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Commissioner Richard Glick Statement
September 27, 2019

Docket No. ER19-1641-001 PDF

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Dissent in Part of Commissioner Richard Glick on California Independent System Operator Corporation

I dissent in part from today’s order because I do not believe it is appropriate to grant an RTO/ISO unbounded authority to retain resources through out-of-market contracts. I recognize that out-of-market contracts can sometimes be necessary in the relatively few instances when markets fail to procure the resources needed to ensure reliability. But the Commission has always stressed that those contracts should be ‘measures of last resort’ and, therefore, that the authority to enter those contracts must be carefully circumscribed. Today’s order, by contrast, gives the California Independent System Operator Corporation (CAISO) near-carte blanche discretion to enter into out-of-market contracts without review by the Commission. That absence of any meaningful limitations on CAISO’s authority is unjust and unreasonable and an abdication of our responsibility under the Federal Power Act (FPA). Accordingly, I dissent in part from today’s order.

The Commission has explained repeatedly that retaining individual resources through out-of-market reliability must run (RMR) agreements should be a measure of last resort and appropriate only where market-based mechanisms have failed to provide the service in question.1 In addition, the Commission has required that resources retained through RMR agreements be needed to meet particular, well-defined needs that are not simply the product of the system operator’s judgment or preferences.2 And finally, the Commission has made clear that RMR constructs should be a short-term measure that is used only in the interim period while a more durable solution is developed.3

Today’s order is inconsistent with those principles. The Commission is allowing CAISO to retain a resource for “any reliability need, as determined by CAISO” and to give that resource “any dispatch notice for any product and service.”4 I am not aware of any Commission precedent giving an RTO or ISO comparably broad authority to perform an end-run around the Commission-approved market structures in order to retain particular resources.5 Making matters worse, CAISO is not required to justify its decision to enter an RMR agreement in a filing before the Commission, as is required in other RTOs and ISOs.6 Instead, the only matter that will come before the Commission is whether the rate established for the RMR agreement is just and reasonable, not whether that agreement is needed or appropriate in the first place.7 Sacrificing any authority to review a system operator’s assessment of the perceived need for an RMR agreement abdicates the Commission’s basic responsibilities to ensure the reliability of the grid and that customers’ rates remain just and reasonable.8

In addition, CAISO has not enumerated the criteria or studies that it would use to determine whether there is a reliability need or how it would determine whether the procurement of a specific resource is a necessary or appropriate solution for that reliability need. Nor is there any explicit limitation on the duration of an RMR agreement.9 In the typical situation where an RMR agreement is used to address an identified local reliability need, the RMR agreement may last only until a long-term solution, such as a new transmission solution, is in place.10 Under that arrangement, the relevant transmission planner must begin the process to develop the long-term solution as soon as practicable after the need for the RMR agreement is identified. CAISO’s proposal, by contrast, does not appear to tie the availability of an RMR agreement to the development of a replacement solution, which could, in effect, allow the RMR agreement to remain in effect in perpetuity. In short, there is little in today’s order to ensure that CAISO’s RMR authority is consistent with the carefully circumscribed authority that the Commission has required in its past orders.

To its credit, CAISO appears to suggest some practical limitations on its authority. For example, CAISO indicates that it will use an RMR agreement to meet a NERC or WECC reliability criterion or any other reliability criterion established by CAISO.11 Similarly, in its response to Commission staff’s deficiency letter, CAISO noted examples of the types of CAISO-established reliability criteria it might rely on as well as the types of it studies it might use to substantiate the need to retain a resource.12

Those are helpful clarifications, and it is at least possible that every example that CAISO has provided in this proceeding would prove an appropriate circumstance to use an RMR agreement. But those examples of how CAISO might use its authority do not circumscribe its actual authority, which is what the Commission must ultimately evaluate when scrutinizing its proposed tariff. Here, CAISO’s proposal creates an essentially unreviewable option to designate a resource for an RMR agreement. Stakeholders have no opportunity in the ordinary course of business to protest or dispute CAISO’s designation before the Commission, nor is the Commission itself afforded an opportunity to review that designation.13 So long as the tariff vests CAISO with unfettered discretion to enter RMR agreements for any purpose that CAISO deems a reliability need, I do not believe that the Commission can find that its proposal is just and reasonable.

