The Federal Energy Regulatory Commission has several suggested changes for the discussion draft of a bill designed to ensure grid security, said Michael Bardee, Director of FERC’s Office of Electric Reliability, in testimony to be delivered to a May 19 hearing of a subcommittee of the House Energy and Commerce Committee.
His testimony is on those parts of draft legislation that resolve conflicts between environmental regulations and U.S. Department of Energy emergency reliability orders (section 1201), require analysis of the reliability impacts of major federal regulations affecting electricity generation (section 1202), address grid security emergencies resulting from cyber or physical attacks or geomagnetic storms (section 1204), and require consideration of performance assurance in regional transmission organizations (section 1208).
“Before turning to the provisions of the Discussion Draft, it is important to note that the Commission’s role on reliability is defined by Congress, and generally consists of approving proposed reliability standards for the Bulk-Power System, if they meet the statutory criteria, and then enforcing or overseeing enforcement of those standards,” Bardee noted. “This authority is in section 215 of the Federal Power Act. Section 215 requires the Commission to select an Electric Reliability Organization (ERO) responsible for proposing, for Commission review and approval, new reliability standards or modifications to existing reliability standards. The Commission has certified the North American Electric Reliability Corporation (NERC) as the ERO. The ERO may delegate certain responsibilities to ‘Regional Entities,’ subject to Commission approval.
“The reliability standards apply to the users, owners and operators of the bulk power system and become mandatory in the continental United States only after Commission approval. If the Commission disapproves a proposed standard or modification, the Commission must remand it to the ERO for further consideration. The Commission, upon its own motion or upon complaint, may direct the ERO to submit a proposed standard or modification on a specific matter but the Commission does not have the authority to modify or author a standard itself. The ERO is authorized to impose, after notice and opportunity for a hearing, penalties for violations of the reliability standards, subject to Commission review and approval. The Commission also can enforce the reliability standards directly.
Resolving Environmental and Grid Reliability Conflicts
“Section 1201 of the Discussion Draft seeks to avoid conflicts between requirements imposed under environmental laws and by the Department of Energy under Federal Power Act section 202(c),” Bardee wrote. “Essentially, section 1201 says that compliance with the latter will not be considered a violation of the former. I support the concept underlying section 1201.
“To help ensure that the electric grid remains reliable, Federal Power Act section 202(c) allows the Department of Energy to require a power plant to run in certain emergency circumstances. Ideally, FPA section 202(c) will not need to be invoked, but experience demonstrates that orders under section 202(c) are sometimes necessary. However, in certain circumstances, operating a power plant in compliance with FPA section 202(c) order can result in a violation of the Clean Air Act (or other environmental laws). In this sense, federal law could require a power plant owner to choose between violating either the environmental law(s) or the Federal Power Act. The law should not require such a choice.”
Reliability Analysis for Certain Rules Affecting Electric Generating Facilities
“Section 1202 of the Discussion Draft would require the Commission, in coordination with the ERO, to perform and issue reliability analyses of major rules proposed or issued by other federal agencies, if they may impact an electric generating unit(s) and have an annual effect on the economy of $1 billion or more. The analyses would have to consider effects on reliability and resource adequacy; fuel diversity; wholesale power markets; and energy delivery and infrastructure.
“The number and type of rulemakings that might be subject to this section is unclear. Thus, it is difficult for me to foresee and understand the ramifications of this proposal from the perspective of Commission workload or otherwise.
“As I stated before, the Commission’s role on reliability generally consists of approving proposed reliability standards for the Bulk-Power System, if they meet the statutory criteria, and then enforcing or overseeing enforcement of those standards. The Commission’s exercise of its rate jurisdiction also, at times, has effects on reliability issues. As part of these responsibilities, the Commission has developed the expertise to review and evaluate the type of extensive analyses described in section 1202, but the Commission generally has not maintained the tools and data to perform such analyses itself, particularly not on the proposed timelines.
“If Congress decides to give the Commission this responsibility, certain modifications of section 1202 would be appropriate. First, section 1202(b)(2) requires the initiating agency to provide the Commission relevant data, modeling and assessments, and this should be expanded to clarify that the ERO, regional entities and others also must ‘timely conduct and provide analyses and information as may be requested by the Commission.’ This should include entities such as regional transmission organizations (RTOs) and independent system operators (ISOs), the ERO, regional entities and reliability coordinators that collectively perform the functions needed to plan, operate and assess the reliability of the bulk power system. With the clarification I am suggesting, section 1202 would allow the Commission to rely primarily on these existing processes for identifying and addressing reliability issues, adjusted as appropriate for the circumstances. Under such a process, the Commission could rely on the resources and capabilities of these entities while ensuring consistent, objective analyses of major rules affecting generating units. Even so, the future workload from this section may require additional resources at the Commission, beyond its current levels in this area.
“Section 1202 also should be modified so that our work is done ‘in consultation with’ the ERO, instead of ‘in coordination with’ the ERO, to recognize our statutory role in overseeing the ERO. This also would be consistent with other provisions in the Discussion Draft, such as section 1205’s requirement that the Department of Energy develop a Strategic Transformer Reserve Plan, ‘in consultation with’ the ERO.
