Smart Grid Legal News - High Voltage Insight on Smart Grid Issues

Although PJM headquarters is just minutes from Steven & Lee's Valley Forge office, it took a recent trip to Washington, DC, for me to catch up with its President and CEO, Terry Boston. PJM manages the largest power grid in North America and the largest electricity market in the world. It is a regional transmission organization (RTO) that coordinates the movement of wholesale electricity, operates a competitive wholesale electricity market and manages the high-voltage electricity grid to ensure reliability for more than 58 million people. While attending PJM's conference, Grid 20/20: Focus on Markets, Terry made time to discuss some key issues with me.

Evers: I really appreciate you taking the time to meet with me. This is a real privilege. Terry, what is the most exciting thing about your job?

Boston: I guess dealing with all of the customers that we have. We’re up to 756 customers now and being able to have innovative markets that they can play in is probably the most exciting part. I love the technology. I’m a geek at heart. At the end of the day, the customer service function is probably the most fun part.

Evers: What keeps you up at night?

Boston: Cyber security. It has changed in the last three to four years. It’s no longer just a matter of trying to keep kids out of the system. Making sure we have security built in not bolted on to all of our networks and systems is probably the most important part of what we do. You have to realize this is a new world we’re in. We have to be very diligent, and we need resilience. Resilience is the ability to recover after a breach or intrusion.

Evers: I’m glad to hear you say that because after today’s session, I sat there thinking about distributed generation and I wondered whether or not cyber security a paradox. Is it even real? Can we ever really have cyber security? So I love the focus on the resiliency part.

Boston: That’s interesting. I was pleased to read a report that went to the President last year that basically came to the conclusion that you can’t protect against everything. The President had an interesting quote, and it goes something like this: “We have to accept the world as it is.” There will be hurricanes, there will be snowstorms like the October snowstorm, and we have to be realistic. Resiliency is about how well you recover after that big event, like Hurricane Irene or a cyber-attack.

Evers: That is a perfect transition into my next question. I heard you talk about some of extreme conditions in the past year: an earthquake, very hot days or the early snowstorm that I call the “October surprise.” As a result of the snowstorm that hit the Northeast, some top executives came under fire and one even resigned. I thought, “Is this fair? What if people could see what linemen have to go through to restore service? Often the conditions are not great.” What ideas or suggestions do you have that can help the public have realistic expectations for reliability?

Boston: First of all, there is the weather roulette wheel. You never know what you’re going to have thrown at you in terms of extreme weather. This year has been extreme as I mentioned in the meeting here today. We had an ice storm in February, tornadoes in mid-April, the hottest day of record on July 22 of this year, Hurricane Irene, Tropical Storm Lee, and then an “October surprise” as you call it. It was an unusual snowstorm. A combination of the leaves still on the trees, very wet snow and high winds. Electric distribution is going to be affected. The one thing that I’ve always done is to show the linemen out there working. Show what they have to go through to make a storm restoration work. You have to get good information out. Our staff learned from Texas where they had some problems in February in an extreme cold spell. The social media got the word out to lots of people. When they had rotating brownouts, they used social media to get to people, not just television.

Evers: You know I recently took a trip to Kenya this summer with my church. We were in remote villages six hours outside of Kenya where there is no infrastructure.

Boston: You were thankful for any grid.

Evers: Exactly. Reflecting on it caused me to think about the snowstorm and how we complain, how we’re a victim of our own really good reliability. Have we created the expectation of perfect service?

Boston: Generally speaking, worldwide you don’t have five nines — 99.999% reliable service on most of the transmission network.  We are very fortunate that we do have that here in this country. We have a digital economy, though, that runs on electricity. It is the fuel of the digital economy and it just shows the importance of what we have to do every day. And while the innovation summit we’re at here is about markets, it’s also very much about how to improve reliability. Electricity is the lifeblood of our economy and the lifelines to our homes.

Evers: Absolutely.

Boston: And it’s not fun when the power’s off.

Evers: Right. And you really can’t do anything without electricity. You need electricity just to innovate and create new products like the iPhone. 

So here is my last question. What does the man responsible for the largest power grid in the U.S. do for fun? How do you take vacation with such heavy responsibility?

Boston: We have three kids. Two on the West Coast and one on the far West Coast in Hawaii, and we travel with them. We love to go boating and water skiing. Unfortunately, the kids are so far away now and busy that we have them one at a time. But recently we went hiking in Hawaii with our son, and it was a good trip. Our daughter, Rachel, is an actress. We are very tightly tied to her career. We go to her shows. She’s coming to visit in December. She just won an award, the Emergent Talent Award in the New York Film Festival. Celebrating with her is another thing that we do for fun.

Evers: Wonderful.

Boston: I have a world class woodworking shop. I can’t think of a single tool that I do not own.

Evers: You make your own furniture and stuff like that?