In addition, I support the transparency that CAISO has proposed in response to protests, including the commitment to making an informational filing with the Commission that details each exercise of its RMR authority.14 But, although that transparency is better than nothing, relying on transparency alone only underscores the absence of any actual limitations on CAISO’s authority to enter an RMR agreement. If the only check on CAISO’s authority is a post-hoc requirement to explain why it used that authority, then that authority is functionally unchecked.

Finally, on a broader level, I disagree with the implication in both CAISO’s proposal and today’s order that vesting system operators with total discretion to retain any resource for any reason is an appropriate way to manage the transition to the electricity grid of the future. The resource mix in California is changing rapidly and, in CAISO specifically, electricity generated from renewable resources now often makes up the majority of the electricity produced at a given time.15 That trend is consistent with the state’s goals and will only continue as a combination of state public policy and improving economics are leading to a rapid shift in the resource mix.16 Managing the electricity grid during such an important transition will almost certainly require changes to how the grid is planned, maintained, and operated. But the way to manage the transition to the electricity grid of the future is to identify clear, resource-neutral definitions of the services that the system operator will need to operate the grid safely, economically, and reliability and then put in place transparent, market-based solutions for procuring those services.

Today’s order does nothing to move in that direction. Instead, it approves what could be a crutch that ultimately stymies CAISO’s ability to develop the resource-neutral, market-based mechanisms that I believe are necessary to maintain a safe, economic, and reliable electricity grid of the future. So long as a system operator can address perceived reliability needs through out-of-market contracts with familiar resources, it will be correspondingly less likely to develop new market-based mechanisms for procuring the services needed to address those reliability needs. That is the wrong approach. The way to deal with the fundamental shift taking place in regions like California is to identify the needs of the grid future, not to strive for ways to lock in place the grid of the past.

My concerns with this proposal should not be misconstrued as questioning CAISO’s underlying motivation or any concerns it may have about its ability to meet near-term reliability challenges. I recognize that limited use of RMR agreements may sometimes be necessary as interim measure to address discrete, well-defined issues. But my concern is that the unchecked authority approved in today’s order will ultimately forestall those fundamental changes in a way that may make the grid less reliable and will almost certainly make it more expensive. In other words, the sweeping authority conveyed in today’s order is not just a pair of training wheels for CAISO to use while it develops the market mechanisms necessary to accommodate the evolving resource mix. Instead, it gives CAISO the permission, should it so choose, to stay off the bike entirely. That is not just and reasonable, and I urge CAISO not to use its authority in a manner even remotely close to that which the Commission sanctions in today’s order.

For these reasons, I respectfully dissent in part.






                                               

