FERC ends DOE resilience rulemaking, opens new proceeding

U.S. energy regulators have terminated a fast-tracked proceeding opened last fall to consider rules proposed by the Department of Energy that would have compensated certain electric generating plants for reliability and resilience values; instead, the Federal Energy Regulatory Commission has opened a broader case to examine the resilience of the bulk power system.

On September 29, 2017, Secretary of Energy Rick Perry directed the Commission to consider a proposed rulemaking to ensure that "traditional baseload resources, such as coal and nuclear" are rewarded for their reliability and resilience attributes. As proposed, the rule would have required grid operators to set rates for compensation paid to certain "grid reliability and resiliency resources" with a 90-day fuel supply on site and capable of providing "essential energy and ancillary reliability services, including but not limited to voltage support, frequency services, operating reserves, and reactive power."

The request under Section 403 of the Department of Energy Organization Act bore an expedited timeline. The Commission solicited public comments on the proposed rulemaking, and Commission staff issued a series of questions to frame the discussion. Many comments expressed concerns that rapid changes to wholesale markets could have harmful or perverse effects, and prior to yesterday's most seated Commissioners had publicly expressed reservations.

On January 8, 2018, the Commission issued its Order Terminating Rulemaking Proceeding, Initiating New Proceeding, and Establishing Additional Procedures.  In doing so, it recognized "that we must remain vigilant with respect to resilience challenges, because affordable and reliable electricity is vital to the country’s economic and national security." The order recites a history of the evolution of the electric power industry and the Commission's efforts to help ensure bulk power system resilience, including the adoption of NERC reliability standards, reforms to capacity markets and gas-electric coordination.

But the Commission found that neither the Department of Energy's proposed rulemaking nor the record in the case satisfied a key legal standard for Commission action under Section 206 of the Federal Power Act. Specifically, it concluded that the existing tariffs had not been demonstrated to be unjust, unreasonable, unduly discriminatory or preferential.

The Commission also noted potential problems with the proposed rule. For example, it said that allowing all eligible resources to receive a cost-of -service rate regardless of need or cost to the system had not been demonstrated to be just and reasonable, and that the proposed rule's on-site 90-day fuel supply requirement hadn't been shown not to be unduly discriminatory or preferential -- but that it would exclude some resources with resilience attributes.

At the same time, the order states, "The resilience of the bulk power system will remain a priority of this Commission." It continued, "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." Noting "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."

To address these changes, the Commission initiated a new proceeding, Docket No. AD18- 7-000, to take additional steps to explore resilience issues in organized wholesale electricity markets. According to the order, 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."

The Commission directed six regional transmission organizations and independent system operators to respond within 60 days with comments on the definition of resilience, plus how they assess and mitigate threats to resilience. The Commission also solicited public comment within 30 days of the grid operators' due date.

Emerging technologies and the electric grid

A task force examining the deployment of emerging technologies across the North American electric grid has identified three imperatives necessary to ensure the continued reliability and efficiency of the bulk electricity system, relating to: renewable supply and integration; greater situational awareness; and controlling an increasingly distributed energy system, with increased deployment of distributed energy resources.

The 39-page report, “Emerging Technologies: How ISOs and RTOs can create a more nimble, robust electricity system,” was published on March 16, 2017, by a group of nine Independent System Operators (ISO) and Regional Transmission Organizations (RTO) known collectively as the ISO/RTO Council (IRC).

With respect to integrating renewable resources, the IRC noted that it "[s]upports policies and positions recognizing the electricity system’s ability to accommodate large amounts of renewables and realizing their growing potential."  While remaining "agnostic to specific technologies that may faciiltate renewable integration", IRC supports policies that accommodate emerging renewable integration technologies, while "avoiding early technological lock-in."

With respect to situational awareness, the IRC notes the lack of available data on the penetration of distributed energy resources, but that a lack of data or its sharing should not limit grid operators' understanding of what's happening on the grid.  IRC suggests the development of a general operational data framework, "where increasingly comprehensive operational data from the distribution system is provided as DER penetrations reach different thresholds."

The report also notes, "Because of emerging technologies, North America’s electricity systems are moving toward a more distributed arrangement." In 2016, the Federal Energy Regulatory Commission issued a Notice of Proposed Rulemaking in which it proposed rule changes "to remove barriers to to the participation of electric storage resources and distributed energy resource aggregations" in organized wholesale electric markets.  Recognizing that such a rule change could set a framework for future DER growth, the IRC calls for continued coordination, data sharing, and flexibility.

