DOE’s proposal is irreconcilable with the design of organized wholesale energy markets.

DOE’s proposal is irreconcilable with the design of organized wholesale energy markets.

DOE’s proposal is irreconcilable with the design of organized wholesale energy markets.

By Kristina Mohlin

This blog post was co-authored with Levi Marks and Matthew Zaragoza-Watkins

Earlier this month we—a  team of economists at EDF, UC Santa Barbara, University of Wyoming and Vanderbilt University—released  a new study on the natural gas pipeline markets in New England which revealed a distinctive pattern showing that local gas utilities owned by two companies—Eversource and Avangrid—routinely ordered large deliveries, then sharply reduced those orders at the last minute. This “down-scheduling” consistently came too late for anyone else to buy that capacity, thus limiting available gas supply in the wholesale market.

One question people ask: Were these two companies acting any differently from other firms, and how can you tell?

We approached this question as we would any research project by thoroughly investigating the data. Over 18 months, we analyzed scheduled gas flows for all 117 delivery points (nodes) on the Algonquin pipeline for every hour of every day in a three-year study period from August 1, 2013 to July 31, 2016, which we downloaded from the pipeline’s public reporting web site. In total, we looked at approximately eight million data points generated from the scheduling patterns of 18 local gas utilities owned by 11 parent companies.

What we found in those public data was clear and irrefutable. Local distribution companies owned by two of those parent companies—and only utilities belonging to those parents—consistently behaved differently than all the others. We don’t know why, but there’s no question that it occurred. The pattern is clear when you visualize the data.

Pattern recognition

The figure above shows scheduling patterns for a typical Algonquin delivery node operated by a gas utility. The horizontal axis shows the 44-hour scheduling window associated with each 24-hour “gas day.” The vertical axis represents the total amount scheduled for delivery over the course of the entire gas day. The chart shows typical patterns: after initial nominations, there are some substantial adjustments mainly at or before the start of the gas day, with generally smaller changes happening close to the end of the gas day.

We constructed graphs like this for all 117 nodes on Algonquin. Most of the 95 utility-operated nodes look pretty much like the one above.

But some of the nodes are not like the others. Take a look:

This second set of figures charts scheduling patterns at one node operated by Avangrid. The pattern is quite different from the vast majority of utility-operated nodes. Here, we consistently see large, downward schedule adjustments concentrated in the final three hours of the gas day. In contrast to other utility-operated nodes where excess capacity was typically not scheduled or was released earlier in the gas day, Avangrid tended not to release excess capacity until the end of the day when it is too late for the pipeline to make it available to others.

This same pattern can be observed at six nodes on the pipeline, and to a smaller extent on four others. All ten are operated by Eversource or Avangrid.

Not like the others

On average, nodes follow the pattern observed in the first figure: modest adjustments to scheduled deliveries over the course of the day, around five to 15 percent in either direction (adjusting upward or downward), with few changes in the final hours of the gas day. These outlier nodes operated by Eversource and Avangrid, on the other hand, consistently over-order at the beginning of the day, and consistently make large, last-minute downward adjustments of 10 to 50 percent in the final hours of the gas day, when the pipeline capacity could not be reallocated.

The table below shows a ranked list of the average schedule change in the last three hours of the gas day in MMBtu over the three-year study period for all Algonquin nodes. The top six nodes are clear outliers from the rest and the four that downschedule the next most are also operated by Avangrid and Eversource.

Econ 101: Supply goes down, price goes up

By tying up pipeline space until it was too late for others to use, we estimate the last-minute scheduling changes by Eversource and Avangrid reduced effective capacity on the Algonquin pipeline by an average of roughly 50,000 MMBtu over the three-year period. That’s about 14% of the daily volume typically used to supply gas-fired generators on the pipeline. On 37 days, unsold capacity due to scheduling changes exceeded 100,000 MMBtu, which represents about 28% of the daily capacity typically used by gas-fired generators (and about 7% of total pipeline capacity).

