By Rich Heidorn Jr.

FERC on Monday rejected Energy Secretary Rick Perry’s call for cost-of-service payments to coal and nuclear generators, instead initiating a broader review of grid operators’ efforts to ensure “resilience.”

The commission’s unanimous order terminated the rulemaking initiated by Perry (RM18-1), saying he had not shown that existing RTO tariffs were unjust and unreasonable. The order also opened a new docket (AD18-7) and gave RTOs and ISOs 60 days to respond to more than two dozen questions on their efforts.

“The [Federal Power Act] is clear: In order to require RTOs/ISOs to implement tariff changes as contemplated by the proposed rule, there must be a demonstration that the specific statutory standards of Section 206 of the FPA are satisfied. Thus, there must first be a showing that the existing RTO/ISO tariffs are unjust, unreasonable, unduly discriminatory or preferential,” the commission said. “Then, any remedy proposed under FPA Section 206 must be shown to be just, reasonable, and not unduly discriminatory or preferential. … The proposed rule did not satisfy those clear and fundamental legal requirements under Section 206 of the FPA. Given those legal requirements, we have no choice but to terminate Docket No. RM18-1-000.

“Although we terminate the proposed rule … we are not ending our work on the issue of resilience. To the contrary, we are initiating a new proceeding to address resilience in a broader context and are directing the RTOs/ISOs to provide information — followed by an opportunity for comment by any other interested entity — that will inform us as to whether additional actions by the commission and the ISOs/RTOs are warranted with regard to resilience issues.”

The 18-page order included a brief history of how the electric system has changed with the advent of organized markets and the transition away from fossil fuels and toward renewables. The commission also noted steps it has taken to ensure the grid’s stability, including tougher capacity market rules in PJM and ISO-NE, mandatory NERC reliability standards, improvements to gas-electric coordination and requirements that new renewable generation provide reactive power.

“While none of the commission’s efforts described above were specifically targeted at ‘resilience’ by name, they were directed at elements of resilience, in that they sought to ensure the uninterrupted supply of electricity in the face of fuel disruptions or extreme weather threats,” the commission said, adding, “The commission’s endorsement of markets does not conflict with its oversight of reliability, and the commission has been able to focus on both without compromising its commitment to either.”

Perry’s Proposal

The Department of Energy’s proposed rule, issued Sept. 29, would have required RTOs and ISOs with energy and capacity markets to make cost-of-service payments to generators that have a 90-day on-site fuel supply and are able to provide “essential reliability services.”

Citing the high rate of generation outages in PJM during the 2013/14 cold snap, Perry contended the grid was at risk because of retirements of coal and nuclear generation. Perry ordered the commission to respond within 60 days, a deadline he extended for a month at the request of new FERC Chair Kevin McIntyre.

In addition to failing to demonstrate that current RTO/ISO tariffs are unjust and unreasonable, the commission said, Perry’s proposed solution was also wanting. “The proposed rule would allow all eligible resources to receive a cost-of-service rate regardless of need or cost to the system,” the commission said. “The record, however, does not demonstrate that such an outcome would be just and reasonable. It also has not been shown that the remedy in the proposed rule would not be unduly discriminatory or preferential. For example, the proposed rule’s on-site 90-day fuel supply requirement would appear to permit only certain resources to be eligible for the rate, thereby excluding other resources that may have resilience attributes.”

New Proceeding

FERC said the new proceeding would document how each RTO and ISO assesses resilience and use the information “to evaluate whether additional commission action regarding resilience is appropriate.”

The commission also said it will seek to develop a common understanding “of what resilience of the bulk power system means and requires.”

“There seems to be a general consensus that grid reliability and grid resilience are related but separate concepts, with the elements of grid reliability being better understood and defined. It also is evident that there is currently no uniform definition of resilience used across the electric industry,” FERC said.

It invited comment on its own proposed definition: “The ability to withstand and reduce the magnitude and/or duration of disruptive events, which includes the capability to anticipate, absorb, adapt to and/or rapidly recover from such an event.”

