten caught up in the process.”
Members are awaiting a Congressional Budget Office cost estimate on a bipartisan bill co-sponsored by Murkowski and Alexander that would create a new nuclear waste administration and a consent-based process for siting waste facilities.
Alexander said the bill has reached near consensus, with “one or two things we don’t agree on.”
But Murkowski said she wasn’t optimistic it would move quickly. “It’s probably up against the clock in this 113th Congress,” she said.
Alexander said the Obama administration should also renew work on Nevada’s Yucca Mountain. But Energy Secretary Ernest Moniz, speaking to the conference later, said the administration believes Yucca is “not a workable solution.” The proposed waste site, 100 miles north of Las Vegas, is opposed by many in the state, including Senate Majority Leader Harry Reid (D-Nev.).
Two members of the Federal Energy Regulatory Commission last week balked at former Chairman Jon Wellinghoff’s campaign to raise awareness of the threat of sabotage of the electric grid, saying it could result in copycat attacks and wasteful spending. Separately, the head of the North American Electric Reliability Corp. said he opposed mandatory standards on physical security as expensive and unworkable.
Commissioners John Norris and Philip Moeller made statements at last week’s meeting in response to news articles earlier this month reporting on Wellinghoff’s concerns about the April 2013 sniper attack on a PG&E substation near Metcalf, Calif. The former chairman called the attack “the most significant incident of domestic terrorism involving the grid” to date. (RTO Insider provided an account of the attack based on a presentation at PJM’s Grid 20/20 conference in November. See Substation Saboteurs ‘No Amateurs’.)
Congressional Inquiry
Following the articles, Senate Majority Leader Harry Reid and three fellow Democrats wrote a letter to acting FERC Chair Cheryl LaFleur and NERC CEO Gerry Cauley asking them to determine whether reliability regulations were needed to address the physical security of “critical substations and other essential functions.”
In a letter to Reid Feb. 11, LaFleur said that FERC had joined NERC, the Department of Homeland Security, the Department of Energy and the FBI in an outreach campaign to utilities, states and law enforcement agencies, including a detailed briefing about the Metcalf incident. “This approach has resulted in improvements being implemented more quickly and more confidentially than a mandatory regulation could have accomplished under our existing authority,” she wrote.
LaFleur added, however, that she had directed FERC staff to work with NERC to determine whether a mandatory reliability standard is needed “to protect against physical attacks on our electric infrastructure.”
In his own response, NERC’s Cauley said he opposed a mandatory standard. “There are more than 55,000 substations of 100 Kv or higher across North America, and not all those assets can be 100% protected against all threats,” Cauley wrote. “I am concerned that a rule-based approach for physical security would not provide the flexibility needed to deal with the widely varying risk profiles and circumstances across the North American grid and would instead create unnecessary and inefficient regulatory burdens and compliance obligations.”
Cauley summarized NERC’s “defense-in-depth” philosophy, which includes simulation exercises such as NERC’s two-day drill last November. (See Grid Exercise `Like a Disaster Movie’.)
At last Thursday’s open meeting, Commissioner Moeller read a brief statement warning that “highlighting any real or perceived vulnerabilities and sharing specific security information or responsive actions may inadvertently promote the prospect of additional copycat attacks.”
Commissioner Norris had far more to say, warning that “elected officials and our former colleague seem to be calling for significant measures specifically geared toward erecting various physical barriers to our grid infrastructure.”
“I am concerned,” he said, “that such actions are a 20th century solution for a 21st century problem.”
Norris said three utilities that met with him recently indicated they may spend more than $500 million on physical barriers and increased security measures around transformers and substations.
PG&E said Feb. 10 it plans to install opaque walls, advanced camera systems, enhanced lighting and additional alarms at multiple substations as a result of the attack. Although it did not place a cost estimate on the improvements, it said it would likely seek a rate increase to fund them.
Norris said making such investments nationwide could cost billions — money he said would be better spent on “a multi-functional, intelligent grid that is resilient and capable of mitigating multiple kinds of threats.” He noted that in addition to potential saboteurs, the grid also faces threats from cyber-attacks, geomagnetic disturbances, electromagnetic pulses and natural disasters.
Metcalf Attack
At least two gunmen were believed involved in the attack on PG&E’s Metcalf 500/230 kV substation near San Jose about 2 a.m. April 16. The shooting occurred minutes after the suspects were believed to have cut underground fiber optic cables a half-mile from the substation, briefly knocking out phone and 911 service in the area.
The shooting caused more than $15 million in damage and prompted the California Independent System Operator to issue an alert asking residents in the region to cut their electricity use. The substation was out of service for nearly a month.
The incident was strikingly similar to a scenario Wellinghoff had outlined in 2012 in an interview with Bloomberg News. Transformers are often custom built and can take 18 to 36 months to replace, Wellinghoff said.
