Public Power Magazine

Our Fight to Protect Federal Power Marketing Policies Continues

From the January-February 2013 issue (Vol. 71, No. 1) of Public Power

Originally published January-February 2013

By Mark Crisson
President & CEO, American Public Power Association
January-February 2013

Mark Crisson

APPA and its members who are customers of the federal power marketing agencies have spent months scrutinizing the potential impact of a six-page memo issued last March by Energy Secretary Steven Chu. In the world of federal policymaking, six pages might seem inconsequential. Laws and regulations typically entail many more words. But the short memo proposed changes to federal power agency practices that would increase the cost of federal hydro power at wholesale and, by extension, increase the retail cost of federal hydro power for customers of utilities served by the federal power agencies. Moreover, we are troubled by the DOE’s efforts to launch such far-reaching changes to longstanding statutorily created public policy without collaborating with federal power customers.

We made it clear to Secretary Chu and his staff that the policy changes suggested in the memo would promote other sources of energy at the expense of hydro power and would impose a drastic economic burden on the federal hydro power system and its customers. While the words in the memo are relatively few, key terms employed in the missive are loaded with warnings for federal power customers. The purported desire to promote use of intermittent renewable energy resources includes a call for creation of an energy imbalance market (EIM) in each of the federal power agency regions. Creation of an EIM is a significant step in the direction of creating a regional transmission organization, something utilities in the West, Pacific Northwest and Southeast have objected to for years. Moreover, RTO creation and regulation rests with the Federal Energy Regulatory Commission, not DOE.

Protests from APPA, the National Rural Electric Cooperative Association and federal power customers led to formation of a Joint Outreach Team to solicit stakeholder comments in areas served by one of the power marketing agencies, the Western Area Power Administration. Last summer the “JOT” held a series of public meetings to hear customer comments about the proposals outlined in Secretary Chu’s March memo. On Nov. 20, the JOT released its draft recommendations, which included 14 specific steps aimed at implementing the secretary’s recommendations. DOE and WAPA are accepting public comment on the recommendations until Jan. 22. APPA will
file comments.

We were pleased to see that the JOT moved away from some of the more controversial elements of the secretary’s memo, particularly the proposal to implement quickly an energy imbalance market in the West. The JOT recommendations call for an evaluation of the benefits and costs to WAPA and its customers of energy imbalance markets and other options for more frequent generation scheduling and coordination among transmission balancing authorities. However, we remain troubled by the DOE’s and WAPA’s continued ambiguity as they contemplate these drastic policy changes. APPA has asked WAPA personnel to cite the statutory authority for undertaking the contemplated changes. They said WAPA’s general counsel has reviewed the proposals and offered assurance that the initiatives would not conflict with federal law, but they did not offer specific legal citations to support that claim.

While the JOT softened its position on an EIM, it recommends a study of moving from a contract-path to a flow-based environment for transmission in WAPA service areas. This kind of change would require centralized dispatch, locational marginal pricing and congestion management mechanisms, all key traits of a regional transmission organization. It would skip the EIM and go directly to an RTO.

The JOT recommended a review of WAPA’s guidelines for integrated resource planning to ensure uniformity across the 13 project areas the agency serves. Preference customers are concerned that this recommendation is intended to transform the IRP reporting procedure now in place from informational to one that would entail WAPA approval of customer IRPs. Other JOT recommendations call for a WAPA-wide study of infrastructure investment, consolidating the four Open-Access Same-time Information System (OASIS) websites to a single site and a single rate tariff, and a study of transmission and ancillary services rates charged by each WAPA transmission project with an eye toward consolidating transmission rates throughout the WAPA service areas.

The ambiguous language of the secretary’s memo and the JOT’s recommendations seems to support an overhauled mission for WAPA, a mission that would include facilitating sales of intermittent resources, particularly wind energy. Historically, operational changes in the federal power program are not imposed by DOE headquarters staff. Rather, they are evaluated by the power administrations in consultation with wholesale customers. The changes contemplated by DOE would divert finite resources away from WAPA’s statutory obligation, and its core mission: to market power from the federal hydro power system, which provides low-cost energy for millions of Americans.

In working to prevent the potential harm portended by the proposals outlined in Secretary Chu’s memo, APPA has worked closely with our members who purchase power from the federal power agencies. The work has included weekly conference calls with a task force of power marketing administration customers to assure that the message we carry to DOE and the Congress accurately and completely reflects their concerns.

We remain focused on DOE’s activities related to Secretary Chu’s memo. We will continue to pay close attention to developments and work to protect efficient distribution of low-cost federal
hydro power.

One of the most problematic changes to the PJM MOPR was the elimination of a guarantee that capacity offered into the auction by consumer-owned utilities for self-supply would automatically clear. The absence of this guarantee is a fundamental threat to the public power business model.

Delaware Municipal Electric Corp. (DEMEC), a joint action power supplier, is the poster child for what’s wrong with FERC’s revised MOPR. DEMEC President and CEO Patrick McCullar testified last year at a FERC technical conference to explain the anti-competitive and anti-consumer effects of the revised rule. The agency’s members are in a highly constrained load pocket in the PJM footprint. To help contain power prices and assure supply, DEMEC in 2007 started development and in 2011 began construction of a new generator to support the needs of its member municipal utilities. After the agency completed financing arrangements, FERC ordered PJM to use the revised MOPR. Because self-supply would no longer automatically clear the market, PJM directed DEMEC to submit a cost-based justification for an offer to sell the new capacity in the RTO market below the MOPR offer price threshold. Although DEMEC submitted the true cost of constructing the plant, it found itself at risk by having to negotiate with the PJM independent market monitor to develop an “acceptable” price that would assure the agency’s capacity of clearing the market. In the end, DEMEC’s unit cleared, but it was a painful experience for all concerned. Had its new unit not cleared, DEMEC would have been forced to pay twice for electric generating capacity—first to pay the debt service for its own resources and second to purchase capacity in the RTO-managed market.

These revised MOPR provisions jeopardize traditional financing options for consumer-owned utilities and undercut their ability to protect their customers from supply and price volatility. This rule does not promote competition. Rather, it forces consumer-owned utilities to buy capacity from the market even if they can develop less expensive generation resources on their own. And this is simply absurd.


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