FERC seeks questions on DOE’s proposed rule involving grid resiliency

FERC, in an Oct. 4 notice, said that in order to assist its staff in understanding the implications of a rule involving grid resiliency that was recently proposed by the U.S. Department of Energy secretary, commenters are requested to address certain questions, including “[w]hat is resilience, how is it measured, and how is it different from reliability?”

As noted on DOE‘s website on Sept. 29, Secretary of Energy Rick Perry has proposed that FERC “take swift action to address threats to U.S. electrical grid resiliency.”

Pursuant to his authority under Section 403 of the DOE Organization Act, Perry urged FERC to issue a final rule requiring its organized markets to develop and implement reforms that would fully price generation resources necessary to maintain the reliability and resiliency of the country’s grid, DOE said.

According to a notice of proposed rulemaking, Perry is proposing that FERC exercise its authority under sections 205 and 206 of the Federal Power Act (FPA) to establish just and reasonable rates for wholesale electricity sales.

Under the proposal, FERC would impose rules on FERC-approved ISOs and RTOs to ensure that certain reliability and resilience attributes of electric generation resources are fully valued, the notice said.

Perry is directing FERC to take final action on the proposal within 60 days of publication of the notice in the Federal Register or, in the alternative, to issue the rule as an interim rule immediately, with provision for later modifications after consideration of public comments.

The notice further noted that Perry is further directing that any final rule adopting the proposal take effect within 30 days of publication of such final rule in the Federal Register and proposes that each ISO and RTO subject to the rule is to submit a compliance filing within 15 days of the effective date of such final rule.

“The resiliency of the nation’s electric grid is threatened by the premature retirements of power plants that can withstand major fuel supply disruptions caused by natural or man-made disasters and, in those critical times, continue to provide electric energy, capacity, and essential grid reliability services,” the notice said. “These fuel-secure resources are indispensable for the reliability and resiliency of our electric grid – and therefore indispensable for our economic and national security. It is time for the commission to issue rules to protect the American people from energy outages expected to result from the loss of this fuel-secure generation capacity.”

Citing DOE’s January “Quadrennial Energy Review,” (QER), the notice said that in the United States, there are around 7,700 operating power plants that generate electricity from a variety of primary energy sources; 707,000 miles of high-voltage transmission lines; more than one million rooftop solar installation; 55,800 substations; 6.5 million lines of local distribution lines; and 3,354 distribution utilities delivering electricity to 148.6 million customers.

The QER also noted that over the past six years (2010-2015), power plant retirements were dominated by coal plants (37 GW), which accounted for more than 52 percent of recently retired power plant capacity, and over the next five years (between 2016 and 2020), 34.4 GW of summer capacity is planned to be retired, with 79 percent of that planned retirement capacity being coal and natural gas plants. The next largest set of planned retirements are nuclear plants (15 percent), according to the QER.

The notice further stated that there is a growing recognition that organized markets do not necessarily pay generators for all the attributes that they provide to the grid, including resiliency. Because wholesale pricing in those markets does not adequately consider or accurately value those benefits, fuel-secure generation resources are often not compensated for those benefits, the notice said.

Citing the QER, the notice said that reliability investments are typically incorporated into ratemaking processes for all electric utilities, and that supplementary investments for recovery from outage events are also handled through established ratemaking processes. Resilience requirements tend to be valued as contributions to reliability and incorporated as part of ratemaking processes, the QER said, adding that those processes are more easily executed in structures that are traditional end-to-end, vertically integrated electricity delivery services; other market structures complicate reliability and resilience investment decision-making. Short-run markets may not provide adequate price signals to ensure long-term investments in appropriately configured capacity, the QER said.

The proposed rule, the notice added, allows for the recovery of costs of fuel-secure generation units frequently relied upon to make the grid reliable and resilient. Such resources provide reliable capacity, resilient generation, frequency and voltage support, on-site fuel inventory – in addition to providing power for basic needs, quality of life, and robust economy, the notice said.

The rule allows the full recovery of costs of certain eligible units physically located within the FERC-approved organized markets. The notice added that eligible units must also be able to provide essential energy and ancillary reliability services and have a 90-day fuel supply on site in the event of supply disruptions caused by emergencies, extreme weather, or natural or man-made disasters.

Those resources must be compliant with all applicable environmental regulations and are not subject to cost-of-service rate regulation by any state or local authority, the notice said, adding that the rule requires the organized markets to establish just and reasonable rate tariffs for the recovery of costs and a fair rate of return.

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Corina Rivera-Linares, chief analyst for TransmissionHub, has covered the U.S. power industry for the past 10 years. Before joining TransmissionHub, Corina covered renewable energy and environmental issues, as well as transmission, generation, regulation, legislation and ISO/RTO matters at SNL Financial. She has also covered such topics as health, politics and education for weekly newspapers and national magazines. She can be reached at corinar@pennwell.com .

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