The recent news accounts quoted Wellinghoff reporting that investigators found that the shell casings discovered outside the substation were wiped off to prevent fingerprint detection. Wellinghoff also said military experts spotted small rock piles outside the substation that might have been left earlier to mark the best firing positions.
While Wellinghoff characterized the incident as “terrorism,” the FBI has not agreed with such a characterization.
“Based on the information we have right now, we don’t believe it’s related to terrorism,” an FBI spokesman told The Los Angeles Times, noting that no one has been arrested in the case. “Until we understand the motives, we won’t be 100% sure it’s not terrorism.”
LaFleur: Change FOIA
Unlike Norris and Moeller, LaFleur did not criticize Wellinghoff’s actions in raising the alarm about the attack.
But she told reporters after the meeting she agreed with her colleagues that “the resilience of the grid needs to be viewed broadly.”
She said FERC would seek to “maximize existing authority before talking about” seeking more powers. However she said Congress could help security efforts by amending the Freedom of Information Act to exempt sensitive information regarding grid vulnerabilities and threats from disclosure.
In her letter to Reid, she added: “Congress should consider designating a federal department or agency (not necessarily FERC) with clear and direct authority to require actions in the event of an emergency involving a physical or cyber threat to the bulk power system. This authority should include the ability to require action before a physical or cyber national security incident has occurred.”
Senators’ Letter
The letter from Reid, which was signed by Ron Wyden (D-Ore.), Al Franken (D-Minn.) and Dianne Feinstein (D-Calif.) expressed concern “that voluntary measures may not be sufficient to constitute a reasonable response to the risk of physical attack on the electricity system. While it appears that many utilities have a firm grasp on the problem, we simply do not know if there are substantial numbers of utilities or others that have not taken adequate measures to protect against and minimize the harm from a physical attack. A chain is only as strong as its weakest link.”
Unlike a chain, however, the grid is designed to remain functional despite the loss of individual assets.
“We should look to further deployment of phasor measurement units, wide-area management systems and enhanced situational awareness,” Norris said. “Furthering efforts in the development and deployment of microgrids and smart grid technology will also greatly assist in addressing grid resiliency.”
WASHINGTON — Two members of the Senate Energy committee cited PJM’s struggles during January’s arctic cold to support their concerns about the impact of the Environmental Protection Agency’s pending greenhouse gas regulations.
Sens. Joseph Manchin (D-W.Va.) and Lisa Murkowski (R-Alaska) said they fear EPA’s CO2 limits on existing generators could threaten reliability by forcing coal plant closures in addition to those forecast by 2015 due to EPA’s Mercury and Air Toxics Standards (MATS).
“I was told we were within 700 megawatts of the whole PJM system coming down [during the January cold spells],” Manchin said. “That’s unconscionable.”
Murkowski said that for “one key grid” — which she later identified as PJM — “89% of coal slated for retirement next year was called upon during the cold spell.”
“A hope and a prayer is not the way we should be operating,” she added.
Voltage Reduction, Not Collapse
PJM spokesman Ray Dotter said Manchin’s reference was to the peak hour on Jan. 7, when the unexpected loss of 700 MW of generation — or a similar jump in demand — would have required a voltage reduction. “While a voltage reduction is a serious step, it is a tool used from time to time when power supplies are tight, and it is unnoticed by most consumers,” PJM said in a statement.
In response to Murkowski’s comment, Dotter acknowledged that PJM called a maximum emergency generation action to mobilize all available resources — including units slated for retirement and voluntary demand response — several times in January.
“The experience in January reinforces the value of PJM’s capacity market rule changes to encourage more annual [demand response] resources and demonstrates the value of load management to system reliability throughout the year,” PJM said.
Despite the pending retirements, the RTO said it was confident it will have the resources necessary to ensure reliability. It cautioned that “operating reserves will narrow because excess resources will be retired, and energy prices could be more volatile.”
World’s Largest Fuel Switch
NYMEX Forward Curves for the PJM Western Hub (Source: PJM Interconnection, LLC)
At PJM’s General Session after the NARUC conference, officials briefed stakeholders on what they called the “world’s largest fuel switch,” which will see the RTO’s coal- and gas-fired generation swap market shares, with coal capacity dropping to 50 GW from more than 70 GW while gas grows to 70 GW from more than 50 GW.
Andy Ott, PJM executive vice president for markets, presented a projection showing PJM’s installed generation dropping by a net of almost 3,500 MW (2%) by 2017, with 9,500 MW in additions and almost 13,000 MW in retirements.
The presentation included a look at the NYMEX forward curves for the PJM Western Hub monthly peak contract. Traders last month boosted prices for the winter 2014, 2015 and 2016 forwards, but summer prices remain below those that traders were paying last year (see chart).