Electric storage and wholesale markets

As electric energy storage technology improves in capability and cost-effectiveness, what barriers exist to electric storage resources' participation in organized electricity markets in the U.S.?  Staff of the Federal Energy Regulatory Commission have issued a series of data requests and a request for public comment in an effort to identify barriers that could lead to unjust and unreasonable wholesale electricity rates.

For purposes of this inquiry, Commission staff defines an electric storage resource as a facility that can receive electric energy from the grid and store it for later injection of electricity back to the grid. This includes all types of electric storage technologies, regardless of their size and storage medium, or whether they are interconnected to the transmission system, distribution system, or behind a customer meter.

Historically, electricity had to be consumed as soon as it was generated, and storing electricity was challenging and expensive.  But a new industry has grown up around electric storage.  Federal regulators have acted to support energy storage, such as in FERC Order No. 784 which lets cost-effective storage be paid fairly for the ancillary services it provides to the grid.

According to a series of April 11, 2016 letters from Commission staff to various regulated Regional Transmission Organization (RTO) and Independent System Operator (ISO) entities, "Commission staff has been examining the use of electric storage resources to help meet wholesale electricity needs for some time."  In light of "key developments in the technology and cost-effectiveness of electric storage resources," the letters express staff's interest in "examining whether barriers exist to the participation of electric storage resources in the capacity, energy, and ancillary service markets in the RTOs and ISOs potentially leading to unjust and unreasonable wholesale rates."  The letters also describe staff's expectation that if potential barriers exist, staff will examine whether any tariff changes are warranted.

A data request is attached to each letter.  In those data requests, staff seeks information on rules that affect the participation of electric storage resources in the markets.  These rules include those governing electric storage resources' eligibility to participate in the markets, the qualification and performance requirements for market participants, required bid parameters, and the treatment of electric storage resources when they are receiving electricity for later injection to the grid.

FERC staff's data requests are organized into 6 categories:

• The Eligibility of Electric Storage Resources to be Market Participants
• Qualification Criteria and Performance Requirements
• Bid Parameters for Electric Storage Resources
• Distribution-Connected and Aggregated Electric Storage Resources
• When Electric Storage Resources are Receiving Electricity
• Potential Changes to the Rules Affecting Electric Storage Resources

The letter requests a response to the data requests on or before May 2, 2016.  Concurrently, staff solicited public comment on the issues raised in the proceeding.

As noted in the data request letters, this is not the first time Commission staff has considered energy storage.  Will this round of regulatory process identify barriers to electric storage resources' participation in wholesale markets?  Will any barriers identified give rise to changes to grid operators' tariffs?  The case has been docketed as Docket No. AD16-20-000, Electric Storage Participation in Regions with Organized Wholesale Electric Markets. 

Regulators release updated energy primer

The Federal Energy Regulatory Commission has released an updated version of its "resource manual",  Energy Primer: A Handbook of Energy Market Basics.

The FERC is an independent federal agency that regulates a variety of aspects of the U.S. energy industry, including the interstate transmission of electricity, natural gas, and oil, proposals to build liquefied natural gas (LNG) terminals and interstate natural gas pipelines, and hydropower projects, as well as engaging in strategic planning.

FERC's Office of Enforcement is charged with encouraging compliance with the Commission’s statutes, rules, and orders.  Within the enforcement office, the Division of Energy Market Oversight is responsible for monitoring and overseeing the nation’s wholesale natural gas and electric power markets.

In 2012, the Division of Energy Market Oversight (or DEMO) issued the first edition of its Energy Primer.  This week, DEMO issued an updated 2015 version of the Energy Primer.  As with the previous edition, the 2015 Energy Primer gives the public a broad overview of the physical wholesale markets for natural gas and electricity and energy-related financial markets.  As FERC has noted, the revised edition reflects some of the changes that have occurred in the industry since 2012, including the growth in natural gas supplies and the expansion of organized electric markets under Independent System Operators (ISO) and Regional Transmission Organizations (RTO).

The 2015 FERC Energy Primer offers a useful introduction to the U.S. energy industry as it is regulated by FERC.  As with the 2012 version, FERC staff states that the 2015 edition is intended to be used as either a text or a reference guide.  FERC's website also notes that the Energy Primer is a product of FERC staff and does not reflect the views of the Commission or any individual Commissioner.  Nevertheless it may offer careful readers insight into how Commission staff view the markets' continuing evolution.