Basic economics tells us that such large reductions in supply will increase wholesale gas prices. Furthermore, because the natural gas and electricity markets are so closely interconnected in New England (about 50% of the electricity generated in the region comes from gas-fired plants), higher wholesale gas prices translate into increased prices in the wholesale electricity. Our analysis found that wholesale electricity prices in the ISO-New England system were about 20% higher on average over our study period due to higher gas prices from the unused pipeline capacity tied up by these two companies’ scheduling habits.

All told, we estimate New England customers shelled out $3.6 billion in artificially inflated electricity bills.

The motive doesn’t matter

We don’t know the reasons behind these scheduling patters, only that they clearly happened. The study does not assess legality. Eversource and Avangrid say they were simply making sure they their customers had enough gas (which raises the question of why none of the other nine companies needed to resort to such measures). For our purposes, the reason doesn’t really matter.

The more important fact that it could have happened in the first place. And that’s because gas and electric markets have not kept up with the needs of a dynamic energy system. For example, legacy gas contracts give some utilities excess leverage, while new innovators are often placed at a disadvantage. Out-of-date trading systems also risk saddling ratepayers with expensive new pipelines the market might not actually need, and they stifle fair competition from cheaper, cleaner, more efficient solutions.

While strong, sensible regulations are essential to protecting our health and environment, well-designed markets have tremendous power to deliver results faster, at lower cost to everyone—and with less pollution. That’s why EDF is proposing solutions that would make wholesale gas and electricity markets more efficient, and more competitive, leading to better outcomes for energy customers and the environment.

This blog post was co-authored with Levi Marks and Matthew Zaragoza-Watkins Earlier this month we—a  team of economists at EDF, UC Santa Barbara, University of Wyoming and Vanderbilt University—released  a new study on the natural gas pipeline markets in New England which revealed a distinctive pattern showing that local gas utilities owned by two companies—Eversource and […]

This blog post was co-authored with Levi Marks and Matthew Zaragoza-Watkins Earlier this month we—a  team of economists at EDF, UC Santa Barbara, University of Wyoming and Vanderbilt University—released  a new study on the natural gas pipeline markets in New England which revealed a distinctive pattern showing that local gas utilities owned by two companies—Eversource and […]

By Christina Wolfe

Texas is set to receive $209 million as part of the legal settlement for Volkswagen’s decade-long scheme to cheat on diesel emissions tests in the United States and elsewhere. That is because the German automaker sold more than 40,000 non-compliant vehicles in the state, resulting in Texans breathing dirtier air.

The money is for projects that reduce smog-forming nitrogen oxides. It is in addition to civil penalties and other legal settlements, which include an agreement for the company to invest in zero-emission, all-electric vehicle technology and infrastructure.

For Texas, the road to cleaner air began in early October. Here are three steps the state needs to take:

1. Secure funding

Before Texas can receive its share of the money, it must become a beneficiary of the trust, which was set up to compensate states for the emissions-cheating scandal. This first step is also the easiest. It is a paperwork exercise in advance of the hard decisions.

1. Pick a lead agency

Gov. Greg Abbott should pick the Texas Commission on Environmental Quality, or TCEQ, as the lead agency for managing these funds. That is the recommendation of the Texas Clean Air Working Group, which includes local governments, business groups and environmental organizations. Environmental Defense Fund is among the group’s members.

We reached this conclusion because of TCEQ’s experience administering the successful Texas Emissions Reduction Plan, or TERP, which provides funding for upgrading or replacing heavy-duty vehicles and equipment to attain the goal of reducing pollution by getting rid of older, dirtier engines.

Simply, it would not make sense for another state agency to take the lead. Texas needs to move quickly because other states have selected their lead agencies already.

1. Prioritize projects

This is toughest part because there are so many worthy projects. There are 10 categories for eligibility, with an emphasis on the potential for significant reductions in smog-forming nitrogen oxides. The categories include:

• Electrification of cargo-handling equipment;
• Electrification of airport ground equipment;
• Switcher locomotives (repower/replacement);
• Tugs/ferries (repower);
• Ocean-going vessel shorepower;
• Contribution toward state Diesel Emission Reduction Act projects;
• Heavy-duty trucks used in drayage/freight/waste/dump applications (repower/replacement);
• Buses used in school/shuttle/transit applications (repower/replacement);
• Trucks used in local freight;
• Charging equipment for light-duty zero-emission vehicles.