“Section 1202 also should require the initiating agency to notify the Commission when it issues a covered proposed or final rule, since the Commission otherwise might not know of a covered rule issued by another agency. Also, section 1202’s reference to considering ‘local electric reliability and resource adequacy’ (emphasis added) could be construed as broadening the Commission’s role beyond the bulk power system, and the reference to fuel diversity could be construed as conflicting with the Commission’s traditional role of preventing undue discrimination instead of favoring particular fuels or technologies; both of these references may warrant further consideration. Finally, the deadlines for the Commission to issue its analyses (90 days after a proposed rule and 120 days after a final rule) are not reasonably achievable and should be extended.
Critical Infrastructure Security
Section 1204 would allow the Secretary of Energy to address grid security emergencies if the President provides a written directive or determination identifying a grid security emergency. Section 1204 also would exempt certain Critical Electric Infrastructure Information from disclosure, and require FERC to establish standards for and authorize the voluntary sharing of such information among various entities. Bardee said the commission’s current authority is not adequate to address cyber or other national security emergencies on the electric grid.
Reliability and Performance Assurance in Regional Transmission Organizations
Section 1208 would require the commission to direct each regional transmission organization (RTO) and independent system operator (ISO) with an existing capacity market or comparable market to demonstrate how it meets certain requirements. The requirements include certain integrated system planning practices such as having a diverse generation portfolio and stable pricing for customers, as well as a sufficient supply of physical generation facilities with reliability attributes such as being able to operate each day for not less than 30 days.
“The Commission has sought for many years to foster the development of competitive markets for wholesale electricity,” Bardee added. “As stated in our current Strategic Plan (page 7): “When competitive markets exist and there are assurances against the exercise of market power, FERC leverages competitive market forces to promote efficiency for consumers while taking measures to make those markets more efficient. When competitive market conditions do not exist and competitive forces are inadequate to protect consumers, FERC relies on traditional rate-setting authority and tools such as cost-of-service ratemaking.’
“The Commission also has stated that marketplace competition benefits energy consumers by encouraging diverse resources, spurring innovation and deployment of new technologies, improving operating performance, and exerting downward pressure on costs. In short, the Commission prefers to rely on competitive forces when reasonable, but recognizes that traditional regulatory requirements are sometimes necessary in wholesale electricity markets.
“Section 1208 takes a different approach, and would impose on RTO and ISO capacity markets a broad overlay of traditional regulatory requirements. This approach may reduce the potential for these markets to provide consumers with the benefits achievable through competitive forces. While the Commission recognizes the need to approve or require rules for capacity markets to encourage an adequate supply of resources at reasonable prices, the breadth of requirements in section 1208 may unduly impair the competitive aspects of these markets, to the ultimate detriment of consumers. It would be preferable to not mandate such an approach legislatively, and instead to allow the Commission to adapt market rules over time with the goal of maximizing competitive forces to benefit consumers, while using other approaches when competitive forces are insufficient to result in adequate resources at a reasonable cost.”
Strategic Transformer Reserve
“As noted above, section 1205 would require the Secretary of Energy to develop a strategic transformer reserve plan, in consultation with the ERO. This section should be modified to also require consultation with the Commission.”
Shifting priorities underline grid reliability issues
Said a May 15 subcommittee staff memo about the reasons for this bill: “Energy reliability and security is of utmost importance to U.S. national security, national economic interests and basic health and welfare. Electricity in particular is an essential part of modern life, the disruption of which would impact not only homes but also virtually every sector of the economy. The bulk-power system in the United States and Canada has more than 200,000 miles of transmission lines, is valued at over $1 trillion, and is capable of annually delivering over 3,800 terawatt hours of electricity to more than 300 million people.
“The nation’s electricity system is experiencing a dramatic shift away from coal-fired generation and increasingly towards use of natural gas and renewable energy sources, spurred by low natural gas prices and a suite of new environmental regulations. There are other challenges as well: aging infrastructure; declining reserve margins and reduced fuel diversity; the integration of intermittent resources; siting and permitting red-tape; and physical and cyber threats. But there are opportunities too. Utilities plan to invest more than $60 billion in transmission infrastructure through 2024 to modernize the nation’s electric grid, while abundant fuel resources, advanced grid technologies, distribution management technologies, and improved domestic manufacturing of large power transformers and other critical grid components can help modernize, diversify, and strengthen the nation’s power grid.
“A more modern and resilient grid will be better positioned to withstand and minimize any impacts resulting from severe weather, cyber-attacks or any other threats to the grid. However, as the grid becomes increasingly reliant on information technology and digital communications devices, thousands of potential new grid access points are being created. While encouraging technology and innovation in the electricity sector should be a priority, policies must ensure that new grid-related products do not leave the grid more exposed or compromise customer information and privacy.
“Given the shift taking place in the electricity sector, it is paramount that policymakers and regulators at the Federal, State, and local level carefully weigh policies that can adapt to these new challenges and opportunities to build a market-driven, modern and flexible system while ensuring the continued safe, reliable, and affordable delivery of electricity to consumers.”