Our Electric System "Administrative State": Burn Them All to Hell

Don't trust anyone over thirty years old !!!

These are the guys who built our system. These guys are so selfish. I'd fire everyone here. Start over with the professionals under 30 years old. Or wait till the old farts die off on their own.

What, three FERC commissioners, two missing. Same with the NRC.

You can see our severely dysfunction of out political system in the reliability of the junk nuclear plants.

The independent power producers model is obsolete. 

The butterfly effect...one flap of a butterfly's wing a half a world away can collapse our whole system. A non linear response!!!

Boo MotherFucker!!!  

'Can't be half-pregnant': Power market upheavals prompt states, feds to take actionare

As FERC prepares for a technical conference nuclear supports and gas plants coming under pressure in ERCOT and CAISO

Utility Drive

Author

By Robert Walton @TeamWetDog

Published

March 8, 2017

Strange things are afoot in organized power markets. 

You can see it in New York, where existing, carbon-free nuclear generation needs help from the state to keep running. In Ohio, where generators are selling coal plants after failing to win financial support. And in Texas, the nation's largest organized market, where even combined-cycle gas plants have come under pressure.

Last week, Mauricio Gutierrez, the president and CEO of NRG, called the independent power producer model "obsolete and unable to create value over the long term." His company owns a dozen coal, gas and nuclear plants in Texas, and generation revenues for that region dropped more than $90 million last year, primarily because of lower power prices in the state.How will the power industry evolve in 2017? Get Utility Dive's free eBook to find out.

"There does seem to be an acute problem across the markets where your supposed market outcome is driving high fixed-cost baseload resources off the system," said Raymond Gifford, a partner with Wilkinson Barker Knauer LLP and a former Colorado utility regulator. "Attempts to create capacity markets have proven insufficient."

Gifford and WBK partner Matthew Larson have co-authored a pair of white papers looking at what states have been doing to preserve baseload resources, as well as the tension that exists between markets and public policies like renewable energy incentives and nuclear power subsidies.

"Zero-emission credits," passed in in New York and Illinois to preserve nuclear plants, appear to be the direction states are moving in, the pair concluded. 

"States are coalescing around an ‘around market’ template to preserve nuclear baseload power plants," they wrote in last month's report. "Connecticut, Pennsylvania, New Jersey and others are looking to this template for an ‘around market’ solution of their own, and these states are the next frontier of the ZEC strain of ‘around market’ solutions."

So far, most of the focus has been on struggling nuclear generation. Coal plants faced with challenging market conditions have often shuttered, or been sold to a buyer with more appetite for risk. But now it appears gas plants could be at risk as well, evidenced by the La Paloma gas plant filing for bankruptcy in California late last year.

"You can't be half pregnant but that's what we've tried to be," said Larson. "We kind of like markets but if we don't like the outcome we're going to reverse it or start playing with prices. You can point to a number of policy imperatives — some of them defensible and others not — but ultimately this is an area where the political economy pressures … overwhelm the ability to run a market."

"The fundamental reality," said Gifford, "seems to be you're not able to cover your fixed costs in a market that is essentially dispatching with some equilibrium between intermittent renewables, driving down prices during large parts of the day, and simple-cycle gas, which has less fixed costs to cover [than large baseload plants]."

Troubles in Texas, California, PJM markets

Each wholesale electricity market carries its own set of resources, priorities, challenges and incentives, but across several regions similar problems are cropping up. 

PJM, in the Mid-Atlantic, operates both energy and capacity markets. The Electric Reliability Council of Texas (ERCOT), on the other hand, operates only an energy market, but stresses are beginning to show in each.

Last month, Bloomberg View noted how cheap Texas wind has been hurting independent power producers with gas-fired facilities in the state. While Texas energy demand has continued to climb, the state now gets more energy from wind farms than nuclear plants. And as fuel-free wind is dispatched first, it has driven down energy prices, cutting revenues for IPPs.

"Each market is a little different, but you can draw conclusions if you have all these markets exhibiting some of the same problems — and the states for, political economy reasons if nothing else, are copying some of the same answers," said Gifford.

“ERCOT is the purest expression of the market model," he said. It would be a "seismic" shift, he added, if independent producers are struggling there.

Public policies, while they may be necessary to increase or protect favored resources, are having undeniable impacts on the markets, Gifford and Larson said. In states like Texas, cheap renewables are often dispatched first in the generation stack. Due to declining costs and the federal production tax credit, wind resources in particular can bid in at low or negative prices, lowering the market clearing rate for all plants in the stack. 

