Page 1892 – RTO Insider

May 21, 2013

PJM Keynotes: Humility, Efficiency Needed for Fracking’s Future

WHITE SULPHUR SPRINGS, WV — Natural gas’ growing role in electric generation was a recurrent theme at PJM’s annual meeting last week, with author Michael Levi warning that overconfidence could threaten the fracking boom and gas executive Steven L. Mueller calling for increased efficiency to protect the “national treasure” in U.S. gas

“If we don’t set our standards high enough we could have more than a few high profile accidents … that could put a lot of land off limits” to drilling, said Levi, director of the Council on Foreign Relations’ Program on Energy Security and Climate Change, and author of the forthcoming book “The Power Surge: Energy, Opportunity, and the Battle for America’s Future.” “There’s a bit too much certainty in a lot of the messages we hear and not enough humility,” Levi said. “And people don’t buy that.” In his own speech, Mueller, president and CEO of Southwestern Energy Co., conceded: “I can’t tell you [U.S. producers will] never have a problem drilling 12,000 wells a year.” But he said his company, one of the largest North American natural gas producers, is “doing to everything we can not to screw it up.”

“Unsustainable” Practices

Mueller said that the fracking boom will be “unsustainable” unless drillers find ways of decreasing their water use. He noted that drillers currently require 900 truck trips per well, including deliveries of equipment and supplies. About 400 of the trips are deliveries of water. “The constraint becomes the roads you have,” he said. Mueller said drillers also will increase their productivity, predicting that unconventional wells — which now collect about 30% of the gas present — will increase their yield to 70% to 80% within three decades. “Today if you can’t get 80-90% from a conventional well you’re not doing it right.”

Another challenge, Mueller said, is finding enough pipeline and storage capacity to ensure adequate supplies of gas to meet both heating and electric loads. “We need to continue building our pipeline infrastructure out. We’re about two-thirds of the way there. We need to build overcapacity; if we have overcapacity, we’ll have that storage.” Levi said he did not expect the federal government to limit natural gas exports because exports won’t cause a significant price rise for most energy and chemical companies. “The place that really gets hurts by exports is fertilizer” companies, he said.

Solar to Challenge Utility Model

Turning to the electric industry, Levi predicted distributed solar generation will grow and present “some tough challenges for the traditional utility model.” What’s the next big thing in energy? Batteries, said Levi. “If you wanted a sort of killer app in the energy world that cuts across all areas like fracking — it’s storage,” he said. “There’s some real breakthrough chemistry that can still happen.”

May 21, 2013

Members Committee Approvals

The Members Committee approved the following changes by acclimation last week:

System Restoration Strategy

The committee approved updates to the system restoration strategy, including updates to cost allocation.

Reason for Change: The System Restoration Strategy Task Force has been researching ways to ensure sufficient black start capability. Environmental regulations, NERC reliability standards and the increasing cost of black start generation raised reliability concerns.

Impact: Deletes references to transmission owner. Adds conditions for involuntary termination of black start service. Adds reference to performance capabilities in PJM manuals; deletes reference to 90-minute response time. Adds cost allocation provision for black start units designated to serve multiple zones.

Provision of E-Tag Data

The committee approved revisions to the confidentiality provisions of its tariff to comply with FERC Order 771, requiring provision of e-Tag data to Independent System Operators, Market Monitoring Units and FERC. The new language extends confidentiality protections to counterparties that are not PJM members.

Up-To Congestion Transactions – Trading Limits

The committee approved volume limitations for up-to congestion transactions.

Reason for Change: PJM proposed the cap because high bid volumes can make it difficult for the RTO’s day-ahead markets software to reach solutions.

Impact: PJM can limit market participants to no more than 3,000 UTC transactions each in the day-ahead market when necessary for market operations. (A similar cap also applies to increment offers and decrement bids.) The definition of market participant includes all sub-accounts established under the member. Affiliates will be treated as separate participants and have their bids counted individually. The cap includes changes to the tariff, Operating Agreement and Manual 11.

Up-To Congestion Transactions – FTR forfeiture rules

Reason for Change: The rule is intended to prevent market manipulation — in this case, the submission of UTCs that boost the value of a participant’s FTRs.