“I think the forward curves are understated,” Ott said. “People haven’t realized how much net change in generation we are going to have.”
The Federal Energy Regulatory Commission was within its rights to approve PJM’s controversial capacity market rule changes in 2011, a somewhat reluctant federal appeals court ruled Feb. 20, rejecting challenges from New Jersey, Maryland and others. The court also upheld FERC’s approval of changes opposed by the generator group PJM Power Providers.
The US Court of Appeals for the 3rd Circuit upheld FERC’s decision approving the elimination of an exemption for state-mandated resources from the capacity market’s minimum offer price rule (MOPR), but said it found the commission’s actions “more than mildly disturbing.”
By earlier endorsing PJM’s rules that included an exemption for state-mandated supplies, the court said, “FERC would allow sovereign states and private parties to be drawn into making complex and costly investments, only to later pull the rug out from under those who were persuaded that the exemption was somehow real. That FERC has done so based on little more than the claim that the agency had an ‘ah ha’ moment when foreseeable outcomes approached fruition only makes matters worse.”
Nevertheless, the court upheld FERC’s ruling, saying the standard needed to find FERC’s action arbitrary and capricious, “is a high bar indeed, and many agency actions worthy of condemnation are not so deficient that they can be said to cross it. Such is the case here.”
Judging by that standard, the court said, the commission advanced adequate rationale for its “about-face.” Speculation that states would structure contracts to substantially suppress prices “has become reality,” the judges ruled. “As such, it cannot be said that FERC acted without substantial evidence.”
The case, New Jersey BPU v. FERC (No. 11-4245, et al), arose after New Jersey and Maryland instituted programs to procure 2,000 MW and 1,800 MW, respectively, of new generation to be bid into PJM capacity market auction at prices below the Cost of New Entry (CONE).
PJM concluded the state initiatives interfered with the capacity market’s ability to send competitive price signals. New MOPR provisions were set that limited state-sponsored generation to certain characteristics, including that it did not give preference to new resources over existing ones or restrict the type of resource that could participate. The state programs had sought new gas-fired capacity, which PJM specifically said would not be exempt from the MOPR.
The states and consumer advocates protested, arguing states should have the right to select capacity based on fuel diversity, environmental benefits or economic development.
The court rejected the states’ argument that FERC was usurping their rights by eliminating the exemption for state-sponsored resources. “[W]hat FERC has actually done here is permit states to develop whatever capacity resources they wish,” the court said, “and to use those resources to any extent that they wish, while approving rules that prevent the state’s choices from adversely affecting wholesale capacity rates. Such action falls squarely within FERC’s jurisdiction.”
Regina Davis, spokeswoman for the Maryland Public Service Commission said the PSC was disappointed in the ruling and had not made a decision concerning an appeal.
Also challenging the FERC ruling was the American Public Power Association, but the court said its concerns were made moot by later PJM and FERC actions. In 2013, PJM parties worked out a plan, which FERC approved, that assuaged many concerns of load-serving entities like public power utilities that self-supply. It did not reinstate the previous guaranteed market clearing for self-supply resources, but it exempted self-supply from price mitigation subject to showings that the self-supply will not set the market-clearing price.
APPA was also dismayed by the ruling. The MOPR changes at PJM “partially redressed” public power’s problem, but the negotiated provisions are “not of the same quality” as the original MOPR and do not constitute “a done deal,” APPA Vice President Sue Kelly said yesterday.
The provisions are the subject of rehearing petitions at FERC, she said. To APPA, a fierce critic of the capacity market, the court’s handling of its issue illustrates how “nothing is ever safe” from “endless litigation” and “years of stakeholder process.”
The P3 group, which originally had challenged several MOPR revisions, had some of its concerns addressed later by further changes to the rule. Two of its concerns remained for the court, however: the policy of basing the calculation for energy and ancillary services offsets on the zone with the highest revenues, and the policy of exempting resources from the MOPR once they have cleared one capacity auction, instead of three auctions.
The court rejected the generators’ arguments. About the calculation issue, it said “FERC has articulated legitimate reasons for finding PJM’s preferred method for calculating energy and ancillary services offsets just and reasonable, and that is all it is required to do.”
The Federal Energy Regulatory Commission will hold a day-long technical conference April 1 to discuss operational and market issues raised by this winter’s extreme cold, which exposed vulnerabilities in the grid’s increasing reliance on natural-gas fired generation.
Acting FERC Chair Cheryl LaFleur announced the conference last week, saying it would focus in part on the experience in PJM, which last month called on demand response, a voltage reduction and voluntary appeals for conservation to avoid rolling blackouts in the face of record demand and large numbers of generator outages. (See Pony Up! Members Express Anger over High Prices, Uplift Allocation.)
LaFleur said an agenda for the conference has not yet been completed.