Questions for RTOs

The order asked RTOs to identify their resilience risks; whether they should assess their resource portfolios against contingencies from the loss of key infrastructure; and the bulk power system attributes that contribute to resilience.

It also asked RTOs to address how extreme weather, drought, and physical and cyber threats affect generation technologies differently. Large nuclear and coal plants can face curtailments if they lose their cooling water supplies because of drought.

“Each RTO/ISO should take a proactive stance on addressing and ensuring resilience,” the commission said. “We are encouraged by efforts underway in PJM and ISO-NE to better understand vulnerabilities in their systems, and support similar efforts in other regions where analyses of potential resilience issues could be helpful. We also are encouraged by the ongoing work in MISO to develop a long-term plan to address changing system needs in light of an evolving resource mix.”

Broader Look at Resilience

The commission said that while Perry’s proposal focused only on on-site fuel, its inquiry would be broader, including market rules, planning and coordination, NERC standards, and transmission system outages.

It also noted that RTOs and ISOs share resilience concerns with transmission providers in areas that do not have centralized wholesale electricity markets, but it said “hearing from the RTOs/ISOs on this topic is an appropriate place to begin.”

Chatterjee Sought Interim Relief

Although the commission ruled unanimously, Commissioners Cheryl LaFleur, Richard Glick and Neil Chatterjee issued concurring statements spelling out their own views of the issue.

Praising Perry’s “bold leadership,” Chatterjee, a Republican, reiterated his call for “interim compensation” of generation facing retirement during the commission’s inquiry.

“Current RTO/ISO market design mechanisms are intended to incent generation resource owners to manage the fuel supply risks they can control — not the spectrum of fuel supply risks beyond their control,” Chatterjee wrote, citing the risks of gas pipeline outages.

“The record clearly suggests that the latter class of risks are increasingly significant due to shifts in the generation mix and the fast-evolving national security threat environment. Neither current RTO/ISO tariffs nor the NERC reliability standards require RTOs/ISOs to assess these fuel supply risks or other significant resilience risks and mitigate their potentially significant impact on the bulk power system. This suggests that existing RTO/ISO tariffs may be unjust and unreasonable insofar as they may not adequately compensate resources for their contributions to bulk power system resilience.”

LaFleur: Look to the Future, not the Past

LaFleur and fellow Democrat Glick were far more critical of the DOE proposal.

“The proposed rule … did not make a factual showing of a defined resilience need or allow a market- or standards-based solution to solve that need. Rather, it presumed a resilience need and proposed a far-reaching out-of-market approach to ‘solve’ it,” LaFleur wrote. “This proposed remedy, which simply designated resources for support rather than determining what services needed to be provided, would be highly damaging to the ability of the market to meet customer needs — including any demonstrated resilience needs — fairly, efficiently and transparently. In effect, it sought to freeze yesterday’s resources in place indefinitely, rather than adapting resilience to the resources that the market is selecting today or toward which it is trending in the future. I believe the commission should continue to focus its efforts not on slowing the transition from the past but on easing the transition to the future.”

Subsidizing Uncompetitive Generation

Glick said Perry’s proposal “had little, if anything, to do with resilience, and was instead aimed at subsidizing certain uncompetitive electric generation technologies.”

“The record demonstrates that, if a threat to grid resilience exists, the threat lies mostly with the transmission and distribution systems, where virtually all significant disruptions occur,” Glick wrote.

He noted the resilience challenges coal generators face, such as frozen and flooded fuel supplies. “Initial reports indicate that coal-fired facilities accounted for nearly half of all forced outages in PJM during last week’s period of extreme temperatures. Similarly, during the same period, the Pilgrim Nuclear Power Station was manually removed from service, complicating efforts to serve load within ISO-NE.”

Glick also noted the “irony that the department’s proposed rule would exacerbate the intensity and frequency of … extreme weather events by helping to forestall the retirement of coal-fired generators, which emit significant quantities of greenhouse gases that contribute to anthropogenic climate change.”

