Commissioner Clements’ Concurrence on Rehearing of Southwest Power Pool’s ELCC Capacity Accreditation Proposal
Docket Nos. ER22-379-003, ER22-379-004
I concur with today’s order setting aside the Commission’s prior acceptance of a capacity accreditation proposal from Southwest Power Pool (SPP) and instead rejecting it without prejudice. The Commission has carried out an important course correction, and this order helps to ensure that parties will be afforded proper notice and a fair process as any future proposal from SPP is evaluated.[1]
I write separately, however, because I believe that it is important to send SPP a clear signal of what I expect as it goes back to the drawing board. In my view, the proposal that SPP submitted to the Commission was both unjust and unreasonable and unduly discriminatory. As the protestors have compellingly argued, SPP’s capacity accreditation structure is unduly discriminatory because it reduces the capacity accreditation of wind and solar resources based on historically demonstrated performance, while failing to account in any way for non-performance of other resource types.[2] Moreover, SPP’s proposal is unjust and unreasonable because it applies different credits to the wind and solar resources of different Load Responsible Entities (LREs) in a manner that distorts market signals to inefficiently spread those resources across the SPP region even if economic fundamentals otherwise indicate that they should be more concentrated.
Further, the record in this proceeding indicates that SPP’s status quo capacity accreditation rules may not be just and reasonable and may be unduly discriminatory. The Commission has an obligation to ensure just and reasonable rates, including reliable operation of the bulk power system and markets administered by SPP, and must act under FPA section 206 if reliable operations are jeopardized.[3] I expect prompt action by SPP on reforms, including a just and reasonable and not unduly discriminatory approach to capacity accreditation, to address reliability concerns.
SPP’s proposal unduly discriminates against wind and solar resources
As the Clean Energy Advocates explain, SPP’s proposal “methodically account[s] for non-performance events” of wind and solar resources “using an effective load carrying capability framework to measure historical performance,” while simultaneously not accounting in any way for non-performance events of other resource types.[4] This is unduly discriminatory because “all resource types experience outages (and other system reliability events) that affect their ability to serve load.”[5]
An important distinction between SPP and other RTOs that have recently proposed ELCC capacity accreditation methodologies in that SPP’s existing methodology for non-ELCC resources is based on an Installed Capacity (ICAP) method that accounts only for performance in a set test and does not capture historical outages.[6] While that method is not itself filed before the Commission in this proceeding,[7] the ICAP method is the relevant point of comparison when assessing whether SPP’s proposal is unduly discriminatory. As with any undue discrimination inquiry, the Commission’s task is to compare SPP’s treatment of the class of resources addressed in its proposal with its treatment of other resources under the existing tariff, and to determine whether there is a reasoned and justifiable basis supported by substantial evidence for any differences in treatment.[8]
The record contains unrebutted information that non-ELCC resources can and do experience unit-specific outages.[9] Even setting aside the disparity of treatment for ELCC and non-ELCC resources with regard to correlated outage risk (despite evidence that thermal resources present similar risks),[10] SPP’s asymmetrical treatment of historical outages alone constitutes undue discrimination. “Correlated outages in one resource type are not a reason to completely ignore historic outages, particularly unit-specific outages, in another resource type.”[11]
“To say that entities are similarly situated does not mean that there are no differences between them; rather, it means that there are no differences that are material to the inquiry at hand.”[12] SPP has not identified any specific attribute of solar and wind resources that warrants reducing their accreditation for unit-specific non-performance events while entirely declining to do so for other resources, given that unit-specific non-performance events occur across all resource types. Its proposal is therefore unduly discriminatory.
This case is not analogous to prior Commission proceedings approving ELCC methodologies. Undue discrimination in assessing unit-specific outages was not raised as an issue in the PJM proceeding,[13] perhaps because PJM already accounted for forced outages of so-called “unlimited resources,”[14] and applies a “capacity performance” framework to all resources that rewards or penalizes unit-specific performance.[15] The Commission’s approval of NYISO’s methodology is even less pertinent to whether SPP’s proposal unduly discriminates because NYISO’s methodology expressly “will apply to all resources, including conventional thermal resources.”[16] If anything, the Commission’s approval of NYISO’s choice to apply ELCC to all resources shows that all resources are sufficiently similarly situated that an ELCC construct can be applied to them uniformly.[17]
As SPP goes back to the drawing board, the simplest way to avoid undue discrimination would be to adopt a consistent framework, such as ELCC, for all resource types. At minimum, it may not permissibly continue to use its ICAP method for thermal resources while adopting the ELCC method for wind and solar set forth in its proposal and compliance filing.
