Michigan Experience in Competitive
Markets
Presented by
Paul Proudfoot
Director
Generation Reliability Division
Michigan Public Service Commission
December 2, 2008
Michigan Experience in
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Competitive
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Markets
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The price
Th
i and
d reliability
li bili off Mi
Michigan’s
hi
’ electric
l
i and
d gas supply
l are
significantly affected by federal and regional decisions. In Michigan,
nearly all electric transmission lines and interstate gas pipelines are
regulated by the Federal Energy Regulatory Commission (FERC).
•
With the establishment of independent regional transmission
operators (RTOs), the management of the electric transmission
system and dispatch of most generators in Michigan are done by
RTOs under FERC-approved tariffs and procedures.
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Most Michigan electric utility customers are served by entities in the
Mid
Midwest
t ISO.
ISO The
Th RTO for
f a smallll portion
ti off southwest
th
t Michigan
Mi hi
is
i
the PJM Interconnection (PJM).
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Tariffs - Wholesale
Electric transmission and distribution businesses remain under a state
or federal regulated monopoly utility structure.
In its Lower Peninsula, Michigan has divested transmission assets to
an independent transmission company, International Transmission
(ITC) which owns the transmission system. In the Upper Peninsula,
transmission assets are owned by the American Transmission
Company (ATC).
(ATC)
ITC and ATC have voluntarily turned control and management of their
transmission assets to an independent regional transmission
g
the Midwest ISO ((MISO),
) which is regulated
g
by
y the
organization,
Federal Energy Regulatory Commission.
This was done to ensure that all users of transmission have open and
equal access to transmission.
All transmission takes place under a MISO transmission and open
access energy markets tariff.
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Tariffs – Retail
Generation and supply of electricity is open to competitive suppliers.
The electric transmission and distribution businesses remain under a
regulated monopoly utility structure.
Generation is sold via contract or market-based rates.
The MPSC administers gas cost recovery and power supply cost
recovery programs.
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National Framework
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National policy for many years has been, and continues to be, to foster
competition in wholesale power markets.
In each major energy bill over the last few decades, the US Congress has
acted
t d tto open up th
the wholesale
h l
l electric
l t i power market
k tb
by ffacilitating
ilit ti entry
t off
new generators to compete with traditional utilities.
The Energy Policy Act of 2005, the third major federal law enacted in the
last thirty years to embrace wholesale competition, strengthened the legal
framework for continuing wholesale competition as federal policy for this
country.
FERC has acted quickly and strongly over the years to implement this
national policy. Its core responsibility is to "guard the consumer from
exploitation by non-competitive
non competitive electric power companies
companies."
FERC has used the following two general approaches to meet this
responsibility:
Regulation - was the primary approach for most of the last century
and
a
d remains
e a s tthe
ep
primary
a y app
approach
oac for
o wholesale
o esa e ttransmission
a s ss o se
service.
ce
Competition - has been the primary approach in recent years for
wholesale generation service.
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Federal rules for promoting competition
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1992 - The Energy Policy Act encouraged FERC to foster competition in the wholesale energy
markets through open access to transmission facilities.
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1996 - FERC issued a series of orders designed to foster competition through better access to
transmission facilities, mostly Order 888.
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1999 - FERC issued Order 2000 which encouraged transmission utilities, including those that
public utilities,, to jjoin an RTO.
were not p
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2005 - The amended Energy Policy Act reaffirmed a commitment to competition in wholesale
power markets as national policy.
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2005 - FERC issued Order 668 which amended FERC’s regulations to update the accounting
requirements for public utilities and licensees, including RTOs and ISOs.
j orders stemming
g from EPAct 2005. Order 681 finalized g
guidelines
•
2006 - FERC issued two major
for independent transmission organizations to follow in developing proposals to provide long-term
firm transmission rights in organized electricity markets. Order 679 finalized rules to bolster
investment in the nation’s aging transmission infrastructure, and to promote electric power
reliability and lower costs for consumers by reducing transmission congestion.
