FERC recently issued a Notice of Proposed Rulemaking (NOPR) that would eliminate the need for electric power sellers with market-based rate authority who sell into certain independent system operator (ISO) and regional transmission organization (RTO) capacity markets to file two screens—the pivotal supplier screen and wholesale market-share screen—with FERC, which would simplify the horizontal market power analysis for sellers in those markets.

This proposed modification of the horizontal market power analysis would apply in any RTO/ISO market with RTO/ISO-administered energy, ancillary services, and capacity markets subject to FERC-approved RTO/ISO monitoring and mitigation. For RTOs and ISOs that do not have an RTO/ISO-administered capacity market, market-based rate sellers would be relieved of the requirement to submit indicative screens if their market-based rate authority is limited to sales of energy and/or ancillary services.

The NOPR, announced at FERC’s December 20, 2018 meeting, is a follow up to FERC’s Order No. 816 NOPR, and is aimed at relieving the filing burden on market-based rate sellers in RTO/ISO markets without compromising FERC’s ability to prevent the potential exercise of market power in those markets. If the NOPR were implemented, indicative screen failures in organized wholesale power markets where the grid operator does not administer a capacity market would no longer be presumed to be adequately addressed by the market monitoring and mitigation in those markets. If a screen failure were to occur, market-based sellers in those markets would be able to submit a delivered-price test or other evidence; sellers could also propose other mitigation or capacity sales. All market-based sellers would still be required to file a vertical market power analysis and an asset appendix which provides comprehensive information relevant to determining a seller’s market power. The appendix would be required to include generators owned or controlled by the seller and its affiliates, long-term firm power purchase agreements, electric transmission assets, and natural gas facilities.

The NOPR would simplify the horizontal market power analysis electric power sellers are required to complete to obtain market-based rate authority. The NOPR would apply to sellers doing business in ISO-NE, MISO, NYISO, and PJM, which all have a capacity market that includes market monitoring and mitigation. Entities in Cal-ISO and SPP would still need to file the screens, because the NOPR would not apply to them given the lack of central capacity market with monitoring and mitigation. Sellers in ERCOT would remain unaffected because the ERCOT market is not subject to FERC’s rules.

The screens this NOPR would eliminate originated in Order No. 816 NOPR, which was issued in 2009, when ISO/RTO capacity markets had just begun operating. The three pivotal supplier test and market share screen (with a 20% threshold) serve as cross checks on each other to determine whether sellers may have market power and whether they should be more closely examined. If a seller passes both screens, a rebuttable presumption the seller did not possess horizontal market power is established. If a seller fails either screen, that failure establishes a rebuttable presumption that the seller has market power; the seller then has a chance to present evidence through a delivered price test analysis or other evidence to show the seller does not have market power, despite the screen failure.

No other market-based rate regulatory reporting requirements would be affected by the proposed order.

Comments on this NOPR are due 45 days after publication in the Federal Register, and may be filed in Docket No. RM19-2-000, Refinements to Horizontal Market Power Analysis for Sellers in Certain Regional Transmission Organization and Independent System Operator Markets.

Please contact Linda Walsh or Sylvia Bartell if you have any questions.

Husch Blackwell partners with the Texas Renewable Energy Industries Alliance (TREIA) once again to present a five-part webinar series focused on the Texas renewable energy industry. The final installment in the New Directions webinar series will discuss the upcoming 2019 regular session of the Texas Legislature and what’s in store for renewable energy.

 

Register for the Texas Legislative Preview webinar to be held on Monday, December 17, 2018 at 12:00pm – 1:00pm CST.

Presenters include:
Jeffrey Clark, President, The Wind Coalition
Mark Vane, Principal, Husch Blackwell Strategies
Chris Reeder, Partner, Husch Blackwell (moderator)

If you missed the previous installments of the New Directions webinar series, the recording for each installment can be found here or you can download the podcast.

May: ERCOT Renewable Energy Market Outlook (Download podcast)

June: Financing Renewable Energy Development (Download podcast)

August: Storage, New Technologies, and Demand Response: Regulatory Outlook and Integration (Download podcast)

October: ERCOT Market Performance: Summer 2018 (Download podcast)

Potomac Economics, the Independent Market Monitor (IMM) for the ERCOT market, released its “2017 State of the Market Report for the ERCOT Electricity Markets,” which contains several important insights for market participants and offered seven recommendations for market improvements.

Prices and Demand Move Higher in 2017

First, the IMM found that energy prices increased 14.7% over 2016, to $28.25 per MWh. This price is still significantly less than 2011’s average annual price of $52.23 per MWh and even 2014’s average annual price of $40.64 per MWh. The 2017 price increase correlates with a 22% increase in the cost of natural gas, the most widely-used fuel in ERCOT, as fuel costs represent the majority of most suppliers’ marginal production costs.  The IMM also found price convergence to be very good in 2017, with the day-ahead and real-time prices both averaging $26 per MWh.  However, the absolute difference between day-ahead and real-time prices still increased from $7.44 per MWh in 2016 to $8.60 per MWh in 2017.

Average demand also increased, rising 1.9% from 2016, with demand in the West Zone seeing the largest average load increase at 8.3% (possibly due to oil and natural gas production activity in that zone). Despite this increase in average demand, peak demand in ERCOT reached 69,512 MW on July 28, 2017, which is lower than the ERCOT-wide coincident peak hourly demand record of 71,100 MW, set on August 11, 2016.  Even with general price and demand increases, market conditions were rarely tight as real-time prices didn’t exceed $3,000 per MWh and exceeded $1,000 per MWh for just 3.5 hours in all of 2017.

