Grid Reliability and Resilience Pricing: FERC’s Rulemaking and How Our Energy Markets Are Responding
What is “resilience,” and do we need it?
As anyone who has not been on Mars knows, last year, U.S. Secretary of Energy Rick Perry petitioned the Federal Energy Regulatory Commission (FERC) to craft policies to provide for “resilience” in our generation resource mix. Putting it in critical, national security terms, Secretary Perry wrote:
America’s greatness depends on a reliable, resilient electric grid powered by an “all of the above” mix of generation resources [that] must include traditional baseload generation with on-site fuel storage that can withstand major fuel supply disruptions caused by natural and man-made disasters. … Our economy, government and national defense all depend on electricity. Therefore, ensuring a reliable and resilient electric supply and corresponding supply chain are vital to national security.2
Framing the issue as “national security” is exactly what’s happening now, with a “leaked” memo from the White House National Security Council arguing for the administration to use the Defense Production Act and authority under Federal Power Act section 202(c) to “temporarily delay retirements of fuel-secure electric generation resources.”3
A few months before Secretary Perry’s letter to FERC, U.S. Environmental Protection Agency (EPA) chief Scott Pruitt and President Trump appeared on national television to warn that if coal power continues to decline, the lights could go out.4 Administrator Pruitt went so far as to say that if the share of coal use falls below 30 percent nationally, it could expose the United States to terrorist attacks. “When we’re at less than 30 percent or right at 30 percent today, that creates vulnerabilities to attacks on infrastructure,” Pruitt said.5
Pretty potent rhetoric. Nevertheless, as one of his first acts as FERC Chairman, Kevin McIntyre led the Commission in a 5-0 decision rejecting the Department of Energy’s Notice of Proposed Rulemaking (DOE NOPR).6 In so doing, FERC reiterated its faith in the organized wholesale markets.7
FERC did, however, simultaneously commence a proceeding to examine the overarching question: What exactly is “resilience,” and do we need it?8 That proceeding is now underway before the Commission in docket AD18-7-000.
In starting its inquiry into “resilience,” FERC said:
The Commission places a priority on resilience, and today issued an order initiating a new proceeding (Docket No. AD18-7-000) to holistically examine the resilience of the bulk power system. The Commission recognizes that it must remain vigilant with respect to resilience challenges, because affordable and reliable electricity is vital to the country’s economic and national security.9
FERC’s action directed the regional transmission organizations (RTOs) and independent system operators (ISOs) to provide information as to whether FERC and the markets need to take additional steps to affirm the resilience of the bulk power system. FERC said its goals are to “develop a common understanding among the Commission, industry and others of what resilience of the bulk power system means and requires; to understand how each regional transmission organization and independent system operator assesses resilience in its geographic footprint; and to use this information to evaluate whether additional Commission action regarding resilience is appropriate.”10
Yet, “resilience” remains a rather elusive concept. The comments from the RTOs and ISOs explain “resilience” as another, perhaps expanded, value of reliability.11 Their comments in response to FERC indicate that all is well with each of their respective systems; but, at the same time, market events show that we do not have a clear view of what resilience is, how to measure it, or how to ensure it.12
Responding to FERC’s directive, PJM Interconnection (PJM) took one of the bolder approaches — seeking to establish a set of principles that would (intentionally) act as a lightning rod or spark action. PJM, for example, asked FERC to adopt a slightly different core definition of resilience and apply it (essentially) nationwide.
FERC’s order in January came with this definition: “The ability to withstand and reduce the magnitude and/or duration of disruptive events, which includes the capability to anticipate, absorb, adapt to, and/or rapidly recover from such an event.”13
PJM recommended an alternative formulation: “The ability to withstand or reduce the magnitude and/or duration of disruptive events, which includes the capability to identify and mitigate vulnerabilities and threats, and plan for, prepare for, absorb, adapt to, and/or recover from such an event.”14 Note the omission of the word “rapidly,” and the addition of the phrase “identify and mitigate vulnerabilities and threats.”
Additionally, PJM’s description of resilience — a term that is still in flux — as an extension of reliability is notable. Reliability is a well-defined set of ISO/RTO functions overseen by FERC, from capacity markets to secure resources years in advance, to split-second frequency regulation and “black-start” capacity to respond to emergencies.15