Impact: The rule is applied when those UTCs result in a higher LMP spread in the day-ahead market than in the real-time market.

PJM Settlement Reconciliations

The committee approved revisions to Schedule 9-PJMSettlement of the Open Access Transmission Tariff to adjust the quarterly rate for the cumulative over or under collection of Schedule 9-PJMSettlement funds.

Reason for Change: Section c of Schedule 9 requires the quarterly 9-PJMSettement rate be adjusted for prior quarter revenues in excess of expenses. The formula does not provide for a reconciliation of prior period balances.

Impact: Section c is revised to adjust the quarterly rate for the cumulative over or under collection of Schedule 9-PJMSettlement funds relative to cumulative costs.

May 21, 2013

Tx Planning Standard OK’d on Second Try

The Federal Energy Regulatory Commission last week approved a revised transmission planning reliability standard it had previously rejected as “vague and unenforceable.”

The North American Electric Reliability Corp.’s proposed reliability standard TPL-001-2 would have allowed transmission planners to plan for non-consequential load loss following a single contingency as long as the plan was the result of an open and transparent stakeholder process.

The commission said the revised standard TPL-001-4 will improve reliability “by providing a blend of specific quantitative and qualitative parameters for the permissible use of planned non-consequential load loss to address bulk electric system performance issues.” The commission said the new rule defines the stakeholder process and criteria that must be followed and includes safeguards, including a review process to ensure the procedure does not hurt reliability.

The commission’s approval, a Notice of Proposed Rulemaking, will be open for 30 days after its publication in the Federal Register. In a concurring statement, Commissioner John R. Norris praised the rule for balancing the need to protect system reliability and minimize costs.

“NERC’s proposal goes a long way towards empowering local communities to consider the economic tradeoffs between incurring costs to avoid shedding firm load versus planning to shed firm load, while still ensuring that the decision-making process is more open and transparent and building in a safeguard for NERC to review decisions for possible adverse reliability impacts,” Norris said.

May 16, 2013

PJM Chooses Continuity over New Voices for Board – UPDATE

By Rich Heidorn Jr.

WHITE SULPHUR SPRINGS, WV – “I don’t want to put the board on the spot,” said Robert Mork, doing just that at the PJM Board of Managers annual meeting with public interest groups and state regulators Tuesday. “But I think it’s the case that none of you have worked in a consumer advocate’s office or served on a state commission.”

There was an awkward silence in the wood-paneled Eisenhower conference room at the opulent but mostly empty Greenbrier resort here. No one corrected Mork, an attorney in the Indiana Office of Utility Consumer Counselor.

Would the 10-member PJM benefit from the presence of at least one board member with a state ratemaking perspective? It will have to wait at least another year to find out.

The PJM Members Committee this morning approved the re-election of three long-serving members to the PJM Board of Managers: Jean Kinsey, William Mayben and Richard Lahey. Given the absence of any other candidates, reelection was all but certain.

Kinsey, a Ph.D. economist, has served on the board since 2003. She is a Professor Emeritus in the Department of Applied Economics at the University of Minnesota and an expert on food consumption trends, obesity issues, consumer buying behavior, and food industry organization.

Lahey, who has a Ph.D. in mechanical engineering, is an expert on nuclear reactor safety technology, power engineering, and the use of advanced technology in industrial applications. A Professor Emeritus at the Rensselaer Polytechnic Institute, he has served since PJM’s independent board was created in 1997.

Mayben, who joined the board in 2007, worked as a management consultant serving utilities and is former president and CEO of the Nebraska Public Power District. He holds a B.S. in electrical engineering.

The three were selected for new three-year terms by the nominating committee, comprised of Board Chair Howard Schneider; also a member of the original board; board members John McNeely Foster and Susan Riley, and five PJM members. The members represent the Electric Distributor, Generation Owner, Other Supplier, End Use Customer and Transmission Owner sectors.

Lahey and Mayben, who both serve on the board’s reliability committee, told PJM Insider that maintaining the security of the PJM grid against physical and cyber attacks would be among their priorities in their next terms.

