Grid Assurance owners praise FERC’s order, plan to market services soon

The companies that formed Grid Assurance LLC to help utilities store and maintain an inventory of equipment to address power restoration efforts following catastrophic events on March 31 praised FERC’s recent ruling on their Dec. 4, 2015, petition.

Grid Assurance – formed by eight large transmission owners — plans to begin marketing its services to utilities in 2Q16, it said in its statement.

FERC’s March 25 order “provides regulatory clarity supporting transmission-owning entities participating in and subscribing to Grid Assurance as a way to strengthen transmission grid resiliency,” the company said.

In its order, FERC granted in part and denied in part Grid Assurance’s petition, although it ruled that a transmission owner’s decision to subscribe to the company’s services would be prudent. FERC said that any utility that seeks to recover costs for such services would have to do so in a Federal Power Act (FPA) Section 205 filing, and that it would not predetermine the prudency of those costs under the subscription agreement that Grid Assurance filed with its petition.

Grid Assurance said that it is evaluating the FERC order and may seek clarification from the commission.

The companies involved at this point – American Electric Power (NYSE:AEP), Berkshire Hathaway Energy, Duke Energy (NYSE:DUK), Edison International (NYSE:EIX), Eversource Energy (NYSE:ES), Exelon (NYSE:EXC), Great Plains Energy (NYSE:GXP) and Southern (NYSE:SO) – formed Grid Assurance as a business to buy and store grid equipment that has long lead times to replace as a means to improve power restoration in case of catastrophic events such as physical or cyber attacks, geomagnetic disturbances, solar storms, wildfires or severe weather.

When it filed the petition, Grid Assurance told FERC that other utility companies or affiliates may consider becoming equity investors in the company.

Under the Grid Assurance business plan, utility companies would voluntarily subscribe, and pay fees to Grid Assurance, for the company to purchase and store at strategic locations around the country transformers and other critical equipment to cut down on the time power outages would last following catastrophic events. The company would maintain spare equipment at warehouses and offer logistics support to aid moving the equipment where it is needed after such events.

The power industry already has two collective efforts to address grid resiliency, through the Spare Transformer Equipment Program (STEP) managed by the Edison Electric Institute (EEI), and the SpareConnect program, a sharing platform to enhance access to equipment and communicate needs in case of an emergency.

Grid Assurance said that it would not duplicate or replace those programs, but offer subscribers the ability to supplement them.

The Dec. 4, 2015, petition asked FERC to confirm: the prudence of subscriber decisions to contract with Grid Assurance for services and the prudence of buying spare equipment from Grid Assurance following a qualifying event; the availability of single-issue ratemaking to recover the costs of purchasing services and spare equipment from Grid Assurance; and that Grid Assurance’s pricing complies with FERC’s affiliate pricing restrictions on the purchase of non-power goods, or, alternatively, to grant a waiver from those affiliate pricing restrictions for Grid Assurance subscribers.

While EEI and grid equipment manufacturers supported the proposal, American Municipal Power (AMP) was the only company that protested the petition, FERC related in the March 25 decision (Docket No. EL16-20).

AMP said FERC should make clear that utilities seeking to recover costs for Grid Assurance services must make separate rate filings under FPA Section 205. AMP also challenged the request for a waiver of affiliate rules for the pricing of services, stating that it is unclear which companies, other than those already with a stake in Grid Assurance, will become equity owners of the company.

In the order, FERC said it would be prudent for a utility to subscribe to Grid Assurance services because they would enhance a transmission owner’s ability to restore service promptly following a qualifying event. The services are expected to achieve significant efficiencies, without which utilities would individually have to purchase equipment to achieve the same recovery capabilities.

“They would also incur substantially higher costs or experience the inherent time delay associated with finding, negotiating for, ordering, transporting and testing replacement equipment after a qualifying event,” FERC said.

FERC added, however, that if a utility seeks to recover costs from entering into a subscription agreement with Grid Assurance, it must seek recovery in an FPA Section 205 filing. The commission agreed with Grid Assurance that utilities should be allowed to do so using single-issue ratemaking.

FERC generally does not allow recovery of new costs outside a rate case that considers all costs, but it has allowed exceptions for special cases, such as statutory directives to support modernization of the grid and under a policy statement issued shortly after the Sept. 11, 2001, terrorist attacks, FERC said. In that policy statement, FERC said it would approve applications to recover prudently incurred costs necessary to further safeguard the reliability and security of energy supply infrastructure in response to the heightened state of alert following the attacks.

“Because Grid Assurance’s sparing service is designed to assist transmission systems to quickly restore electric service after a qualifying event, a term that covers a multitude of catastrophic scenarios, expenses related to this service are comparable to the types of costs contemplated” in the policy statement, FERC said.

FERC did not grant Grid Assurance’s request to find that its pricing complies with FERC’s affiliate pricing restrictions on the purchase of non-power goods, ruling that the petition did not provide sufficient information to make that conclusion.

FERC did, however, find that utilities subscribing to the service could be granted waivers of FERC’s affiliate rules, subject to some conditions.

Those affiliate rules are designed to prohibit a franchised public utility with captive customers from purchasing non-power goods or services from a non-utility affiliate at a price above market price, the order noted. Under the subscriber agreement, Grid Assurance would provide non-power goods and services at the company’s original cost after a qualifying event, but there is no currently available service elsewhere in the country that could be used to determine a market price as a benchmark.

Grid Assurance claimed that affiliate rules should not be implicated for cost-based sales, especially where the pricing is determined by a subscriber agreement, FERC noted.

The order calls for the filing of additional information to ensure that inappropriate cross-subsidization among affiliates does not occur with Grid Assurance sales and that the waiver will be warranted. FERC said Grid Assurance should submit an annual information report with audited financial statements and detailed information regarding the inputs to the sparing service fee formula in the subscriber agreement. Grid Assurance also is to provide a listing of all sales, showing any equipment’s original cost and the price at which it was sold, “along with any additional information that assists in justifying that affiliate issues do not exist.”

Grid Assurance should make the initial annual information filing one year from beginning its sparing service operations, FERC said.

In its March 31 statement, Grid Assurance said it expects to identify inventory needs, address warehouse specifications and reach agreements with subscribers over the next 18 months.