FERC conditionally OKs PJM capacity market reforms
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Wednesday, June 10, 2015
In this issue
FERC conditionally OKs PJM FERC conditionally OKs
capacity market reforms
PJM capacity market
reforms
Chairman Bay explains his dissent, cites cost risks
DOE
inspector general rules
FERC yesterday conditionally accepted PJM’s capacity performance on Wellinghoff data leak
revisions over the objections of Chairman Norman Bay. The commission
accepted part of the RTO’s energy-market reforms that came with the DC
appeals court calls case
capacity performance filing, but directed changes on its proposals for against CPP premature
generator operating limits.
2 stories
in 30 seconds
PJM showed that the major reforms in its proposal were needed to ensure
the long-term reliability of electric supply in its footprint, the commission said.
The capacity market in PJM maintained the reserve margin but lacked in-
centives for power plants to actually perform when they were most need-
ed. The RTO’s proposal would imitate scarcity pricing in energy markets
by fining power plants when they do not show up and paying more money
to plants that are more reliable.
Power plants will be allowed to bid more up front to take that risk into ac-
count, meaning the overall cost of capacity is expected to double under
the new market mechanism.
The RTO got a waiver to run its capacity market a few months later so
FERC could rule on the capacity markets proposal and it could go into
effect for the 2018/2019 delivery year. PJM will run transition auctions
wherein just part of the fleet it governs will be switched over to capacity
performance in 2016/2017 and 2017/2018.
The changes will address the performance issues seen in January 2014 and
help the RTO deal with the shift away from coal to natural gas, FERC said.
“Given the forward nature of PJM’s capacity market, failure to act today to
address recent generator performance issues and anticipated resource
fleet changes could cause reliability issues years from now, at realized
cost levels potentially significantly higher to customers in the form, not just
of extreme price spikes like those seen in January 2014, but potentially in
loss of load or other reliability events,” the commission said.
“We find that taking action at this time to increase reliability and to ensure
incentives for resource performance,” including both existing and new
capacity, “is both appropriate and necessary.”
While performance was better in PJM this past winter, that did not as-
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Webinar
suage the long-term reliability concerns raised by historical unit per-
formance, FERC said. Generators often do better immediately after a
Early bird registration
major event such as the polar vortex, only to have performance trail off
later, it added. discount ends today
The commission has been reviewing capacity markets more generally, How Will Markets
having directed all ISO/RTOs to file updates on how their markets assure Deal with EPA’s
fuel availability. The commission already approved similar changes from
ISO-NE, which used them in its last capacity auction early this year. Clean Power Plan?
A 90-minute live webinar presented
The commission found that the offer cap proposal was just and reason- by Utility Markets Today
able. PJM filed that with its market monitor after FERC issued a defi- June 24, 2015, 2-3:30 PM
ciency letter in the proceeding, much of which focused on the offer caps Eastern US Time
that are expected to have a major impact on how much the rule change
DISTINGUISHED SPEAKERS:
will cost.
•J
eff Bladen, MISO Energy executive
director of market design
The capacity market is structurally non-competitive so mitigation is
•P
aul Hibbard, Analysis Group vice
needed, FERC said. The default offer cap will be net CONE (cost of new president
entry) times the balancing ratio, which is a representation of expected •A
ndy Kellen, WPPI’s vice president
outages across the RTO. Generators will also be able to get unit-specific of power supply resources
offer caps reviewed by the market monitor and the RTO.
EPA’s proposed Clean Power Plan
has been described by opponents as
FERC accepted PJM’s proposal to base non-performance penalties on a massive change to how the electric
net CONE, which is an estimate of the cost of new capacity. It makes industry is regulated, but proponents
sense for capacity sellers that fail to perform to have to pay the cost for argue it is just guiding and speeding up
replacing the missing capacity. a transition that the industry is already
undergoing.
