But affirms use of demand response as an “insurance” strategy

Update courtesy of Utility Regulatory News #4063: Although declaring itself “very troubled” by an electric supplier’s failure to fulfill its contractually based demand response (DR) and distributed generation commitments to three electric utilities, the Maryland Public Service Commission has approved a settlement under which the subject contracts are modified so as to lower the price for demand response measures that the supplier was supposed to deliver. The three utilities (Delmarva Power & Light Co., Potomac Electric Power Co., and Potomac Edison Co.) had entered into the DR contracts with EnerNOC, Inc. pursuant to warnings from PJM Interconnection as to the strong possibility of impending capacity shortfalls in the Mid-Atlantic region. The theory behind the contracts was that conservation and demand response would ease the pressure on wholesale electric supply markets, thereby mitigating the risk of capacity shortfalls. In essence, the commission said, the DR contracts with EnerNOC were a form of service reliability “insurance.” For one reason or another, however, EnerNOC found itself unable to provide its scheduled amounts of DR for the 2011/2012 program year and possibly even the 2014/2015 delivery period. Although pronouncing itself deeply disappointed in the company’s inability to perform as expected, the commission said it was left with little choice but to modify the underlying DR contracts. The commission added, however, that the shortcomings of EnerNOC’s operations notwithstanding, it continues to view DR solicitations as an appropriate means for ensuring service reliability during times of potential capacity deficiencies. For the full story, subscribe to URN.

Posted: March 26th, 2012 under energy markets, reliability.
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Conditions approval on plant divestiture requirements

Update courtesy of Utility Regulatory News #4062: Representing the last regulatory hurdle that Exelon Corp. and Constellation Energy Group (CEG) had to clear before effectuating their proposed merger, the Federal Energy Regulatory Commission (FERC) has signed off on the deal, under which Exelon will acquire CEG. However, the FERC’s approval was contingent on the post-merger entity divesting itself of certain of its generating assets, so as to lessen the ability of the consolidated company to exercise undue influence in the wholesale markets in which it will operate. The FERC reported that, based on tests of market strength as measured against Herfindahl-Hirschman Index (HHI) screens, the planned acquisition of CEG by Exelon could too easily result in the post-merger entity being positioned to dominate the PJM market, an area already deemed moderately concentrated by HHI standards. To alleviate those market concentration concerns, the FERC deemed it necessary to condition its approval of the merger on CEG selling three of its Maryland generating units. A second condition of approval imposed on the merging parties was a requirement that their transmission customers be held harmless from any of the merger transaction’s costs. According to the FERC, those market mitigation directives are critical for assuring that competition will not be impaired in affected market regions on a post-merger basis. For the full story, subscribe to URN.

Posted: March 20th, 2012 under M&A, energy markets.
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Assessed record civil penalties by FERC

Update courtesy of Utility Regulatory News #4062: In a separate decision released the same day as its Exelon/Constellation Energy Group (CEG) merger order, the Federal Energy Regulatory Commission (FERC) sanctioned a CEG subsidiary, Constellation Energy Commodities Group (CCG), for CCG’s egregious violations of the FERC’s Anti-Manipulation Rule, which prohibits the use of power trading strategies that are designed to “game” wholesale markets. The FERC determined that CCG had purposely and repeatedly engaged in a series of unprofitable trades over a 16-month period in the wholesale markets overseen by the New York Independent System Operator (NYISO) and the Independent System Operator of New England (ISO-NE). According to the FERC’s Office of Enforcement, CCG had sacrificed profit in countless swaps in order to manipulate day-ahead prices in NYISO and ISO-NE markets for the benefit of other CCG transactions. Given FERC’s findings, CCG agreed to a consent decree, under which it must pay a civil penalty of $135 million and “disgorge” a further $110 million in “unjust profits,” the latter of which is to be paid primarily to NYISO and ISO-NE. The far-reaching assessments, totaling $245 million, are reportedly the largest ever handed down by the FERC for power trading infractions. For the full story, subscribe to URN.

Posted: March 20th, 2012 under energy markets, regulation.
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Dismisses fears about blade shear

Update courtesy of Utility Regulatory News #4062: Although sharply divided, the Ohio Supreme Court has sustained a decision from the state’s Power Siting Board (PSB) that had awarded a permit for the development of a large-scale wind power facility in Champaign County. The proposed wind project, sponsored by Buckeye Wind, L.L.C., will be one of the first wind farms in the state and is envisioned as a 70-turbine facility located on a 9,000-acre parcel of land. Neighboring landowners and county officials alike had challenged the PSB’s approval process, claiming that the board had wrongfully delegated to lower-level staff responsibility for reviewing the developer’s plans in terms of both siting and plant design. They argued that issuance of the permit had been premature in that Buckeye had not yet settled on a definitive turbine model to use, such that data on associated blade shear were not available for examination prior to the PSB’s grant of the permit. In a close 4-3 vote, however, the majority of the justices deemed such worries misplaced, pointing out the PSB had carefully reviewed its staff’s recommendations before approving the permit. Moreover, the majority noted, the PSB order covered more than 100 pages and listed 70 explicit conditions for approval, including siting modifications in some instances. Given the project’s status as a first for Ohio, the majority said it was to be expected that turbine design matters would be refined as the project moved along. By contrast, the three dissenting justices expressed alarm that the PSB would issue a permit without having hard data before it as to model-specific blade shear risks. They opined that because some of the wind units are proposed to be constructed fairly close to residential premises, a more complete evidentiary record should have been established prior to the letting of the permit. For the full story, subscribe to URN.

Posted: March 20th, 2012 under green energy, renewables, wind power.
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But close vote shows ongoing rift among Montana commissioners

Update courtesy of Utility Regulatory News #4061: Albeit by the narrowest of margins, the Montana Public Service Commission has authorized an electric utility, NorthWestern Energy (NWE), to proceed with its proposed purchase of a new wind farm complex. Known as the Spion Kop project, the wind facility is expected to produce 40 megawatts of capacity from its 25 turbines. Despite a price tag of almost $78 million, the commission noted that no party had formally challenged NWE’s purchase plan, while several had affirmatively supported the purchase, attesting that acquisition would be more cost-effective in the long run than executing a power purchase agreement (PPA) for the project’s output. Further, the commission said it was undisputed that the wind farm would be instrumental in helping NWE meet its obligations under the state’s renewable portfolio standard program. The lack of opposition notwithstanding, the commission itself was sharply divided as to the overall merits of the purchase plan, with two of the five commissioners voting no. Given the intermittent nature of wind production, and the risks inherent in ownership of generating facilities vis-à-vis PPAs, the dissenting commissioners viewed NWE’s outright purchase of the wind farm as unnecessarily and unreasonably costly for ratepayers. For the full story, subscribe to URN.

Posted: March 13th, 2012 under green energy, renewables, wind power.
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