by Jeff St. John
January 17, 2018

Energy Secretary Rick Perry failed in his attempt to upend the country’s energy markets in order to provide a cash infusion to coal and nuclear plants -- but he has left a legacy when it comes to defining what grid “resilience” actually entails. 

The Federal Energy Regulatory Commission’s unanimous rejection of the Department of Energy’s notorious notice of proposed rulemaking (NOPR) closed the docket on Perry’s claim that coal and nuclear plant retirements are causing a national grid emergency. 

But FERC’s new docket, No. AD18-7-000, has opened an important first step in evaluating the resilience of the bulk power systems under its jurisdiction. In its Monday order dismissing the NOPR, FERC also gave the country’s regional transmission organizations (RTOs) and independent system operators (ISOs) 60 days to answer 18 questions about their ability to mitigate, and recover from, major grid disruptions from storms, cyberattacks, or other emergencies. 

FERC’s new docket also defines resilience as 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.This is a simple, yet profound, improvement over the NOPR, which heavily cited grid resilience as an issue, yet never defined the term in its text.

FERC’s questions then lay the groundwork for each ISO and RTO to identify their own resilience risks and determine how grid operators are preparing to manage them. If the ISOs and RTOs report back that they do see an unmet need, FERC could then start a discussion on how to alter market structures to allow resilience attributes to be paid for the value they provide in meeting them. 

FERC’s plan received praise from a broad coalition of groups united in opposition to the NOPR -- including oil and natural gas, solar, wind and energy storage industry trade groups, big industrial and commercial power users, and energy analysts from across the spectrum. Here’s how it changes the discussion on grid resilience and a look at what might emerge from the process that FERC has kick-started. 

Finding answers through markets

The most important part of FERC’s decision last week was its rejection of DOE’s attempt to provide out-of-market financing for a narrowly defined set of generation resources, namely coal and nuclear.

Its new docket replaces that dubious approach with a much broader inquiry, one that defines its needs not by fuel type, but by certain “attributes” that could be an important resource for resilience -- being able to help prevent outages, ride through them, or restart afterward as quickly as possible. 

“This allows for a careful and deliberate dialogue on resilience issues,” Dena Wiggins, CEO of the Natural Gas Supply Association, said during a press conference last week. “If we’re going to have a conversation about reliability in the power markets, then we should have a conversation that reviews each fuel’s attributes.” 

“Resources all have attributes,” added Todd Foley, senior vice president of policy and government affairs for the American Council on Renewable Energy. “It’s really important for FERC and the market operators to send the right competitive signal into the market and let the resources compete.”

Dan Whitten, vice president of communications for the Solar Energy Industries Association, agreed. “Relying on ISOs and RTOs to weigh in on these reliability and resilience issues [is something] the private sector has seen coming for the past six or seven years,” he noted, given the scale of coal and nuclear power plant retirements and the rise of natural gas and renewables. With the new docket, FERC has made clear that it intends to “provide access to all fuels based on market conditions as they exist now, not as they existed a decade ago.”

Commissioner Cheryl LaFleur, FERC’s sole remaining Obama administration appointee, noted in her separately written opinion that the agency’s goal is “adapting resilience to the resources that the market is selecting today or toward which it is trending in the future.” 

As for what FERC could do about it, LaFleur explained: “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), interconnection agreements or other tariffs (requiring that certain essential reliability services be provided), or mandatory reliability standards.”

“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,” she wrote. 

In other words, FERC intends to address bulk power system resilience in the same way it’s addressed most of its challenges over the past 20 years -- by discovering what the grid needs that markets aren’t yet providing. 

Defining resilience attributes from the ground up

FERC’s list of questions for ISOs and RTOs starts with asking them to define the “primary risks to resilience in your region from both naturally occurring and man-made threats,” and explain “how you identify and plan for risks associated with high-impact, low-frequency events (e.g., physical and cyber attacks, accidents, extended fuel supply disruptions, or extreme weather events).” 