Until recently, the dynamic put large baseload plants at most risk due to their high fixed costs. But as renewables continue to proliferate and decline in price, even natural gas generators are starting to feel pressure in markets rich with wind and solar, like Texas and California. 

This month, Calpine informed the California ISO last year that four gas peakers coming off long-term contracts were no longer economical and would be shut down by 2018. Two of them, Yuba City and Feather River, were found to be needed for reliability.

Emergency peaker plants identified as uneconomic by Calpine.

Credit: Source: California ISO

"When you get down to it, we have such a competing set of public policies imperatives ...  that price formation is distorted eight ways to Sunday," said Gifford. "We're using Rube Goldberg attempts to preserve what's a pretty rickety structure in the first place."

Capacity markets, where they exist, are not working, Gifford said. The power industry's high fixed costs and relatively low marginal costs are making it difficult for some generators to compete. But without a way to reliably recover fixed costs, one of two things happen, said Gifford: "Either all go bankrupt, or the capital formation never happens in the first place."

"Capacity markets in PJM have generally been judged not sufficient to keep capacity in the market," he said, noting that its capacity market is generally considered the most robust.

Stu Bresler, senior vice president of operations and markets for PJM, took some issue with Gifford's assessment, but also acknowledged that markets are evolving in the narrative laid out by the WBK white papers. 

"Markets are successfully achieving what they have been designed to accomplish: ensuring reliability at the lowest reasonable cost," Bresler said in a statement. "PJM’s markets are producing prices that efficiently and reliably drive the entry of efficient, new resources and the exit of older, uneconomic resources."

But he added that, as the white papers noted, "demands on markets are changing as public policy makers begin to emphasize factors other than cost. PJM is committed to examining how to harmonize markets and public policy and will investigate ways to use market-based incentives that align with desired resource attributes."

The FERC problem

In January, the Electric Power Supply Association made two filings asking federal regulators to take action on nuclear subsidies passed in New York, calling them a clear overreach and requesting the Federal Energy Regulatory Commission to take mitigating actions.

In recent years, similar challenges to state generation supports have been knocked down by federal authorities. Last year, FERC blocked power purchase agreements approved by Ohio regulators that aimed to support aging coal and nuclear plants owned by FirstEnergy and AEP Ohio. Before that, the U.S. Supreme Court ruled in Hughes v. Talen Energy Marketing against a state incentive in Maryland that federal regulators said would impact wholesale price formation.

Now, FirstEnergy Corp. is pushing for legislation in Ohio that, similar to New York's method, would use "zero-emission tax credits" to support the Davis-Besse and Perry nuclear plants in Ohio.

Backers of the zero-emission credits say they differ in structure from the generation programs struck down last year, as they simply reward nuclear resources for their carbon-free generation. The credits under the ZEC program, they say, are little different than renewable energy credits widely accepted as a part of state RPS programs. 

FERC, with authority over power markets, will ultimately have to take up the issue. Last week, the commission issued notice of a technical conference to take place May 1 and 2, "to discuss certain matters affecting wholesale energy and capacity markets operated by the Eastern Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs)."

But right now, FERC has just two members — Acting Chairman Cheryl LaFleur and Commissioner Collette Honorable — and both are Democrats. Without a quorum of three, the commission cannot take any major actions. And from a policy standpoint, things may be at a standstill until President Trump can nominate more than one Republican.

Kenneth Irvin, co-leader of Sidley Austin LLP's global energy practice, said back in January he was "afraid stuff is going to grind to a halt."

Many in the industry share that view, particularly given potentially lengthy vetting processes for FERC nominees. FERC and power markets are "incredibly esoteric," Gifford pointed out, and will likely not be the subject of the first major energy actions of the administration. An executive order to review and repeal the Clean Power Plan, for instance, is expected before any movement on FERC. 

"Not withstanding the Clean Power Plan going away, in whatever form that takes, this issue has way bigger reach than any in my opinion," said Larson. "And it continues to fly under the radar."

Along with FERC nominees from the White House, a court hearing in the South District Court of New York on the state's ZEC program is coming up at the end of this month. While an appeal is expected no matter how the court rules, the legal interpretation in the case will likely set the stage for litigation in other states and any eventual action from FERC. 

"This is a very big fork in the road here for FERC, and which way they go determines how this plays out," Gifford added. "And that's what we're really waiting for."