FERC, in an Oct. 4 notice, said that in order to assist its staff in understanding the implications of a rule involving grid resiliency that was recently proposed by the U.S. Department of Energy (DOE) secretary, commenters are requested to address certain questions, including “[w]hat is resilience, how is it measured, and how is it different from reliability?”
As noted on DOE’s website on Sept. 29, Secretary of Energy Rick Perry has proposed that FERC “take swift action to address threats to U.S. electrical grid resiliency.”
Pursuant to his authority under Section 403 of the DOE Organization Act, Perry urged FERC to issue a final rule requiring its organized markets to develop and implement reforms that would fully price generation resources necessary to maintain the reliability and resiliency of the country’s grid, DOE said.
Notice of proposed rulemaking
According to a notice of proposed rulemaking, Perry is proposing that FERC exercise its authority under sections 205 and 206 of the Federal Power Act (FPA) to establish just and reasonable rates for wholesale electricity sales.
Under the proposal, FERC would impose rules on FERC-approved ISOs and RTOs to ensure that certain reliability and resilience attributes of electric generation resources are fully valued, the notice said.
Perry is directing FERC to take final action on the proposal within 60 days of publication of the notice in the Federal Register or, in the alternative, to issue the rule as an interim rule immediately, with provision for later modifications after consideration of public comments.
The notice further noted that Perry is further directing that any final rule adopting the proposal take effect within 30 days of publication of such final rule in the Federal Register and proposes that each ISO and RTO subject to the rule is to submit a compliance filing within 15 days of the effective date of such final rule.
“The resiliency of the nation’s electric grid is threatened by the premature retirements of power plants that can withstand major fuel supply disruptions caused by natural or man-made disasters and, in those critical times, continue to provide electric energy, capacity, and essential grid reliability services,” the notice said. “These fuel-secure resources are indispensable for the reliability and resiliency of our electric grid – and therefore indispensable for our economic and national security. It is time for the commission to issue rules to protect the American people from energy outages expected to result from the loss of this fuel-secure generation capacity.”
Citing DOE’s January “Quadrennial Energy Review,” (QER), the notice said that in the United States, there are around 7,700 operating power plants that generate electricity from a variety of primary energy sources; 707,000 miles of high-voltage transmission lines; more than one million rooftop solar installation; 55,800 substations; 6.5 million lines of local distribution lines; and 3,354 distribution utilities delivering electricity to 148.6 million customers.
The QER also noted that over the past six years (2010-2015), power plant retirements were dominated by coal plants (37 GW), which accounted for more than 52% of recently retired power plant capacity, and over the next five years (between 2016 and 2020), 34.4 GW of summer capacity is planned to be retired, with 79% of that planned retirement capacity being coal and natural gas plants. The next largest set of planned retirements are nuclear plants (15%), according to the QER.
The notice further stated that there is a growing recognition that organized markets do not necessarily pay generators for all the attributes that they provide to the grid, including resiliency. Because wholesale pricing in those markets does not adequately consider or accurately value those benefits, fuel-secure generation resources are often not compensated for those benefits, the notice said.
Citing the QER, the notice said that reliability investments are typically incorporated into ratemaking processes for all electric utilities, and that supplementary investments for recovery from outage events are also handled through established ratemaking processes. Resilience requirements tend to be valued as contributions to reliability and incorporated as part of ratemaking processes, the QER said, adding that those processes are more easily executed in structures that are traditional end-to-end, vertically integrated electricity delivery services; other market structures complicate reliability and resilience investment decision-making. Short-run markets may not provide adequate price signals to ensure long-term investments in appropriately configured capacity, the QER said.
The proposed rule, the notice added, allows for the recovery of costs of fuel-secure generation units frequently relied upon to make the grid reliable and resilient. Such resources provide reliable capacity, resilient generation, frequency and voltage support, on-site fuel inventory – in addition to providing power for basic needs, quality of life, and robust economy, the notice said.
The rule allows the full recovery of costs of certain eligible units physically located within the FERC-approved organized markets. The notice added that eligible units must also be able to provide essential energy and ancillary reliability services and have a 90-day fuel supply on site in the event of supply disruptions caused by emergencies, extreme weather, or natural or man-made disasters.