Participants will know the price of failing to perform before they offer as The EPA’s proposed rule would require the
well, FERC noted. power industry to cut CO2 emissions by
30% by 2030. States have widely different
The commission agreed with the annual cap on non-performance targets, depending on what the agency felt
charges at 1.5 times net CONE, but rejected the 0.5 times net CONE was achievable by each one. The agency
monthly cap – arguing that would blunt incentives too much. The monthly also gave states two options to comply
with the rule. States can use “rate based”
limit would cap penalties at just 15 performance hours when up to 30 targets – emissions rates at power plants.
(the expected annual maximum) could happen in a month. Or they can use a mass based target,
where the rate of power plants does not
PJM committed to removing the monthly cap and doing so was a condi- matter as long as they hit an overall level
tion of FERC’s acceptance. That and other changes will have to come in of CO2 emissions. The mass based target
a compliance filing due in 30 days. would work much better with organized
markets, but ultimately it is the states’ calls
on what they will use.
The requirement that resources be available whenever needed is harder
to meet for supply such as intermittent renewables, storage with limited KEY LEARNING POINTS:
output, less than annual DR and efficiency. Those resources will be able • What does this rule mean for markets?
to make capacity offers on their own based on their expected availability, • Are the EPA’s goals achievable?
• What about costs?
or team up with other resources to submit joint capacity offers.
• Are mechanisms like an up-front
reliability study of the state plans or a
FERC required changes to PJM’s proposal to limit how generators can post facto reliability valve needed?
use their operating parameters to get out of supplying in the energy mar-
kets. The RTO proposed capping minimum start times and storage-offer Early bird registration discount ends
today, June 10th. Click here or call
minimum downtimes, but FERC said the RTO should use actual perfor-
+1-301-769-6804 (1-888-678-4480 toll-
mance data rather than arbitrary caps. free in the US and Canada) to register
risk-free now.
Parameter limits will also have to include contractual limits in addition to
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physical constraints. A gas pipeline might require a plant to take a mini-
Smart Grid Today’s
mum of gas deliveries on peak days in a requirement that the commission
itself found just and reasonable. Exclusive Industry Report
Units will also be able to take such contractual limits or other non-physical Smart Grid
characteristics into account in their parameter limits. They should be able
to get make whole payments based on such constraints, even if they are
Pioneers 2015
In this 2015 edition of “Smart Grid Pioneers,”
not part of a plant’s physical design, it added.
Smart Grid Today, the publication of
record for the smart grid industry since
Bay balks at risks 2009, names
the 50 smart
While four commissioners supported the RTO’s rule changes, Chairman grid pioneers of
Bay’s dissent was based on the possibility the changes could cause bil- 2015, including
lions in added costs for consumers without achieving the stated goals, 11 CEOs or
presidents,
he said. The existing capacity market design has been in place for
15 directors,
nearly a decade and maintained reserve margins and kept the lights on, a former state
he added. governor and
a White House
This past winter saw markedly improved performance, despite the ab- National Security
sence of the capacity performance rules, Bay said. The rules offer “two Council staffer.
carrots and a partial stick” with the first carrot being the ability to offer They are concerning themselves with
smart grid development not only in the
up to net CONE times the balancing ratio (now calculated at 0.85) and US but also in Australia, Bahrain, Brazil,
the second being performance-incentive payments for generators that Canada, Chile, China, Colombia, Denmark,
do well. Ecuador, Estonia, Finland, France,
Germany, Ghana, India, Italy, Japan,
The penalties are based on PJM having 30 performance-assessment Kuwait, Latvia, Lithuania, Nigeria, Norway,
hours in a year, which happened during the polar vortex but the RTO saw Oman, Poland, Qatar, Saudi Arabia, South
Africa, South Korea, Sweden, the UK, the
fewer hours in other recent years. If it had just 14 performance hours,
United Arab Emirates and Vietnam.