SPP’s proposal sends distortionary economic signals that are unjust and unreasonable and unduly discriminatory
The tier structure of SPP’s proposal is also designed in an unjust and unreasonable and unduly discriminatory manner. SPP’s determination of tiers through an assessment of Seasonal Net Peak Load for each LRE is integral to the economic signals sent by the rate scheme. Unfortunately, however, it sends distortionary signals about the marginal value of investment serving different LREs in a manner that may guide new investments away from where they are most economical and arbitrarily reward certain LREs and the solar and wind resources serving them at the expense of others.
SPP’s proposal rewards Tier 1 resources as compared to other ELCC resources. But in awarding tier allocations according to Seasonal Net Peak Load, rather than for example, allocating Tier 1 based on the percentage of SPP’s total ELCC resources of a given type owned by each LRE, SPP’s structure inappropriately suggests that incremental investment will be more valuable if serving an LRE that has not yet reached its Tier 1 allocation. This is inappropriate where there are no transmission constraints or other factors causing a value differential and one new megawatt of the relevant resource type provides identical value to the SPP footprint regardless of which LRE it serves.[18]
This is unjust and unreasonable because it may push incremental investment away from where it is otherwise most economic, as it creates an artificial incentive to spread new solar and wind resources evenly across LREs in SPP’s footprint, even if underlying economic indicators suggest that solar and wind resources should otherwise be concentrated where resource potential is highest and development cost and grid constraints are lowest. And it is unduly discriminatory insofar as it will “create arbitrary differences in the competitive position of generators in different zones.”[19] As Clean Energy Advocates point out, these distortionary incentives apply only to solar and wind resources, as “SPP apparently does not use such a measure of net load to accredit resources such as fossil thermal, nuclear, hydroelectric, storage, or hybrid resources.”[20]
Moreover, because SPP’s newly proposed definition of Seasonal Net Peak Load reduces Tier 1 allocations based on the amount of dispatchable demand response supply serving a given LRE, it also unduly discriminates against LREs with comparatively more dispatchable demand response resources and the wind and solar resources contracting with those LREs. Even where dispatchable demand response resources provide identical system characteristics as another supply resource, such as energy storage, SPP’s proposal will reduce the Tier 1 allocation for LREs with the demand response resources while leaving it unchanged for LREs utilizing other technologies.[21]
To be clear, in my view the issue is not with SPP’s decision to use accreditation tiers, which is a rather elegant way in which its proposal blends some of the benefits of average and marginal ELCC approaches. Rather, the issue is that the tiers are allocated based on LRE Seasonal Net Peak Load, rather than for example, allocating Tier 1 based on the percentage of SPP’s total ELCC resources of a given type owned by each LRE. To be just and reasonable and not unduly discriminatory, the allocation method must preserve efficient investment signals for resources serving the SPP footprint, and must not unduly discriminate between LREs or the resources serving them.
Conclusion
Resource adequacy is a pressing issue in SPP and across the country, as grid operators must update outdated frameworks in order to meet the demands of a changing resource mix and more frequent extreme weather. Grid operators, including SPP, are doing the right thing in examining their frameworks and seeking to modernize them.
But as the Commission reviews modernization proposals, we have a duty to ensure that those proposals meet the requirements of section 205 of the Federal Power Act. That a proposal improves the status quo is not enough to demonstrate that it is just and reasonable and not unduly discriminatory, where the underlying framework may itself no longer meet the requirements of the Federal Power Act.[22]
The most straightforward approach to meeting the requirements of the Federal Power Act, and the best one in the long run, would be for grid operators like SPP to develop capacity accreditation methodologies that are consistent across all resource types. I encourage SPP to develop such a proposal as it engages in next steps following the Commission’s rejection of its proposal herein.
For these reasons, I respectfully concur.
[1] This case distinguishable from the prior proceedings, cited by the dissent, where the Commission directed filers to submit tariff language that had explicitly been memorialized in deficiency letter responses. See Dissent at n. 22. In the August 2022 Order, the Commission did not reference any language in SPP’s filing that could form the basis of the definition of Seasonal Net Peak Load, but rather directed SPP to develop one anew.
[2] Request for Rehearing at 3, 16-21. SPP’s proposal also credits the capacity of run-of-the-river hydroelectric resources based on historical performance, but because the bulk of its tariff revisions filed on compliance focus on wind and solar resources, my statement focuses on the aspects of SPP’s proposal addressing those resources.
[3] 16 U.S.C. § 825e.
[4] Request for Rehearing at 11.
[5] Id. (emphasis in original).
[6] See id. at 12.
[7] Order at P 24 (citing Request for Rehearing at 14).
[8] See Federal Power Commission v. Conway Corp., 426 U.S. 271, 278 (1976) (quoting In re Otter Tail Power Co., 2 F.P.C. 134, 149 (1940) (observing that an undue discrimination inquiry considers “one rate in its relation to another rate”; notably, undue discrimination may occur even where “each rate Per se, if considered independently” would be just and reasonable).