Boston: I’ve made a lot of walnut furniture from kids’ cradles to grandfather clocks to some of the furniture in our house. As a matter of fact, I built a passive solar home, and I did all of the finished crown molding. The house has 6,000 square feet, and it uses about the economic equivalent of a cappuccino from Starbucks’ in terms of energy. So about less than $5.00 of electricity and energy a day. I built it in 1988, but it is designed-built to energy standards that people would be very pleased with today.

Evers: Terry, thank you so much for your time. I appreciate it.

On Thursday, October 13, 2011 Chairman Wellinghoff will testify on “The American Energy Initiative: Transmission Issues, Including Topics Related to the Sitting, Planning, and Allocation of Costs for Electricity Transmission Infrastructure”, before the House Energy and Commerce Subcommittee on Energy and Power. It will take place at 9:30 a.m. in room 2322 of the Rayburn House Office Building.

According to the Committee on Energy and Commerce’s internal memo, the following issues will be examined at the hearing: 

• The need for new electricity transmission infrastructure and the barriers and challenges to siting and constructing new transmission facilities.
• The statutory authority of DOE and FERC with respect to the siting, planning, and pricing of electricity transmission infrastructure.
• The roles and responsibilities of the following entities with respect to the siting, planning, and pricing of electricity transmission infrastructure:
  
  
  • DOE
  • FERC
  • State Public Utility Commissions
  • Regional Transmission Organizations
  • Electric utilities
• The difference between traditional planning and cost allocation principles and those set forth in FERC Order No. 1000.
• The scope, purpose, and implementation of Section 216 of the Federal Power Act, including its effect on jobs and the American economy.

Given the concerns over FERC Order No. 1000, this should be an interesting hearing. In addition to Chairman Wellinghoff, other panelists include: Ms. Lauren Azar, Senior Advisor, Office of the Secretary, U.S. Department of Energy, Commissioner Greg White, Michigan Public Service Commission, Commissioner Philip B. Jones, Washington Utilities & Transportation Commission, Mr. John DiStasio, General Manager & CEO, Sacramento Municipal Utility District, Mr. Steven A. Transeth, Principal, Transeth & Associates, PLLC,  Mr. Nicholas Brown, President & CEO, Southwest Power Pool, Inc. and Mr. Joseph Welch, Chairman, President & CEO, ITC Holdings Corp.

NARUC recently filed a Request for Rehearing and Clarification regarding FERC’s Order 1000 and it is not alone. At least 62 others have filed either a Request for Rehearing, Clarification or both, highlighting the widespread concern over FERC’s new order that addresses Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities. NARUC is the National Association of Regulatory Utility Commissioners. It is the national organization of state commissions responsible for economic and safety regulation of utilities. NARUC’s greatest concern is that it believes Order 1000 fails to acknowledge the state’s role as transmission decision makers:

i. NARUC seeks clarification that Order 1000 compliance filings can and should recognize the authoritative role that State regulators play in the planning process, especially with regard to State policy initiatives and integrated resource plans.

 ii. NARUC seeks clarification that compliance filings will ensure that State regulators that are requested to pass through costs under Order 1000 will have the opportunity to evaluate and select transmission projects.

 iii. NARUC requests confirmation and clarification that Order 1000 does not intend to interfere with State siting authority, or to provide a basis for expanding FPA Section 216 backstop siting authority that has been limited by the court decisions in the Fourth and Ninth Circuit Court of Appeals. 16 U.S.C. § 824p; California Wilderness Coalition v. U.S. Dep’t of Energy, 631 F.3d 1072 (9th Cir. 2011); Piedmont Environmental Council v. F.E.R.C. 558 F.3d 304 (4th Cir. 2009). NARUC Request at pages 3-4.

The requests that poured in read like a Who’s Who in the electric industry. Filings came from state commissions, RTOs, ISOs, the Rural Electric Coop Association and many utilities. We previously reported that Commission staff will convene three informational conferences to discuss the requirements of Order No. 1000. The notice says there will be an opportunity to ask questions, making for a few interesting and possibly long couple of days. Based on these filings, if you plan to attend in person, get there early. I have a feeling the Commission Meeting Room will be packed.

The Federal Energy Regulatory Commission (FERC) recently issued Order No. 1000 whose purpose is to enhance the grid’s ability to support wholesale power markets by ensuring transmission services are provided at just and reasonable rates. Order No. 1000 builds on FERC’s open access reforms of Order No. 888 (1996) and the planning reforms of Order No. 890 (2007). FERC hopes the changes will provide consumers with greater access to efficient, low-cost electricity. The Order requires:

• public utility transmission providers to improve transmission planning processes and allocate costs for new transmission facilities to beneficiaries of those facilities
• alignment of  transmission planning and cost allocation
• coordination between pairs of neighboring transmission planning regions
• development of regional and interregional cost allocation methods
• removal from FERC-approved tariffs and agreements and a federal right of first refusal for transmission facilities selected in a regional transmission plan for purposes of cost allocation, subject to certain limitation

FERC also issued a presentation that provides a nice summary of this new rule.

