Maine PUC considers NTA coordinator

Maine utility regulators have launched an investigation into the designation of a "Non-Transmission Alternative Coordinator."  The case could shape whether and how Maine coordinates alternatives to electric transmission line development.

Non-transmission alternatives or NTAs are smart grid programs and technologies that complement and improve operation of existing electricity transmission systems, deferring or eliminating the need for upgrades to the transmission system.  NTAs can an deliver improvements to the grid at a lower cost than some transmission projects.  Distributed generation, storage, and demand response can play roles in NTA projects.

In Maine, legislative policy supports selecting NTAs over transmission development if an NTA can meet an identified reliability need at a lower cost to consumers than the proposed transmission project.  But under current law, no single entity formally coordinates or is required to postulate alternatives to transmission development.

In previous cases, the Maine Public Utilities Commission has investigated the need for a smart grid coordinator, approved a non-transmission alternative pilot project in the Boothbay region, and considered the scope of what an NTA Coordinator might do.  From these dockets, a vision has emerged of the NTA Coordinator as an entity that would develop cost-effective alternatives to transmission projects.  Under this vision, the NTA Coordinator would address the policy and goals of the Maine's Smart Grid Policy Act to “improve the overall reliability and efficiency of the electric system, reduce ratepayers’ costs in a way that improves the overall efficiency of electric energy resources, reduce and better manage energy consumption and reduce greenhouse gas emissions.”

But key questions remain, including whether and how an NTA Coordinator will be designated, the scope of its functions and duties.  Another fundamental question is whether these functions will be performed by transmission and distribution utilities, or by some third party entity.

In a Notice of Investigation dated April 4, 2016, the Maine Public Utilities Commission opened its investigation into these questions.  The notice describes the proceeding as focused on one approach to economically optimizing the electric system between generation and transmission:

Specifically, through this proceeding, the Commission expects to address this legislative policy by (1) developing the framework for selecting a NTA Coordinator and (2) determining the scope of the NTA Coordinator’s functions and duties. The Commission will also resolve the question of whether a third party entity or the transmission and distribution (T&D) utilities should perform the NTA Coordinator functions. This investigation will also address the role of an Advisory Planning Committee (APC) and the process for NTA development both within a CPCN proceeding and for transmission and distribution projects that are not required to file a CPCN petition. Finally, an end-product of this proceeding will be either the contours of an RFP or that of a rate incentive proposal should the Commission determine that the utility and not a third party should perform the functions of an NTA Coordinator.

Along with the notice of investigation, the Commission also issued "Strawman" and "Process Chart" documents for comment.

The notice set deadlines for filing petitions to intervene by April 21, 2016, and for comments on the Strawman and Process Chart by April 28, 2016.  An initial case conference was scheduled for May 12, 2016.

FERC approves Berkshire Power settlement

Federal energy regulators have approved a stipulation and consent agreement under which two companies admit violations of the Federal Power Act and regulations prohibiting energy market manipulation.

The case involves Berkshire Power Company LLC (Berkshire), and Power Plant Management Services LLC. Berkshire owns an approximately 245 MW natural gas-fired, combined-cycle generating facility in Agawam, Massachusetts. Berkshire hired PPMS to provide project management and administrative services at the plant.

According to Federal Energy Regulatory Commission documents, at the direction of a general manager hired by PPMS, "Berkshire Power engaged in a fraudulent scheme to perform unreported maintenance work and to conceal that work and associated maintenance outages from ISO-NE."  The documents allege that individuals at the plant scheduled maintenance work for times when the plant was unlikely to be dispatched, and then failed to notify ISO-NE about the work or the associated Plant unavailability.  In at least six instances, this led to representations to ISO New England dispatchers that the plant was starting up or was able to start up when it was, in fact, unavailable due to ongoing maintenance or other technical problems.