It is important for the state to get public input on potential projects. EDF, for one, is evaluating the best ways to use the VW funding in Texas. We will share our recommendations in future posts.

Texas faces a Dec. 1 deadline to submit its documentation to become a beneficiary. Once the trustee approves beneficiary status for Texas – no later than Jan. 30, 2018 – the state will have three months to develop and distribute a plan for spending the money.

It is a lot of work. But the potential for cleaner air quality will be worth the effort. EDF is looking forward to being part of the conversation, and we encourage other stakeholders to join in the effort.

Texas is set to receive $209 million as part of the legal settlement for Volkswagen’s decade-long scheme to cheat on diesel emissions tests in the United States and elsewhere. Here are three steps the state needs to take before receiving the money.

Texas is set to receive $209 million as part of the legal settlement for Volkswagen’s decade-long scheme to cheat on diesel emissions tests in the United States and elsewhere. Here are three steps the state needs to take before receiving the money.

Texas is set to receive $209 million as part of the legal settlement for Volkswagen’s decade-long scheme to cheat on diesel emissions tests in the United States and elsewhere. Here are three steps the state needs to take before receiving the money.

By Richard Denison

Richard Denison, Ph.D., is a Lead Senior Scientist.

The lead article in Sunday’s print edition of the New York Times, titled “Why Has the E.P.A. Shifted on Toxic Chemicals? An Industry Insider Helps Call the Shots,” presents an 8000-word exposé of the Trump Administration’s takeover of the Environmental Protection Agency’s chemical safety program.  It focuses on the outsized role played by Dr. Nancy Beck, who arrived at the Agency on May 1 fresh from her job as a senior official at the chemical industry’s main trade association, the American Chemistry Council (ACC).

For those who have not had the chance to read the article, I provide here my take on some of its most compelling and disturbing findings:

1. Immediately upon her arrival at EPA as a political appointee, Dr. Beck made extensive changes to the near-final “framework rules” implementing the Toxic Substances Control Act.
2. Dr. Beck’s changes were objected to by career staff in multiple offices across the Agency.
3. Dr. Beck is actively working to jettison proposed rules that would ban high-risk uses of trichloroethylene and methylene chloride.
4. Dr. Beck has been cleared to work on issues directly relating to her prior employer’s interests.
5. While at ACC, Dr. Beck frequently worked with Michael Dourson, the industry toxicologist-for-hire that President Trump nominated to head the EPA chemical safety office and who is facing stiff opposition from many Senators.

For a bit more detail on each of these, keep reading.  

1. Immediately upon her arrival at EPA as a political appointee, Dr. Beck made extensive changes to the near-final chemical safety “framework rules” implementing the Toxic Substances Control Act. These rules specify how core provisions of the reformed TSCA are to be implemented for many years to come.  The changes Beck made closely mirror those called for by ACC, some of which Beck herself had authored while with the industry’s lobbying arm.  (Full disclosure:  EDF and other groups have filed lawsuits challenging these rules as contrary to the law.)

2.  Dr. Beck’s changes were objected to by career staff in multiple offices across the Agency. The offices objected, among other things to  the exclusion from risk evaluations of so-called “legacy uses,” where a chemical is no longer manufactured for a specific use in the U.S. but has continued use and disposal; the inclusion of precise definitions of certain terms like “best available science;” allowance for EPA only to examine a subset of uses of a chemical in its risk evaluation; and a lack of opportunity for public comment on the extensive changes made relative to the proposed rules.

Notably, the Times reported that staff were told by EPA’s political leadership that they could not file “nonconcurrences,” which would have triggered further review of the changes being made.

3.  Dr. Beck is actively working to jettison proposed rules that would ban high-risk uses of trichloroethylene and methylene chloride. These rules, proposed in December and January, represented the first effort by EPA to use its TSCA authority to restrict use of a chemical in 28 years.  EPA’s work on these rules began prior to TSCA reform and was specifically grandfathered in under the reforms, but the chemical industry’s opposition to the rules is holding sway.  ACC members make and use both of these chemicals, and Beck herself co-authored ACC’s comments on EPA’s risk assessments of these chemicals.