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FERC staff issued the Assessment of Demand Respond & Advanced Metering as required
by EPAct 2005.
2005
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2007 - FERC issued Order 890 which reformed its decade-old open-access transmission
regulatory framework to ensure transmission service is provided on a nondiscriminatory and just
and reasonable basis, as well as provided for more effective regulation and transparency in the
operation of the transmission grid.
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2008 - FERC issued Order 719 finalizing regulations that strengthen the operation and improve
the competitiveness of organized wholesale electric markets through the use of demand response
and by encouraging long-term power contracts, strengthening the role of market monitors, and
enhancing RTO and ISO responsiveness.
Environmental Regulation – Federal level
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Clean Air Interstate Rule
(CAIR)
– Issued by U.S. EPA on March
10, 2005
– When implemented in 28
states
t t it would
ld reduce
d
SO2
emissions by over 70% and
NOX emissions by over 60%
from 2003 levels.
– On July 11,
11 2008
2008, the D
D.C.
C
Circuit vacated EPA’s Clean
Air Interstate Rule. EPA is
reviewing the court’s decisions
and evaluating
g its impacts.
p
– On September 24, 2008, The
Unites States filed a petition
for rehearing in the CAIR
case.
•
Clean Air Mercury Rule
(CAMR)
– Issued by U.S. EPA on March
15, 2005
– It permanently caps and
reduces
d
mercury emissions
i i
from coal-fired power plants.
– On February 8, 2008, the D.C.
Circuit vacated CAMR. EPA
is reviewing the court’s
court s
decisions and evaluating its
impacts.
Environmental Regulation – State level
• MDEQ’s Air Qualityy
Division implements the
Federal Clean Air Act
g Part 55, Public
through
Act 451 of 1994.
– MDEQ has an agreement
with the U.S. EPA known
as a State Implementation
Plan (SIP) which is a legal,
enforceable collection of
environmental regulations
regulations,
permits, enforcement
orders, and agreements
that has been approved by
th US EPA and
the
d iis used
d
by states to clean up
polluted areas.
– Michigan
g Mercury
y Rule
• Governor Granholm
has directed that
Michigan pursue a rule
t reduce
to
d
mercury
emissions from coalfired electric utilities by
90 percent by 2015.
MDEQ has begun the
process to develop new
air pollution control
rules (SOAHR 2005
2005038 EQ) to address
mercury emissions from
coal fired electric
utilities.
Carbon Regulation
g
is Expected…
p
Source: http://www.wri.org/chart/comparison-legislative-climate-change-targets-110th-congress-1990-2050
Safety and Service Standards
Part of Commission’s Mission
The mission of the Michigan Public Service Commission is to grow
Michigan's economy and enhance the quality of life of its communities by
assuring safe and reliable energy, telecommunications, and
transportation services at reasonable prices.
