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Capacity markets, pole attachments key public power issues

Two regulatory and legislative issues stand out for the public power community out of a long list of pending issues, American Public Power Association officials told attendees at an Association conference in Charleston, S.C., on Oct. 9.

On the regulatory front, the issue of mandatory wholesale capacity markets, particularly in the PJM Interconnection, stands out as a chief concern for public power, John McCaffrey, regulatory counsel at the American Public Power Association, said at the Association’s Legal & Regulatory Conference.

On the legislative front, pole attachments is the issue that rises to the top of the concerns facing public power utilities, Desmarie Waterhouse, vice president of government relations and counsel at the Association, told conference attendees.

In a June 29 order, the Federal Energy Regulatory Commission said that PJM’s existing capacity market rules were unjust and unreasonable under the Federal Power Act and must be modified. FERC was responding to PJM’s efforts to adapt to state support for certain generation resources, , such as the zero emission credits , or ZECs, that Illinois provides nuclear generators.

FERC rejected PJM’s proposed tariff changes aimed at mitigating the effect of ZECs and other state programs on capacity market prices. In filings with FERC, the Association had argued against PJM’s proposed changes, however, the problem, according to McCaffrey, is FERC ultimately concluded that PJM’s tariff rules did not do enough to mitigate the impact of state programs on capacity prices in the region. FERC’s proposed solution calls for a broader minimum offer price rule (MOPR) that could have “the effect of knocking self-supply resources out of the market, essentially requiring public power utilities to pay twice for capacity in PJM,” McCaffrey said.

PJM’s capacity market rules had included a MOPR exemption for self-supply, which applied to public power utilities because they secure generation resources to serve their own load. That exemption was upended in July 2017 with the U.S. Court of Appeals for the District of Columbia Circuit ruling in NRG Power Marketing LLC v FERC that found FERC had overstepped its authority in approving the package of PJM tariff changes that included the self-supply exemption.

If PJM ultimately implements narrower exemptions, if any, to the MOPR when it revises its capacity market rules per FERC’s order, public power utilities could find that generation they bid into the PJM capacity auction cannot clear the market, but they would still have to buy capacity under PJM rules to serve their load, even as they were paying for their new generation resources.

The Association, as well as other entities, have filed arguments in the ongoing case regarding PJM’s capacity market rules.

In comments submitted to FERC, the Association on Oct. 2 called for public power’s self-supply resources to be excluded — or carved out as an exemption — from any expanded PJM Interconnection minimum offer price rule.

The Association is also closely watching issues having to do with resilience, which is a broad topic, but so far has largely focused on issues of fuel security and, in particular, “where coal and nuclear plants fit into the equation,” McCaffrey said.

The Department of Energy in September 2017 proposed that eastern RTOs and ISOs provide full cost recovery for “fuel secure” resources, (primarily coal and nuclear plants), but FERC terminated the proceeding in January 2018.  In the subsequent FERC inquiry into resilience issues, the Association filed comments, essentially saying that FERC “shouldn’t propose any top down resiliency measures,” McCaffrey said.

The fuel security issue has spread beyond FERC. FirstEnergy Solutions filed a request with the DOE for emergency relief for coal and nuclear plants in March under section 202(c) of the Federal Power Act. That request has gone nowhere so far and the conventional wisdom, McCaffrey said, is “the longer it sits, the less likely something will happen.”

Since then, Bloomberg at the end of May published an article saying the Trump administration was working on a plan to provide emergency support for coal and nuclear plants using the Defense Production Act, a 1950 law. The day after the Bloomberg article appeared, President Trump issued a statement directing the DOE to take immediate steps to prevent the loss of fuel secure power facilities. “It is not entirely clear where this all stands,” McCaffrey said.

Pole attachments

On the legislative front, there are a host of issues that concern public power, including hydropower licensing reform, Trump administration efforts to privatize transmission assets of federal power marketing administrations, and retaining tax-exempt financing for public power utilities, but “the issue taking a lot of our attention is pole attachments,” Waterhouse said. “This has been front and center for us for the last several months.”

Broadband legislation, S. 3157, introduced in the U.S. Senate by John Thune (R-S.D.) and Brian Schatz (D-Hawaii) “would effectively repeal public power’s exemption from federal pole attachment regulation,” Waterhouse said.