Yesterday, Entergy announced plans to join the Midwest Independent System Operator (MISO). The New Orleans based utility had been evaluating its options regarding the best management structure for its transmission system, including proposals from the Southwest Power Pool (SPP) and MISO. The study done by Entergy included independent analysis of the savings and actual proposals from SPP and MISO on how certain costs would be shared. This evaluation summary shows that joining MISO could save customers more than $1 billion in power production costs for the 2013 to 2022 timeframe. While both MISO and SPP were assumed to have a Day 2 market, an advantage of joining MISO is that it has an operating Day 2 market today:

The analysis clearly shows there are compelling benefits to joining a regional transmission organization with substantial scale and a Day 2 market,” said J. Wayne Leonard, Entergy’s chairman and chief executive officer. He added, “An organized market design based upon centralized auction markets creates greater efficiencies than one that relies upon bilateral trading, particularly in electricity markets where some congestion is always present. We look forward to discussing in detail the benefits of joining MISO with regulators, their staffs and other stakeholders in the months ahead. As the analysis showed, MISO’s substantial scale and established market made it the clear choice for customer benefits.
Entergy Press Release, April 25, 2011

Given the anticipated departure of FirstEnergy and Duke Ohio, this decision by Entergy must have MISO execs doing the Second Line in Carmel. According to MISO’s news release, the integration of Entergy will create the largest RTO in the US. MISO is presenting to two half-day seminars on May 18 and 19, 2011, for those interested in meeting its leadership and learning more about the organization, its markets and its processes, including optional tours of its Carmel, IN control room. Given the concern about grid security, I question the appropriateness of an open invitation to view MISO’s control room. Hopefully the registration process is designed to carefully screen those allowed to tour the control room, although the invitation appears to be to any interested party.

Now that Entergy has made its decision, how hot will the battle between MISO and SPP over capacity sharing get? Initially, MISO requested expedited treatment to facilitate a decision by Entergy. Several parties opposed special treatment. FERC issued a notice stating that protests and motions are due May 9, 2011.

On February 22, 2011, demand side management (“DSM”) company EnerNOC, filed a Petition for Declaratory Order requesting that FERC find that EnerNOC and other companies may continue to register customers and settle under PJM’s GLD baseline methodology as they have in previous periods without enforcement action being threatened. GLD is one of three baseline methods prescribed in the PJM business rules for measuring event compliance. GLD is achieved by a customer reducing its load by a predetermined amount (i.e., by the Guaranteed Load Drop or GLD). PJM Tariff, Attachment DD, section H.

EnerNOC’s filing was in response to a joint statement issued by PJM and Monitoring Analytics, LLC, PJM’s Independent Market Monitor (“IMM”), that addresses a double counting issue. The Joint Statement says in part:

The following example illustrates the issue:

1.  5,000 kW PLC (10/11 Delivery Year) – PLC represents how much capacity has been purchased for customer to ensure reliability. Since the customer actively reduces load during the peaks (“peakshaver”) the PLC is significantly lower than normal amount of load for the customer, which is 28,000 kW.
2. 4,000 kW Nominated Installed Capacity – CSP commitment for quantity of customer load reduction when PJM needs during an emergency. The nominated amount may not exceed the PLC based on current market rules.
3. Real time estimated load reduction = 25,000 kW measured as the difference between a baseline estimate based on recent days, 28,000 kW, less actual consumption during the event, or 3,000 kW.
4. 21,000 kW over compliance – CSP resource will be deemed to have met nominated Installed Capacity commitment of 4,000 kW AND also receive an additional 21,000 kW of over compliance credit which may be used to offset resources within the zone than did not perform.

In addition to substantially overstating the demand side savings and overpaying CSPs, this behavior also provides a non-competitive advantage to CSPs in attracting customers. A CSP that is aware of this Program discrepancy may identify large customers with managed PLCs and offer such customers out of market revenues for any load reduction in excess of the nominated amount. This is profitable because once such a customer has been procured, the CSP has the ability to sign up customers in the same zone with no or only limited ability to reduce load when called upon and receive capacity revenues based on the apparent over compliance of the customers with managed PLCs.

In its Order, FERC states that the Commission does not intend to institute any enforcement actions against EnerNOC (or other similarly situated ARCs) for registering customers in good faith and settling under the GLD baseline methodology. Good faith participation in the PJM load management programs, including accurate customer GLD registration and aggregation during emergency events, is permitted. The Commission goes on to warn that this finding here does not exempt from challenge conduct prohibited under section 1c.2 of the Commission’s regulations. 18 C.F.R. § 1c.2 (2010).