Thursday, February 21, 2019

Stakeholders Push Back Against SPP Retirement Changes

By Tom Kleckner

LITTLE ROCK, Ark. — SPP staff are dialing back an ambitious proposal to beef up the analysis behind generator retirements, promising to take “baby steps” in designing a “holistic process” in the face of stakeholder pushback.

SPP MMU generator retirements

SPP’s Casey Cathey | © RTO Insider

Casey Cathey, who will soon become SPP’s manager of reliability planning, recently promised the Strategic Planning Committee that staff would focus on the “technical aspects” of evaluating generator retirements, saying he wants the issue to be an official item before the Markets and Operations Policy Committee.

“We want to show some traction,” Cathey told the SPC on Oct. 18. “What we really want is an overall process, so people can rally around it and say, ‘This is what we really want to do.’”

Quite the opposite happened when Cathey shared his proposal with the MOPC and SPC earlier this month. Stakeholders reacted negatively to the potential use of reliability-must-run contracts and involving SPP’s Market Monitoring Unit in the evaluation process.

SPC Chair Mike Wise, who told RTO Insider he was surprised by the presentation, was emphatic as he complained about the potential use of RMRs and having to possibly pay other generators’ fixed costs.

“This is a real reach in strategy and dangerous from my point of view,” said Wise, Golden Spread Electric Cooperative’s senior vice president of regulatory and market strategy.

“This could blow this up into a massive issue,” American Electric Power’s Richard Ross said during the MOPC discussion. “I encourage you to walk before you run.”

Cathey took Ross’ advice, saying staff would rely on an in-house white paper to flesh out the RMR process by creating a business practice and revising the Tariff.

“We’re not going to address the RMR contracts or the settlement aspects of fixed costs,” Cathey said. “We’ll get down to the technical aspects of how we figure out this thing. We’ll back this up a little bit.”

The Board of Directors and Members Committee is not scheduled to resume the discussion during their Oct. 30 meeting.

Staff brought the issue before their governance groups, saying an aging fossil fleet has increased the possibility of retirements in SPP’s footprint. Noting that retirements are evaluated in multiple processes with limited coordination, staffers said they want to ensure the RTO has an opportunity to study retirements and any resulting mitigations before the actual retirement date.

SPP generation requirements statistics | SPP

More than 4.1 GW of generation has been retired in SPP’s footprint since 2010, but another 2.4 GW is scheduled through 2019, and staff said they are beginning to see ad hoc studies on other potential retirements. Cathey said 77 different resources have been manually committed for reliability purposes, with the longest commitment for 74 days.

“The only mechanism we have right now is to run the resource,” he said. “You guys would not be properly compensated. Any costs you would incur are not included in our Tariff.”

Best Practices

While staff are proposing planning and operations assessments for retiring units, it was the MMU’s evaluation that drew most of the stakeholder feedback. The Monitor wants to guard against market power issues, focusing its analysis on whether the retirement would result in a scarcity of generation capacity or amount to an uneconomic decision indicating physical withholding behavior.

SPP MMU generator retirements

MMU Executive Director Keith Collins | © RTO Insider

Executive Director Keith Collins said the MMU will review both technical and economic justifications, looking at the unit’s age and possible state or federal environmental requirements that might force it to retire.

Collins also said the Monitor would intervene, if necessary, in retirement applications before regulatory bodies.

“I’m not comfortable with you testifying as an intervenor in our state cases,” Southwestern Public Service’s Bill Grant said. “I have a lot of concerns with what you’re proposing.”

“My expectations are it would be a dialogue. If there’s a difference of opinion, we would talk about concerns before reaching the point where we’re talking to the state or other regulatory bodies,” Collins responded. “What makes the Market Monitor unique is that we have a particular view no one else does, including the states. It gets to the concept of a structural market issue, where your resource could create market power.”

The MMU’s proposed analysis would rely on a going-forward cost that measures avoidable costs if a generator is retired or mothballed. Going-forward costs include mandatory capital expenditures due to any environmental, safety or reliability requirements, fixed operating and maintenance costs, and property taxes, if applicable.

The Monitor plans to use going-forward costs to help determine whether a generator’s net market revenues cover enough expenses to allow it to operate as long as it financially should.

“The two questions we would ask are, one, does [the retirement] create undue market power, and two, is the retirement economic?” Collins said. “If we have a serious enough issue that comes up as a part of this process, we’ll do what we have to do. We would be questioning the economics. The reality is, we’re reaching out to state commissions and talking about these issues already.”

SPP MMU generator retirements

Director Phyllis Bernard addresses the MMU’s Keith Collins. | © RTO Insider

Collins said the concept is nothing new for Monitors, noting NYISO has a similar process and uses expected net revenues to help determine whether to retire units or build new generation.

Cathey said the RTO would “hopefully” not identify any issues in the process and instead allow a resource to retire.

“We looked at every other ISO in the U.S. This has been crafted on best practices,” Cathey said. “If you’re coming to us to retire, you’ve largely done your own homework. We don’t want to be a barrier to that. If we find something because of the way we operate, we would execute an RMR.”

“My members, my board, [do not] want to pay for fixed costs of other generators in the market,” Wise said. “We don’t have a capacity market; we have a capacity requirement. I pay for my fixed costs; I pay for my fixed requirement. We don’t pay for each other’s fixed costs. This would be a real shift for SPP and problematic for many consumers.”

“Let’s be realistic,” Cathey said. “We’re not looking to circumvent any state authority. RMRs are really a last resort.”

Cathey said staff will continue discussions with several stakeholder groups and begin development of a revision request. SPP plans to return to the MOPC in January with draft revisions.