[BETA] Fortnightly

1) EPA Train Wreck

Starting with a request from Commissioner Philip Moeller on November 14 for some “hard” and “real” evidence about reliability needs posed by upcoming EPA regulatory initiatives that could force a shutdown of coal-fired power plants essential to reliability, the commission has dived head first into what has come to be known as the “EPA Train Wreck,” and has asked the electric industry for factual analysis and suggestions on what to do. One key idea from several RTOs has come to be known as the “safety valve” proposal, and would allow EPA to extend compliance deadlines on a plant-specific basis on evidence of threat to the continued operation of RCUs (reliability critical units). But lurking in the background is a demand from the House Energy and Commerce Committee, tendered on November 22, asking FERC to turn over all internal emails, electronic files, telephone transcripts, draft memos, handwritten notes from meetings, and virtually every shred of paper bearing on the issue. (FERC Docket AD12-1, Notice issued Oct. 7, 2011.)

2) Transmission Rate Incentives

The commission will examine a host of issues when it revisits Order 679, issued back in 2006 in response to instructions from Congress in section 1241 of the 2005 Energy Policy Act to award financial incentives for new transmission projects that enhance reliability or ease line congestion to reduce the delivered cost of electricity. FERC will re-examine the “nexus,” “non-routine,” and technology tests, whether one incentive award might obviate need for another, and whether CWIP, hypothetical capital structures, and abandoned plant cost recovery, etc., are better handled under general rate-making principles. Some environmental advocates want an entirely new concept, with rate incentives awarded not for reliability or congestion-reducing projects, but only for those designed to meet “policy” aims as defined in FERC Order 1000. (Dkt. RM11-26, Notice of Inquiry issued May 19, 2011, 135 FERC ¶61,146.)

3) Merger Market Power

FERC is seeking comment on whether to revamp its 1996 merger policy statement (last modified in 2008, in Dkt. PL07-001, 122 FERC ¶61,157), to reflect the new “Horizontal Merger Guidelines” issued by the Justice Department and FTC on Aug. 19, 2010. The new DOJ-FTC guidelines would allow mergers with higher market shares—“highly concentrated” would mean HHI > 2,500, not > 1,800 as per current FERC rule—but also would envision a more “open-ended” and granular review of market power, examining plant- and transaction-specific effects on markets and prices. (Dkt. RM11014, Notice of Inquiry issued March 17, 2011, 134 FERC ¶61,191.)

4) Price-Responsive Demand

The most novel case now before FERC is PJM’s proposal to take load forecasting to a new level by allowing load-serving entities to meet resource adequacy requirements by relying on promises by their retail customers to consume less electricity if location-specific wholesale market prices (LMPs) rise to a certain target level in any future hour—but only for retail customers with advanced interval metering and access to dynamic hourly retail pricing, and only on condition that the customer consents to supervisory control by the LSE to curtail energy to enforce the customer’s promise to reduce demand. The key issue is whether PRD should subsume and completely replace the concept of demand response bidding as a resource in energy and capacity markets. (Dkt. ER11-4628, application filed Sept. 23, 2011.)

5) A Midwest Capacity Market

Citing needs driven by: renewable energy portfolio standards; the possible widespread retirement of coal-fired plants to meet EPA rules; and the increased demands of regional grid planning under FERC Order 1000, the Midwest ISO has applied to FERC for authority to implement an eastern-style, centralized and bid-based capacity market, in place of the region’s current reliance on a voluntary capacity auction and bilateral trading. The construct would feature as-yet undefined local resource zones with zonal resource requirements, but only a one-year forward auction based on a single round of sealed bids. (Dkt. ER11-4081, application filed July 20, 2011.)

6) Reliability Triage

With a backlog of pending but unprocessed cases of possible reliability violations now hitting 3,300—200 new issues per month, 176 processed—the North American Electric Reliability Corporation (NERC) has wide support for its new proposed “Find, Fix & Track” triage regime to relegate minor incidents in spreadsheet form to avoid the sort of “overzealous prosecution of lesser-risk issues” that NERC fears could undermine long-term reliability of the bulk power system. But the ISO/RTO Council has questioned NERC’s proposal to grade industry entities by prior compliance history and use this profiling to choose which cases to pursue, describing NERC’s suggested five profiling guidelines as vague and needing “additional work.” (Dkt. RC11-6, application filed Sept. 30, 2011.)

7) Exelon/Constellation Merger

A deal to create the largest energy company in the country—second-largest if Duke-Progress passes muster—could hinge first on whether Northern Illinois is considered a relevant geographic market, but second, and more importantly, on whether FERC can permit a mitigation plan (to reduce gen ownership share in eastern PJM) that would restrict the sale of certain power plants only to certain potential buyers with a de minimis market presence. (FERC Dkt. EC11-83, application filed May 20, 2011.)

8) Return on Equity

With the 2007-’08 bursting of the housing bubble and Treasury bond yields running historically low ever since, Massachusetts Attorney General Martha Coakley and New England state regulators want FERC to cut the base-level return on equity reflected in transmission access rates charged by ISO New England—down to 9.2 percent from the 11.14-percent rate set some years ago when yields ran about 5 percent, much higher than recently. Transmission owners object, calling it “ill-considered” and “counterproductive” to reduce ROE “during a volatile equity market marked by difficult credit conditions.” (FERC Dkt., EL11-66, complaint filed Sept. 30, 2011.)

9) T Project Abandonment

In a case of first impression, FERC must decide whether a “waning” of interest by project co-sponsors and a drop in a project’s economic value—i.e., falling prices for out-of-state renewable energy imports—that prompt grid project abandonment are causes outside a sponsor’s control and thus should justify rate recovery by PG&E for its failed plan to bring as much as 3,000 MW of renewable power from British Columbia and the Pacific Northwest into Northern California. PG&E had won prospective rights to recover abandonment costs in a 2008 FERC order, but only if prudently incurred and outside its control. The case arises outside of FERC Order 679, but the key principle—a justified abandonment—applies also to FERC’s T rate incentive policy. (FERC Docket ER12-73, application filed Oct. 13, 2011.)

10) More Anchor Tenants

The notion of pure open access on new transmission lines built to develop remote renewable energy resources will take another hit if Clean Line Energy Partners wins FERC’s OK to reserve 75 percent of line capacity for pre-subscribed anchor tenants on its planned 500-mile, 3,500 MW, $1.7 billion, high-voltage DC “Rock Island Clean Line” grid project, slated to link wind resources in northwestern Iowa to load centers east of the Mississippi. (FERC Dkt. ER12-365, application filed Nov. 8, 2011.) And FERC’s 2011 year-end December meeting, where the Southern Cross project was set for decision, likely will have provided an early clue, as Pattern Energy, the Southern Cross sponsor, also was seeking pre-subscription as high as 75 percent. (See, Dkts. TX11-1, EL11-61, application filed Sept. 6, 2011.) –BWR