Media Statements & Speeches
Commissioner Cheryl A. LaFleur Statement
January 8, 2018
Docket Nos. RM18-1-000, AD18-7-000
Grid Reliability and Resilience Pricing
“Since I have been at the Commission, the reliability of the nation’s electric system in serving customers has been my top priority. In my view, resilience — the ability to withstand or recover from disruptive events and keep serving customers — is unquestionably an element of reliability. Indeed, I believe it has already informed much of the Commission’s work on both market rules and reliability standards. 1 As part of our continued work in this area, I support the Commission’s action today to start a focused proceeding to explore how the RTOs/ISOs address the resilience of the grid in their respective regions, and whether there are additional steps the Commission should take to support resilience.
“I also strongly support the decision not to adopt the rule proposed by the Secretary of Energy. 2 As explained below, as well as in Commissioner Glick’s separate statement, I do not think the record demonstrates the need for the Proposed Rule to support resilience. Further, even had a resilience issue been demonstrated, I have serious concerns about the nature of the proposed remedy, which would address the issue not through market rules but through out-of-market payments to certain designated resources.
“I write separately to expand on the larger context surrounding the issues in this docket, and how I believe the Commission should approach them going forward.
“While the challenge of providing reliable energy is constant, the nature of the challenge has necessarily changed as the resources, infrastructure, and commercial and regulatory structures relied upon to meet that challenge have evolved. Even before the harnessing of electricity, the history of energy in this country has been one of continual change and progress. We have moved from reliance on wood and local waterworks in the 19th century to the development of coal-fired steam generators and large-scale hydro in the first half of the 20th century. The mid-20th century saw the commercialization of nuclear generation, followed later in the century by the large-scale introduction of combined cycle gas generation and early-stage non-hydro renewables.
“None of these changes in where the nation gets its energy were driven by this Commission or its predecessors. However, the Commission has played a role in adapting to technological change, ensuring that rates remained just and reasonable and customers were served reliably through successive generations and technological changes. Thus, in the late 20th century, responding to customer demands for access to new technologies and new generation choices, FERC oversaw the introduction of competitive wholesale power markets, which have continued to spread over the past 20 years to cover more than two-thirds of the nation’s population. I am a strong supporter of competitive markets, which benefit customers by reducing costs, improving efficiency and innovation, and strengthening reliability by deploying resources over a broader footprint.
“In the 21st century, against the backdrop of wholesale markets, the pace of technological change in energy has accelerated, resulting in a rapid transformation of the nation’s resource mix. This has been driven by (1) the growth in the availability and affordability of domestic natural gas and its increased use for electric generation, (2) the rapid development and deployment of wind, solar, storage, and demand-side technologies, both central and distributed, and (3) a changing understanding of the environmental consequences of energy use, especially climate change, driving state and federal policy and customer choices.
“With these new technologies have come changes in the location and operation of energy resources, their cost patterns, and the way grid operators plan their systems and deploy resources to keep the lights on. As with all transitions, there have been market winners and losers as new technologies have brought competitive pressures to bear on existing resources. Resource turnover is a natural consequence of markets, and the reduced prices that result from greater competition are a benefit to customers, not a problem to solve, unless reliability is compromised. Keeping up with these changes by ensuring that market tariffs and reliability standards sustain both reliability and just and reasonable rates in a time of changing resources has been a major focus of the Commission, and must continue to be.
“As the recent Department of Energy grid study 3 and numerous analyses by NERC 4 have noted, the transformation of the resource mix to date has been accomplished without compromising reliability. 5 However, ensuring that this continues to be the case requires continued diligence, and the inquiry we begin in this docket will support that ongoing effort.
“Where the Commission has seen evidence of the need for greater system resilience in a changing resource mix, it has acted to ensure that such resilience was provided. It has generally done so by overseeing changes to market design (defining needed resource performance, and using competition to obtain it), 6 interconnection agreements or other tariffs (requiring that certain essential reliability services be provided), 7 or mandatory reliability standards. 8 In each case, the Commission has recognized a customer need, relied upon evidence to define it in a fuel-neutral way, and either allowed the market to transparently price it or established broad requirements to ensure that a needed service is provided. If the record that develops in this docket similarly demonstrates unmet resilience needs, I believe that the Commission should take a comparable approach.
“Indeed, this preferred approach highlights one of my key objections to the Proposed Rule, which 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. 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. We must continue to guide grid operators in sustaining reliability and resilience within a system that is likely to be cleaner, more dynamic, in some instances more distributed, and deployed by an efficient market for the benefit of customers. In this way, we can help the grid adapt to the transformations of the present, and best position the grid for the unknown future transformations that the history of our industry suggests are inevitable.
“For these reasons, I respectfully concur.”
- 1 See Grid Reliability and Resilience Pricing, 162 FERC ¶ 61,012, at P 12 (2018).
- 2 Proposed Rule on Grid Reliability and Resilience Pricing, Docket No. RM18-1-000 (2017) (Proposed Rule). The full text of the Proposed Rule can be found at: https://energy.gov/downloads/notice-proposed-rulemaking-grid-resiliency-pricing-rule.
- 3 Staff Report to the Secretary on Electricity Markets and Reliability, United States Department of Energy (August 2017), available at https://energy.gov/sites/prod/files/2017/08/f36/Staff%20Report%20on%20Electricity%20Markets%20and%20Reliability_0.pdf.
- 4 E.g., 2017 Long-term Reliability Assessment, North American Electric Reliability Corporation (December 2017), available at http://www.nerc.com/pa/RAPA/ra/Reliability%20Assessments%20DL/NERC_LTRA_12132017_Final.pdf.
- 5 Indeed, as Commissioner Glick correctly notes in his concurrence, new resource additions have in some ways strengthened the resilience of the power system. For example, notwithstanding alleged concerns by some about the loss of fuel diversity, the resource mix in many regions of the country (such as that served by PJM Interconnection, L.L.C.) is more diverse than ever before as new technologies and resources are introduced.
- 6 E.g., PJM Interconnection, L.L.C, 151 FERC ¶ 61,208 (2015), reh’g denied, 155 FERC ¶ 61,157 (2016), aff’d sub nom.Advanced Energy Mgmt. All. v. FERC, 860 F.3d 656 (D.C. Cir. 2017) (approving market changes to compensate performance at times of system stress); ISO New England Inc. and New England Pwr. Pool, 147 FERC ¶ 61,172 (2014), reh’g denied, 153 FERC ¶ 61,223 (2015), appeal pending sub nom. New England Power Generators Ass’n v. FERC, No. 16-1023 (D.C. Cir. filed Jan. 19, 2016) (same); Cal. Indep. Sys. Operator Corp., 156 FERC ¶ 61,226 (2016) (approving ramping products to complement increased variability and uncertainty); Midcontinent Indep. Sys. Operator, Inc., 149 FERC ¶ 61,095 (2014) (same).
- 7 E.g., Reactive Power Requirements for Non-Synchronous Generation, Order No. 827, 81 Fed. Reg. 40,793 (June 23, 2016), FERC Stats. & Regs. ¶ 31,385 (2016); Requirements for Frequency and Voltage Ride Through Capability of Small Generating Facilities, Order No. 828, 81 Fed. Reg. 50,290 (Aug. 1, 2016), 156 FERC ¶ 61,062 (2016).
- 8 E.g., Frequency Response and Frequency Bias Setting Reliability Standard, Order No. 794, 146 FERC ¶ 61,024 (2014).
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