FERC on Jan. 8 said that it has terminated the proceeding it initiated to consider the U.S. Department of Energy’s (DOE) September 2017 proposal on grid reliability and resilience pricing.
As noted in FERC’s order issued on Jan. 8, Secretary of Energy Rick Perry last September submitted the proposed rule, directing the commission to consider requiring certain RTOs and ISOs to establish a tariff mechanism providing for the purchase of energy from an eligible “reliability and resilience resource,” and for the recovery of costs and a return on equity for such resources.
The proposed rule stated that eligible reliability and resilience resources must be located in an RTO/ISO with an energy and capacity market; be able to provide essential reliability services; and have a 90-day fuel supply on-site.
FERC added that as the basis for those requirements, the proposed rule cited significant retirements of baseload generation, particularly coal and nuclear resources; the 2014 Polar Vortex, which the proposed rule stated exposed problems with the resilience of the grid; and a growing recognition that organized markets do not compensate resources for all of the attributes they contribute to the grid, including resilience.
Perry directed the commission to consider and take final action on the proposed rule within 60 days of the date of publication in the Federal Register, or, to issue the DOE’s proposed rule as an interim final rule immediately, with provision for later modification after consideration of public comments.
FERC added that it initiated Docket No. RM18-1-000 to consider the proposed rule. FERC said that it received extensive comments and reply comments in response to the proposed rule and a staff request for information from various interested stakeholders, including utilities, generators, federal and state legislators, and state regulatory agencies.
FERC noted that its chairman in December 2017 proposed to Perry that a 30-day extension be granted to address the proposed rule; Perry subsequently granted the extension, giving FERC until Jan. 10 to address the proposed rule.
Noting that it terminates the proceeding in Docket No. RM18-1-000, FERC said that the Federal Power Act (FPA) is clear in that in order to require RTOs/ISOs to implement tariff changes as contemplated by the proposed rule, there must be a demonstration that the specific statutory standards of section 206 of the FPA are satisfied. Thus, FERC said, there must first be a showing that the existing RTO/ISO tariffs are unjust, unreasonable, unduly discriminatory or preferential.
Neither the proposed rule nor the record in the proceeding has satisfied the threshold statutory requirement of demonstrating that the RTO/ISO tariffs are unjust and unreasonable, FERC said.
“While some commenters allege grid resilience or reliability issues due to potential retirements of particular resources, we find that these assertions do not demonstrate the unjustness or unreasonableness of the existing RTO/ISO tariffs,” FERC said. “In addition, the extensive comments submitted by the RTOs/ISOs do not point to any past or planned generator retirements that may be a threat to grid resilience.”
The proposed rule would allow all eligible resources to receive a cost-of-service rate regardless of need or cost to the system, FERC said, adding that the record does not demonstrate that such an outcome would be just and reasonable. The proposed rule’s on-site 90-day fuel supply requirement would appear to permit only certain resources to be eligible for the rate, thereby excluding other resources that may have resilience attributes, FERC said.
While it is terminating the docket, FERC said that it concluded that it must remain vigilant with respect to resilience challenges. The proposed rule and the record developed to date shed additional light on resilience more generally, as well as on the need for further examination by FERC and market participants of the risks that the bulk power system faces and possible ways to address those risks in the changing electric markets, FERC said.
Therefore, FERC said that it is initiating a new proceeding, Docket No. AD18-7-000, to take additional steps to explore resilience issues in the RTOs/ISOs, with the goal of the proceeding to:
- Develop a common understanding among FERC, industry, and others of what resilience of the bulk power system means and requires
- Understand how each RTO and ISO assesses resilience in its geographic footprint
- Use that information to evaluate whether additional FERC action regarding resilience is appropriate at this time
FERC directed each RTO and ISO to submit specific information regarding the resilience of its respective region within 60 days.
While the proposed rule focused on one possible aspect of grid resilience – secure onsite fuel – FERC said that it concludes that a proper evaluation of grid resilience should not be limited to that single issue, and should instead encompass a broader consideration of resilience issues, including wholesale electric market rules, planning and coordination, as well as NERC standards.
While hearing from the RTOs/ISOs on the topic is an appropriate place to begin, FERC said that it will provide interested entities an opportunity to submit reply comments on the RTO/ISO submissions within 30 days of the due date of those submissions.