Public power entities are exempted under Section 224 of the Communications Act from pole attachments. The bill has not had a committee hearing. There has been a markup, and with few days left on Congress’ legislative calendar this term, “we don’t anticipate this bill is going anywhere,” Waterhouse said. “However, the wireless industry has gotten very clever. They have taken a three-pronged attack going after” public power utilities at the state level, at the Federal Communications Commission (FCC), and before Congress.

Instead of repealing Section 224, they are using sections 253 and 332 of the Communications Act to do an end run around the 224 exemption to get jurisdiction over public power poles. “The FCC seems to be trying to do with regulation what [the Senate bill] would do legislatively,” Waterhouse said.

On Sept. 26, the FCC approved an order it believes would “remove regulatory barriers that inhibit the deployment of infrastructure necessary for 5G and other advanced wireless services.” It would effectively preempt state and local laws or requirements governing access to public rights-of-way and publicly owned infrastructure within the right of way, including rates, terms, or conditions of pole attachment agreements, using Section 253, related to rights-of-way, and Section 332, related to wireless services, of the Communications Act.

“This is something that is hugely problematic and would impact all of our members,” Waterhouse said.

Public power utilities now receive rates, usually locally regulated or controlled, but removing the exemption could make public power utilities jurisdictional to the FCC for the rates they charge to use their poles. Among other things, the FCC could impose uniform rates that would not take into consideration the diversity in size, operation, and governance structures of public power utilities. It could also create safety concerns and liabilities because, unlike telephone lines, wireless equipment is located above power not under them on the pole.

“We have a good prospect of getting this reversed, but it is going to be a huge fight,” Waterhouse said.

Attendees hear from Kelly, Smoak and NERC official

Meanwhile, on Oct. 8, conference attendees heard from Coleman Smoak, General Manager of South Carolina’s Piedmont Municipal Power Agency and chairman of the Association’s Board of Directors, Sue Kelly, president and CEO of the Association, and Charles Berardesco, senior vice president and general counsel of the North American Electric Reliability Corporation.

Addressing innovation in his remarks, Smoak drew a connection between information technology and customer concerns and their desire to control their electricity usage.

“We need to try to be out there on the leading edge of innovation,” he said.

Smoak acknowledged that small utilities cannot afford to be the testbed for an expensive IT failure, but he noted that smaller utilities should realize they have access to resources. “Maybe the greatest thing all of us can do is to realize we are not in this alone,” Smoak said.

He encouraged utilities to take advantage of Association grants and resources and the resources of local and state public power organizations.

For her part, Kelly highlighted the Association’s national campaign to raise awareness of public power. “Many people do not know they are served by public power,” when in fact public power utilities serve 2,000 communities and 49 million Americans.

The key messages of the campaign, Kelly said, are that public power is owned by the community, supports local jobs and the economy, is accountable to the community, and invests revenues back into the community. (For additional details about the campaign, click here).

“Too many city council members and utility board members are asking the question, ‘Why are we in the electricity business?’” Smoak said.

That is where advocacy and “your story,” the reasons for a public utility’s founding and continued existence, comes into play.

“If you can’t or won’t tell you public utility’s story, no one else will,” Smoak said.

NERC official outlines agenda

Meanwhile, in his remarks, Berardesco said there are four issues on the top of the agenda for Jim Robb, the new CEO of NERC.

The top issues laid out by Robb, who became CEO of NERC earlier this year, are security, both cyber and physical, the reliability coordinator changes in the West, integration of inverter-based technology, and the pace of change.

Robb discussed several of these issues in a late September meeting with reporters at NERC’s offices in Washington, D.C., on Sept. 27.

With respect to the pace of technological change, Berardesco highlighted the grid’s accelerating shift from fossil fueled generation to renewable generation but noted that “the success of renewables is dependent on gas.”

He also noted what has come to be called in Washington, “the fuel wars” with coal and nuclear generation on one side and renewables and gas on the other.

“At NERC we are fuel agnostic. That is not our role,” Berardesco said. “We can’t mandate anyone to build anything. But we do believe resilience is an important part of the system, the ability to recover from events.”

In that respect, a reliable grid has certain characteristics, services such as frequency response and voltage support, but “NERC can’t mandate how those things are reflected in the market, but they need to be reflected,” Berardesco said.

In closing, Berardesco said, “data shows the system is probably the most reliable it has ever been, but as we move forward we are going to have to focus on these issues to maintain that reliability.”

 

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