United States: FERC Action Encourages Integration Of Renewable Resources And PaPUC Imposes Additional Compliance

FERC Action Encourages Integration Of Renewable Resources Into The Transmission Grid And The Development Of Battery Storage Devices

On January 21, 2010, the Federal Energy Regulatory Commission ("FERC") issued a Notice of Inquiry seeking public comment on whether existing rules, regulations, tariffs, and industry practices within FERC's jurisdiction may be creating barriers against reliably and efficiently integrating variable energy resources ("VERs") into the transmission grid.¹ A VER is a renewable energy resource that is characterized by variability in the resource's fuel source, such as wind, solar, and certain hydroelectric resources. On the same day, FERC approved rate incentives for battery storage devices that are proposed to help improve the operation and reliability of the transmission grid in the California Independent System Operator ("CAISO") service territory.²

FERC Seeks Suggestions On How To Break Down The Barriers To The Integration Of Renewable Resources Into The Transmission Grid

VERs are being developed and integrated into the transmission grid in increasing numbers. In 2008, new wind generating capacity comprised 42% of all newly-installed generating capacity. In recent years, a number of state renewable portfolio standards and other incentives/mandates have been passed to encourage the development of renewable energy resources. As of December 2009, 39 states, including the District of Columbia, had a renewable portfolio standard. Renewable resources present unique challenges that generally do not exist when integrating conventional generating resources into the transmission grid, such as location constraint and limited dispatchability. These types of challenges were not contemplated in the development of FERC's existing policies and also present unique challenges as public utilities work to integrate VERs in a way that ensures system reliability.

FERC aims to reform regulatory, market, and operational practices that discriminate against VERs or result in unjust and unreasonable rates or terms of service. In the Notice of Inquiry proceeding, FERC seeks comment on how to best reform any rules, regulations, tariffs or industry practices that may hinder the reliable and efficient integration of VERs. In addition, FERC will consider how North American Electric Reliability Corporation ("NERC") reliability standards should be modified or if new standards should be developed in conjunction with other considered reforms. FERC specified that it is not seeking comments related to transmission planning or cost allocation because those issues are under consideration in a separate proceeding. Similarly, FERC is not seeking to adopt rules that favor one type of supply source over an alternative supply source. Comments are due April 12, 2010.³

FERC is seeking comments on the following seven subject areas:

Data And Forecasting Requirements: FERC seeks comments on whether it should modify existing operational data reporting requirements and whether greater forecasting abilities, data sharing, and metering tools will allow transmission system operators to anticipate ramping events and use reserve services more efficiently in response.

Scheduling Flexibility And Scheduling Incentives: FERC seeks comments on whether greater scheduling flexibility, such as intra-hour scheduling, may help to reduce generation imbalances and anticipate variability. FERC also seeks comments on the generator imbalance reforms that were implemented with Order No. 890, in which FERC decided that intermittent resources should be exempt from the third tier of generator imbalance penalties.

Day-Ahead Market Participation And Reliability Commitments: Many VERs forgo the risks of the day-ahead market where offers are financially binding and instead sell their services into real-time markets. FERC seeks comments on whether day-ahead market structures discriminate against VER participation.

Balancing Authority Coordination: Smaller balancing authority areas may be unable to capture the benefits associated with VERs that are spread across a large and/or diverse geographical area. FERC seeks comments on whether the limited abilities of smaller balancing authorities result in rates that are unjust and unreasonable. FERC also seeks to explore whether increased coordination among balancing authorities has the potential to enlarge the base of generation and demand and whether creating a VER-only virtual balancing authority would serve to reduce VER integration costs.

Reserve Products And Ancillary Services: FERC requests comments on whether increased VER capacity will cause an over-reliance on expensive reserve products, such as regulation reserves. FERC is also interested in exploring whether reserve products are used efficiently such that rates are just, reasonable, and not unduly discriminatory. FERC seeks to ensure that changes to the rules or requirements do not hinder the reliable operation of the grid under the NERC reliability standards.

Capacity Market Reforms: FERC questions whether the existing rules that govern capacity markets result in rates for capacity services that are not just and reasonable. To the extent existing rules limit the ability of VERs to provide capacity services that they are capable of providing, FERC seeks comment on whether such rules may be unduly discriminatory.

Real-Time Adjustments: FERC seeks comments on whether curtailment and redispatch practices and protocols are transparent, non-discriminatory and efficient, and whether such practices and protocols result in unnecessary costs or rates that are unjust and unreasonable.

FERC Approves Transmission Incentives For Battery Storage Devices

FERC issued an order approving transmission rate incentives for battery storage devices that are proposed to operate as transmission facilities and designed to help improve the operation and reliability of the CAISO transmission grid. The order creates a new funding possibility for similar storage technologies that may have both transmission and generation characteristics but ultimately are used to enhance transmission and improve the reliability of the transmission grid.

Western Grid Development, LLC ("Western Grid") is proposing to build and operate three sodium sulfur batteries of 10 to 50 megawatts in size at specific sites along the CAISO grid. Western Grid states that the batteries are similar to substation equipment, such as large electricity capacitors that are used in many wholesale transmission system facilities. The batteries are designed to enhance transmission reliability and to solve problems using an advanced transmission technology that is cheaper and less harmful to the environment than traditional transmission solutions and can be incorporated into the grid using smart grid technologies. Western Grid will operate the batteries to enhance the reliability of transmission service and will not provide electricity for commercial sale.

FERC granted Western Grid several incentives on condition that, among other things, CAISO approves the projects as part of the organized market's transmission planning process. The incentives include: (1) 100% of the construction work in progress for the projects in the rate base; (2) a combined return on equity adder of 195 basis points for the projects, which includes 50 basis points for participation in an organized market, 100 basis points for independent transmission company status, and 45 basis points for use of advanced transmission technology; (3) deferred cost recovery through creation of a regulatory asset for pre-commercial costs, amortized over five years; and (4) a hypothetical capital structure of 50% equity and 50% debt until the projects are placed into service.

PaPUC Imposes Additional Compliance Filing On Electric Generation Suppliers

At its Public Meeting on February 11, 2010, the Pennsylvania Public Utility Commission (the "Commission") approved a motion, 5-0, from Commissioner Wayne Gardner that imposes a filing requirement on Electric Generation Suppliers ("EGSs") to ensure their compliance with the requirement that each EGS must be a PJM-registered Load Serving Entity as a party to the Reliability Assurance Agreement (RAA), or have a contract with an entity who is such a party.

An EGS must submit this filing either: (1) within 120 days of each affected EGS receiving its license; or (2) if the EGS is already licensed, within 45 days of the issuance of the Secretarial Letter notifying them of this decision. Furthermore, each EGS must submit this information to the Commission annually. Failure to follow Commission directives can result in a fine or revocation of authority.

Footnotes

1. Integration of Variable Energy Resources, 130 FERC ¶ 61,053 (2010).

2. Western Grid Development, LLC, 130 FERC ¶ 61,056 (2010).

3. In response to several requests to extend the comment deadline, on March 3, 2010 FERC issued a notice extending the deadline to file comments from March 29, 2010 to April 12, 2010.

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