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Ever wanted to gain a better understanding of capacity markets? The Federal Energy Regulatory Commission (“FERC” or “Commission”) will provide the perfect opportunity. On September 25, 2013, the Commission’s staff will hold a technical conference to consider how current centralized capacity market rules and structures in the regions served by ISO New England Inc. (ISO-NE), New York Independent System Operator, Inc. (NYISO), and PJM Interconnection, L.L.C. (PJM) are supporting the procurement and retention of resources necessary to meet future reliability and operational needs.

To provide a common foundation for the conference, the Commission’s staff has released a report Centralized Capacity Market Design Elements. Representatives from ISO-NE, NYISO, and PJM will provide a brief overview of the goals and basic structure of their respective centralized capacity markets, including a discussion of why each region chose key market design elements and how each market is achieving its stated goals. There will also be a discussion about basic design elements of centralized capacity markets, such as the forward commitment period, the demand curve and the establishment of locational and regional planning requirements, as well as the interaction among these design elements with energy and ancillary services markets. Some of the issues that will be addressed include:

  • What are the metrics used to measure the success of the centralized capacity market?
  • What design elements are key to the functioning of the centralized capacity market in your region?
  • What are the key challenges facing centralized capacity markets in your region?
  • How is each RTO/ISO going about addressing those challenges?

The conference on September 25, 2013, will be held at the Federal Energy Regulatory Commission, 888 First Street, NE, Washington, DC 20426. It is expected to run from 9:00 a.m. to approximately 5:00 p.m. It is free and open to the public. Additionally, there will be a free webcast that will allow you to listen to the conference, but not participate. Additional details can be found in the Notice and Agenda.

Although it was not the primary focus, a recent Seventh Circuit Decision about allocation of transmission project costs could be a game changer for renewable energy. The main purpose of the appeal by the Illinois Commerce Commission (“ICC”), Michigan Public Service Commission (“MPSC”) and others was to contest FERC’s approval of the Midwest Independent Transmission System Operator, Inc.’s (MISO) tariff on its members to fund the construction of new high-voltage power lines that MISO calls “multi-value projects” (MVPs). Designed to finance the construction of transmission lines for electricity generated by remote wind farms, the tariff allocates MVP costs among all utilities drawing power from the grid according to the amount of electrical energy used, placing most of those costs on urban centers, where demand for energy is greatest.

The court addressed six major issues, including RTO departure fees. But what got my attention was the bench’s response to the Michigan Public Service Commission’s argument that its benefit from the MVP’s is limited because the law in Michigan prohibits its utilities from using out-of-state renewable energy to meet their renewable energy requirements.

Michigan’s first argument—that its law forbids it to credit wind power from out of state against the state’s required use of renewable energy by its utilities — trips over an insurmountable constitutional objection. Michigan cannot, without violating the commerce clause of Article I of the Constitution, discriminate against out-of-state renewable energy.

Order 15

Many states have geographical limitations on what qualifies to meet their renewable energy standards. And while the Seventh Circuit is not the US Supreme Court, this statement is a nice volley for renewable energy companies looking to expand their business. Regardless of your position, the beautifully written 26-page decision is a must read. I am impressed with the bench’s understanding of complex energy issues that many long timers in the business don’t know. In addition to a nice review of the RTO structure, you will learn what the 1810 German novella Michael Kohlhaas has to do with rate pancaking.

As we celebrate the beginning of our independence, I challenge Smart Grid Legal News readers to take one action this week that moves our country closer to energy independence. It can be something as simple as changing your light bulbs to compact florescent bulbs or unplugging the cell phone charger when it is not in use. We all know the smart grid is about innovation and cool new technology that will update our electric grid. However, since the 4th of July is about our beginning, I thought I would go back to basics today. For many in the power industry this might be a yawner, but think of this post as simple training for your new hires. Here are the basics of how the grid works as explained by NERC:

Unlike water or gas, electricity cannot be stored. It must be generated as it is needed, and supply must be kept in balance with demand. Furthermore, electricity follows the “path of least resistance,” so it generally cannot be routed in a specific direction. This means generation and transmission operations in North America must be monitored and controlled in real time, 24 hours a day, to ensure a consistent and ample flow of electricity. This requires the cooperation and coordination of hundreds of electricity industry participants.   

The diagram below depicts the basic flow of electricity: how it is created at power plants and other generating facilities, and transported across high-voltage transmission and lower-voltage distribution lines, to reach homes and businesses. Transformers at substations step the electric voltage up and down to efficiently deliver power to the customers.

The Generation and Transmission components make up the “bulk power system.”

If you put dozens or even hundreds of these assets together, you get a “Balancing Area”, in which the balancing authority matches generation with customer demand, and the transmission operator monitors the flows over the transmission system and voltages at substations. 

Balancing areas are defined by the electricity meters at their boundaries, which measure the power flowing into and out of the area. These areas are connected to each other by “tie lines.”

That was easy. Thanks NERC! NERC is responsible for aspects of an international electricity system that serves 334 million people, and has some 211,000 miles (340,000 km) of high-voltage transmission line.  

