Electricity Markets

FERC scraps DOE proceeding, launches ISO/RTO resilience review

The Federal Energy Regulatory Commission on Jan. 8 said that it was terminating 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 in its order said that it is initiating a new proceeding (Docket No. AD18-7-000) to specifically evaluate the resilience of the bulk power system in the regions operated by regional transmission organizations and independent system operators. 

“In this order, we direct each RTO and ISO to submit information to the Commission on certain resilience issues and concerns identified herein to enable us to examine holistically the resilience of the bulk power system,” FERC said.

DOE proposed rule in late September

The DOE in late September proposed a rule to be issued by FERC that would require several regional organized wholesale power markets to “develop and implement market rules that accurately price generation resources necessary to maintain the reliability and resiliency” of the country’s bulk power system, and specifically described such rules as establishing electric energy rates that provide for the recovery of costs and a return on equity for certain “eligible reliability and resiliency resources.”

FERC launched Docket No. RM18-1-000 to consider the proposed rule and it issued a notice inviting comments on the proposed rule on Oct. 2, 2017.

In initial comments filed on Oct. 23, the American Public Power Association urged FERC to reject the DOE proposed rule. The Association said that while it agreed that the DOE’s proposed rule raised important questions that the industry should study further, the proposed rule did not establish the existence of an imminent threat to the electric grid requiring cost-recovery payments to merchant generators. The Association also told FERC that the proposal was ambiguous and incomplete in many respects, and unworkable in its current form. The Association also submitted reply comments in the proceeding.

FERC highlights efforts to ensure bulk power system resilience

In its Jan. 8 order, FERC said that it has taken action to address reliability and other issues with regard to the bulk power system “that have helped with the bulk power system’s resilience, even though we may not have used that particular term.”

It noted, for example, that in response to the increasing use of natural gas for electric generation, the Commission conducted a multi-year effort to evaluate the coordination of wholesale natural gas and electricity market scheduling, “resulting in significant improvements to those scheduling and coordination processes.”

The Commission has also specifically examined the grid’s response to the events of the 2014 Polar Vortex and how each RTO/ISO addresses fuel assurance.

FERC said that while none of the Commission’s efforts described in the order were specifically targeted at “resilience” by name, they were directed at elements of resilience, in that they sought to ensure the uninterrupted supply of electricity in the face of fuel disruptions or extreme weather threats.

“Notwithstanding these and other Commission efforts to address the resilience of the bulk power system, we conclude that resilience remains an important issue that warrants the Commission’s continued attention, including through the development of a clear understanding of what each RTO/ISO currently does with respect to the assurance or strengthening of resilience and what more the RTOs/ISOs and the Commission could be doing on this issue,” FERC said.

So while it is terminating the proposed rule proceeding, FERC said it is not ending its work on the issue of resilience. “To the contrary, we are initiating a new proceeding to address resilience in a broader context and are directing the RTOs/ISOs to provide information – followed by an opportunity for comment by any other interested entity – that will inform us as to whether additional actions by the Commission and the ISOs/RTOs are warranted with regard to resilience issues.” 

FERC explains rationale for terminating DOE proposed rule docket

Noting that it considered the proposed rule and the comments received in Docket No. RM18-1-000, FERC said that it had decided to terminate the proceeding in Docket No. RM18-1-000. 

It said the Federal Power Act is clear – “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, there must first be a showing that the existing RTO/ISO tariffs are unjust, unreasonable, unduly discriminatory or preferential.”

Then, any remedy proposed under FPA section 206 must be shown to be just, reasonable, and not unduly discriminatory or preferential.

FERC said the proposed rule did not “satisfy those clear and fundamental legal requirements under section 206 of the FPA. Given those legal requirements, we have no choice but to terminate Docket No. RM18-1-000.”

It said that neither the proposed rule “nor the record in this proceeding has satisfied the threshold statutory requirement of demonstrating that the RTO/ISO tariffs are unjust and unreasonable.”

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. 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,” FERC went on to say.

The commission also disagrees with assertions that an adequate record exists through the commission’s price formation efforts to support the Proposed Rule’s action regarding bulk power system resilience.

Turning to the second prong of the FPA Section 206 analysis, FERC noted that the Proposed Rule would allow all eligible resources to receive a cost-of-service rate regardless of need or cost to the system. “The record, however, does not demonstrate that such an outcome would be just and reasonable. It also has not been shown that the remedy in the Proposed Rule would not be unduly discriminatory or preferential,” FERC said.

“For example, 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,” the commission noted.

Commission launches new proceeding

Meanwhile, FERC said that even though it is terminating Docket No. RM18-1-000, it concluded that it “must remain vigilant with respect to resilience challenges.”

FERC said that although the Proposed Rule failed to satisfy the “fundamental legal requirements of section 206 of the FPA, the Proposed Rule and the record developed to date have shed additional light on resilience more generally and on the need for further examination by the Commission and market participants of the risks that the bulk power system faces and possible ways to address those risks in the changing electric markets.”

As a DOE grid study “documented, we have seen a variety of economic, environmental, and policy drivers that are changing the way electricity is procured and used,” the commission said.