While paint strippers containing methylene chloride are responsible for dozens of deaths in recent years, the Times reported that Beck specifically questioned whether the number of deaths was sufficient to warrant a ban.

4.  Dr. Beck has been cleared to work on issues directly relating to her prior employer’s interests. Beck was appointed using a relatively rare authority usually reserved for technical experts who are not in decision-making positions.  As such she was exempted from the Trump ethics pledge.  Indeed, her ethics agreement is jaw-dropping, and gives her wide latitude to work on issues in which ACC has financial interests in order to ensure those interests are taken into account.

Also of note is the date of Beck’s ethics agreement:  June 8, 2017.  Final drafts of the two TSCA framework rules she had worked feverishly to change went over to the White House for final sign-off on May 23 and June 1.  In other words, it appears that her work on these rules occurred prior to even this limited ethics agreement being in place.

5.  While at ACC, Dr. Beck frequently worked with Michael Dourson, the industry toxicologist-for-hire that President Trump nominated to head the EPA chemical safety office and who is facing stiff opposition from many Senators. The Times article notes that the two co-authored a paper funded by ACC; that is one of at least two such papers.  Last week it was reported that Dourson is already working at EPA as a special advisor to Administrator Pruitt even though his nomination has yet to be confirmed.

 

Richard Denison, Ph.D., is a Lead Senior Scientist. The lead article in Sunday’s print edition of the New York Times, titled “Why Has the E.P.A. Shifted on Toxic Chemicals? An Industry Insider Helps Call the Shots,” presents an 8000-word exposé of the Trump Administration’s takeover of the Environmental Protection Agency’s chemical safety program.  It focuses on […]

Richard Denison, Ph.D., is a Lead Senior Scientist. The lead article in Sunday’s print edition of the New York Times, titled “Why Has the E.P.A. Shifted on Toxic Chemicals? An Industry Insider Helps Call the Shots,” presents an 8000-word exposé of the Trump Administration’s takeover of the Environmental Protection Agency’s chemical safety program.  It focuses on […]

By Natalie Karas, Michael Panfil, and Rama Zakaria Department of Energy (DOE) Secretary Rick Perry recently proposed that the Federal Energy Regulatory Commission (FERC) provide new revenues and guaranteed profits to the owners of inefficient and aging coal and nuclear power plants at the expense of American homeowners and businesses. These aging units are losing […]

By EDF Blogs

By Natalie Karas, Michael Panfil, and Rama Zakaria

Department of Energy (DOE) Secretary Rick Perry recently proposed that the Federal Energy Regulatory Commission (FERC) provide new revenues and guaranteed profits to the owners of inefficient and aging coal and nuclear power plants at the expense of American homeowners and businesses. These aging units are losing out to more efficient and innovative ways to generate power, reduce peak demand, and foster participation and competitive in the markets. EDF filed comments – separately and with a coalition of environmental organizations – today opposing DOE’s proposal to diminish, if not destroy, the integrity of competitive wholesale electricity markets.

The proposal is plagued by both procedural and substantive infirmities. It prevents informed outcomes by shortening FERC’s generally lengthy rulemaking process to a mere 60 days – offering little time for key stakeholders to participate. And it directs an independent, fuel-neutral federal agency to bankroll favored companies and energy sources under the guise of “resiliency,” a term the proposal does not define, applied to a problem that does not exist. In fact, a study released today shows “no clear relationship” between increased reliability and more coal and nuclear power.

Department of Energy's proposal to FERC: Too many costs, no actual benefits
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It’s no surprise the DOE’s proposal has been greeted by a chorus of resistance and disapproval, uniting organizations as varied as natural gas companies, environmental groups, consumer advocates, states, academia, technology firms, and congressional members.