generators would face a maximum penalty of just 40% of net CONE – The editors of Smart Grid Today
when they get to bid 85% of net CONE. selected the winners from exclusive
interviews conducted over the last 16
“A rational profit-maximizing resource could simply seek a capacity award months about modernizing the electric
in the auction, fail to perform during each performance assessment hour industry around the world. The report
and likely pay a penalty less than the carrot it has received,” Bay said. “To describes the latest developments and
thinking in the industry in discussions with
put it more bluntly, the resource could be paid for doing nothing during the entrepreneurs, executives and managers
emergency hours of the year when it is most needed and for which it has from smart grid entities including: computer
been well compensated.” hardware and software firms, electricity
distribution automation and demand
BAY: New phrase unneeded response firms, electric utility firms,
electricity retailers, energy services firms,
energy storage companies, electric-vehicle
The majority of FERC also made the ruling worse by rejecting PJM’s pro-
charging firms, global development
posal to limit operating parameters to physical constraints and widening it agencies, IT shops, microgrid firms,
out to “actual constraints.” Bay called that a new and ambiguous term that networking firms, power management
would at least include fuel arrangements. companies, public advocacy groups,
security and compliance consultancies,
The majority accepted a flawed, complex, highly technical market con- government agencies and engineering
struct with a potential mismatch between incentives and penalties and firms and think tanks.
Download your copy of the 133-page
where mitigation has largely been eliminated, Bay said. It might cost
report now by clicking here or call +1-301-
consumers billions, too. 769-6804 (1-888-471-4447 toll-free in the US
and Canada). The single-copy rate is $695
“The reality is that, once a market construct is accepted and implement- for non-subscribers or $347 (SAVE 50%)
ed, it is very difficult to unwind,” he added. “Of all the costs associated for Smart Grid Today subscribers.
with the CPP, not the least among them is this: the opportunity cost of the
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FREE Industry Report
time and resources that could have been used to develop a more sustain-
able, efficient and cost-effective design.”
Smart Grid Today presents...
DOE inspector general rules GROWING PAINS
on Wellinghoff data leak THE EXPERTS: Taking on the
most urgent challenges of
DOE’s Inspector General (IG) Gregory Friedman found that former FERC renewables
Chairman Jon Wellinghoff inappropriately released a deposition from an The hard knocks and stumbling blocks
enforcement case at a conference this March. Almost all of the informa- that sometimes come with being on the
tion gathered during the course of an Office of Enforcement probe is leading (or bleeding)
edge of industry
nonpublic, including the video of the deposition, the IG said.
modernization are
becoming clear for
Once the release was confirmed, FERC staff took steps to restrict further utilities worldwide
public disclosure of the video excerpt by Wellinghoff and the conference’s working to integrate
organizers. Wellinghoff agreed to destroy any copy of the deposition, as solar. Two key
did the people running the conference. issues that have
emerged are how
to upgrade the grid
Despite the actions around the deposition video, it took FERC staff until a
to accommodate
day before the IG was going to issue a management alert on the issue to more home PVs and how to fairly
ask Wellinghoff to delete any other materials he might still be in posses- compensate customers with home
sion of from his time running the commission. Wellinghoff confirmed to PV without penalizing customers who
commission attorneys a few days later that he had done so. do not have solar. Smart Grid Today
interviewed executives from around the
The video in question was effectively a highlight reel of one trader’s evasive world to find out how they are adjusting
answers to questions from enforcement staff, where they argued over such to the realities of solar technology
integration and published the findings in
things as the meaning of the words “from” and “to” in the context of emails. this free industry report.
The IG’s report indicated the case in question was settled by the firm in Sources for “GROWING PAINS”
July 2013, meaning it was almost certainly the JP Morgan case wherein • John Wellinghoff, former FERC
that firm allegedly milked California and Midwest ratepayers for $125 mil- chairman and Stoel Rives partner
lion in unjust make-whole payments for its generators. The case saw the • Christian Adams, Bonterra Solar
largest-ever settlement for market manipulation FERC has entered into. president and partner and vice
president of Hawaii Solar Energy
Assn
While JP Morgan did not admit nor deny the allegations, it stipulated to • John Bradley, Energy Networks
the facts in the case and agreed to pay $410 million in disgorgements and Assn CEO
penalties to end the probe. • Alice Jackson, Xcel Colorado vice
president of rates and regulatory
The video was used as part of a presentation created by enforcement staff for affairs
discussion with the energy-trading firm to show that some individuals were not • Mark Paterson, Commonwealth
fully cooperating with the ongoing market manipulation investigation. Scientific & Industrial Research
Organization manager of smart grid
partnerships
A commission official at the March 9 conference indicated that the ex-
• Gary Ralston, Hawaii Island Solar
cerpt could be “embarrassing” to the trader being deposed due to the na-
founder and Hawaii Solar Energy
ture of his behavior, the IG report said. That embarrassment of an alleged Assn board member
market manipulator is enough for the IG to request that current Chairman • Michael Sandoval, Independence
Norman Bay look into whether Wellinghoff violated the confidentiality of Institute fellow
probes requirement and ascertain what, if any sanctions are warranted. •B en York, Electric Power Research
Institute senior project engineer
In a response to the IG’s report, Bay said he asked staff to look into what
further steps were possible and to share their findings with him by Sept 1. Download FREE, exclusive
report NOW!