[9] See Request for Rehearing at 15 (“The Clean Energy Advocates have provided a plethora of data showing that outages of conventional resources in SPP is problematic.”). The Commission’s determination that an ELCC framework is not required for the resources not captured in SPP’s proposal is non-responsive to the Clean Energy Advocates’ undue discrimination claims, because they “are not asking for a single ELCC framework across all resource types; rather, the Clean Energy Advocates are asking that outages—which are universal and well-studied system events—be consistently accounted for across all resource types in SPP’s accreditation methodologies.” Request for Rehearing at 14 (citations omitted; emphasis in original).
[10] See Request for Rehearing at 15-16 (highlighting correlated outage risks for gas resources due to fuel supply, and for thermal resources more generally due to drought conditions in the Missouri River Basin, as supported respectively by SPP’s Comprehensive Review of the February 2021 Winter Storm and NERC’s 2022 Summer Reliability assessment).
[11] Request for Rehearing at 12.
[12] N.Y. Indep. Sys. Operator, Inc., 162 FERC ¶ 61,124, at P 10 (2018)
[13] See PJM Interconnection, L.L.C., 176 FERC ¶ 61,056, at PP 70-71 (2021) (“The expressed concern with Unlimited Resources is with the potential for statistically correlated forced outages.”).
[14] See PJM Interconnection, L.L.C., Reliability Assurance Agreement, Definitions (“‘Unforced Capacity’ shall mean installed capacity rated at summer conditions that is not on average experiencing a forced outage or forced derating”), Schedule 5 (providing for forced outage rate calculations); PJM Interconnection, L.L.C., Open Access Transmission Tariff, Definitions (‘Unforced Capacity’ shall have the meaning specified in the Reliability Assurance Agreement”), Attachment DD § 5.6 (requiring sell offers to reflect Unforced Capacity and forced outage rates).
[15] See Adv. Energy Mgmt. All. v. FERC, 860 F.3d 656, 660-662 (D.C. Cir. 2017) (affirming FERC’s approval of PJM’s proposed capacity performance construct).
[16] NY Indep. Sys. Operator, Inc., 179 FERC ¶ 61,102, at P 79 (2022) (emphasis in original).
[17] When the Commission approved PJM’s ELCC construct despite the fact that its proposal was confined to wind, solar, and storage resources, Commissioner Christie argued that PJM’s “failure to extend the ELCC to all resources, including thermal resources,” was a “fundamental failure of PJM’s ELCC proposal.” PJM Interconnection, L.L.C., 176 FERC ¶ 61,056 (2021) (Christie, Comm’r, dissenting, at P 10).
[18] While it is true that each LRE is individually responsible for satisfying its own Resource Adequacy Obligations, those obligations are based upon each LRE’s expected contribution to resource adequacy across the SPP footprint. SPP has not articulated any physical or other basis for a requirement that each LRE contribute to resource adequacy with a similar resource mix, or for requiring that resources of a particular type be spread across LREs in the SPP footprint versus being more concentrated in particular LRE service territories.
[19] Dynegy Midwest Generation, Inc. v. FERC, 633 F.3d 1122, 1127 (D.C. Cir. 2011) (describing a petitioner’s undue discrimination claim and granting their petition for review).
[20] Clean Energy Advocates Protest at 10-11.
[21] Take two LREs, each with 1000 MW of Seasonal Net Peak Load. If LRE 1 invests in dispatchable demand response with 100 MW of seasonal peak load capability, and LRE 2 invests in the same amount of dispatchable energy storage with identical resource performance characteristics, then under SPP’s proposal LRE 1 would now have 900 MW of Seasonal Net Peak Load, whereas LRE 2 would retain 1000 MW of Seasonal Net Peak Load. This, in turn, would leave LRE 2 with a greater allocation of Tier 1 resources than LRE 1 despite their identical system characteristics, potentially disadvantaging LRE 1 and the wind and solar resources serving it. At the same time, SPP’s chosen definition of Seasonal Net Peak Load will arbitrarily promote wind and solar investments serving LREs such as LRE 2 that have lower levels of dispatchable demand response. As Clean Energy Advocates contend, “SPP has offered no explanation for netting out this additional factor when determining the peak load against which wind and solar resource tiers will be calculated, which effectively lowers the quantity of wind and solar resources that can receive the higher Tier 1 accreditation.” Clean Energy Advocates Protest at 11.
[22] See PJM Interconnection, L.L.C., 180 FERC ¶ 61,089, at P 47 n.111 (2022) (finding that even if PJM’s contention that its Intelligent Reserve Deployment proposal is an improvement over its current approach is correct, that does not render the proposal just and reasonable).