Sunday, October 8, 2017

FERC Acts to Support Reliability

Secretary Rick Perry
The Energy Study 

In April, Secretary of Energy Rick Perry announced that he was requesting a study about whether today's electricity markets are doing an adequate job in terms of providing grid reliability, reliance and stability. Under most circumstances, an announcement of such a proposed study would cause everyone to fall asleep. Nowadays, though, this proposed study was considered revolutionary and perhaps obscene.

The general weltanschuang (German used quite deliberately) of studies under the last administration did not encourage looking at questions of mere grid reliability.  The only allowable questions seemed to be: "How can we get more renewables (and gas backup) on the grid?"  When Secretary Perry asked for a reliability study, he set the natural gas industry into a state of shock. They had a pretty good idea of what such a study would show. They didn't like it one bit.

If you think people were upset that this study was performed at all, you can imagine the anger when it showed the value of base-load plants. The DOE study showed a need to increase grid reliability by supporting base-load plants that can store fuel on site. Yes, that means coal and nuclear.

The FERC Rule-Making

After a FERC study is completed, if it shows a need for a change in the electricity markets, the next step is FERC making a rule for the change. FERC starts this process by issuing a Notice of Proposed Rulemaking, (NOPR). FERC recently issued an NOPR for the Grid Resiliency Pricing Rule, based on the DOE study.
Here's the link to the proposed rule: https://www.energy.gov/sites/prod/files/2017/09/f37/Notice%20of%20Proposed%20Rulemaking%20.pdf

The bulk of the rule is on page 11: (FERC shall)...issue a final rule requiring its organized markets to develop and implement market rules that accurately price generation resources necessary to maintain the reliability and resiliency of our Nation's bulk power system.  The proposed rule allows for recovery of costs of fuel-secure generation units frequently relied upon to make our grid reliable and resilient. 

At this point, I wanted to put a link to where you can comment in favor of this rule.  Unfortunately, I can't figure out the best way to do this.  Individuals can e-comment on certain types of dockets: rule-making isn't one of the types. Then there is e-filing: parties can register with FERC and e-file on other types of dockets.  I think you can write to FERC (snail mail, etc) on any docket, but that seems awkward. On page 12 of this NOPR, it states that, to comment on this docket,  you must refer to Commission Docket RM17-3-000, and include your name and address.  As far as I can tell, FERC is mostly set up to take comments from "stakeholders" not from the public.  (The public is merely part of the "load.")

Beating Back the Attacks

There are so many things to say about this rule-making!  And so many things have been said!  You would think this is the first NOPR that FERC had ever issued.  It isn't.  Here's a brief run through the proposal and the attacks on the proposed rule.

The DOE study:  
I recommend Rod Adams excellent blog post of August 24, Long awaited DOE report on electricity markets and reliability. The post includes links to the study itself.

Is this rule-making legal?  Is it rushed?  
Yes it is legal. Once again, Rod Adams has a good overview: Rick Perry Directs FERC to Complete Final Action on Resiliency Pricing Rule in 60 Days. In Utility Dive's article Powelson: FERC 'will not destroy the marketplace' in cost recovery rulemaking, Acting FERC Commissioner Neil Chatterjee explains that the new rule will have a record, docket, and analysis. Just like the rest of the rules. In the same article,  Scott Hempling, a Georgetown law professor, said there is no statutory obligation for any particular period of time for comments.  My own understanding is that 60 day and 90 day comment periods are pretty standard.

Isn't this "rule" kind of vague?
Yes. It is slightly more vague than usual.  According one of the articles in Utility Dive, energy lawyers say that the vagueness of the rule may give more room for industry input on the final product.   But frankly, it is not out of line with other FERC rule-making.  For example, in FERC 1000, one of the most complex and contentious parts of the rule is stated pretty simply: Local and regional transmission planning processes must consider transmission needs driven by public policy requirements established by state or federal laws or regulations.  FERC rarely tells system operators exactly what to do: FERC directs them to "consider this" or "allow for that" etc.  Kind of vague, but then again, they are the system operators and they have their own constraints.

Is FERC Fuel-Neutral, Part 1:
Former FERC Chairman Jon Wellinghoff said that a proposed rule supporting baseload plants "would blow the market up."  At FERC, according to Wikipedia, Wellinghoff's three priorities were integration of renewables, energy efficiency, and demand-side energy practices, such as real-time pricing.  Wellinghoff didn't mention reliability in his priorities as FERC chairman. I also don't notice that anybody blamed him for supporting the expansion of renewable energy. When some people claim that FERC must be "fuel neutral," they apparently don't mean "treat renewable installations like other power plants."

Is FERC Fuel-Neutral, Part 2:
FERC doesn't like rules that say: Gas plants shall or coal plants shall. For a FERC rule, don't actually name the type of plant.  The new proposed rule doesn't name types of plants.  Any plant that can store 90 days worth of fuel qualifies for recovery of costs of fuel-secure generation units.  FERC and grid operators have many rules for how plants get paid: there's the whole business of ancillary services.  Grid operators pay for ancillary services (reactive power, quick dispatch) even though only certain types of plants can provide these services.  If FERC determines that "fuel security" is important for grid reliability, it can make sure that plants that are able to supply the fuel-security service are paid for that service. This is not revolutionary.

And the final question: Is this going to "blow up the markets"?
There is no market to blow up.  On Friday, Utility Dive quoted Rick Perry saying: There is no free market in electricity. I have been saying this for a while.  I recommend an article by Travis Kavulla, of the Montana Public Service Commission. His article in American Affairs  is titled: There Is No Free Market for Electricity: Can There Ever Be?  It's a good summary of how nobody can "blow up the market" because there really isn't a market.

Finally...

Actually, there is no "finally" because FERC is beginning the rulemaking process, and we won't see the final rule for perhaps 90 days.  That is, 60 days for comments, some more time for putting the final rule together.  But in another way, I can say:

Finally, the government is paying attention to the reliability of the electric grid!