Congestion Costs Skyrocket

Surprisingly, the IMM found congestion in the ERCOT real-time market increased considerably, contributing significantly to price increases in 2017 with total congestion costs equaling $967 million – a 95% increase from 2016.  The IMM stated that this increase is due to three main factors: (1) limitations on export capacity from the Panhandle; (2) planned outages associated with the construction of the Houston Import Project; and (3) the aftermath of Hurricane Harvey.

While congestion was more frequent in 2017 than in 2016, congestion on the North to Houston constraint declined after June due to the completion of a new 1,200 MW combined cycle generator located in Houston. The completion of the Houston Import Project in 2018 should reduce congestion in this area even further. Continue Reading ERCOT’s State of the Market Report

It appears the Texas Legislature has taken note of the several news articles and industry insiders sounding the alarm bells for ratepayers to brace for record high electricity prices this summer in a market applauded for its consistently low prices. The Committee convened because the Lt. Governor charged it to study/respond to the reserve margin issue. Approximately 5,600 megawatts (MW) of electric generation have recently retired in Texas causing a concern over whether enough reserve capacity exits to avoid rolling blackouts during the peak summer heat. On May 1, 2018, the Texas Senate Committee on Business and Commerce (Committee) held a meeting to discuss concerns amongst the Senators whether the Electric Reliability Council of Texas (ERCOT) had all of the tools necessary to address the lower reserve margins.  The speculation over what might occur this summer began with ERCOT’s Winter Capacity Demand Report estimated the reserve margins in ERCOT as 9.3% for the summer.

During the hearing, both the Public Utility Commission of Texas (PUCT) Chairman Walker and ERCOT representatives promoted ERCOT’s preparation for the summer and insisted ERCOT had all of the tools necessary to respond to system shortages. PUCT Chairman Walker specifically pointed to ERCOT’s demand response tool, where large customers come offline at times of high system demand.  In addition the low reserve margin reported at 9.3% a few months ago resulted in 525MW of generation coming back online.  The current reserve margin going into summer is now approximately 11%.  ERCOT stated that most of the megawatts coming back online were from mothballed units and that it is likely the possibility of higher prices this summer has made these units economical to run, and can be viewed as an indication the market is functioning as expected.

While the primary concern of the Committee was the potential for record high electricity prices, the Committee also discussed capacity markets more generally and what has changed in the market since the last time the topic of a capacity market was brought up in the Texas Legislature. To respond, PUCT Chairman Walker emphasized her strong belief in the ERCOT market and any changes regarding price fluctuations are merely a result of the cyclical nature of the market.  Chairman Walker pointed to the high prices and low capacity experienced by the market in 2005 and 2006 that encouraged more generation investment was made as a response to these price signals.  PUCT Chairman Walker also reiterated her support of the energy only market and her belief that it will work this summer.

The Committee also spent time discussed the impacts of the Federal Production Tax Credit (PTC) on the ERCOT system, the transparency of the prices in the Texas Government Land Office (GLO) contracts, and presentations from Austin Energy and CPS Energy on successes and failures for both of these municipally owned utilities. From the broad discussions taking place at the meeting it is safe to assume the Texas Legislature will be watching the ERCOT market this summer and energy is likely to be a topic of debate in the coming legislative session.

If you have questions about this or other related matters please contact Chris Reeder, Chris Hughes, Maria Faconti, Jessica Morgan or Mark Vane.

While the Texas 85th legislative session began with the filing of several bills on a diverse range of energy issues, few had made it into law when the session ended on May 29, 2017. The House and Senate passed legislation that impacts wind generation facilities, electric utility rate-setting and the General Land Office’s retail electricity program. Bills that failed to gain traction concerned grid security, energy efficiency programs, and research and development.

Our Texas energy group issued a client alert detailing several of the bills.

Two bills with the potential to impact the siting of new wind energy projects have been introduced by the Texas legislature. Senate Bill 277 (authored by Sen. Donna Campbell) and its companion, House Bill 445 (authored by Rep. James Frank), would if enacted prohibit Continue Reading Texas Legislation Seeks to Limit Tax Incentives to Wind Farms Built Near Military Bases

On the Horizon imageHusch Blackwell and the Texas Renewable Energies Industries Alliance have teamed up to produce a webinar series titled, On the Horizon, focused on the Texas solar industry.  The latest installment focused on solar leases and mineral right issues and is now available on-demand. The panelists discussed recommended provisions for solar leases including steps solar project developers can take to anticipate mineral estate operations and lessen the potential impact of right of access under the Texas’ Accommodation Doctrine.

Register here for the final two webinars of the year: Continue Reading Texas Solar Webinar Series

Part I: Texas assumes a leading role in defining the value of storage

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This first of four posts examining energy storage in Texas provides an introduction to storage technologies and describes the numerous utility-scale battery technologies currently operating in the state. The storage of electric energy is often called the “holy grail” of the future electric grid.  While Massachusetts, California and Oregon have led in storage development through mandates and financial incentives, Texas is assuming a lead role in the nation through its innovative application of storage that further defines the vital role storage can play in enhancing grid reliability and lowering rates. Continue Reading The Texas Energy Storage Market: A Four-Part Examination