The Commission's Office of Enforcement initiated its investigation in June 2014, following a referral from the United States Attorney’s Office for the District of Massachusetts.  Following fact-finding, Enforcement concluded that Berkshire and PPMS violated section 222 of the Federal Power Act and the Commission’s Anti-Manipulation Rule by concealing its maintenance work and associated outages from ISO-NE. That rule prohibits any entity from using a fraudulent device, scheme, or artifice, or engaging in any act, practice, or course of business that operates or would operate as a fraud; with the requisite scienter; in connection with a transaction subject to the jurisdiction of the Commission.

Enforcement also concluded that Berkshire violated Commission regulations by violating provisions of the ISO-NE tariff requiring it to schedule and disclose plant maintenance and to accurately report on plant availability, and by making false and misleading representations to ISO-NE. Finally, Enforcement concluded that Berkshire violated Commission-approved reliability standards by withholding information regarding its planned maintenance outages and plant capabilities and availability.

According to the order, the Office of Enforcement, Berkshire, and PPMS have resolved the matter by a stipulation and consent agreement.  Under that deal, Berkshire and PPMS stipulate to the facts, admit the violations set out in the Agreement, and agree to pay a civil penalty of $2,000,000 to the United States Treasury. Berkshire agrees to pay to ISO-NE disgorgement of $1,012,563, plus interest. Berkshire further agrees to pay a civil penalty of $30,000 to the United States Treasury for its violations of the Reliability Standards.

In its March 30, 2016 order accepting that settlement, the Commission noted Enforcement's consideration of the factors in the Revised Policy Statement on Penalty Guidelines.  Factors cited here as supporting "the appropriate remedy" include "that both companies cooperated fully and comprehensively throughout the investigation, both accepted responsibility for their violations, and neither has a prior history of violations."  The order notes that the remedy also reflects that neither company had an effective compliance program in place during the relevant period, and that a high-level employee at the plant directed the scheme.

The order directs Berkshire and PPMS to make the disgorgement and civil penalty payments as required by the Agreement within ten business days of its Effective Date. ISO-NE was directed to allocate the disgorgement funds pro rata to network load during the applicable period. The order also directs Berkshire and PPMS to comply with the provisions in the Agreement also requiring them to implement procedures to improve compliance going forward, subject to monitoring via submission of semi-annual reports for at least one year.

FERC 2015 Report on Enforcement

The enforcement arm of the Federal Energy Regulatory Commission has released a report describing its enforcement activities in fiscal year 2015.

The 69-page 2015 FERC staff report on enforcement draws its organization from that of the Commission's Office of Enforcement.  The report presents public summaries of activity by each of the Office’s four divisions -- Investigations, Audits, Energy Market Oversight, and Analytics and Surveillance.  Of these, Investigations and Audits are the most likely to lead to penalties or other direct enforcement action, while Market Oversight and Analytics typically play more of a background role, supporting the Commission's investigations and audits.

According to the report, the Investigations division opened 19 new investigations in fiscal 2015, and closed 22 (through settlement or "no action").  Major settlements in fiscal 2015 focused on the major 2011 Southwest power outage, with the Commission concluding its multiyear investigation into that outage and its causes.  In all, staff obtained settlements resulting in almost $26.25 million in civil penalties and disgorgement of $1 million in unjust profits. All settlements included reporting requirements and provisions requiring the subjects to enhance compliance programs.

The FERC enforcement office's Audits division periodically checks the records of licensees and public utilities to evaluate their compliance with the statutes and regulations administered by the Commission.  It reportedly performed 22 financial and operational audits of public utilities and oil and natural gas pipelines.  The report states that these audits led to 360 recommendations for corrective action, and refunds and recoveries totaling more than $26.3 million.

Generally speaking, the annual staff enforcement report is a summary of what's already happened.  In other words, the enforcement activity described in the annual report has already occurred.  Much of that activity was public; any civil penalties or other remedies described in the report are generally imposed and documented in separate, preexisting proceedings.  The report does also provide summary level information on some non-public Enforcement activities, like self-reported violations or investigations closed without public enforcement action.