Administrative Rules addressing Safety
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R460.811 adopts National Electrical Safety Code
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R460.3801 “…to reduce the hazard…” (general public & overall
safety)
y) Gives direction on construction,, operation
p
& maintenance
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R460.3802 shall comply with MIOSHA (worker safety) Administered
and enforced by MIOSHA
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R460.3803 may refuse to energize unsafe service (customer safety)
New services subject to inspection by Bureau of Construction Codes
Administrative Rules addressing
DISTRIBUTION reliability
li bilit
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R460.3705 Reasonable effort to avoid interruptions- keep records, analyze,
preventt recurrence
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R460.701- 752 Service Quality and Reliability Standards- Penalty and
Incentive provisions, 4 of 10 standards regard interruptions, precipitated out
of Staff investigation U-12270
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2000 PA 141 Customer Choice and Electric Reliability Act- became
effecti e while
effective
hile U-12270
U 12270 pending
pending, MCL 460
460.10
10 allo
allows
s penalties
penalties, utilities
tilities
challenged automatic nature of penalties, Court of Appeals affirmed
Commission approved rules
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Tariffs address characteristics of service- limiting liability to issues within
company control, service provided 24 hrs per day except for interruptible
rates, large power/dual feed etc special contracts
Performance Monitoring & Benchmarking
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Safetyy Construction of Facilities
Commission had rules or adopted code since 1926
Have since went to adopting National Electrical Safety Code
Number of updates- currently adopting 1997 edition
Administrative process required to update (2002 & 2007 ed)
S f
SafetyO
Operation
and maintenance off facilities
f
R460.3804 Requires notification of injury or fatality
Notification are fortunately rare
MIOSHA has authority for work place incidents
Claims addressed in courts
Performance Monitoring & Benchmarking
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Operational Efficiency
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PA 304 & Power Supply Cost Recovery
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Annual review & reconciliation
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Generation level- fuel costs, outages, replacement power costs
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Transmission level- FERC national issues, MISO regional issues
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Transmission Line Act- Certificate of Public Need and Necessity- defines ‘Major
T
Transmission
i i Li
Line’’ (5MI & 345KV) requiring
i i certificate,
tifi t optional
ti
l ffor llesser lilines
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Distribution level- line loss addressed in rates, recent legislation (energy optimization,
renewable energy
gy interconnections, advanced meter infrastructure etc.))
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- monitoring
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FERC’s Office of Enforcement serves the public by overseeing the
US natural gas and electric power markets and related energy and
financial markets.
It conducts daily oversight of these markets and reports its findings
and recommendations to the FERC, state commissions, and the
public.
Information on relevant natural gas and electric market conditions
and emerging trends that may soon require the regulatory attention
are posted on FERC’s website. http://ferc.gov/marketoversight/guide/guide.asp
The site is divided into the following sections: State of the Markets,
Reports and Analyses, Market Snap Shots, Market Views, Electric
Power Markets, Natural Gas Markets, and Other Markets.
Each RTO also has an independent market monitor.
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- monitoring
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Both the Midwest ISO and PJM have independent market monitors.
O off their
One
th i roles
l is
i to
t evaluate
l t the
th competitive
titi performance,
f
d
design,
i
and
d
operation of the wholesale electricity markets operated by their respective
regional transmission organizations.
Both produce annual State of the Markets reports for their service areas
which include their evaluation of the markets and recommendations for
future improvements.
The RTOs operate several competitive wholesale several markets,
including:
– Day
Day-ahead
ahead and real-time
real time energy markets that produce transparent prices that
vary by location to reflect the value of transmission congestion and losses,
– Financial transmission rights that allow participants to hedge congestion between
various locations,
– For PJM, capacity
p
y markets and synchronized
y
reserve markets,
– For MISO, clarified capacity requirements and enforcement mechanisms to
ensure long-run economic signals to support adequate supply and demand
resources, and
– For MISO starting in January, operating reserves and regulation markets (known
as ancillary services markets
markets.
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Incentives and disincentives
• The goal of federal and state regulators is to
have the best mix of regulation and competition
to protect consumers from the exercise of
monopoly power and unaffordable high energy
prices.
• Federal
F d l and
d state
t t views
i
off this
thi right
i ht mix
i are
changing due to:
– advances in technology,
gy
– exhaustion of economies of scale in most electric
generation, and
– new federal and state laws.
DELETE THIS SLIDE
• The following slides are intended for
Friday 13:30 session
Electric Transmission Reliability
History of NERC
• 1965 Northeast Blackout #1
• 1968 North American Electric Reliability Council
((NERC)) formed
– Voluntary compliance with reliability standards
• 2003 Northeast Blackout #2
• 2006 NERC accepted at the “Electric Reliability
Organization” under FERC
• 2007 Reliability standards become “mandatory
and enforceable” with fines up to $1,000,000
Electric Transmission Reliability
Reliability Concepts
• NERC defines the reliabilityy of the
interconnected bulk power system in terms of
two basic and functional aspects:
– Ad
Adequacy — The
Th ability
bilit off the
th bulk
b lk power system
t
to
t
supply the aggregate electrical demand and energy
requirements of the customers at all times, taking into
accountt scheduled
h d l d and
d reasonably
bl expected
t d
unscheduled outages of system elements.
