“Under the proposal, the Commission will impose rules on [ISOs and RTOs] to ensure that certain reliability and resilience attributes of electric generation resources are fully valued.”
– Department of Energy, 18CFR Part 35, Docket No. RM17-3-000
At the end of September, the Department of Energy issued a Notice of Proposed Rulemaking (NOPR) that would direct the Federal Energy Regulatory Commission (FERC) to incorporate the value of resiliency into wholesale electricity prices under its authority to ensure “just and reasonable rates.” Comments were submitted within four weeks and FERC is expected to act on the proposal by December 11. While coal and nuclear plant owners generally are supportive, submissions by independent system operators (ISOs) and regional transmission operators (RTOs) reflect a consensus that the proposal should be rejected. Their reasoning is summarized below.
Variance in Resilience
The ISOs/RTOs unanimously agree that there is no single definition of resilience that can be applied to all regions. Nearly all criticized DOE’s attempt at a definition—that is, “the ability to reduce the magnitude or duration of a disruptive event”—as being amorphous, vague and unworkable. This lack of a fundamental definitional starting point creates a quandary for FERC which will either have to: (1) refine the definition to include a level of detail that can be enforced; or (2) assign the task of definition, measurement and timing to market participants.
If FERC attempts to create a single definition, it will find that the “one-size fits all” approach is untenable given regional differences. As highlighted in the comments, distinctions extend beyond an evolving generation mix that varies by market to variation in the types of “disruptive event” that can occur; California has fires while New England has ice. Many of the ISOs/RTOs posit that they should decide which resources are necessary and incentivize for reliability and resiliency given the characteristics of their region.
Insignificance of Resilience
Every ISO/RTO claimed that increased planning efforts and investments in transmission and distributed resources are more beneficial to ensuring grid resilience compared to fuel assurance. For example, the polar vortex in New England and PJM resulted in frozen coal piles, making the resiliency value of a 90-day fuel supply worthless. Similarly, California’s forest fires and Texas hurricane flooding disable generating units in their path regardless of the fuel type. Fukushima illustrates the folly of nuclear resiliency in the face of earthquakes and tsunamis. Cyberattacks are similarly agnostic as to fuel type, having targeted both coal and nuclear power plants in the U.S. as well as abroad. Therefore, the premise that baseload units with on-site fuel supply contributes to resiliency is fundamentally flawed.
Many noted that current market designs already value resources for their reliability and resiliency attributes, augmenting revenues through transmission planning, performance pay programs, long-term capacity markets, and reliability evaluations. Baseload generators already are compensated for their reliability and availability under FERC-approved market rules. Furthermore, additional price formation initiatives already are underway given anticipated changes in economics, policy and generation mix.
Inefficient or Resilient
Nearly all ISOs/RTOs argue that the NOPR will negatively affect wholesale market design and price formation. Compensation for cost-of-service will need to take place outside of the market, without impacting real-time or day-ahead prices—a task easier said than done as many ISOs/RTOs already are navigating the impact of state policies on competitive markets. In addition, cost-of-service payments fail to create performance incentives or place any obligations on baseload generators, creating an inherent inconsistency with resiliency goals. Compliance with DOE’s proposal also could conflict with regional and state environmental goals.
No Urgency for Resiliency
The NOPR requires a rulemaking within 60 days of posting and would require competitive wholesale markets to be in compliance within thirty days after FERC’s ruling. The ISOs/RTOs unanimously agreed that the proposed timeline is unreasonable and may lead to unintended consequences. More pointedly, the NOPR fails to show any evidence that the hastened timeline will help with resilience. The DOE report notes that there currently is not a problem, but that it could become an issue over the longer term. With plenty of time to engage in the formal stakeholder processes required by the market rules, the ISO/RTO comments unanimously request that the deadlines listed in the DOE’s NOPR be postponed.
Stripping away the ill-defined concept of resiliency, it is clear that the DOE NOPR simply represents a desire to provide out-of-market support to uneconomic coal and nuclear plants. The ISOs/RTOs have responded accordingly, laying out the arguments required to protect the competitive electricity markets they operate and set the stage for future legal action to protect state rights. It will be a short wait to see whether they make any progress in this first round.
About the author: Tanya Bodell is the Executive Director of Energyzt, a global collaboration of energy experts who create value for investors in energy through actionable insights. Visit www.energyzt.com. She can be reached at: [email protected] or 617-416-0651.