To help guide consideration of issues related to resilience of the bulk power system, FERC said that it understands resilience to mean: the ability to withstand and reduce the magnitude and/or duration of disruptive events, including the capability to anticipate, absorb, adapt to, and/or rapidly recover from such an event.
FERC said that it seeks comment from the RTOs and ISOs on its understanding of resilience as described in the order.
In addition, FERC said that it seeks comment on how each RTO/ISO currently evaluates the resilience of its system. FERC directed the RTOs/ISOs to address such questions as, “What are the primary risks to resilience in your region from both naturally occurring and man-made threats? How do you identify them? Are they short-, mid-, or long-term challenges?”
Furthermore, FERC said that it seeks comment on how RTOs/ISOs evaluate options to mitigate any risks to grid resilience. FERC directed the RTOs/ISOs to answer such questions as, “How do existing market-based mechanisms (e.g., capacity markets, scarcity pricing, or ancillary services) currently address these risks and support resilience?”
As noted in its statement, FERC expressed its appreciation to the Energy Secretary “for his having reinforced grid resilience as an important issue that warrants the further attention of FERC.”
In a concurring statement included in FERC’s filing, FERC Commissioner Cheryl LaFleur said, in part, that with new technologies have come changes in the location and operation of energy resources, their cost patterns, and the way grid operators plan their systems and deploy resources to keep the lights on. As with all transitions, she added, there have been market winners and losers as new technologies have brought competitive pressures to bear on existing resources.
Resource turnover is a natural consequence of markets, and the reduced prices that result from greater competition are a benefit to customers, not a problem to solve, unless reliability is compromised, she said.
Among other things, LaFleur said: “I believe the commission should continue to focus its efforts not on slowing the transition from the past but on easing the transition to the future. We must continue to guide grid operators in sustaining reliability and resilience within a system that is likely to be cleaner, more dynamic, in some instances more distributed, and deployed by an efficient market for the benefit of customers.”
In a separate concurring statement, FERC Commissioner Neil Chatterjee said, in part, that the changing generation resource mix underscores the need to consider whether near-term measures are warranted notwithstanding the actions that FERC has taken in recent years. Specifically, he said, current RTO/ISO market design mechanisms are intended to incent generation resource owners to manage the fuel supply risks they can control – not the spectrum of fuel supply risks beyond their control. The record suggests that the latter class of risks are increasingly significant due to shifts in the generation mix and the fast-evolving national security threat environment, he said.
He said he believes it would have been prudent, in addition to establishing the proceeding in Docket No. AD18-7-000, for FERC to issue an order to show cause under section 206 of the FPA directing each RTO/ISO to either submit tariff revisions to provide interim compensation for existing generation resources that may provide necessary resilience attributes and are at risk of retirement before the conclusion of the proceeding established on Jan. 8, or show cause why it should not be required to do so.
In his concurring statement, FERC Commissioner Richard Glick said, in part: “There is no evidence in the record to suggest that temporarily delaying the retirement of uncompetitive coal and nuclear generators would meaningfully improve the resilience of the grid. Rather, the record demonstrates that, if a threat to grid resilience exists, the threat lies mostly with the transmission and distribution systems, where virtually all significant disruptions occur.”
He said that RTOs and ISOs should consider how best to mitigate challenges within their markets and without prejudging what technology or fuel type provides the best solution.
Among other things, he said that he believes that it is important to consider the advantages that newer technologies, such as distributed energy resources, energy storage, and microgrids, may offer in addressing resilience challenges to the bulk power system.
DOE’s response to FERC order
In a Jan. 8 statement, Perry said that he appreciates FERC’s “consideration and effort to further assess the marketplace distortions that are putting the long-term resiliency of our electric grid at risk. As intended, my proposal initiated a national debate on the resiliency of our electric system. What is not debatable is that a diverse fuel supply, especially with onsite fuel capability, plays an essential role in providing Americans with reliable, resilient and affordable electricity, particularly in times of weather-related stress like we are seeing now. I look forward to continuing to work with the commissioners to ensure the integrity of the electric grid.”
According to the statement, DOE plans to work with FERC and all other relevant stakeholders, including the RTOs and ISOs, as they discuss how best to address the issue of the long-term reliability and affordability of energy in the United States. DOE is also exploring innovative ways to monitor the long-term resiliency of the grid, including a potential nationwide integrated energy model led by the Office of Electricity and DOE National Labs, the statement added.