The IG recommended Bay determine whether FERC has the authorities
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needed to prevent the disclosure or misuse of sensitive or non-public
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DC appeals court calls case
against CPP premature Has your organization
been mentioned in
The US Court of Appeals for the DC Circuit yesterday threw out a chal- Utility Markets Today? To find
lenge to EPA’s proposed Clean Power Plan (CPP), ruling that parties out, visit www.utilitymarketstoday.com/
jumped the gun in appealing the proposed rule. Coal mining firm Murray public/programs/search.cfm to search
through Utility Markets Today’s online
Energy and a dozen state attorneys general filed the appeal.
archive. Accessing the full articles,
full PDF issues and other subscriber-
“They want us to do something that they candidly acknowledge we have only online tools comes free with your
never done before: review the legality of a proposed rule,” Judge Brett subscription.
Kavanaugh wrote in the decision. “But a proposed rule is just a proposal.
In justiciable cases, this court has authority to review the legality of final
agency rules.”
EPA intends to file a final rule this summer, but in the proposed rule, said
the Clean Air Act’s Section 111(d) gives it the authority to regulate carbon
emissions from existing power plants. Murray Energy and the 12 attor-
neys general argued the law does not grant that authority and the court
should block the EPA from issuing a final rule.
Proposed rules are not the consummation of an agency’s decision-mak-
ing process and they do not determine rights or obligations, or impose
legal consequences, the ruling said.
The appellants argued that the court could issue a writ to aid the inter-
pretation of the law in its jurisdiction, but the court said that would not be
necessary. After EPA issues a final rule, parties with standing can appeal
it and seek a stay pending judicial review.
At that time, which the court noted is not very long from now, it will be
able to review the CPP.
While EPA said it has the authority to regulate carbon under section 111
(d), those statements do not constitute final agency action and thus they
are not reviewable by the court, it added.
Murray Energy et al challenged a 2011 settlement EPA signed with some
states that set up a deadline by which the agency would have to decide
whether it would regulate carbon. The court argued that was a backdoor
attempt by the petitioners to get a ruling and said the settlement did not
compel EPA to act, just to consider action.
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2 stories in 30 seconds Abbreviations: For a glossary of
Gas futures rise on Utility Markets Today’s abbreviations,
see www.utilitymarketstoday.com/
hints of added heat: NYMEX July natural gas futures continued their glossary.
bullish leaning yesterday as the upside momentum from Monday gained
steam amid a dearth of fundamental support, analyst Jackson Mueller
reported. The contract added 14.1¢ to close at $2.846/MMBTU. Weather
continued to imply only limited demand in the coming weeks, with aver- Archives: Access searchable
age temperatures called for in wide swaths of the country in the midrange articles (www.utilitymarketstoday.
that should generate comfortable conditions, he added. com/public/Article-archive.cfm) and
downloadable PDF issues (www.
Maine Senate OKs utilitymarketstoday.com/issuearchive)
online – so you can quickly find
PUC nomination: The Maine Senate yesterday approved Republican background on issues, policy efforts
Gov Paul LePage’s nomination of Bruce Williamson to be the next mem- and firms of interest.
ber of the PUC. The 10 nays in the 25-10 vote were from Democrats,
though some members of that party voted for him. Williamson is a senior
economist at the University of Tennessee’s Howard Baker Center for
Public Policy.
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