– Security
y — The abilityy of the bulk p
power system
y
to
withstand sudden disturbances such as electric short
circuits or unanticipated loss of system elements from
g
credible contingencies.
Electric Transmission Reliability
Regional Entities
Electric Transmission Reliability
Reliability Standards
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Reliability Standards are the planning and operating rules that
electric utilities follow to ensure the most reliable system possible
possible.
These standards are developed by the industry using a balanced,
open, fair and inclusive process managed by the NERC Standards
Committee.
Proposed standards are reviewed and approved by the NERC
Board of Trustees, which then submits the standards to the U.S.
Federal Energy Regulatory Commission and Canadian provincial
g
for approval.
pp
Once approved
pp
by
y these g
governmental
regulators
agencies, the standards become legally binding on all owners,
operators and users of the bulk power system.
Standards must be just and reasonable, not unduly discriminatory or
preferential and in the public interest.
preferential,
interest Participation by industry
experts and compliance personnel in the standards development
process ensures that the standards are technically sound, fair and
balanced.
Electric Transmission Reliability
Compliance & Enforcement
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Along with the Regional Reliability Organizations, NERC has the legal
authority to enforce compliance with NERC Reliability Standards
Standards, which it
achieves through a rigorous program of monitoring, audits and
investigations, and the imposition of financial penalties and other
enforcement actions for non-compliance.
Potential violations of reliability standards are identified through means
including:
– Self-reporting by owners, operators and users of the bulk power system, of
specific incidents and events
– Information provided in periodic reports:
• Annual Compliance Reports
• Regional Audit Reports
• Vegetation Management Reports
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Information received by NERC from other industry participants
Audits and other monitoring programs conducted by NERC or the Regional
Entities
Investigations by NERC or the Regional Entities
Electric Transmission Reliability
Reliability & Adequacy Assessments
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One of NERC’s statutory roles is to conduct periodic, independent assessments of
the reliability and adequacy of the bulk power system in North America.
America (Click here
for definitions of “reliability” and “adequacy” as NERC uses them.)
NERC prepares three reliability assessments each year:
–
–
–
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A Long-Term Reliability Assessment that looks out 10 years, typically issued in the fall
A Winter Assessment,
Assessment issued in the late fall
fall, which reports on the reliability outlook for the
coming winter season
A Summer Assessment, issued in the spring, which reports on the reliability outlook for the
coming summer season.
To prepare the reports
reports, NERC consolidates data and information from the eight
Regional Entities. The information is then analyzed to assess current and future
electricity demand, and the adequacy of the bulk power system to meet that demand.
Issues related to power generation, transmission, fuel delivery, fuel supply, and
demand-side measures all are factored into the assessments.
In addition, NERC identifies non-system factors that could impact reliability and
adequacy, such as the ramifications of an aging workforce and environmental
legislation.
Reliability of Facilities
A number of Commission initiated
investigations
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Mostly storm restoration concerns
Include non
non-storm
storm outage complaints
Number of means to improve reliability
U-12270 led to administrative rules –standards
Latest investigation
g
initiated by
y order dated
June 19, 2008 e-docket U-15605
Reliability of Facilities
S i Q
Service
Quality
lit and
d Reliability
R li bilit Standards
St d d
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Developed under e-docket
e docket U-12270
U 12270
Unique to industry
Distinguishes catastrophic storms
Defines acceptable/unacceptable levels
C
Company
wide
id averages & iindividual
di id l
customer level
• Credits
C dit for
f lengthy
l
th & ffrequentt outages
t
• Required reports available on internet
Reliability of Facilities
C
Complaints
l i t
Customer s first contact is utility
• Customer’s
• PSC customer complaints could go to
utility’s
utility
s Executive Customer Assistance
Center
• Formal
F
l complaintl i t relief
li f iin fform off b
better
tt
service
• Damage claims- relief through court