Over the next ten years, the electric industry will face a number of significant emerging reliability issues. The confluence of these uses will drive a transformational change for the industry, potentially resulting in a dramatically different resource mix, a new market for emissions trading, a need for enhanced modeling, and a new risk framework built to address growing critical infrastructure and protection concerns—both physical and cyber. Each of these elements of change is critically interdependent and industry action must be closely coordinated to ensure reliability. Page 1, NERC Reliability Assessment November 2011

The North American Electric Reliability Corporation (“NERC”) recently released its 2011 Long-term Reliability Assessment. The above quote taken from the report underscores what utilities have been discussing for the last few years. However, despite an increase in conversations about these issues, phrases like significant emerging reliability issues, transformational change and dramatically different resource mix are enough to send shock waves through an industry built on stability. Until recently, everyone valued the comfort and security of the traditional stable electric utility. But something has happened. Consumer demands regularly addressed by other industries have caught up with the electric industry. Customers, shareholders, employees and even competitors want more and they want it now – more information, more options and better overall services. To my surprise, I have nicknamed 2011 “The Year of the Opt-Out” thanks to Maine and California. Yet I have the strangest feeling we have not seen anything yet. Buckle up because I think 2012 will be akin to having a front row seat on the fastest, craziest ride coming to an amusement park near you this spring.

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.

FERC, RTOs, ISOs, NARUC, Governors and Politicians… there is no shortage of concern over the potential impact of the new Environmental Protection Agency rules regarding clean air. Will the cost of compliance force the shut down of many coal-fired power plants? Will reliability suffer as a result? These issues are at the core of the debate regarding EPA’s aggressive moves to save the environment and our health. A group of governors sent a letter to President Obama requesting he intervene to get the EPA to slow down. Utah Gov. Gary Herbert is leading the multi-state gubernatorial effort seeking a delay in the Utility MACT (Maximum Achievement Control Technology) Rule. The governors believe implementation should not occur until the impact on electricity reliability is understood.

During a recent House Subcommittee on Energy and Power hearing, FERC Commissioners provided a preliminary report on the potential retirement of coal-fired power plants. It provides an excellent, high level overview of the many environmental laws and the potential impact by region. However, the Commissioners admit FERC has not fully investigated the impact of the new rules on reliability. Chairman Wellinghoff believes RTOs, ISOs and other transmission coordinators are in the best position to provide a detailed impact analysis. Ironically in its Joint Comments to the EPA, the RTOs/ISOs are requesting a Reliability Safety Valve as a stop gap measure to delay a power plant’s compliance when necessary to preserve reliability.

My take from current analysis is that in the aggregate there will be enough generation capacity. The risks are on a more localized and regional scale – similar to the outages that occurred in the Southwest earlier this year. A combination of generation outages, derates and unseasonably cold weather lead to a power shortage forcing rolling brownouts. Hopefully enough time for careful planning and the proposed Reliability Safety Valve can help to avoid this type of event.

Meanwhile, FERC has announced it will hold a technical conference beginning November 29, 2011 to discuss policy issues related to reliability of the Bulk-Power System, including concerns that may arise in the course of compliance with EPA regulations.

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.

SaLisa BerrienI recently had a chance to talk with my friend, SaLisa Berrien, Senior Director of Business Development at ENBALA Power Networks to learn more about its grid balance service, also known as regulation service.

Evers: Please explain how Grid Balance services differ from DR. 

Berrien: The difference between Regulation Service (aka Grid Balance) and Demand Response is that Grid Balance works within the operational parameters of industrial and commercial clients. There are no curtailments for extended periods of time. Grid Balance is bi-directional, meaning clients add and take load off the grid, whereas Demand Response is only taking load off the grid. Grid Balance is capacity and energy neutral. Clients do not create a new peak or use more energy than they would typically use on a daily basis.

Evers: Who can participate in this?

Berrien: Ideal network participants have large electrical equipment that operates under relatively consistent workload and has some degree of process flexibility or functional range.

Evers: Will businesses have to shut down or limit their operations?

Berrien: No. The impact of the ENBALA Power Network is seamless to the client. Our technology respects the need for each asset to fulfill its primary duty and the network is designed to have no impact on process objectives, total energy consumption or operational costs.

Evers: How do they financially benefit?

Berrien: Clients are paid for the amount of Grid Balance their assets deliver to their regional electricity system operator. Each asset’s value is dependent on process flexibility, availability, and corresponding Grid Balance demand. The more flexible an asset, the more Grid Balance it can provide, and the more money the asset will make for the client. The average payment to clients is based on historical pricing, future projections and their asset availability. The estimated annual payment per MW is $35,000-$50,000.

Evers: Can you give us an example of how it works?

Berrien: Our videos walk visitors through exactly how the ENBALA Power Network consolidates asset flexibility to provide Grid Balance to regional electricity system operators.

Evers: Thank you SaLisa for taking the time to explain Grid Balance.

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.

Last week, FERC  issued a notice that it will conduct  several informational conferences regarding Order No. 1000 on September 12 and 13, 2011, to address compliance issues. FERC will kick off the series on September 12, 2011, starting at 1 pm focusing on compliance issues related to Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs). The morning conference on September 13, 2011, from 9 a.m. to noon will discuss compliance issues related to non-RTO/ISO regions in the Eastern Interconnection, and starting at 1 pm on September 13, 2011, the focus will shift to addressing concerns regarding  compliance issues related to non-RTO/ISO regions in the Western Interconnection.

The conferences will be held at:
Federal Energy Regulatory Commission
Commission Meeting Room
888 First Street, NE
Washington, DC 20426

Interested parties can participate  by phone for free but registration is required. Registration is not required to attend the informational conferences in-person or to watch the webcast. Order No. 1000 becomes effective  on October 11, 2011.  Here is a summary of the compliance filing requirements issued by FERC.