“I’m concerned about people getting into our system,” said Mayben, who is also on board’s audit committee.

Lahey also is a member of the human resources and finance committees. He said had he had no specific goals. “It’s hard to predict the future,” he said. “At every meeting there’s some new challenges.”

Kinsey is a member of the competitive markets and audits committees.

She declined to comment on her pending election Wednesday. “I think they [members] know what I’m doing and what I will be doing,” she said.

May 13, 2013

Manual, Tariff Changes: Residual Zones, EKPC, Loss of Internet, Regulation Market

The Market Implementation Committee approved changes to implement Residual Zone Pricing, the integration of the East Kentucky Power Cooperative and market procedures to be used if the RTO loses Internet service.

Residual Zone Pricing

Residual Zone Pricing will replace physical zone LMPs for real-time load effective June 1, 2015. A Residual Zone is an aggregate of all load buses in the physical zone, excluding load priced at nodal locations.

Reason for Changes: Manual revisions are required to implement Residual Zone Pricing, which was endorsed by the Members Committee in February 2012 and approved by FERC in Docket ER13-347.

Impact: The following manuals will be changed: M6: ARR/FTR election language (sections 3 and 4); M11: Energy & Ancillary Services Market Operations (section 2); M27: Open Access Transmission Tariff Accounting (section 5), and M28: Operating Agreement Accounting (sections 3, 8.3, 9.3 and 11).

Residual Metered Load aggregate definitions used for ARR/FTR purposes are fixed for the planning period.

PJM Contact: Suzanne Coyne

EKPC Integration

Reason for Changes: Adds the East Kentucky Power Cooperative zone into PJM markets manuals as a result of the coop’s integration into PJM effective June 1.

Impact: Changes to the following manuals: M11: Energy & Ancillary Services Market Operations (sections 2.13 and 10.4.2); M18: PJM Capacity Market (sections 2.3.1 and 3.3.1); M27: Open Access Transmission Tariff Accounting (sections 2.2, 5.3, 8.1 and 8.1.1), and M28: Operating Agreement Accounting (section 5.3).

PJM Contact: Brigid Cummings

Suspension of Day-Ahead Market for Loss of Internet

Reason for Changes: PJM has no procedures for responding to an extraordinary event, such as an Internet failure, that disables the RTO’s eMKT application. Tariff revisions are required to implement a procedure for suspending the day-ahead market when loss of the Internet or other extraordinary circumstances prevents market clearing. (See “PJM Working on Contingency Plan for Loss of Internet”)

Impact: All market settlements would be done in real time if PJM loses Internet service. The procedure requires changes to sections 1.10.8 and 1.10.9 of the Open Access Transmission Tariff, including clarification that the rebid period will be from 4:00 PM to 6:00 p.m. but may be revised by PJM if the clearing of the day-ahead energy market is significantly delayed.

PJM Contact: Ray Fernandez

Regulation Market

Reason for Changes: New rules implemented in October require regulation offers to include capability (cost, in $/MWh to reserve a resource for regulation) and performance (costs of tracking the regulation signal in miles/MW). Previous rules, as defined in Manual 15, did not include performance costs.

Impact: Inserts regulation cost information in M15: Cost Development Guidelines (sections 2.8 and 11.8) and removes it from M11 – Energy & Ancillary Services Market Operations (sub-section 3.2.1).

Also updates the example of a regulation cost offer calculation (section 2.8) and redefines energy storage losses (section 11.8) in M15 and removes heat rate process information from M11 (section 3.2.1) and moves it to eMKT User Guide.

PJM contact: Jeff Schmidt

May 13, 2013

MIC OKs Options to Reduce FTR Shortfalls

The Market Implementation Committee gave preliminary approval Wednesday to two proposals for lowering the risk of FTR revenue shortfalls.

The two proposals from the Financial Transmission Rights Task Force (FTRTF) received near-unanimous support, while a third option failed with less than 40% support and a vote on a fourth option was postponed.

All of the proposals were designed to eliminate modeling differences between the energy and Financial Transmission Rights (FTR) markets that contribute to FTR funding shortfalls.

The two proposals approved for consideration by the Markets and Reliability Committee reduce or remove infeasibilities in the FTR model and may allow increased counter flow FTRs to clear.