ISOs and RTOs are likely to have studies underway on these topics, and FERC asks several questions about these undertakings, including how often they’re done, “what specific events and contingencies are selected, modeled, and assessed,” and whether they’re “based on probabilistic analyses or deterministic analyses.” 

And, of course, FERC asks if any studies have shown whether “the bulk power system is able to reasonably withstand a high-impact, low-frequency event” -- and if the answer is negative, to “describe any actions you have taken or are planning as mitigation, and whether additional actions are needed.” 

Grid operators also have a store of past grid disruptions to analyze, and FERC asks for the data on those: “Have you performed after-the-fact analyses of any high-impact, low-frequency events experienced in the past on your system? If so, please describe any recommendations in your analyses and whether they have or have not been implemented.” 

FERC has more questions to ask grid operators about what makes for a resilient power system: “What attributes of the bulk power system contribute to resilience? How do you evaluate whether specific components of the bulk power system contribute to system resilience? What component-level characteristics, such as useful life or emergency ratings, support resilience at the system level?” 

FERC also asks grid operators to differentiate between different types of generation in terms of how well they’re able to respond to a number of different threats, from storms to cyberattacks. 

But it also expands the scope of its inquiry beyond generation assets and into the transmission system itself -- an appropriate response to the fact that almost all grid disruptions happen there, rather than at generators. 

Building on work that’s already underway 

The industry groups also noted that FERC’s new order is a continuation of “things that the commission has been doing for many years now,” as Wiggins said. 

FERC’s new docket notes that ISOs and RTOs deal with resilience in terms of “wholesale electric market design, transmission planning, mandatory reliability standards, emergency action plan development, inventory management, and routine system maintenance,” among other key areas under their management. 

That leaves open the possibility of FERC action on multiple fronts. Those could include changes to RTO and ISO resource adequacy programs, also known as capacity markets, or into day-ahead and real-time markets. Resources that provide ancillary services, such as black-start capability to bring the grid back online after a major outage, could also find value as resilience assets. 

Some of these developments are fairly controversial, Malcolm Woolf, senior vice president of policy for the Advanced Energy Economy trade group, noted in last week’s press conference. 

For example, mid-Atlantic grid operator PJM is on the verge of proposing an inquiry into “price formation” for its energy markets, on the grounds that the cheapness of marginal generation -- mostly natural-gas peaker plants -- has created a pricing environment that may not appropriately value inflexible generators such as coal and nuclear power. Opponents are pointing out that the changes will include an average increase in cost of $4 per megawatt-hour or so, adding up to a windfall for otherwise uncompetitive coal-fired power plants. 

PJM’s price formation plans have gotten attention in the NOPR debate, after a November white paper from PJM (PDF) noted its opinion that “without these changes, the markets will struggle to continue their successful track record of efficiently maintaining reliability, driving efficient resource entry and exit, and enhancing the resilience of the bulk power grid.” 

Coming at a time when the fate of the NOPR was still an open question, this statement was taken by some to indicate that PJM intended the price-formation effort to serve as a response to any orders that could emerge from FERC on the subject of providing price supports for coal and nuclear power plants. 

But now that the NOPR is a dead letter, industry analysts are reassigning PJM’s price-formation plan to just one of many controversial changes underway for the country’s major energy markets. 

“A lot of this stuff is the sort of issue that FERC tackles on a regular basis,” Ari Peskoe, senior fellow with Harvard Law School’s Environmental Law Program, said in an interview last week. ISO New England just filed a new capacity market pricing-formation proposal, and PJM’s is expected to be filed soon. 

“It will be interesting to see if the RTOs identify additional resilience actions that should be taken, FERC eventually orders any actions -- or whether resilience is an issue that’s handled more locally,” he said. “A lot of outage issues are due to wires, not to generation -- in fact, they’re never due to generation,” according to data that shows the vast majority of outages are caused by transmission and distribution system problems.