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Commissioner Neil Chatterjee Statement
January 8, 2018
Docket Nos. RM18-1-000, AD18-7-000
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Grid Reliability and Resilience Pricing

“I concur in this order with the expectation that it is only the first step in a more systematic effort by the Commission, over both the near and long term, to ensure the resilience of the nation’s bulk power system. The success of this effort will require the Commission’s continued vigilance and willingness to take, within the bounds of its statutory authority, prompt, proactive, and decisive measures to safeguard resilience.

“I applaud Secretary Perry’s bold leadership in jump-starting a national conversation on this urgent challenge. Given the importance of the bulk power system to our nation’s security, economic stability, and public health and safety, we must ensure its resilience amidst tremendous changes in our generation resource mix. My goal throughout this proceeding has been to ensure that we do not later come to regret failing to ask the difficult questions. I believe that the order we are issuing today is a positive step toward that goal. I look forward to receiving responses to the questions posed to the RTOs/ISOs, and comments from interested entities.

“Nevertheless, I must voice my concerns regarding bulk power system resilience in the interim period prior to the conclusion of the proceeding we initiate today. Major regulatory reform efforts often can take several years to complete. But I believe that the record compiled in this proceeding speaks to the prudence of considering, as soon as practicable, whether interim measures may be needed to avoid near-term bulk power system resilience challenges that could result from the rapid, unprecedented changes in our generation resource mix.

“The scale and pace of those changes are staggering. Between 2014 and 2015 alone, the U.S. added approximately 15,800 megawatts (MW) of natural gas, 13,000 MW of wind, 6,200 MW of utility scale solar photovoltaic, and 3,600 MW of distributed solar photovoltaic generating capacity.1 Meanwhile, nearly 42,000 MW of synchronous generating capacity (e.g., coal, nuclear, and natural gas) retired between 2011 and 2014, with an additional seven nuclear units (representing 10,500 MW of nameplate capacity) planning retirement by 2025.2 Commenters express an expectation that those trends will continue in the years ahead, with many nuclear and coal units particularly at risk of economic retirement despite their significant contribution to bulk power system resilience.3

“The changing generation resource mix underscores the need to consider whether near-term measures are warranted notwithstanding the actions the Commission has taken in recent years that are outlined in today’s order. Specifically, 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.4 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.5 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.

“Consequently, I believe it would have been prudent, in addition to establishing the proceeding in Docket No. AD18-7-000, for the Commission to issue an order to show cause pursuant to section 206 of the Federal Power Act directing each RTO/ISO to either (1) submit tariff revisions to provide interim compensation for existing generation resources that may provide necessary resilience attributes and are at risk of retirement before the conclusion of the proceeding established today or (2) show cause why it should not be required to do so.

“Given the nascence of the Commission’s effort to more systematically examine resilience, I believe that it would have been appropriate to provide the RTOs/ISOs with latitude in determining the implementation of any interim measures needed. In particular, I would have allowed RTOs/ISOs to define which resources provide necessary resilience attributes and are at risk of retirement before the conclusion of the proceeding initiated in Docket No. AD18-7-000. Because of their detailed knowledge of their own systems, the RTOs/ISOs are well-positioned to understand the specific resilience risks in their footprints, to identify the resilience attributes that would most effectively mitigate those risks, and to tailor appropriate tariff mechanisms to meet their needs. Such an approach would have struck an appropriate balance to remedy any potentially unjust and unreasonable compensation practices while minimizing the impact on consumers and markets as the Commission considered longer-term reforms. In addition, such an approach also would have reduced the probability of retirement of resources which subsequently were determined to be the most cost-effective means of providing necessary resilience attributes.

“The Commission previously has stressed its preference for market-based mechanisms as a means to ensure just and reasonable rates in jurisdictional organized markets. I share this preference for market-based solutions and would have urged RTOs/ISOs to identify market mechanisms to address these concerns. However, the Commission also has recognized that interim, out-of-market solutions might be appropriate in certain circumstances.6 Accordingly, I would have required that tariff revisions proposed by the RTOs/ISOs endeavor to minimize the effect on the wholesale markets (in particular the energy markets). To this end, I would have stated an expectation that each RTO/ISO develop any out-of-market mechanisms only as a last resort.

“As I explained consistently over the past few months, it was my goal that any effort with respect to an interim step would be legally defensible, would not distort markets, and would address the issues Secretary Perry raised. I believe an order as discussed above would have met that goal. And while I would have preferred such an order, I am nevertheless encouraged by today’s order, which represents a positive step forward in addressing these critical issues.

“For these reasons, I respectfully concur.”





                                               

    1 U.S. Energy Information Administration, Electricity, available at https://www.eia.gov/electricity/annual/backissues.html.
    2 Id.; NERC Comments, Docket No. RM18-1-000, at 4-5 (filed Oct. 23, 2017).
    3 See, e.g., Reply Comments of Peabody Energy Corporation, Docket No. RM18-1-000, at 10 (filed Nov. 7, 2017); Reply Comments of the Nuclear Energy Institute, Docket No. RM18-1-000, at 6-11 (filed Nov. 7, 2017); see also NERC Comments at 4-6 (noting the resilience contributions of coal and nuclear generation’s dependable capacity, inertia and voltage control services, and fuel security).
    4 The Commission has approved market constructs providing financial incentives for resource owners to procure firm fuel arrangements either through firm pipeline capacity or dual fuel capability. See, e.g., ISO New England Inc., 147 FERC ¶ 61,172, at P 36 (2014) (endorsing pay-for-performance program); PJM Interconnection, L.L.C., 151 FERC ¶ 61,208, at P 22 (2015) (approving PJM’s capacity performance construct). See also Wholesale Competition in Regions with Organized Electric Markets, Order No. 719, FERC Stats. & Regs. ¶ 31,281 (2008), order on reh’g, Order No. 719-A, FERC Stats. & Regs. ¶ 31,292 (2009), order on reh’g, Order No. 719-B, 129 FERC ¶ 61,252 (2009) (requiring RTO/ISO scarcity pricing that incents firm fuel arrangements). But generation resource owners relying on fuels delivered “just-in-time” from offsite supplies are not capable of managing risks to (1) the infrastructure that transports these fuels (e.g., pipelines); and (2) the infrastructure that supplies these fuels (e.g., natural gas wellheads).
    5 See, e.g., Exelon Corporation Comments, Docket No. RM18-1-000, Stockton Test. at 5-6, 13 (filed Oct. 23, 2017); see also Congressional Research Service, Pipeline Cybersecurity: Federal Policy (Apr. 19, 2016).
    6 See ISO New England Inc., 144 FERC ¶ 61,204 at P 21 (accepting ISO-NE tariff provisions to provide for short-term out-of-market payments to resources to ensure reliability in the 2013-2014 winter period); see also N.Y. Indep. Sys. Operator, Inc., 150 FERC ¶ 61,116 at P 2 (“While the Commission has repeatedly stated that our jurisdictional markets should utilize market mechanisms to ensure that the resulting rates are just and reasonable, the Commission has also recognized that short-term remedies, such as RMR agreements, may be appropriate in certain circumstances to address an immediate problem at hand.”).
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