FERC's approach to EMP and GMD threats

Federal energy regulators have used both regulatory and more informal collaborative approaches to address the threat to the electric grid posed by electromagnetic pulses and geomagnetic disturbances, according to testimony delivered on May 4, 2017, to the U.S. Senate Committee on Energy and Natural Resources.

Last month, Federal Energy Regulatory Commission acting chairman Cheryl LaFleur spoke to the Senate committee on the Commission's work in protecting the reliability of the U.S. grid against naturally-occurring and manmade threats.  In her testimony, she noted the Commission's role in approving mandatory reliability standards developed by the North American Electric Reliability Corporation (NERC), as well as its support for grid security through voluntary and collaborative efforts like sharing best practices, participating in grid reliability exercises, and briefing state policymakers.

Acting chairman LaFleur's testimony focused on the threats posed by man-made electromagnetic pulses (EMP) and naturally-occurring geomagnetic disturbances (GMD).  As she categorized it, EMP are bursts of energy designed to disrupt, damage or destroy electronics such as those found in control systems on the electric grid.  GMD are naturally occurring solar magnetic disturbances which periodically disrupt the earth’s magnetic field; these disturbances can induce currents on the electric grid that may simultaneously damage or destroy key transformers over a large geographic area.  According to Commissioner LaFleur, a severe EMP or GMD event "has the potential to cause voltage problems and instability on the electric grid, which could lead to wide-area blackouts."

She next noted FERC's actions to address EMP threats, including both regulatory and informal approaches.  Regulatory actions include FERC's direction and approval of NERC's two-stage GMD reliability standards, which require responsible entities to develop and implement operational procedures to mitigate the effects of GMDs and to conduct initial and on-going assessments of the potential impact of a benchmark GMD event on bulk-power system equipment and the bulk-power system as a whole and to mitigate any assessed vulnerabilities.

She also pointed to FERC's approval of NERC's physical reliability standard, which requires responsible entities to mitigate assessed vulnerabilities to critical transmission facilities through resiliency or security measures designed collectively to deter, detect, delay, assess, communicate, and respond to potential physical threats and vulnerabilities, as helping to address the use of small, portable EMP devices that require close proximity to their intended target.  However, as she noted, "FERC has not directed NERC to develop a standard specifically targeting EMP."

Acting chair LaFleur also noted collaborative efforts, including coordination and information-sharing with the Department of Energy, Department of Homeland Security, Department of Defense, interagency task forces, and foreign governments.

FERC electric storage policy statement

U.S. energy regulators have issued a policy statement addressing how electric storage resources may provide services at a mix of cost-based and market-based rates.  The Federal Energy Regulatory Commission's January 19, 2017 policy statement on storage provides insight into how the Commission views its role in regulating the rates at which energy storage would be compensated -- but was accompanied by a dissenting view expressed by Commissioner LaFleur.   The result is a mix of both greater certainty and continued debate.

Electricity storage is a growing industry, both in terms of installed capacity and its capability to flexibly support the grid.  Today's electric storage resources can both charge and discharge electricity to and from the grid.  Moreover they can provide various services to multiple entities -- for example, consumers, grid operators, or transmission and distribution utilities -- and can switch nearly instantaneously between modes of operation or services provided.  In these ways, electric storage resources share some functions of consumer load, generation, transmission, and distribution. 

Some of these functions -- e.g. sales of electric energy at wholesale in an organized market -- may be compensated at market-based rates.  But other functions of energy storage could be compensated at cost-based rates under federal law -- perhaps functioning as a transmission asset, compensated through transmission rates.  Thus it's possible that a particular energy storage resource -- think a battery attached to the electric grid, perhaps sited at a factory or other consumer's location -- might be compensated for its operations under both cost-based and market-based rates.

This is a good thing, according to the Federal Energy Regulatory Commission.  According to the January 19, 2017 policy statement, "Enabling electric storage resources to provide multiple services (including both cost-based and market-based services) ensures that the full capabilities of these resources can be realized, thereby maximizing their efficiency and value for the system and to consumers."

But previous proceedings before the Federal Energy Regulatory Commission have exposed some concerns about allowing electric storage resources to recover costs through both cost-based and market-based rates concurrently.  As described by the Commission, these include "double recovery of costs to the detriment of cost-based ratepayers, potential for adverse competitive impacts in wholesale electric markets to the detriment of other competitors, and the need for independence of regional grid operators from market participants."

With respect to utilities subject to its jurisdiction, the Commission's recent policy statement, "Utilitzation of Electric Storage Resources for Multiple Services When Receiving Cost-Based Rate Recovery," provides guidance regarding these issues.  It details possible approaches for avoiding double recovery of costs.  The Commission notes that with regard to adverse market impacts, it "is not convinced there will be a detriment to other market competitors."  The policy statement also offers guidance on how grid operators and electric storage owners or operators should interact, to ensure independence as required by Commission policy.