The four proposals were whittled down from more than 20 options the task force considered in eight meetings since October.

PJM’s Tim Horger said an analysis for one constraint found more than a $15 million improvement in FTR adequacy. However, he added, “we’re not guaranteeing anything with this.”

Under the first option (FTR Task Force option 2J), PJM “may model normal facility capability limits, if possible, for all Stage 1A over allocated facilities in FTR Auctions.”

The second option (option 3G), would allow PJM to “model normal facility capability limits, if possible, on facilities which are infeasible as a result of modeled transmission outages in monthly FTR Auctions.”

The other two options would attempt to reduce FTR funding deficits by lowering capability in FTR auctions rather than reducing infeasibilities.

The rejected proposal (option 2K) would have allowed PJM to “reduce capability, if possible, on facilities that have historically caused FTR underfunding in FTR auctions.”

MIC voted to table consideration of the fourth proposal (Long Term Auction Option) until the Federal Energy Regulatory Commission rules on FirstEnergy’s complaint over FTR underfunding (EL12-19-000). That proposal would have reduced “capability in Long Term FTR Auctions … from 100% to 50% of available capability after reserving ARR capability.”

All the proposals would guarantee ARR target allocations and ensure that self-scheduled FTRs are not impacted.

May 13, 2013

MIC OKs UTC Credit Requirement

The Market Implementation Committee endorsed a first-ever credit requirement for up-to-congestion transactions. The new rule, a consensus resulting from 12 Credit Subcommittee meetings since December 2011, will be brought before the Markets and Reliability Committee May 30.

Reason for Change:

UTC trading volumes have grown dramatically since 2010 but there are no credit requirements to protect market participants against defaults.

Impact: Bid screen and cleared portfolio credit requirements are based on a percentile of the difference between each member’s bid or cleared price and the two-month rolling average of real-time value per path.

Bid Screen Credit:

Prevailing flow paths: 70^th percentile
Counterflow paths: 80^th percentile

Cleared Portfolio Credit:

Prevailing flow paths: 70^th percentile
Counterflow paths: 95^th percentile

Minimum Financial Participation Requirements — the same minimum requirements as for increment and decrement transactions:

tangible net worth of at least $500,000 or
tangible assets of at least $5 million, or
posting $200,000 of financial security against which the member may not trade, plus a 10% reduction in additional collateral.

PJM analyzed the impact of the proposals against trading results for April 2011, July 2012, and Jan. 2013 to evaluate shoulder, summer and winter periods. It also looked at how they fared against the largest losses in the 10-month period between Jan. 1 and Oct. 31, 2012.

The proposal covered 95% or more of bid exposure for each scenario except for January 2013, when it covered 82%. Excess collateral ranged from a low of $1.9 million (January 2012) to a high of $8 million (July 2012). Excess collateral is concentrated in members with high bid volumes. (See chart.)

May 13, 2013December 12, 2023

Substation Sabotage Raises Concerns over NERC Alerts

NERC’s delayed and muted response to the sabotage of a Pacific Gas & Electric Co. substation April 16 has some electric industry officials concerned.

One or more gunmen breached a security fence and shot and damaged seven of eight transformers at PG&E’s Metcalf substation near San Jose about 2 a.m. The shooting prompted the California Independent System Operator to issue an alert asking residents in the region to cut their electricity use.

But the seriousness of the sabotage was slow to spread elsewhere in the electric industry. PJM didn’t receive an alert from the North American Electric Reliability Corp. until two days later, Mike Bryson, executive director of system operations, told the Operating Committee last week. The incident “was a lot worse than it appeared to be when we got the alert,” Bryson said.

Bryson said the NERC official who authored the alert believed “it went out later than he would like and didn’t get the reaction it should have.” An alert sent the following day by the SERC Reliability Corp. made clear the seriousness of the incident, Bryson said.

NERC and SERC told PJM Insider the alerts are confidential and would not be made public. The shooting occurred minutes after someone cut underground fiber optic cables a half mile from the substation, briefly knocking out phone and 911 service in the area. Law enforcement officials believe the two incidents are related.