    1 See, e.g., N.Y. Indep. Sys. Operator, Inc., 150 FERC ¶ 61,116, at P 16 (2015), order on reh’g & compliance, 155 FERC ¶ 61,076 (2016), order on reh’g & compliance, 161 FERC ¶ 61,189 (2017), order on clarification & reh’g, 163 FERC ¶ 61,047 (2018) (NYISO Order) (“RMR filings should be made only to temporarily address the need to retain certain generation until more permanent solutions are in place and that all alternatives should be considered to ensure that designating a generator for RMR service is a last resort option for meeting immediate reliability needs.”); Midwest Indep. Transmission Sys. Operator, Inc., 140 FERC ¶ 61,237, at P 10 (2012) (“We continue to expect that MISO will use SSR Agreements only as a last-resort measure to meet short-term reliability needs precipitated by the retirement or suspension of a resource and will ensure that SSR [MISO equivalent of an RMR] Agreements have a limited and short duration.”); see also Cal. Indep. Sys. Operator Corp., 134 FERC ¶ 61,211, at PP 125, 130 (2011) (recognizing that the “the risk of retirement CPM authority was carefully designed to address a narrow situation that none of the existing measures can address” and directing CAISO to revise its tariff to “clarify that the risk of retirement CPM designation will be exercised only if all other available procurement measures fail to procure the resources needed for reliable operation”).
    2 See, e.g., NYISO Order, 150 FERC ¶ 61,116 at P 15 (requiring NYISO’s RMR process to “include the requirement that any future generation resource-specific RMR filing made with the Commission fully describe, at a minimum, the methodologies and findings in the underlying reliability studies and clearly state all potential reliability criteria violations”); Midcontinent Indep. Sys. Operator Tariff, § 38.2.7 (“The filing of a SSR Agreement with FERC shall be accompanied by a corresponding report on the Attachment Y Reliability Study and the Attachment Y Alternatives Study that details the methodologies used, study assumptions, Transmission Owner planning criteria used (including when the criteria became effective and the approving regulatory body, if any), analysis results, an evaluation of alternatives and the conclusion of the study (including a short explanation of the proposed solution to any reliability issue identified and estimated timetables for implementing the preferred solution).”) see also PJM Interconnection, L.L.C., 107 FERC ¶ 61,112,at P 22 (2004) (“In implementing RTO/ISO based backstops, the rules should provide for a clear triggering event that authorizes the RTO/ISO to act.”).
    3 See, e.g., NYISO Order, 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.”  (footnotes omitted)); id. (“[T]he Commission has emphasized that RMR agreements should be of a limited duration so as to not perpetuate out-of-market solutions that have the potential, if not undertaken in an open and transparent manner, to undermine price formation.”); Midwest Indep. Transmission Sys. Operator, Inc., 108 FERC ¶ 61,163, at P 368, reh'g denied, 109 FERC ¶ 61,157 (2004) (describing MISO’s SSR program as a backstop measure designed to meet short-term reliability needs). 
    4 Cal. Indep. Sys. Operator Corp., 168 FERC ¶ 61,199 (2019), at PP 7, 18 (2019) (Order).
    5 Even the Commission’s order establishing a short-term process for doling out a “fuel security” RMR in ISO New England Inc.—which I dissented from because it was inadequately supported—was based on the evidence in a particular study reviewed by the Commission.  ISO New England Inc., 164 FERC ¶ 61,003, P 49 (2018).  Here, there is no comparable requirement to identify a study or even the minimum requirements of an as-yet-unidentified study in order to substantiate the need for an RMR.
    6 In NYISO, for example, the Commission required the system operator to “fully describe, at a minimum, the methodologies and findings in the underlying reliability studies and clearly state all potential reliability criteria violations” in any filing seeking to designate a resource for an RMR agreement.  See NYISO Order, 150 FERC ¶ 61,116 at P 15; id. (“Where an RMR determination is based on local planning criteria, any filing also must similarly provide . . . a full discussion of those local criteria, including, for example, documentation as to when the criteria became effective, how the criteria were applied, which regulatory body approved the standard, and any other supporting information.”).  
    7 See Proposed CAISO Tariff, § 41.2 (providing that CAISO will designate a resource for Reliability Must-Run service and then file a pro forma contract with the Commission).
    8 Although, as noted, the Commission retains the authority review the rates in an RMR agreement, see id., without any opportunity to review the evidence supporting the need for that agreement, the Commission will not be able to ensure that the actual rates customers pay are just and reasonable.
    9 Although the contract is set for only one year, CAISO does not point to any limit in the tariff on how many times these contracts can be renewed for an additional term. 
    10 See, e.g., N.Y. Indep. Sys. Operator OATT, Attachment FF, § 38.11.2In addition, in ISO New England, the Commission permitted the use of RMR agreements for “fuel security” only as an “interim” measure while the region developed a long-term, market-based solution.  ISO New England Inc., 164 FERC ¶ 61,003, at P 2 (2018).
    11 Order, 168 FERC ¶ 61,199 (2019) at PP 18, 23, 28.
    12 Id. P 23 & n.17.
    13 See supra note 7.  It seems that the only opportunity to dispute CAISO’s determination is through an FPA section 206, 16 U.S.C. § 824e (2018), proceeding commenced before the Commission.  It should go without saying that, in a case like this, a stakeholder’s opportunity to file a complaint must not be the sole limiting factor a system operator’s discretion under its tariff. 
    14 Order, 168 FERC ¶ 61,199 (2019) at P 28.
    15 Indeed, on April 20, 2019, renewables served more than three-quarters of CAISO’s load and CAISO has set records for both wind output and peak solar output in the last four months.  California ISO, Key Statistics:  Peaks for August 2019, http://www.caiso.com/Documents/MonthlyStats-August2019.pdf (last visited Sept. 27, 2019).         
    16 In 2018, California enacted S.B. 100, which establishes targets of 50 percent renewable generation by December 31, 2026, and 60 percent by December 31, 2030, in addition to the requirement to reach 100 percent carbon-free generation by 2045.  See The 100 Percent Clean Energy Act of 2018, Cal. S.B. 100 §§ 2, 5.
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