“These changes present new opportunities and challenges regarding the reliability, affordability, and environmental profile of each region’s electric system. These changes may impact the resilience of the bulk power system. As we navigate these changes, the Commission’s markets, transmission planning rules, and reliability standards should evolve as needed to address the bulk power system’s continued reliability and resilience,” the order stated.

Therefore, FERC is launching a new proceeding (Docket No. AD18-7-000), to take additional steps to explore resilience issues in the RTOs/ISOs.

FERC said the goal of this proceeding is: (1) to develop a common understanding among the Commission, industry, and others of what resilience of the bulk power system means and requires; (2) to understand how each RTO and ISO assesses resilience in its geographic footprint; and (3) to use this information to evaluate whether additional Commission action regarding resilience is appropriate at this time.

“This examination of the resilience of the bulk power system will be a priority of the Commission,” FERC said, noting that each RTO and ISO will need to submit specific information regarding the resilience of its respective region within 60 days.

Broader consideration of resilience issues

FERC said that although the proposed rule focused on one possible aspect of grid resilience – secure onsite fuel – “we conclude 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, and NERC [North American Electric Reliability Corporation] standards.”

FERC noted that the efforts of RTOs and ISOs on grid resilience encompass a range of activities, including wholesale electric market design, transmission planning, mandatory reliability standards, emergency action plan development, inventory management, and routine system maintenance. “However, many of these activities are not unique to RTOs/ISOs and are performed by transmission providers in areas that do not have centralized wholesale electricity markets. Similarly, NERC and the regional entities tasked with implementation of mandatory reliability standards have a critical role to play in this area,” the order said.

Although hearing from the RTOs/ISOs on this topic is an appropriate place to begin, “we 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,” FERC said.

FERC said its focus on the RTOs/ISOs “should not be understood to mean that we believe that those systems are less resilient that non-RTO/ISO regions. Rather, we conclude that a targeted proceeding focused on those regions is a prudent next step in our consideration of resilience of the bulk power system.”

FERC anticipates that the RTO/ISO submissions will explain how they currently address resilience of the bulk power system within their footprints, and will highlight any specific or unique resilience challenges faced by the regions. The submissions also will give the RTOs/ISOs the opportunity to discuss potential paths forward for addressing any identified gaps or exposure on the resilience of the bulk power system, the Commission said.

A common understanding of resilience

In order to appropriately study the resilience of the bulk power system in the RTO/ISO regions, FERC said it is appropriate to first achieve a common understanding of what resilience is in the context of the bulk power system.

“According to comments on the Proposed Rule, there seems to be a general consensus that grid reliability and grid resilience are related but separate concepts, with the elements of grid reliability being better understood and defined,” the order said. “It also is evident that there is currently no uniform definition of resilience used across the electric industry.”

In order to help guide consideration of issues related to resilience of the bulk power system, the Commission said it understands resilience to mean: The ability to withstand and reduce the magnitude and/or duration of disruptive events, which includes the capability to anticipate, absorb, adapt to, and/or rapidly recover from such an event. FERC wants feedback from the RTOs and ISOs on its understanding of resilience.

How RTOs/ISOs assess threats to resilience

FERC is also seeking comment on how each RTO/ISO currently evaluates the resilience of its system.

The Commission said it recognizes regional differences among the RTOs/ISOs, and appreciates that those differences likely impact how each RTO/ISO approaches resilience in its region.

FERC is directing the RTOs/ISOs to address a list of questions included in the order on this issue and, as needed, to highlight any unique resilience challenges that exist in their respective regions.

FERC said that once an RTO/ISO identifies a particular need or threat to resilience, there could be various ways to mitigate such risk.

The commission is seeking comment on how RTOs/ISOs evaluate options to mitigate any risks to grid resilience and is directing the RTOs/ISOs to answer a list of questions on this topic as well.

FERC concluded the order by stating that they “expect to review the additional material and promptly decide whether additional Commission action on this issue is warranted.”

Three Commissioners filed concurrences to the order. Commissioner Cheryl LaFleur expanded on the “larger context surrounding the issues in this docket” and stated that FERC “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 this way, we can help the grid adapt to the transformations of the present, and best position the grid for the unknown future transformations that the history of our industry suggests are inevitable.”

Commissioner Neil Chatterjee stated that this order is a positive step toward the goal of ensuring the resilience of the grid “amidst tremendous changes in our generation resource mix,” but also expressed “concerns regarding bulk power system resilience in the interim period,” stating that “the record compiled in this proceeding speaks to the prudence of considering, as soon as practicable, whether interim measures may be needed to avoid near-term bulk power system resilience challenges,” and that “it would have been appropriate to provide the RTOs/ISOs with latitude in determining the implementation of any interim measures needed.”

Commissioner Richard Glick filed a third concurrence, stating that the proposed rule did not demonstrate the tariffs of certain RTOs and ISOs are unjust and unreasonable or unduly discriminatory or preferential, and that the record did not support the proposed remedy, and also supported the specific questions asked of the RTOs.