“Subsidies and mandates are just two of the privileges that government can bestow on politically connected friends.”
– Charles Koch
Resiliency has been the buzzword in the electricity industry for more than a year. Initially presented by the Department of Energy as an attempt to provide revenue adequacy to coal and nuclear plants in recognition of their on-site fuel supplies, the Federal Energy Regulatory Commission (FERC) was tasked with shepherding the concept through the stakeholder process. The ultimate rulemaking was supposed to occur within a few months, yet no FERC decision has been issued and industry discussion on the topic continues. As a result, the concept of resiliency continues to evolve, transforming into fuel security and now expanding into the broader notion of energy security, with no happy ending in sight.
The concept of resiliency had been embedded in power operations, but did not become a regulatory focus until September 2017. At that point, the Department of Energy issued a Notice of Proposed Rulemaking (NOPR) directing FERC to modify wholesale electricity prices to incorporate a value for “resiliency” defined as “the ability to reduce the magnitude or duration of a disruptive event.”
Although the concept originally was to reward on-site fuel storage at coal and nuclear sites, the industry quickly embraced the ambiguous definition and expanded its scope as Independent System Operators (ISOs) and Regional Transmission Operators (RTOs) noted that the best approach to resiliency varies by region. At the beginning of this year, FERC ended the docket on Grid Reliability and Resilience Pricing proposed by the DOE and initiated a new proceeding to evaluate the resiliency of the bulk power system and wholesale electricity markets.
The Short Tail of Fuel Security
As FERC established a proposed approach to resiliency, some of the ISOs/RTOs embraced fuel security as their means of realizing resiliency. The New England ISO took the lead, quickly arguing that resiliency meant fuel security of natural gas in light of its own regional challenges with winter reliability and natural gas price spikes. Linking resiliency to fuel security was not a far step from the Administration’s initial objective of supporting coal and nuclear fuel stocks, but New England’s focus thwarted the original goals as most of New England’s coal and nuclear plants already had retired.
Meanwhile, PJM performed its own study that recognized that although its expansive system provided for fuel security through the diversified and robust networks of natural gas pipelines and oil delivery systems, the combination of extreme load, escalating retirements and pipeline outages could result in outages. Focused on using market-based incentives to compensate for and incentivize firm fuel supply as a potential solution, PJM is attempting to develop a definition of a fuel security attribute and a market-based solution for compensation either through the capacity market or an energy price adder for winter reserves. Meanwhile, MISO, SPP and ERCOT have stated that their power systems are resilient, transmission planning is a means of ensuring that resiliency, the market rules offer multiple ways to ensure reliability and that there are no immediate concerns that need to be addressed.
The Growing Legs of Energy Security
As the stakeholder process continues, fuel security is now evolving into a much broader focus on energy security. Indeed, the security of energy supply chain networks and increasing operational reliance on technology which exposes many of those networks to cyberattacks could create a far greater set challenges to resiliency than simply fuel availability. Thus, expanding resiliency to the concept of energy security expands well beyond power generation to encompass the ecosystem of energy delivery networks and mitigating the risk of disruption to those systems. The concept also has global recognition, with the International Energy Administration defining energy security as “the uninterrupted availability of energy sources at an affordable price.” Having already used the claim of national security to support tariffs, the underpinning of energy security as a means of supporting favored fuels would not be a stretch for the current Administration. As with resiliency and fuel security, however, compensating for investments in energy security will require a clear definition of what those attributes entail and a mechanism for rewarding those attributes.
A Crowning Conclusion
The evolution of resiliency is not yet complete and the conversation continues. RTOs/ISOs continue to run scenarios and issue reports. FERC continues to hop around the issues of resiliency and fuel security. The Administration’s focus on resiliency ebbs and flows as staff changes remove former champions and refocus priorities. The crowning conclusion where the frog turns into a prince has yet to be realized. For coal and nuclear plants, however, additional compensation for their on-site fuel supplies could end up being a fairytale.
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.