Electricity Markets

FERC members outline views on resilience, transmission

Federal Energy Regulatory Commission members outlined their views on grid resilience, the roles state and federal regulators have in overseeing electricity markets and transmission issues during a wide-ranging Congressional hearing held on April 17.

The oversight hearing was held by the House Energy and Commerce Committee’s Energy Subcommittee.

In his opening remarks at the hearing, House Energy and Commerce Committee Chairman Greg Walden, R-Ore., said that while competitive markets are important, he warned that coal and nuclear generators are struggling to recover costs and remain competitive in some wholesale markets. “In some cases, under wholesale market rules, inflexible generation units are not permitted to set price. This presents real challenges for cost-recovery, which could ultimately have an impact on the reliability and resiliency of our grid,” he said.

Subcommittee Chairman Fred Upton, R-Mich., also noted that “recent pricing proposals developed by the RTOs and ISOs aimed at accommodating state policies represent a fundamental shift in how resources set prices in the wholesale markets.”

Subcommittee Ranking Member Bobby Rush, D-Ill., shared these concerns, noting recent testimony by Energy Secretary Rick Perry about retiring generation leaving the grid at a real reliability risk. “Secretary Perry seemed to be sounding the alarm that we are quickly heading to the point of no return,” Rush said.


On the issue of grid resilience, FERC Chairman Kevin McIntyre said he supported an “all-of-the-above” energy policy when pressed by lawmakers who support struggling coal-fired and nuclear power plants.

“All-of-the-above is the appropriate approach to how we should satisfy our electricity needs as a nation,” McIntyre said during the hearing.

In January, FERC terminated a proceeding it initiated in order to address a proposed rule on grid reliability and resilience pricing submitted to the commission by Secretary of Energy Rick Perry last year. At the same time, FERC launched an investigation into grid resilience.

FERC Commissioner Neil Chatterjee told the panel he agreed with the concerns voiced by Perry about the threat of retiring baseload power plants.

“Over the course of time, Secretary Perry will be proven right,” Chatterjee said. "We are going to ultimately have resilience challenges in this country, and we need to be prepared for them.”

At the same time, Chatterjee said that FERC’s ability to deal with the challenge may be constrained by the statute. Chatterjee repeated several times that he looks forward to seeing whatever legislative fixes the committee generates and working with the committee to amend the statute.

He also reiterated that he had recommended that the Commission issue a show-cause order -- requiring the RTOs to establish interim compensation for generation resources that have resilience attributes and are at risk of retirement, or show cause why they should not be required to do so.

The interplay between state resource decisions, such as subsidizing nuclear power plants, and FERC’s oversight of wholesale power markets is “one of the trickiest areas we deal with,” McIntyre said.

“We have to ensure with regard to the wholesale markets that we oversee that rates are indeed just and reasonable … and that nothing is done at the state level that amounts to a pressing of a thumb on the scale,” McIntyre said.

FERC Commissioner Richard Glick said the Federal Power Act gives states the authority to make resource decisions and the commission must “accommodate” those policies, not override them. If states are penalized for their resource decisions by FERC policies some states may withdraw from capacity markets, Glick said.

McIntyre, however, downplayed concerns that bundling distributed resources like rooftop solar poses a jurisdictional dispute between state and federal regulators.

“I’m not particularly troubled by any sort of jurisdictional creep” because the power would make its way onto the wholesale grid “in a way that we could regulate it only after it had been aggregated and put forth to a market that we regulate, the wholesale electricity market,” McIntyre said.

FERC has no interest in usurping state jurisdiction as the agency considers a proposed rule on how distributed resources could be aggregated to participate in the wholesale market as a single resource, McIntyre said.

FERC doesn’t want to thwart the ability of states to set the rules and prices for retail level transactions for distributed resources, McIntyre said.

ISO New England order

Rep. Paul Tonko, D-N.Y., said that there are benefits from DER aggregation and encouraged the reduction of barriers to emerging technologies.

Tonko then asked about the language in paragraph 22 of FERC’s recent order approving ISO-New England’s Capacity Auctions for Subsidized Policy Resources, or CASPR, rule changes, stating that FERC “intend[s] to use the MOPR [Minimum Offer Price Rule] to address the impacts of state policies on the wholesale capacity markets,” and that the MOPR will be considered the standard solution.

Referencing his dissent on this language, Glick noted that the use of the MOPR could lead to overbuilding of capacity and increased costs to consumers. Glick also agreed with Tonko that there is a role for programs to address environmental concerns and climate change, and noted that the markets do not address externalities.

Tonko asked if the states can determine their own energy future, and Commissioner Glick agreed, expressing the concern that if states are impeded from doing so, they could pull out of the RTOs. Glick also agreed that the MOPR could potentially interfere with the participation of storage in the markets.

Chatterjee defended the CASPR order, stating that it was more important to pass the order than get every word right, and acknowledged that FERC will need to address the accommodation of state policies.

PURPA reform

Lawmakers also asked about FERC reconsidering the one-mile and 20 MW rules for qualified facilities under the Public Utility Regulatory Policies Act of 1978.

The FERC commissioners did not give much indication as to how they might decide the issue, but seemed to think they had enough information to reach a decision.