The enforcement report also provides an important look into how the Commission staff view their work -- the enforcement office's patterns, trends, and priorities, as expressed by the people doing the enforcing.  By following the Commission's enforcement activity throughout the year, and comparing that history to staff's view of the year, the enforcement office's points of emphasis come into focus.  As expected, in fiscal year 2015, these included fraud and market manipulation, serious violations of mandatory reliability standards, and conduct that the office found to threaten the transparency of regulated markets.

The Office of Enforcement's annual report can also be compared to previous reports dating back to at least 2007.  Compared to some recent years, fiscal 2015 saw a relatively lower total penalty amount resulting from enforcement action.  (Compare 2015's $26.3 million in penalties and $1 million in disgorgement, with 2013's over $304 million in civil penalties and disgorgement of almost $141 million in unjust profits.)

But experience has shown that there can be difficulty, or at least delay, affecting whether FERC will actually collect that money.  The report notes that in fiscal 2015, Enforcement filed three new petitions in federal district court to enforce earlier Commission orders assessing civil penalties.  Along with an anti-manipulation case tried in 2015 before a FERC Administrative Law Judge, the report notes that staff is waging district court and administrative litigation to recover over $500 million in civil penalties and disgorgement.

DOE report finds Solyndra gave "false and misleading" info

The Department of Energy's Office of Inspector General has released a special report finding that failed solar panel maker Solyndra, Inc. provided the Department with inaccurate and misleading information during the application process for a $535 million loan guarantee.  The report summarizes the results of a 4-year investigation into what went wrong with the Solyndra matter, and what lessons the Department can learn as it proceeds to exercise its authority to grant an additional $40 billion in loan guarantees.

In 2005, Congress established a federal loan guarantee program for eligible energy projects that employed innovative technologies. Title XVII of the Energy Policy Act of 2005 authorized the Secretary of Energy to make loan guarantees for a variety of types of projects, including those that “avoid, reduce, or sequester air pollutants or anthropogenic emissions of greenhouse gases; and employ new or significantly improved technologies as compared to commercial technologies in service in the United States at the time the guarantee is issued.”

The Department of Energy loan guarantee program was expanded by the American Recovery and Reinvestment Act of 2009, which added billions of dollars of new authority to support renewable energy, electric transmission, and advanced biofuels projects.  The Department's Loan ProgramsOffice has supported a portfolio of more than $30 billion in loans, loan guarantees, and commitments covering more than 30 projects across the United States.

The Department made its first award under this program in September 2009, approving a $535 million loan guarantee to a company called Solyndra, Inc.  Solyndra said it would build a solar photovoltaic equipment manufacturing facility in Fremont, California.  The Energy Department disbursed over $500 million to Solyndra through the program.  But just two years later, Solyndra showed signs of failure, as it ultimately stopped operations and manufacturing, let 1,100 employees go, and filed for bankruptcy.  U.S taxpayers lost over $500 million.

The Solyndra matter drew significant public attention, with even the Department calling it an "ordeal" and many labeling it a scandal.  What went wrong?  Should the government have guaranteed Solyndra's loans?  Was the loan guarantee program flawed?  Or was it acceptable bad luck that the first awardee failed?

Since 2011, the Department of Energy's Office of Inspector General has investigated the Solyndra matter.  Its special report released August 24, 2015, describes the Inspector General's findings:

Our investigation confirmed that during the loan guarantee application process and while drawing down loan proceeds, Solyndra provided the Department with statements, assertions , and certifications that were inaccurate and misleading , misrepresented known facts , and, in some instances, omitted information that was highly relevant to key decisions in the process to award and execute the $535 million loan guarantee. In our view, the investigative record suggests that the actions of certain Solyndra officials were, at best, reckless and irresponsible or, at worst, an orchestrated effort to knowingly and intentionally deceive and mislead the Department.