Those resources must be compliant with all applicable environmental regulations and are not subject to cost-of-service rate regulation by any state or local authority, the notice said, adding that the rule requires the organized markets to establish just and reasonable rate tariffs for the recovery of costs and a fair rate of return.
In its notice, FERC requested that commenters address such questions as:
- The proposed rule references the retirement of coal and nuclear resources and a concern from Congress about the potential further loss of valuable generation resources as a basis for action. What impact has the retirement of these resources had on reliability and resilience in RTOs/ISOs to date? What impact on reliability and resilience in RTOs/ISOs can be anticipated under current market constructs?
- In determining eligibility for compensation under the proposed rule, should there be a demonstration of a specific need for particular services? What should be the appropriate triggering and termination provisions for compensation under the proposed rule?
- The proposed rule requires that resources must be in compliance with all applicable environmental regulations. How should environmental regulations be considered when determining eligibility? For example, if a unit that was capable of keeping 90-days of fuel on-site was subject to emission limits that would prevent it from running at its upper operating limit for 90 days, should that unit be eligible under this proposed rule?
- How should RTOs/ISOs allocate the cost of the proposed rule to market participants?
FERC said that the proposed rule was noticed by the commission on Oct. 2, notifying all interested parties that initial comments are due by Oct. 23, and reply comments are due by Nov. 7.
Initial responses to DOE proposal
PJM Interconnection on Oct. 4 issued a statement on the DOE proposal, noting that for two decades, PJM’s “competitive wholesale markets have ensured reliable power supplies at the lowest reasonable cost across a region comprising both traditionally regulated and unbundled states.”
The pricing and fuel security objectives identified by DOE are best achieved through competitive markets in order to retain disciplining forces that work to prevent consumers from paying for unnecessary and inefficient resources, PJM said.
Among other things, PJM noted that recent reform, including its Capacity Performance, offer confidence that market design can evolve when needed to ensure secure fuel supplies and improvements to ensure generator availability.
“Accordingly, we hope that the process which the Federal Energy Regulatory Commission undertakes in response to the Department of Energy accommodates and advances price formation and fuel security efforts already underway at PJM,” PJM said. “In particular, we believe the FERC, in considering the department’s proposal, should provide a path forward that expands the scope of the agency’s pending price formation efforts to include more accurate pricing for reliability attributes of all resource types.”
According to an Oct. 2 statement posted on the American Wind Energy Association’s (AWEA) website, a group of 11 energy industry associations representing natural gas, wind, solar, rural electric cooperatives, and other energy technologies, have filed a motion at FERC following DOE’s proposed rulemaking, calling on FERC to move forward with a deliberative process that considers stakeholder input as it determines whether and how to move forward with a rulemaking.
The statement noted that the motion opposes DOE’s request for an interim final rule; requests that any comment period be at least 90 days given potential ramifications for consumers and billions of dollars of electric sector investments; requests that a technical conference be held prior to the end of the comment period for stakeholders to better understand the proposal and provide meaningful input; and notes that the other deadlines in the DOE proposal are “wholly unreasonable and insufficient,” and should be extended, should FERC “decide to proceed with a rulemaking of this type at all.”
According to the statement, along with AWEA, the energy industry associations that have signed onto the motion include the American Petroleum Institute, Electricity Consumers Resource Council, Interstate Natural Gas Association of America, National Rural Electric Cooperative Association, and Solar Energy Industries Association.
In a separate Oct. 2 statement, Kelly Speakes-Backman, CEO of the Energy Storage Association (ESA) said, "Although ESA was initially encouraged that the DOE Staff Report focused correctly on valuing resilience attributes in a technology-neutral manner, we are troubled by DOE’s rule proposed on Friday, which would undermine markets and unnecessarily increase costs for consumers.”
Speakes-Backman continued: "It’s not too late for DOE to consider the ultimate goals of what they’re trying to accomplish – improving grid reliability, resilience, and flexibility for consumers. DOE should expand this rulemaking to consider resilience more broadly and focus on price formation. This will lead to more competition, which in turn will drive down costs while creating more resilience for all."
As TransmissionHub reported in August, the DOE “Staff Report to the Secretary on Electricity Markets and Reliability,” found, for instance, that the recent rise of natural gas as a top electricity generation resource, the increase in variable renewable energy (VRE) penetration, the flattening of electricity demand growth, and a host of policy issues have negatively impacted traditional baseload generation, particularly coal and nuclear power plants.