Commissioner LaFleur issued a dissenting opinion, while nevertheless calling storage "an important and promising resource that warrants Commission attention to ensure that our markets are appropriately adapted to recognize storage’s unique characteristics and contributions."  While expressing an openness "to potential structures that compensate storage providing transmission service at a cost-based rate while participating in the wholesale markets", she expressed concern "about the broad rationale for this approach put forth in the Policy Statement," which she called "both flawed in its conclusions and premature in its timing."  In particular her dissent focused on what she described as "the Policy Statement’s sweeping conclusions about the potential impacts of multiple payment streams on pricing in wholesale electric markets" -- and whether it might have implications for resources other than storage that receive multiple payment streams.  She also disagreed with the Commission's decision to issue the policy statement separate from its pending Notice of Proposed Rulemaking on the participation of electric storage in wholesale markets.

Both the majority policy statement and Commissioner LaFleur's dissent shed light on how the Commission approaches energy storage rate issues.  Storage seems universally considered worth investigating or supporting, but disagreement remains within the Commission with respect to some aspects of how storage resources should be compensated (as well as procedural issues related to the Commission's consideration of these questions).  Nevertheless the policy statement does provide guidance and clarification into how a majority of the Commission views the compensation of storage resources under both cost- and market-based rate structures -- while also framing future discussions over how storage resources will be integrated into markets.

FERC testifies on EPA carbon regulations and electric reliability

The U.S. Environmental Protection Agency's proposed Clean Power Plan rule is projected to limit carbon dioxide emissions from power plants, improve human health and save money -- but will it jeopardize the reliability of the nation's electricity grid?

Poorly implemented carbon regulations could increase the risk of widespread power outages, but this risk can be managed, according to testimony offered by the Commissioners of the Federal Energy Regulatory Commission to the House Energy & Commerce Subcommittee on Energy & Power earlier this week.

In her written testimony, Acting Chairman Cheryl LaFleur acknowledged concerns that EPA's carbon rule may have an "adverse impact on the overall reliability of the bulk power system."  Noting that EPA's plan leaves much of the implementation to individual states, she suggested that the FERC work closely with states to consider how state implementation plans will affect the operation of the grid. 

Commissioner Philip Moeller's testimony was more critical of EPA's proposed rule, which he described as infringing upon the FERC's jurisdiction over electric system reliability.  Noting that electricity markets are interstate in nature, Commissioner Moeller warned that "the proposal’s state-by-state approach results in an enforcement regime that would be awkward at best, and potentially very inefficient and expensive."  He also expressed skepticism at the plan's inclusion of increased use of existing natural gas-fired generation as one "building block" states may use to reduce their power sector's carbon intensity.  Commissioner Moeller also pointed to EPA's Mercury and Air Toxics Standards (MATS) rule as giving him reliability concerns.  On the positive side, he urged state regulators to speed adoption of real-time pricing at the retail level, so consumers can feel price signals that could reduce the overall cost of energy.  Commissioner Moeller concluded with a plea that FERC be given a formal role in EPA's regulation of the electric power sector.

Commissioner John Norris testified that EPA's proposed rule is "an important first step that addresses climate change by appropriately seeking to reduce carbon emitted by our nation’s electric power system."  While he acknowledges that transitioning to a low-carbon economy is challenging, he expressed confidence that "we as a nation should be well positioned to meet those challenges."  Commissioner Norris cited the MATS standards as an example of our readiness: while EPA's MATS rule led to the retirement of many older, inefficient coal-fired power plants, the grid has generally responded in a way that will maintain reliability.  Commissioner Norris urged cooperation with electric reliability organization North American Electric Reliability Corporation (NERC) and states, and to be flexible in making market rule changes to enable states, regional transmission organizations and other system planners to meet resource adequacy requirements.

Commissioner Tony Clark testified that while the grid is more reliable than before, it remains vulnerable to cyberattack, physical security threats, and geomagnetic disturbances.  He also described environmental regulations as another source of risk, and warned of the "seismic" shift in EPA authority over the energy sector embodied in the rule.  Commissioner Clark described the Clean Power Plan as the most comprehensive reordering he has seen of the jurisdictional relationship between the federal government and states as it relates to the regulation of public utilities and energy development.  He painted a picture of states forced to choose between surrendering their authority over power plants willingly or losing it to federal supremacy.

Current FERC enforcement director Norman Bay also testified, noting that he was confirmed by the Senate as a Commissioner on July 15, but that he has not yet been sworn in.  His brief testimony focused on the need for cooperation between FERC, EPA, NERC, states, and regional transmission organizations to ensure reliability.

What happens next remains to be seen.  As expressed in the opening statements of Energy and Power Subcommittee Chairman Ed Whitfield and Energy and Commerce Committee Chairman Fred Upton, many remain concerned about what they perceive as an effort by EPA to assert control and new regulatory authorities over states’ electricity decision-making.  Will EPA's Clean Power Plan ultimately come into effect -- and if so, what path will it take?