ORIGINAL REPORTING, April 2: ACTIVISTS PUSH FOR NEW RTO AS SOUTHEAST UTILITY RESERVE MARGINS CALLED INTO QUESTION
The regular Things-To-Think-About-Thursday feature will return next week.
Herman K. Trabish, January 6, 2015 (Utility Dive)
The state-by-state fight between utilities and renewables advocates just went national. A North Carolina group has asked federal regulators to investigate Duke Energy, the Southern Company, and other big Southeastern utilities for possible power price manipulations it says boost utility profits and block renewables and efficiency from the market.
NC WARN wants the Federal Energy Regulatory Commission (FERC) to calculate “how many billions are being wasted across the Southeast” due to the overbuilding of generation facilities, and to push seven southeastern states for data that would show “how much could be saved annually if utilities begin sharing power supply through regional cooperation.”
The charge is that southeastern utilities have built over twice the 14% to 15% reserve power generation capacity they need to meet peak demand. U.S. Energy Information Administration data shows they maintain reserve margins between 24% and 37%, NC WARN charged.
By convincing state regulators to approve new nuclear and fossil generation, NC WARN explained in its petition to FERC, the utilities have imposed higher rates on their customers.
“Electricity users in Florida, Georgia, and South Carolina have suffered up to six rate hikes for nuclear plant construction projects that have either failed or are experiencing delays and cost overruns,” NC WARN reported.
By owning more than ample excess generation, utilities keep electricity supply high. That drives electricity rates lower, below the break-even point for new resources like wind or solar. In effect, NC WARN argues, southeastern utilities are building more fossil fuel generation so they can price renewables out of the market. Even with recent rate increases, electricity prices remain lowest in southeastern states, where much of the generation still comes from coal and nuclear. At the same time, southeastern utilities rank near or at the bottom in renewable energy integration.
Duke Energy insists it has removed old coal capacity while adding new, cleaner generation sources like natural gas facilities and utility-scale solar arrays. NC WARN says the net change has increased Duke’s reserves.
Reserve capacity and load growth
While the North American Reliability Council (NERC) standard for reserve capacity is around 15%, EIA’s summer 2014 forecast put the Carolinas’ unused generation capacity at 24%, Tennessee’s at 26%, Georgia’s and Alabama’s at 37%, and Florida’s at 29%.
Duke Energy’s most recent 15-year Integrated Resource Plan (IRP) projects resource margins “in the 15% to 20% range,” explained Spokesperson Randy Wheeless. “We don’t think there is an overcapacity.”
Those reserve margins are based on projected overall electricity demand growth of 1.5%, net growth after energy efficiency impacts of 1.0%, and a 1.4% peak demand growth.
Because the EIA and the others forecast a flat or declining long-term growth in demand, NC WARN believes Duke’s estimate is high.
“Adjusted for a reasonable demand growth rate of 0.5%,” NC WARN charged, Duke’s reserves would be “23% to 33% from 2020 to 2029.” Its peak demand reserve capacity during months of lower electricity consumption would be as high as 57%. Technologies ranging from LED lighting and efficient air conditioning to increasingly affordable solar and combined heat and power systems will keep electricity demand from rising, according to former FERC Chair Jon Wellinghoff.
“There will be virtually no load growth at the grid level for the foreseeable future,” he told Utility Dive.
Without load growth, Wellinghoff said, it will take some time before big plants being approved by state regulators in southeastern states will be useful.
A new RTO for the Southeast?
A regional solution benefits ratepayers by eliminating the need to build new plants that drive rates up, explained NC WARN Counsel John Runkle.
“A regional solution is a hedge against flat load growth because it gives you better access to markets and allows you to market the excess more efficiently and at better prices,” Wellinghoff explained.
The regional solution NC WARN wants is a regional transmission organization (RTO) that creates a wholesale electricity market across the Southeast. Thriving RTOs such as the Midcontinent Independent System Operator (MISO), the PJM Interconnection, and the Southwest Power Pool (SPP) help deliver two-thirds of U.S. electricity.
Many powerful, vertically integrated utilities and state regulators object to regional solutions because it means sacrificing some autonomy.
Advocates of regional solutions say they provide utilities with more options and better options to keep the lights on than just building power plants. By creating markets, they also make electricity a commodity, make pricing transparent, and drive innovators to find more competitive resources.
FERC established regulations for a regional solution in 1999 under the Federal Power Act (FPA). Minimum characteristics are that it must be (1) independent, (2) have a regional configuration, (3) have operational authority over participants, and (4) increase short-term reliability.
An RTO must also (1) design and administer tariffs, (2) manage transmission congestion, (3) maintain power flow, (4) provide ancillary services, (5) haveOASIS-based transmission monitoring and management, (6) effectively monitor its market, (7) plan and expand its services, and (8) coordinate inter-regionally.
The Entergy story: Bringing a big utility into an RTO
As FERC chair, Wellinghoff acted on complaints against the Entergy companies in Arkansas, Louisiana, Mississippi, and Texas by arranging to bring their 30 GW generating capacity and 2.8 million utility customers into MISO.
“The problems with Entergy had gone on for a long time and state jurisdictions were ready and willing to sit down and consider alternatives,” Wellinghoff recalled. He was able to arrange a workshop in which Entergy executives and experts testified before representatives of the state regulatory agencies.
From the workshop, evidence emerged that MISO participation would benefit Entergy customers. It convinced state regulators to go forward with a FERC-funded study to quantify the costs and benefits. When the analysis showed a $1.6 billion net benefit, state commissions in the Entergy states chose economic development and keeping total costs down over the loss of jurisdictional authority, Wellinghoff explained.
Wellinghoff said a similar approach might work with utilities in the southeastern states. “If I was the FERC Chair now, I would see if the states are willing to consider alternatives.”
A summit in the offing?
Duke Energy has shown willingness to work with stakeholders, Wheeless said. He cited Duke’s participation in the compromise that produced South Carolina’s landmark solar law. “We got a lot of parties who don’t normally agree on very much to agree on something very big,” he said.
Duke would likely participate in a similar summit to consider a regional electricity market solution, Wheeless said, if there was “regulatory momentum” for it. But, he noted, the 2012 merger of Duke and Progress was almost derailed by rumors FERC would require the utilities to join an RTO.
“All sides knew such a requirement would certainly be rejected by state regulators, which would have to give up significant regulatory authority to FERC,” the Charlotte Business Journal reported at the time.
Interestingly, new transmission required by FERC to mitigate concerns about the merger’s effect on market competition have already produced some $300 million in cumulative savings for North Carolina and South Carolina customers, Duke recently reported. The combined operations of the two utilities’ generation fleets have the merged entity “on track to meet the $687 million in cumulative customer savings it guaranteed to regulators during the first five years after the merger.”
When asked if this suggested larger potential savings from participating in a regional solution, Wheeless said only that some Duke subsidiaries do operate in states with RTOs but it isn’t clear there is interest for one in the Southeast.
Both Runkle and Wheeless said Duke will have a formal response to the NC WARN filing with FERC by mid-January.