Bryson said the industry gets more than 10 reports annually of shootings at transmission lines but most incidents are far less serious than the April 16 event.

The incident underscored a risk raised last year by Jon Wellinghoff, chairman of the Federal Energy Regulatory Commission. Wellinghoff told Bloomberg News that he feared saboteurs with guns could target transformers. Transformers, which are usually protected only by chain-link fences, are often custom built and can take 18 to 36 months to replace, Wellinghoff said.

An attacker “could get 200 yards away with a .22 rifle and take the whole thing out,” Wellinghoff said. The physical security of the grid “is an equal if not greater issue” than cybersecurity, he added.

Cyber Threat Raised

Separately, the Department of Homeland Security warned last week of a heightened risk of a cyber attack on water and electric utilities.

DHS’s Industrial Control Systems Cyber Emergency Response Team (ICS-CERT) reported “increasing hostility” against “U.S. critical infrastructure organizations,” The Washington Post reported, quoting from the alert. “Adversary intent extends beyond intellectual property theft to include the use of cyber to disrupt … control processes.”

The alert included indicators that companies can use to detect attacks and recommended countermeasures. Industry officials told the Post that the level of detail in the alert was evidence that President Obama’s February executive order — which directed the executive branch to increase information sharing with industry — was having an impact.

May 13, 2013

PJM Outlines ‘Crisper’ Approach to Stakeholder Initiatives

PJM last week announced a two-step process for defining new initiatives and tools prioritizing its growing stakeholder workload.

The Market Implementation Committee will be the first to implement the new procedure, which will separate the voting on problem statements (defining the problem, situation or opportunity to address) from voting on issue charges (defining which body will study the issue, their goals and deadlines).

MIC Chairwoman Adrien Foley said it will result in a “crisper” process than the current practice, in which the two votes are combined, generally a month after the issue is presented on first reading. The new process will allow a vote on the problem statement on first read; those that are approved will have a vote on the issue charge a month later.

If stakeholders assign the issue to a new task force or work group, it will also require a charter to set the objectives and milestones for the group.

The process will be rolled out to other committees after testing in the MIC.

Work Plan

Foley also presented the MIC with its first “Work Plan,” listing the status and projected schedule of 21 current issues being pursued by MIC and nine subcommittees, task forces and work groups. The work plan, which includes a meeting schedule, is intended as a way to set priorities and budget stakeholders’ time.

The first issue considered under the plan was a problem statement by Market Monitor Joseph Bowring that was approved by MIC in April. It called for investigating whether traders could be manipulating PJM’s interface pricing points by breaking schedules into multiple “back-to-back” transactions. (See “MIC to Probe ‘Sham Scheduling’.”)

After receiving comments from stakeholders and Bowring, Foley said the issue would be started “as soon as practical.”

Voting App, Self-Serve Registration

MIC also heard about enhancements that will allow members to cast votes with their smartphones, a capability that was offered to tablet users in February. The changes are expected to be complete this summer.

PJM also is developing a self-service web application that will allow members to update the names of their voting representatives on committee rosters without filing forms with the RTO. The improvements also will allow the use of the committee voting application in additional committee meetings (e.g., Operating Committee, Market Implementation Committee). PJM plans to solicit member feedback on the changes this summer.

May 13, 2013December 12, 2023

CIP Audit Finds 4 Potential Violations

Last month’s audit of PJM’s adherence to Critical Infrastructure Protection (CIP) standards may result in up to four potential violations, PJM officials told the Operating Committee May 7.

Two of the issues were reported by PJM before the audit by ReliabilityFirst Corp. and SERC Reliability Corp. and may not result in violation notices, PJM spokesman Ray Dotter said. Dotter said the other two were minor issues that posed no risk to the system. “In fact, it was noted that PJM’s strong compliance program and its commitment to compliance allowed” completion of the audit in only two and one-half days, half the time scheduled, Dotter added.

The draft report detailing the violations has not been released.

Correction: In its April 16 edition, PJM Insider incorrectly referred to a ReliabilityFirst/SERC audit that had no findings as a CIP audit. That reference was to a separate RFC/SERC audit focused on transmission system operations and planning.