Without pointing to any concrete examples, DOE falsely suggests the U.S. electric system is unreliable, and claims coal and nuclear are crucial to saving it. But past events have shown that both coal and nuclear units have failed to perform during critical reliability events, demonstrating that DOE’s proposal is nothing more than an ill-conceived political ploy. Meanwhile, DOE staff’s own study concluded this summer the transition to cleaner energy is making America’s electricity system more affordable, resilient, and reliable. And analysis after analysis has concluded coal simply can’t compete against cheaper, cleaner alternatives.

DOE’s proposal is irreconcilable with the design of organized wholesale energy markets. Price signals, formulated by and through competition, are the foundation upon which energy markets exist. Investors risk capital to innovate and provide energy solutions that are cost-effective and attractive to customers so they can earn returns based on rational commercial decisions.

The DOE proposal is fundamentally flawed because it provides guaranteed profits to the owners of aging coal and nuclear plants that are too inefficient and uneconomic to compete in the market. In other words, the plan forces customers to pay for electricity from old, costly coal power plants, no matter the cost. The proposal’s basic ingredient, “cost of service,” undercuts the rational for free, competitive markets – a concept we were led to believe this administration fervently supports.

DOE’s proposal is irreconcilable with the design of organized wholesale energy markets.

DOE’s proposal would impose billions in losses on competitive market investors and customers by constraining innovation and undercutting competition by newer, cleaner, more cost-effective energy sources like solar, wind, energy efficiency and natural gas. According to EDF analysis, under the DOE proposal, the total operating costs that would be paid to eligible coal and nuclear resources could reach over $14 billion. No wonder Wall Street has described the proposal as “anticompetitive.” DOE’s proposal has real consequences whereby people will lose jobs, livelihoods will be destroyed, market investments will turn upside down and unprofitable, and public health will suffer.

At its essence, this plan aims to create clear winners by sheltering coal and nuclear companies from competitive markets with profit guarantees. But everyone else loses. Our energy markets – and the companies that compete in it – would suffer from blatant governmental interference.

And Americans would pay more and suffer from dirtier air in return. The public health and environmental impacts associated with the proposal are staggering, with preliminary EDF analysis finding the net incremental increase in carbon dioxide emissions could reach over 70 million tons annually. This equates to the annual greenhouse gas emissions for more than 13 million passenger vehicles.

The costs are too high, in every sense of the word.

Photo source: Arnold Paul, cropped by Gralo

By Natalie Karas, Michael Panfil, and Rama Zakaria Department of Energy (DOE) Secretary Rick Perry recently proposed that the Federal Energy Regulatory Commission (FERC) provide new revenues and guaranteed profits to the owners of inefficient and aging coal and nuclear power plants at the expense of American homeowners and businesses. These aging units are losing […]

By Natalie Karas, Michael Panfil, and Rama Zakaria Department of Energy (DOE) Secretary Rick Perry recently proposed that the Federal Energy Regulatory Commission (FERC) provide new revenues and guaranteed profits to the owners of inefficient and aging coal and nuclear power plants at the expense of American homeowners and businesses. These aging units are losing […]

By Natalie Karas, Michael Panfil, and Rama Zakaria Department of Energy (DOE) Secretary Rick Perry recently proposed that the Federal Energy Regulatory Commission (FERC) provide new revenues and guaranteed profits to the owners of inefficient and aging coal and nuclear power plants at the expense of American homeowners and businesses. These aging units are losing […]

The Environmental Protection Agency (EPA) is refusing to move forward with the implementation of health-based standards that protect Americans from dangerous ground-level ozone pollution — more commonly known as smog. That’s why Environmental Defense Fund, along with a broad coalition of public health and environmental groups, sent a letter to EPA Administrator Scott Pruitt informing […]

The post EPA refuses to act on smog pollution. Here’s what’s at stake. appeared first on Climate 411.

The Environmental Protection Agency (EPA) is refusing to move forward with the implementation of health-based standards that protect Americans from dangerous ground-level ozone pollution — more commonly known as smog. That’s why Environmental Defense Fund, along with a broad coalition of public health and environmental groups, sent a letter to EPA Administrator Scott Pruitt informing […]

The post EPA refuses to act on smog pollution. Here’s what’s at stake. appeared first on Climate 411.