The commissioner expressed sympathy for coal miners who have lost their jobs because of the fuel’s declining share of the generation mix.

“We have a history in this country of helping those who, through no fault of their own, have been adversely affected by technological and market change,” he said. “But that is the responsibility of Congress and the state legislatures. It is not a role that the Federal Power Act provides to the commission.”

Glick concluded: “If the RTOs and ISOs demonstrate that the resilience of the bulk power system is threatened, we should act. If not, we should move on.”

Praise from Green Groups, Dismay from Coal and Nuclear Interests

Trade groups and other energy stakeholders wasted no time offering their opinion of FERC’s rejection of Energy Secretary Rick Perry’s call for cost-of-service payments to coal and nuclear generators. Here’s a sample:

Paul Bailey, CEO of the American Coalition for Clean Coal Electricity: “We are disappointed by FERC’s decision because the electricity grid could become less reliable and less resilient while more information is being collected. Nonetheless we will continue working with FERC and ISO/RTOs to assure that wholesale electricity markets value the attributes of the coal fleet. The recent bomb cyclone is a reminder why we need a healthy coal fleet. Several grid operators relied on the coal fleet for more than 40% of the electricity this past week.”

Maria Korsnick, CEO of the Nuclear Energy Institute: “We are disappointed that FERC did not take affirmative action that would preserve our nation’s nuclear plants. America’s nuclear fleet must remain a strategic asset contributing to energy security, resilience, reliability, economic growth and environmental protection. The status quo, in which markets recognize only short-term price signals and ignore the essential role of nuclear generation, will lead to more premature shutdowns of well-run nuclear facilities. Once closed, these facilities are shuttered forever. … We are committed to working with FERC, the Department of Energy and other federal and state policymakers to ensure that America’s nuclear fleet continues to deliver electricity reliably and affordably. We believe the direction to the RTOs/ISOs to ‘take a proactive stance on addressing and ensuring resilience’ must lead to prompt and meaningful action, including on issues such as price formation.”

John E. Shelk, CEO of the Electric Power Supply Association: “This decision is a victory for the independence of FERC as the regulatory agency charged by Congress with implementing the Federal Power Act. EPSA applauds FERC for reaffirming its commitment to well-functioning wholesale power markets.”

Malcolm Woolf, SVP for Policy, Advanced Energy Economy: “We commend the FERC commissioners for rejecting an unwarranted bailout of uneconomic power plants in order to solve a problem that doesn’t exist. We look forward to engaging in a holistic look at what it takes to keep the lights on, and to demonstrating the contribution of advanced energy technologies to an affordable, reliable, resilient grid.”

Jim Matheson, CEO of the National Rural Electric Cooperative Association: “We support FERC’s commitment to continuing this conversation on improving the resilience of the electric grid. This will be an important dialogue, and we appreciate Energy Secretary Perry for jump-starting the discussion. Electric co-ops put a premium on maintaining a diverse, affordable and reliable power supply for their members.”

Former FERC Commissioner Tony Clark: “On the spectrum of next steps, the path FERC chose is relatively informal. No [Notice of Inquiry]. No [Advanced] NOPR. No further NOPR. No Section 206. No specific price formation reforms.”

American Council on Renewable Energy, American Wind Energy Association, Energy Storage Association, Natural Gas Supply Association, Solar Energy Industries Association: “We are very encouraged by the action taken by FERC today. We look forward to engaging with FERC, DOE and grid operators in an examination of what resilience of the electric power system means and requires, and to demonstrating the contribution of our industries to ensuring reliable power for all.”

Mary Anne Hitt, director of Sierra Club’s Beyond Coal campaign: “This entire NOPR process has been a comically orchestrated ploy by unscrupulous coal and nuclear executives to handicap their competition because they were foolish enough to think that American electricity customers wanted their dirty, expensive power plants when cheaper, cleaner alternatives are available. We doubt that this will be their last attempt to bailout their failing plants, so we are preparing for their next round of dangerous proposals.”

— Rich Heidorn Jr.