Rep. Tim Walberg, R-Mich., asked all of the commissioners if PURPA needed to be updated or modified, and they all responded affirmatively.

Pipeline review process

Several lawmakers urged FERC to consider offering the public an increased role in the commission’s natural gas pipeline review process.

FERC is considering revising its 1999 policy on how it reviews natural gas pipeline proposals and may change the way it assesses a pipeline’s environmental effects, how it measures the need for a project and how the public can be better involved, according to FERC commissioners.

(FERC appears poised to take action at its April 19 open meeting on its promise to take a “fresh look” at its 1999 policy on how it reviews natural gas pipeline proposals).

“We are looking forward to robust public input,” McIntyre said about the commission’s review of its pipeline policy.

Rep. Frank Pallone, Jr., D-N.J., Energy and Commerce Committee ranking member, urged FERC to review pipelines regionally instead of looking at each pipeline separately.

Transmission issues

Meanwhile, FERC Commissioner Robert Powelson stated that the RTOs are not doing a good job of ensuring cost containment for transmission, and that in PJM, there is a lack of competitive transmission.

LaFleur said that transmission planning is legally required to consider non-transmission alternatives. The key is for such alternatives to also earn revenue in the markets, which is the purpose of FERC’s Order 841 on the participation of storage resources.

Rep. Billy Long, R-Mo., expressed concerns about the transmission costs being paid by City Utilities of Springfield.

McIntyre said that such prices can vary, but it would be surprising for one facility to be paying significantly higher rates than other facilities. The two agreed that staff would work together to: 1) confirm the rate disparity and 2) begin to discuss how to resolve the issue.

Rep. Gregg Harper, R-Miss., asked about the status of FERC’s transmission rate incentive policy, agreeing with Glick’s earlier statement that the policy is ripe for renewed attention. Glick explained that issues to be examined could include whether transmission is the most efficient option.

Association, NRECA letter on DER aggregation

On April 16, Sue Kelly, president and CEO of the American Public Power Association, and Jim Matheson, CEO of the National Rural Electric Cooperative Association, sent a letter to Upton and Rush. The letter was submitted for the record for the hearing.

“We are writing on behalf of America’s consumer-owned, not-for-profit electric utilities to respectfully request you to urge” FERC to respect state and local regulatory authority when “behind-the-meter” and other DERs are aggregated for purposes of participating in wholesale electricity markets, Kelly and Matheson said.

“We are concerned that the Commission may adopt rules on third-party aggregation of DERs that would further expand Commission regulation into areas that have traditionally been jurisdictional to states and localities under the Federal Power Act. We hope you will agree with the importance of respecting state and local jurisdiction to protect consumers’ access to safe, reliable, and affordable electric service in the communities our members serve,” they went on to say.

Kelly and Matheson noted that FERC is now considering a proposal to enable third-party aggregators to bid DER aggregations into the wholesale electricity markets administered by ISOs and RTOs under the Commission’s jurisdiction.

Because DER aggregation by third parties poses extremely local technical, economic, and policy issues, the Association and NRECA believe that the “relevant electric retail regulatory authority”—which may be the state public utility commission or the local governing board of a consumer-owned utility—is best positioned to decide whether to authorize third-party aggregators to transact with local retail consumers, Kelly and Matheson said. “Expressly reserving that authority to the relevant electric retail regulatory authority would also better reflect the allocation of federal and state jurisdiction laid out in the Federal Power Act,” they wrote.

In February 2018, the Commission issued Order No. 841, which requires ISOs and RTOs to amend their wholesale market rules to better enable electric storage resources to participate. Order No. 841 also established a separate proceeding to consider similar rule changes to enable third-party aggregators to bid DER aggregations into wholesale markets.

The Commission held a technical conference on April 10–11 to gather more information before taking final action on this proposal.

“As amply explained by witnesses at that technical conference, the industry must address many complex technical questions and make substantial investments in supporting infrastructure before third party DER aggregators can participate in wholesale markets,” Kelly and Matheson said. Such participation will require RTOs and ISOs “to coordinate with local distribution utilities in ways never before needed. The ability of local utilities to continue to provide safe, reliable, and affordable electric service to their communities could be diminished.”

The heads of the Association and NRECA said that in some communities and regions, it may make sense to move forward addressing these questions and making the needed investments; “in others, it may not, at least not yet.” 

Although Order No. 841 does not address DER aggregators themselves, it does adopt rules governing wholesale market participation by “behind-the-meter” and other electric storage resources on local utility distribution systems that might be aggregated for this purpose, Kelly and Matheson pointed out.

“Order No. 841 does not adopt language that the Commission used when it previously provided for the participation of demand response aggregators in ISO and RTO markets (in Commission Order No. 719). That language expressly allows the relevant electric retail regulatory authority to decide whether such aggregators would be allowed to participate in wholesale markets,” the letter said.

The Association and NRECA “are urging the Commission to follow that wise precedent in fashioning its rules for electric storage resources and DER aggregators. For this reason, we have requested rehearing of Order No. 841,” Kelly and Matheson told the lawmakers.

“We will continue to advocate that approach in the Commission’s final rule on DER aggregation. We strongly believe that this is the best long-term course to enabling these emerging technologies to benefit the consumers we serve, and we ask you for your support.”