In particular, the report identified "notable misrepresentations and omissions made to the Department by Solyndra" relating to Solyndra's sales contract commitments and ability to command a premium market price for its panels.  The report suggests this false and misleading information led the Department to approve the loan guarantee, when it might not have done so with the right information.  The report found that Solyndra failed to meet contractual obligations from the loan guarantee documents relating to truth and full disclosure.

The Inspector General's special report also found that the Energy Department's due diligence efforts were "less than fully effective", with missed opportunities to detect and resolve indicators that portions of the data provided by Solyndra were unreliable.  Nevertheless, the report concludes that ultimate blame should fall on the company: "the actions of the Solyndra officials were at the heart of this matter, and they effectively undermined the Department’s efforts to manage the loan guarantee process. In so doing, they placed more than $500 million in U.S. taxpayers’ funds in jeopardy."

The Department of Energy continues to offer loan guarantees for a variety of technologies and projects.  The report suggests that the Department strengthen its due diligence process, and reemphasize to loan applicants their absolute obligation to be truthful, complete, timely and transparent.

Polar vortex caused energy price spikes, says FERC staff

Why did energy prices rise during last winter's extremely cold "polar vortex" weather?  A recent report by federal regulators suggests that inadequate infrastructure is largely to blame, while finding no evidence of widespread or sustained market manipulation.

A recent winter in New England: cold ocean, cold snow.  Must high energy prices follow?

The 2013 - 2014 winter season brought prolonged and unusually cold weather events in much of the United States.  While the nation's major electric grids were generally able to maintain reliable operation, prices for natural gas and electricity spiked to unprecedented levels.  Bottlenecks on interstate natural gas pipelines limited the amount of gas flowing into regions like the Northeast, while demand for gas for heating and electric power generation increased beyond the constrained pipelines' capacity.  This imbalance of supply and demand for gas led to extremely high prices for gas as well as for electricity, because the price of natural gas often sets the price for power.  Compounding the problem, some generators could not buy enough gas to operate, while others experienced outages due to equipment failure and frozen coal piles.  In some regions, generators amounting to 30 percent of electric load faced forced outages.

As an immediate response, the Federal Energy Regulatory Commission took actions including changes to rules in the PJM, New York ISO and California ISO electricity markets, the Commission's first use of its emergency powers under the Interstate Commerce Act to direct Enterprise TE Products Pipeline to temporarily provide priority treatment to certain propane shipments, and approving a Winter Reliability Program in the ISO New England region.

According to a recently released report by the staff of the Federal Energy Regulatory Commission, the FERC Office of Enforcement also launched investigations into whether market participant behavior influenced regulated energy prices.  In addition to the Commission's enforcement arm's regular surveillance of natural gas and electric markets for market manipulation and other improper conduct, the past winter's extreme price spikes prompted a closer look by the Office of Enforcement to determine if market manipulation was behind the historically high natural gas and electric prices.

On October 16, FERC’s enforcement staff reported that it found "no evidence of widespread or sustained market manipulation."  Enforcement staff said it reached its conclusions after an extensive review and data analysis related to gas trading behavior, allegations received through the FERC hotline, generator offer behavior and outage behavior.

However, enforcement staff reported that three non-public investigations remain pending.  At stake is whether any market participant was involved with the formation of a single monthly natural gas index to benefit its financial derivative positions, as well as whether certain generators improperly took advantage of constrained conditions in the electric markets by bidding in a way that increased their uplift payments.

Expect these enforcement investigations to continue, either to an informal resolution or a public enforcement process.  With former Office of Enforcement head Norman Bay as the newest FERC Commissioner, FERC's enforcement arm appears to be growing in influence.  Meanwhile, the coming winter may yet again test the nation's electricity and natural gas infrastructure.  What will the 2014 - 2015 winter hold, in terms of energy reliability, pricing, and enforcement actions?