Southwest Power Pool to expand

The Federal Energy Regulatory Commission has largely accepted a proposal to expand the geographic footprint of the Southwest Power Pool, a regional power market that will soon include a significant portion of the Upper Great Plains.

Southwest Power Pool, Inc. (SPP) was founded in 1941 by a coalition of regional power companies interested in keeping an Arkansas aluminum factory supplied with power to meet critical defense needs.  Since 2004, SPP has been recognized by the FERC as a Regional Transmission Organization or RTO.  Today, SPP organizes and operates parts of the electric power grid in nine states: Arkansas, Kansas, Louisiana, Mississippi, Missouri, Nebraska, New Mexico, Oklahoma, and Texas. 

On September 11, 2014, pursuant to section 205 of the Federal Power Act (FPA), SPP submitted to the FERC proposed revisions to its governing documents to facilitate the decision of three major transmission owners of the so-called Integrated System in the Upper Great Plains to join SPP.  The three proposed member-owners are:

• Western Area Power Administration – Upper Great Plains Region: one of four regions of the United States Department of Energy's Western Area Power Administration. Western is a federal power marketing agency that markets federal power and owns and operates transmission facilities through 15 western and central states, encompassing a geographic area of 1.3 million square miles. Western ’s primary mission is to market federal power and transmission resources constructed with Congressional authorization. The federal generation marketed by Western is generated by power plants that were constructed by federal generating agencies, principally the Department of the Interior’s Bureau of Reclamation and the U.S. Army Corps of Engineers. In the Upper Great Plains Region , or Western - UGP, Western owns an extensive system of high - voltage transmission facilities and markets federally generated hydroelectric power in the Pick - Sloan Missouri - Basin Program - Eastern Division of Western.
• Basin Electric Power Cooperative: serves 2.8 million customers in territories covering approximately 540,000 square miles using nearly 2,100 miles of transmission lines and 70 switch yards
• Heartland Consumers Power District: a public corporation and political subdivision of the State of South Dakota. It provides wholesale power to 28 municipalities in eastern South Dakota, southwest Minnesota, and northwest Iowa, to six South Dakota state agencies, and to one electric cooperative in South Dakota.

These entities proposed to join SPP as transmission owning members, to place their respective transmission facilities under the functional control of SPP, and to begin taking transmission service under the SPP Tariff.  Their stated motivation was increasing market size and thus opportunities for both consumers and producers of energy.

By order dated November 10, 2014, the FERC accepted SPP's proposal.  Together, these new SPP members provide the backbone of the bulk electric transmission system across seven states in the Upper Great Plains region consisting of approximately 9,500 miles of transmission lines rated 115 kV through 345 kV.  The FERC order directed SPP to take certain interim steps, and SPP has announced plans to integrate the three new utilities by October 2015.

Gila River Power, FERC enforcement settle for $3.4 million in market manipulation case

Federal regulators have amped up their investigations of businesses involved in U.S. energy markets in recent years.  This week the Federal Energy Regulatory Commission (FERC) approved a settlement between its Office of Enforcement and Gila River Power LLC over market manipulation claims, requiring Gila River to pay a punitive fine of $2.5 million, and disgorge unjust profits of $911,553 plus interest.  Notably, this settlement represents the first time that a market participant accused of manipulating power markets has admitted to unlawful energy trades.

Gila River is a subsidiary of Entegra Power Group LLC.  Entegra owns and operates four combined cycle power plants capable of producing about 3,300 MW of power.  Two of these plants are located at the 2,200 MW Gila River Power Station in Arizona, while the other four are located at the Union Power Station in Arkansas.  Entegra markets energy from these facilities to customers in the southeastern and southwestern U.S.

In the settlement agreement, Gila River admitted to using energy transactions known as "wheeling-through transactions" between July 2009 and October 2010 to manipulate prices in markets operated by the California Independent System Operator.  Because congestion on the transmission grid limited both the amount of power Gila River could import into California as well as the price it could get for that power, the company designed its transactions to avoid creating congestion so that it would receive a higher price on a higher quantity of energy imports.  This strategy involved claiming that it was simply passing power between two points outside California over transmission facilities located inside California, even though its transactions lacked a resource and a load outside the California markets as required by the CAISO tariff.

Under the FERC's enforcement procedures and penalty guidelines, the FERC assessed a base penalty amount based on its powers under the Federal Power Act, which allows it to levy fines of $1,000,000 per day for each violation.  The FERC then considered mitigating factors, including Gila River's cooperation in the enforcement investigation and its acceptance of responsibility for its violations.  Based on these factors, and negotiations between Gila River's legal counsel and the FERC's Office of Enforcement, the parties settled on a fine of $2.5 million, and disgorge unjust profits of $911,553 plus interest. 

While the Gila River settlement represents the first time an accused company has admitted market manipulation, FERC has used its enforcement powers more extensively in recent years.  In fiscal 2012, FERC approved nine settlement agreements entered into by Enforcement for total civil penalty payments of more than $148 million and disgorgement of more than $119 million plus interest.

USDA funding for biomass energy crops

The U.S. Department of Agriculture has announced $9.6 million in funding for biomass energy crop production in New York, North Carolina and Arkansas. The funding under the Biomass Crop Assistance Program (BCAP) focuses on expanding the production of non-food energy crops for use in manufacturing liquid biofuels and renewable electricity.

Miscsnthus - the dwarf garden variety, related to the giant hybrid energy crop.

BCAP, created in the 2008 Farm Bill, is run by USDA's Farm Service Agency (FSA). BCAP is designed to help farmers and forest land owners switch to crops that can be used to produce usable energy. In many cases, these new energy crops can have significant start-up costs and can take several years before they are ready for harvest. Developing the facilities need to convert these crops into energy products can also involve significant lead time. To overcome these obstacles, BCAP will pay energy crop producers reimbursement for up to 75 percent of the costs of establishing perennial crops. BCAP will also pay for annual maintenance of these crops, for up to five years for herbaceous crops and eleven years for woody crops.

The funding announced this week includes nearly $4 million to fund the production of up to $4,000 acres of grass crops including miscanthus and switchgrass in North Carolina. These crops will be sent to a refinery proposed by Chemtex International where they will be converted into 20 million gallons of bioethanol per year. The refinery is also expected to produce chemicals and biogas. North Carolina farmers will be paid an initial amount to establish the grass crops, plus five years of annual payments for crop maintenance, on top of their crop sales.

$4.2 million in BCAP funding will also support the establishment of up to 3,500 acres of shrub willow in northern New York. Project sponsor ReEnergy Holdings LLC will buy the willow crop as a fuel for biomass electricity production in the area.

BCAP will also provide an additional $1.2 million in funding for an expansion of miscanthus production in northeast Arkansas. Project sponsor MFA Oil Biomass LLC anticipates using the crop to produce a pelletized fuel for both heating use on the producing farms and sale into pellet fuel markets.